-----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, FmkBAL+sNRpKuwGNBTePtx+uaY/RK9TZeENrDqza17g9jx69e/tGUeEc7vw6ajNv fWMbCbcBxAqwtgxe+Ri+SA== 0001068800-99-000127.txt : 19990331 0001068800-99-000127.hdr.sgml : 19990331 ACCESSION NUMBER: 0001068800-99-000127 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARDNER DENVER INC CENTRAL INDEX KEY: 0000916459 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 760419383 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13215 FILM NUMBER: 99578844 BUSINESS ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 BUSINESS PHONE: 2172225400 MAIL ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 FORMER COMPANY: FORMER CONFORMED NAME: GARDNER DENVER MACHINERY INC DATE OF NAME CHANGE: 19931221 10-K405 1 GARDNER DENVER, INC. FORM 10-K PAGE> UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the fiscal year ended December 31, 1998 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the transition period from to - ------------------- ----------------------- Commission file number 1-13215 -------------------------- GARDNER DENVER, INC. (formerly known as Gardner Denver Machinery Inc.) - ----------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 76-0419383 - ------------------------------ --------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1800 Gardner Expressway, Quincy, IL 62301 - ----------------------------------------- --------------------------- (Address of Principal Executive Offices) (Zip Code) (217) 222-5400 - ----------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value - ----------------------------------------------------------------------- (Title of Class) Rights to Purchase Preferred Stock - ----------------------------------------------------------------------- (Title of Class) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the registrant's voting stock held by non- affiliates as of March 12, 1999 was $180,407,256. The number of shares outstanding of the registrant's Common Stock, as of March 12, 1999 was 15,072,444. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Gardner Denver, Inc. Proxy Statement, dated March 26, 1999 (incorporated into Part III of this Annual Report on Form 10-K). Portions of the 1998 Annual Report to Stockholders (incorporated into Parts I and II of this Annual Report on Form 10-K). =========================================================================== PART I ITEM 1. BUSINESS GENERAL Gardner Denver, Inc. ("Gardner Denver" or the "Company", formerly known as Gardner Denver Machinery Inc.) believes, based on total sales in the United States, it is one of the leading manufacturers of stationary air compressors and blowers for industrial applications. Stationary air compressors are used in manufacturing, process applications and materials handling, and to power air tools and equipment. Blowers are used primarily in the pneumatic conveying, wastewater aeration and vacuum systems. Gardner Denver also believes that it is one of the leading manufacturers of petroleum pumps used in oil and natural gas drilling and production, well servicing and well stimulation. In 1998, Gardner Denver had revenues of $385.0 million, of which approximately 78 percent were derived from sales of compressed air products while approximately 22 percent were from sales of petroleum products. Approximately 72 percent of the total revenues in 1998 were derived from sales in the United States and approximately 28 percent were from sales to customers in various foreign countries. Of the total foreign sales, 50 percent were to Europe, 20 percent to Canada, 10 percent to Latin America, 6 percent to Asia, and the remainder to Africa, the Middle East and Australia. HISTORY The Company's business of manufacturing industrial and petroleum equipment began in 1859 when Robert W. Gardner redesigned the fly-ball governor to provide speed control for steam engines. By 1900, the then Gardner Company had expanded its product line to include steam pumps and vertical high-speed air compressors. In 1927, the Gardner Company merged with Denver Rock Drill, a manufacturer of equipment for oil wells and mining and construction, and became the Gardner-Denver Company. In 1979, the Gardner-Denver Company was acquired by Cooper Industries, Inc. ("Cooper") and operated as 10 unincorporated divisions. Two of these divisions, the Gardner-Denver Air Compressor Division and the Petroleum Equipment Division, were combined in 1985 to form the Gardner-Denver Industrial Machinery Division (the "Division"). The OPI(R) pump product line was purchased in 1985 and added to the Division. In 1987, Cooper acquired the Sutorbilt(R) and DuroFlow(R) blower product lines and the Joy(R) industrial compressor product line, which were also consolidated into the Division. Effective December 31, 1993, the assets and liabilities of the Division were transferred by Cooper to the Company, which had been formed as a wholly owned subsidiary of Cooper. On April 15, 1994, the Company was spun-off as an independent company to the shareholders of Cooper. Gardner Denver has completed a number of acquisitions since becoming an independent company. In 1996, Gardner Denver acquired NORAMPTCO, Inc., renamed Gardner Denver Holdings Inc. ("GDHI"), and its primary operating subsidiary Lamson Corporation ("Lamson"). Lamson designs, manufactures and sells multistage centrifugal blowers and exhausters used in various industrial and wastewater applications. Lamson's products complemented the Company's product offering by enabling it to participate in the centrifugal segment of the air and gas handling industry and in niche markets having lower noise requirements. Also in 1996, the Company acquired TCM Investments, Inc. ("TCM"), an oil field pump manufacturer based in Tulsa, Oklahoma. This acquisition extended the Company's well stimulation pump product line, provided a physical presence in the oil field market and allowed Gardner Denver to become a sole source supplier of repair parts and remanufacturing services to some of the Company's customers. In 1997, the Company acquired Oy Tamrotor Ab ("Tamrotor"), located in Tampere, Finland. Tamrotor designs and manufactures lubricated rotary screw compressor air ends and packages. The addition of Tamrotor provided the Company with a manufacturing base in Europe and growth opportunities through complementary product lines and international market penetration. In January 1998, the Company purchased Champion Pneumatic Machinery Company, Inc. ("Champion"). Champion, located in Princeton, Illinois, is a leading manufacturer of low horsepower reciprocating compressors. Champion opens new market opportunities for Gardner Denver products and expands the range of reciprocating compressors available to existing distributors. In January 1998, the Company also acquired Geological Equipment Corporation ("Geoquip"), a leading manufacturer of pumps, ranging from 350 to 2,400 horsepower, in Fort Worth, Texas. The operation also remanufactures pumps and provides repair services. The addition of Geoquip enhances the Gardner Denver well servicing product line, expands the Company's presence in remanufacturing and repair services and introduces the Company to the water blast market. The Company purchased the Wittig Division of Mannesmann Demag AG ("Wittig") in March 1998. Wittig, located in Schophfeim, Germany, is a leading manufacturer of rotary sliding vane compressors and vacuum pumps. Wittig's products primarily serve the truck blower market for liquid and dry bulk conveyance, as well as other industrial applications. The acquisition of Wittig expands the Company's manufacturing presence in Europe and provides distribution channels for its blower products, which are produced in the United States. MARKETS AND PRODUCTS Gardner Denver designs, manufactures and markets compressed air products and petroleum products. A description of the particular products manufactured and sold by Gardner Denver in its two industry segments is set forth below. Compressed Air Products Segment Gardner Denver designs, manufactures, markets and services a broad line of reciprocating compressors, rotary screw compressors, sliding vane compressors, positive displacement blowers and centrifugal blowers to serve all aspects of the industrial market. Reciprocating compressors range from 0.5 to 900 horsepower and are sold under the Gardner Denver(R) and Champion(R) trademarks. Rotary screw compressors range from 5 to 680 horsepower and are sold under the Gardner Denver(R), Electra-Screw(R), Electra-Saver(R), and Twistair(R), Tamrotor(R), and Tempest(R) trademarks. Blowers are used to produce a high volume of air at low pressures and vacuums. Centrifugal blowers produce a constant level of pressure and varying volumes of air flow. Positive displacement blowers provide a constant volume of air flow at varying levels of pressure. The Company's positive displacement blowers range from 0 to 50 pounds per square inch gauge (PSIG) and 0 to 35,000 cubic feet per minute (CFM) and are sold under the trademarks Gardner Denver(R), Sutorbilt(R), DuroFlow(R) and CycloBlower(R). The Company's multistage centrifugal blowers are sold under the tradename Lamson(R) and range from 0.5 to 22 PSIG and 100 to 50,000 CFM. The Company's rotary sliding vane compressors and vacuum pumps range from 0 to 150 PSIG and 0 to 3,000 CFM and are sold under the trademark Wittig(TM). Sales of compressed air products by Gardner Denver in 1998 were $298.4 million, of which approximately 70 percent were to customers in the United States. Almost all domestic manufacturing plants and industrial facilities, as well as many service industries, utilize air compressors and/or blowers. The largest markets for Gardner Denver's compressor products are durable goods manufacturers; process industries (petroleum, primary metals, pharmaceutical, food and paper); original equipment manufacturers ("OEMs"); manufacturers of carpet cleaning equipment, pneumatic conveying equipment and dry bulk trailers; wastewater treatment facilities; and automotive service centers. Manufacturers of machinery and related equipment use stationary compressors for automated systems, controls, materials handling and special machinery requirements. The petroleum, primary metals, pharmaceutical, food and paper industries require compressed air for process, instrumentation and control, packaging and pneumatic conveying. Blowers are instrumental to local utilities for aeration in treating industrial and municipal waste. Blowers are also used in service industries, for example, residential carpet cleaning to vacuum moisture from carpets during the shampooing and cleaning process. Blowers and rotary vane compressors are used on trucks to vacuum leaves and debris from street sewers and to unload liquid and dry bulk and powder materials such as cement, grain and plastic pellets. Additionally, blowers are used in numerous chemical process applications. Petroleum Products Segment Gardner Denver designs, manufactures, markets and services a diverse group of pumps used in oil and natural gas production, well servicing and stimulation, oil and gas drilling and water blast markets. Positive displacement reciprocating pumps are marketed under the Gardner Denver(R), Geoquip(TM), Ajax(R) and OPI(R) trademarks. Sales of petroleum products in 1998 were $86.6 million of which approximately 78 percent were to customers in the United States. Typical applications of Gardner Denver(R) pumps in oil and natural gas production include oil transfer, salt water disposal, ammine pumping for gas processing, repressurizing, enhanced oil recovery, hydraulic power and other liquid transfer applications. Gardner Denver's production pumps range from 16 to 1,000 horsepower and consist of horizontal and vertical designed pumps. Gardner Denver markets one of the most complete product lines of well servicing pumps. Well servicing operations include repair of downhole pumps and the replacement of tubing or wellhead equipment, general workover service, completions (bringing wells into production after drilling), and elimination or abandonment of wells. Gardner Denver's well servicing products consist of high pressure plunger pumps ranging from 165 to 880 horsepower. Gardner Denver also manufactures fracturing pumps for well stimulation; duplex pumps for shallow drilling, including water well drilling, seismic drilling, mineral exploration and oil and natural gas drilling; and mud pumps for drilling rigs. A small portion of Gardner Denver(R) and Ajax(R) pumps are sold for use in industrial applications. Gardner Denver's fracturing pumps range from 25 to 2,400 horsepower. For financial information over the past three years on the Company's performance by industry segment and the Company's international sales, refer to Note 10 of the Notes to Consolidated Financial Statements included in Gardner Denver's 1998 Annual Report to Stockholders and incorporated herein by reference. CUSTOMERS AND CUSTOMER SERVICE Gardner Denver sells its products through independent distributors and sales representatives and directly to OEMs, engineering firms and end users. Gardner Denver uses a direct sales force to service OEM and engineering firm accounts since these typically require more technical assistance, shipment scheduling and product service. As a majority of Gardner Denver's products are marketed through independent distribution, Gardner Denver is committed to developing and supporting its distribution network of over 1,500 distributors and representatives. Generally, the distributors of Gardner Denver's compressed air products do not handle competing products. Gardner Denver has a Master Distribution Center in Memphis, Tennessee that stocks parts, accessories and small compressor products in order to provide adequate and timely availability. Gardner Denver also provides its distributors with sales and product literature, technical assistance and training programs, advertising and sales promotions, order-entry and tracking systems and an annual restocking program. Gardner Denver participates in major trade shows and has a telemarketing department to generate sales leads and support the distributors' sales staffs. The Company's distributors maintain an inventory of complete units and parts and provide aftermarket service to end users. There are several hundred field service representatives for Gardner Denver products in the distributor network. Gardner Denver's service personnel and product engineers provide the distributors' service representatives with technical assistance and field training, particularly with respect to installation and repair of equipment. Gardner Denver also provides aftermarket support through its remanufacturing facility near Indianapolis, Indiana. This operation remanufactures and repairs air ends for rotary screw compressors, blowers and reciprocating compressors. Outside the United States, Gardner Denver markets its products through a network of sales representatives, as well as distributors and direct sales persons. As a result of the acquisition of Lamson, Tamrotor and Wittig, the Company also operates a blower packaging operation in France, a compressor manufacturing and packaging facility in Finland and a compressor manufacturing facility in Germany. COMPETITION Over 40 companies manufacture or market industrial air compressors in the United States. Of these, seven suppliers account for more than 80 percent of the domestic compressor market. Gardner Denver's principal competitors in the U.S. compressor market include Ingersoll-Rand, Sullair (a division of Sundstrand Corporation), Atlas Copco, Quincy Compressor (a division of Coltec Industries), CompAir (a division of Siebe P.L.C.) and Roots (a division of Dresser Equipment Group of Halliburton Co.). The principal competitors in the petroleum market include National-Oilwell, Wheatley/Gaso, Continental Emsco, and IRI International. Each of the Company's business segments has a strong reputation and the Company's trademarks are recognized both domestically and internationally. Demand for air compressors is dependent upon capital spending by manufacturing and process industries, and upon general economic conditions. Demand for petroleum products is tied to the number of working and available rigs and oil and natural gas prices. The principal competitive factors in all product markets are quality, performance, price and availability. The relative importance of each of these factors varies depending on the specific type of product. The air compressor market and the petroleum pump market are characterized by mature products, with steady and slow technological advances. Technological trends in the compressor market include development of oil-free air compressors, reduction of noise levels, and advanced control systems to upgrade the flexibility and precision of regulating pressure and capacity. Emerging compressor market niches result from new technologies in plastics extrusion, oil and natural gas well drilling, field gas gathering and air separation processes. Trends in the petroleum pump market include development of larger horsepower and lighter weight pumps. RESEARCH AND DEVELOPMENT The Company actively engages in a continuing research and development program. The Gardner Denver research and development centers are dedicated to various activities, including new product development, product performance improvement and new product applications. Gardner Denver's products are designed to satisfy the safety and performance standards set by various industry groups and testing laboratories. Care is exercised throughout the manufacturing and final testing process to ensure that products conform to industry, government and customer specifications. Gardner Denver has representatives on the American Petroleum Institute's working committee and the Company has relationships with standard enforcement organizations such as Underwriters Laboratories (U.L.), Det Norske Veritas (DNV) and the Canadian Standard Association (C.S.A.). The Company maintains ISO 9001 certification on the quality systems at a majority of its manufacturing and design locations. Expenditures for research and development sponsored by the Company were $3.5 million in 1998, $2.8 million in 1997 and $2.4 million in 1996. MANUFACTURING Gardner Denver has eleven manufacturing facilities that utilize a broad variety of processes. At its manufacturing locations, the Company maintains advanced manufacturing, quality assurance and testing equipment geared to the specific products that it manufactures, and uses extensive process automation in its manufacturing operations. Most of the manufacturing facilities utilize computer aided numerical control tools and manufacturing techniques that concentrate the equipment necessary to produce similar products in one area of the plant (cell manufacturing). One operator using cell manufacturing can monitor and operate several machines, as well as assemble and test products made by such machines, thereby improving operating efficiency and product quality while reducing the amount of work-in-process and finished product inventories. RAW MATERIALS The primary raw materials used by Gardner Denver are cast iron and steel. Such materials are generally available from a number of suppliers. With one exception, the Company does not currently have long-term contracts with its suppliers of raw materials, but believes that its sources of raw materials are reliable and adequate for its needs. As part of the sale of its foundry in LaGrange, Missouri in December 1995, the Company signed a five-year agreement with the new owner for the supply of cast iron products. The Company has not experienced any significant supply problems in its operations and does not anticipate any significant supply problems in the foreseeable future. BACKLOG The Company's backlog was approximately $50.2 million at December 31, 1998 as compared to approximately $91.1 million at December 31, 1997 and approximately $46.5 million at December 31, 1996. The reduction in backlog from 1997 to 1998 is attributable to decreased demand for petroleum products as a result of the decline in the prices of oil and natural gas during the year and decreased overall manufacturing output in the United States in the second half of 1998. This decrease in backlog was partially offset by the addition of backlog from the acquisitions completed in 1998. Backlog consists of firm orders for which a customer purchase order has been received or communicated and which are scheduled for shipment within 12 months. Since orders may be rescheduled or canceled, backlog does not necessarily reflect future sales levels. PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY The Company believes that the success of its business depends more on the technical competence, creativity and marketing abilities of its employees than on any individual patent, trademark or copyright. Nevertheless, as part of its ongoing research, development and manufacturing activities, the Company has a policy of seeking appropriate patents concerning new products and product improvements. Although in the aggregate patents and trademarks are of considerable importance to the manufacturing and marketing of many of its products, the Company does not consider any single patent or trademark or group of patents or trademarks to be material to its business as a whole, except for the Gardner Denver(R) trademark. Other important trademarks used by Gardner Denver include DuroFlow(R), Sutorbilt(R), CycloBlower(R), Lamson(R), Tamrotor(R), OPI(R), Champion(R) and Geoquip(TM). Joy(R) is a registered trademark of Joy Technologies, Inc. Gardner Denver has the right to use the Joy(R) trademark on aftermarket parts until November 2027. The Company's right to use this trademark on air compressors expired in November 1995. Pursuant to trademark license agreements, Cooper has rights to use the Gardner Denver(R) trademark for certain power tools and Gardner Denver has rights to use the Ajax(R) trademark for petroleum pumps. Gardner Denver has registered its trademarks in the countries where it is deemed necessary. The Company also relies upon trade secret protection for its confidential and proprietary information. The Company routinely enters into confidentiality agreements with its employees. There can be no assurance, however, that others will not independently obtain similar information and techniques or otherwise gain access to the Company's trade secrets or that the Company can effectively protect its trade secrets. EMPLOYEES As of February 19, 1999, the Company had approximately 1,600 full-time employees, of which approximately 530, including most of the employees in Finland and Germany, were represented by labor unions. In March 1997, the Company and the union at the Quincy, Illinois plant executed a five-year labor contract. The Company believes its current relations with employees are good. ENVIRONMENTAL MATTERS The Company is subject to numerous federal, state, local and foreign laws and regulations relating to the storage, handling, emission and discharge of materials into the environment. The Company believes that its existing environmental control procedures are adequate and it has no current plans for substantial capital expenditures in this area. Gardner Denver has an environmental policy that confirms its commitment to a clean environment and to compliance with environmental laws. Gardner Denver has an active environmental management program aimed at compliance with existing environmental regulations and developing methods to eliminate or significantly reduce the generation of pollutants in the manufacturing processes. The Company has been identified as a potentially responsible party ("PRP") with respect to six sites designated for cleanup under federal "Superfund" or similar state laws, which impose liability for cleanup of certain waste sites and for related natural resource damages. Persons potentially liable for such costs and damages generally include the site owner or operator and persons that disposed or arranged for the disposal of hazardous substances found at those sites. Although these laws impose joint and several liability, in application, the PRPs typically allocate the investigation and cleanup costs based upon the volume of waste contributed by each PRP. Based on currently available information, Gardner Denver was only a small contributor to four of these waste sites and has made de minimus settlements for their cleanup. The Company has an accrued liability on its balance sheet to the extent costs are known or can be estimated for its remaining cleanup responsibilities. Based upon consideration of currently available information, the Company does not anticipate any materially adverse effect on its results of operations, financial condition, liquidity or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations or cleanup costs relating to the sites discussed above. ITEM 2. PROPERTIES As of December 31, 1998, Gardner Denver has eleven manufacturing plants, one distribution center, four warehouses, a packaging operation and numerous sales offices. The significant facilities are as follows:
Owned Location Facility Type Sq. Feet or Leased -------- ------------- -------- --------- Quincy, Illinois Executive Office & Sales 600,000 Owned Office; Manufacturing - petroleum and compressor products Sedalia, Missouri Manufacturing - 325,000 Owned compressor products Princeton, Illinois Manufacturing - compressor 130,000 Owned products Peachtree City, Georgia Administrative Office & 120,000 Leased Sales Office; Manufacturing - compressor products Memphis, Tennessee Distribution Center 98,000 Owned and Warehouse Fishers, Indiana Remanufacturing - 60,000 Leased compressor products Tulsa, Oklahoma Manufacturing - 46,000 Owned petroleum products Fort Worth, Texas Manufacturing - 42,000 Owned petroleum products Tulsa, Oklahoma Remanufacturing - 24,000 Leased petroleum products Manteca, California Manufacturing - compressor 19,200 Owned products Oklahoma City, Oklahoma Sales Office and 8,000 Owned Warehouse Schophfeim, Germany Administrative Office & Sales 423,000 Owned Office; Manufacturing - compressor products Tampere, Finland Administrative Office & Sales 93,600 Leased Office; Manufacturing - compressor products Vantaa, Finland Sales Office and 9,100 Leased Warehouse Bezons, France Packaging and Warehouse 6,300 Leased
The Peachtree City, Georgia facility is currently leased from the Fayette County Development Authority in connection with industrial revenue bond financing. The Company has an option to purchase the property at a nominal price when the bonds are repaid in 2018. The Sedalia, Missouri facility was previously leased from the City of Sedalia, Missouri in connection with industrial revenue bond financing. The Company exercised its option to purchase the property at a nominal price when the bonds were repaid in March 1997. The Syracuse, New York facility was leased from the Onondaga County Industrial Development Agency, also in connection with industrial revenue bond financing. The Company purchased the property at a nominal price when the bonds were repaid in November 1997. The Company owns a 30,000 square foot facility in Montgomery, Alabama, which was acquired as part of the purchase of Champion. This facility is currently leased to an unrelated manufacturing company and is offered for sale. In 1997, the Company announced it would close its Syracuse, New York facility and relocate the manufacture of the centrifugal blower product line to a newly constructed site in Peachtree City, Georgia. The new plant began operating in the fourth quarter of 1998, and the 250,000 square foot Syracuse plant was shut down, remains idle and is offered for sale. The Company leases sales office space in various U.S. locations and foreign countries, and warehouse space in Quincy and Singapore. ITEM 3. LEGAL PROCEEDINGS The Company is a party to various legal proceedings and administrative actions; all of which are of an ordinary or routine nature incidental to the operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matters were submitted to a vote of the stockholders. EXECUTIVE OFFICERS OF REGISTRANT The executive officers of the Company, their positions with the Company, business history and certain other information, as of March 16, 1999, are set forth below. These officers serve at the pleasure of the Board of Directors.
Name Office Age ---- ------ --- Ross J. Centanni Chairman, President and Chief Executive Officer 53 Philip R. Roth Vice President, Finance and Chief Financial Officer 48 J. Dennis Shull Vice President and General Manager, 50 Gardner Denver Compressor & Pump Division David Brown Vice President and General Manager, 50 Gardner Denver Blower Division Steven M. Krivacek Vice President, Human Resources 50 Helen W. Cornell Vice President, Corporate Secretary and Treasurer 40
Ross J. Centanni, age 53, has been President and Chief Executive Officer and a director of Gardner Denver since its incorporation in November 1993. He has been Chairman of Gardner Denver's Board of Directors since November 1998. Prior to Gardner Denver's spin-off from Cooper, he was Vice President and General Manager of the Division, where he also served as Director of Marketing from August 1985 to June 1990. Mr. Centanni was Director of Corporate Planning for Cooper from August 1981 until joining the Division in 1985. He has a B.S. degree in industrial technology and an M.B.A. degree from Louisiana State University. Mr. Centanni is a director of Denman Services, Inc., a privately held supplier of medical products. Philip R. Roth, age 48, joined the Company as Vice President, Finance and Chief Financial Officer in May 1996. Prior to joining Gardner Denver, Mr. Roth was employed by Emerson Electric Co. for fifteen years, most recently as the Vice President, Finance and Chief Financial Officer of the Wiegand Industrial Division. Mr. Roth, a Certified Public Accountant, received his B.S. degree in Business Administration from the University of Missouri and an M.B.A. from the Olin School of Business at Washington University. J. Dennis Shull, age 50, has been Vice President and General Manager, Gardner Denver Compressor and Pump Division since its organization in August 1997. He previously served the Company as Vice President, Sales and Marketing since the Company's incorporation in November 1993. From August 1990 until November 1993, Mr. Shull was the Director of Marketing for the Division. Mr. Shull has a B.S. degree in business from Northeast Missouri State University and an M.A. in business from Webster University. David Brown, age 50, joined the Company as Vice President and General Manager, Gardner Denver Blower Division in August 1997. Prior to that time Mr. Brown was employed by Alfa Laval Separation ("Alfa Laval"), as Vice President and General Manager of the Decanter Business Unit from 1992 until joining the Company in August 1997. He previously held other management positions with SKF USA from 1979 until joining Alfa Laval in 1992. Mr. Brown has a B.S.M.E. from the Case Institute of Technology. Steven M. Krivacek, age 50, has been Vice President, Human Resources for Gardner Denver since March 1995. He previously served the Company as Director of Human Resources from 1986 until his promotion. Mr. Krivacek has a B.A. in economics from California State College and an M.A. in industrial relations from St. Francis College. Helen W. Cornell, age 40, has been Vice President, Corporate Secretary and Treasurer of the Company since April 1996. She served the Company as Vice President, Corporate Secretary and Assistant Treasurer from March 1995 until April 1996 and as Corporate Secretary and Assistant Treasurer from November 1993 until March 1995. Ms. Cornell was Manager of Financial Planning and Analysis for the Division from May 1988 to November 1993. She holds a B.S. degree in accounting from the University of Kentucky and an M.B.A. from Vanderbilt University. She is a Certified Public Accountant and a Certified Management Accountant. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under "Stock Information" and "Dividends", contained on page 35 of Gardner Denver's 1998 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information under "Financial History", contained on page 12 of Gardner Denver's 1998 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under "Management's Discussion and Analysis", contained on pages 13 through 18 of Gardner Denver's 1998 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information under "Management's Discussion and Analysis", contained on page 17 of Gardner Denver's 1998 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information under "Report of Independent Public Accountants" and "Consolidated Financial Statements and Notes", contained on pages 19 through 34 of Gardner Denver's 1998 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Company's directors contained under "Election of Directors", "Nominees for Election", and "Directors Whose Terms of Office Will Continue After the Meeting" contained on pages 2 through 5 of the Gardner Denver Proxy Statement, dated March 26, 1999, is hereby incorporated herein by reference. Information concerning the Company's executive officers is contained in Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information related to executive compensation contained under "Committees, Compensation and Governance of the Board of Directors" on pages 5 through 7, "Executive Management Compensation" on pages 9 and 10 and "Employee and Executive Benefit Plans" contained on pages 15 and 16 of the Gardner Denver Proxy Statement, dated March 26, 1999, is hereby incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under "Security Ownership of Management and Certain Beneficial Owners" contained on pages 7 and 8 of the Gardner Denver Proxy Statement, dated March 26, 1999, is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Alan E. Riedel, a director of the Company, currently is of counsel to Squire, Sanders and Dempsey L.L.P., which provided legal services to the Company during 1998 and continues to render such services to the Company. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this Annual Report --------------------------------------------- 1. Financial Statements and the related report of independent public accountants are incorporated by reference to the pages shown below in Gardner Denver's 1998 Annual Report to Stockholders. Page No. -------- Report of Independent Public Accountants 19 Consolidated Statement of Operations for Each of the Three Years in the Period Ended December 31, 1998 20 Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997 21 Consolidated Statement of Stockholders' Equity for Each of the Three Years in the Period Ended December 31, 1998 22 Consolidated Statement of Cash Flows for Each of the Three Years in the Period Ended December 31, 1998 23 Notes to Consolidated Financial Statements 24-34 The financial statement schedules listed below should be read in conjunction with the financial statements listed above. Financial statement schedules not included in this Annual Report on Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or notes hereto. 2. Schedules --------- Report of Arthur Andersen LLP S-1 Schedule II - Valuation and Qualifying Accounts S-2 3. Exhibits -------- 2.1 Stock Purchase Agreement, dated as of July 11, 1996, among Gardner Denver Machinery Inc., Jacques Lepage, Suzanne Lepage, Anne Lepage and Arthur Lepage, filed as Exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated August 9, 1996, as amended, and incorporated herein by reference. 2.2 Sale and Purchase Agreement, dated as of June 30, 1997, by and between Tamrock Oy, Gardner Denver Oy and Gardner Denver Machinery Inc., filed as Exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated June 30, 1997, and incorporated herein by reference. 2.3 Asset Purchase Agreement, dated as of December 23, 1997, among Gardner Denver Machinery Inc., Champion Pneumatic Machinery Company, Inc. and CRL Industries, Inc., filed as exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated January 29, 1998, and incorporated herein by reference. 3.1 Certificate of Incorporation of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.1 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 3.2 ByLaws of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.2 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 4.1 Rights Agreement dated as of January 18, 1995, between Gardner Denver Machinery Inc. and First Chicago Trust Company of New York as Rights Agent, filed as Exhibit 4 to Form 8-K, dated January 18, 1995, and incorporated herein by reference. 4.2 Note Purchase Agreement, dated as of September 26, 1996, filed as Exhibit 4.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated November 14, 1996, and incorporated herein by reference. 10.0 Credit Agreement, dated as of January 20, 1998, among Gardner Denver Machinery Inc., The First National Bank of Chicago and the lenders named therein, filed as exhibit 10.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated May 14, 1998, and incorporated herein by reference. 10.1 Gardner Denver, Inc. Long-Term Stock Incentive Plan, as amended. 10.2 Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan filed as Exhibit 10.9 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.3 Gardner Denver Machinery Inc. Supplemental Excess Defined Contribution Plan, filed as Exhibit 10.10 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.4 Form of Indemnification Agreements entered into between Gardner Denver Machinery Inc. and each of its directors and executive officers, filed as Exhibit 10.11 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.5 Form of Management Continuity Agreement between Gardner Denver Machinery Inc. and each of its executive officers, filed as Exhibit 10.12 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 13.0 The following portions of the Gardner Denver, Inc. 1998 Annual Report to Stockholders. Page No. -------- Financial History 12 Management's Discussion and Analysis 13-18 Report of Independent Public Accountants 19 Consolidated Statement of Operations 20 Consolidated Balance Sheet 21 Consolidated Statement of Stockholders' Equity 22 Consolidated Statement of Cash Flows 23 Notes to Consolidated Financial Statements 24-34 Stock Information 35 Dividends 35 21.0 Subsidiaries of Gardner Denver, Inc. 23.0 Consent of Arthur Andersen LLP. 24.0 Powers of Attorney from members of the Board of Directors of Gardner Denver, Inc. 27.0 Financial Data Schedule for the year ended December 31, 1998. Indicates management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. ------------------- There were no reports on Form 8-K during the quarter ended December 31, 1998. SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GARDNER DENVER, INC. By /s/Ross J. Centanni ---------------------------------- Name: Ross J. Centanni Title: Chairman, President and CEO Date: March 30, 1999 -------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/Ross J. Centanni Chairman, President and CEO March 30, 1999 - ------------------------------- (Principal Executive Officer (Ross J. Centanni) and Director) /s/Philip R. Roth Vice President, Finance and CFO March 30, 1999 - ------------------------------- (Principal Financial Officer) (Philip R. Roth) /s/Daniel C. Rizzo, Jr. Vice President and Corporate March 30, 1999 - ------------------------------- Controller (Chief Accounting (Daniel C. Rizzo, Jr.) Officer) Donald G. Barger, Jr. Director March 30, 1999 - ------------------------------- (Donald G. Barger, Jr.) Frank J. Hansen Director March 30, 1999 - ------------------------------- (Frank J. Hansen) Raymond R. Hipp Director March 30, 1999 - ------------------------------- (Raymond R. Hipp) Thomas M. McKenna Director March 30, 1999 - ------------------------------- (Thomas M. McKenna) Alan E. Riedel Director March 30, 1999 - ------------------------------- (Alan E. Riedel) Michael J. Sebastian Director March 30, 1999 - ------------------------------- (Michael J. Sebastian) Richard L. Thompson Director March 30, 1999 - ------------------------------- (Richard L. Thompson) By /s/Helen W. Cornell -------------------------------------- (Helen W. Cornell, as Attorney-In-Fact for each of the persons indicated) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Gardner Denver, Inc. We have audited in accordance with generally accepted auditing standards, the financial statements included in Gardner Denver, Inc.'s. 1998 Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 12, 1999. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Schedule II included in this Form 10-K is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP St. Louis, Missouri February 12, 1999 S-1
GARDNER DENVER, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, (dollars in thousands)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR ----------- ------------ ---------- ------------ ---------- ---------- 1998 - ---- Allowance for doubtful accounts $ 2,866 $ 306 $1,608 $ (409) $ 4,371 Allowance for obsolete and slow- 11,945 1,799 1,459 (5,498) 9,705 moving inventory 1997 - ---- Allowance for doubtful accounts 2,935 244 - (313) 2,866 Allowance for obsolete and slow- 9,090 2,613 731 (489) 11,945 moving inventory 1996 - ---- Allowance for doubtful accounts 2,405 231 394 (95) 2,935 Allowance for obsolete and slow- 7,606 1,938 165 (619) 9,090 moving inventory Includes the allowance for doubtful accounts and the allowance for obsolete and slow-moving inventory of acquired businesses at the dates of acquisition and the effect of foreign currency translation adjustments for those companies whose functional currency is not the U.S. dollar.
S-2 GARDNER DENVER, INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 2.1 Stock Purchase Agreement, dated as of July 11, 1996, among Gardner Denver Machinery Inc., Jacques Lepage, Suzanne Lepage, Anne Lepage and Arthur Lepage, filed as Exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated August 9, 1996, as amended, and incorporated herein by reference. 2.2 Sale and Purchase Agreement, dated as of June 30, 1997, by and between Tamrock Oy, Gardner Denver Oy and Gardner Denver Machinery Inc., filed as Exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated June 30, 1997, and incorporated herein by reference. 2.3 Asset Purchase Agreement, dated as of December 23, 1997, among Gardner Denver Machinery Inc., Champion Pneumatic Machinery Company, Inc. and CRL Industries, Inc., filed as exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated January 29, 1998, and incorporated herein by reference. 3.1 Certificate of Incorporation of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.1 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 3.2 ByLaws of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.2 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 4.1 Rights Agreement dated as of January 18, 1995, between Gardner Denver Machinery Inc. and First Chicago Trust Company of New York as Rights Agent, filed as Exhibit 4 to Form 8-K, dated January 18, 1995, and incorporated herein by reference. 4.2 Note Purchase Agreement, dated as of September 26, 1996, filed as Exhibit 4.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated November 14, 1996, and incorporated herein by reference. 10.0 Credit Agreement, dated as of January 20, 1998, among Gardner Denver Machinery Inc., The First National Bank of Chicago and the lenders named therein, filed as exhibit 10.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated May 14, 1998, and incorporated herein by reference. 10.1 Gardner Denver, Inc. Long-Term Stock Incentive Plan, as amended. 10.2 Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan filed as Exhibit 10.9 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.3 Gardner Denver Machinery Inc. Supplemental Excess Defined Contribution Plan, filed as Exhibit 10.10 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.4 Form of Indemnification Agreements entered into between Gardner Denver Machinery Inc. and each of its directors and executive officers, filed as Exhibit 10.11 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.5 Form of Management Continuity Agreement between Gardner Denver Machinery Inc. and each of its executive officers, filed as Exhibit 10.12 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 13.0 The following portions of the Gardner Denver, Inc. 1998 Annual Report to Stockholders. Page No. -------- Financial History 12 Management's Discussion and Analysis 13-18 Report of Independent Public Accountants 19 Consolidated Statement of Operations 20 Consolidated Balance Sheet 21 Consolidated Statement of Stockholders' Equity 22 Consolidated Statement of Cash Flows 23 Notes to Consolidated Financial Statements 24-34 Stock Information 35 Dividends 35 21.0 Subsidiaries of Gardner Denver, Inc. 23.0 Consent of Arthur Andersen LLP. 24.0 Powers of Attorney from members of the Board of Directors of Gardner Denver, Inc. 27.0 Financial Data Schedule for the year ended December 31, 1998. Indicates management contract or compensatory plan or arrangement. EX-10.1 2 LONG-TERM INCENTIVE PLAN Exhibit 10.1 GARDNER DENVER, INC. LONG-TERM INCENTIVE PLAN (As amended May 7, 1996, May 4, 1998, November 2, 1998 and May 4, 1999) (Adjusted to reflect two-for-one stock split January 15, 1997 and three-for-two stock split December 29, 1997) 1. PURPOSE The purpose of the Gardner Denver, Inc. Long-Term Incentive Plan (the "Plan") is to promote the long-term financial interests of Gardner Denver, Inc. (the "Company"), including its growth and performance, by encouraging employees of the Company and its subsidiaries to acquire an ownership position in the Company, enhancing the ability of the Company to attract and retain employees of outstanding ability, and providing employees with an interest in the Company parallel to that of the Company's stockholders. 2. DEFINITIONS 2.1 "Administrative Policies" means the administrative policies and procedures adopted and amended from time to time by the Committee to administer the Plan. 2.2 "Award" means any form of stock option, stock appreciation right, restricted stock award, or performance share granted under the Plan, whether singly, in combination, or in tandem, to a Participant by the Committee pursuant to such terms, conditions, restrictions and limitations, if any, as the Committee may establish by the Award Agreement or otherwise. 2.3 "Award Agreement" means a written agreement with respect to an Award between the Company and a Participant establishing the terms, conditions, restrictions and limitations applicable to an Award. To the extent an Award Agreement is inconsistent with the terms of the Plan, the Plan shall govern the rights of the Participant thereunder. 2.4 "Board" shall mean the Board of Directors of the Company. 2.5 "Change of Control" means a change in control of the Company (other than the initial distribution of Common Stock by Cooper Industries, Inc.) of a nature that would be required to be reported (assuming such event has not been "previously reported") in response to Item 6(e) of Schedule 4A of Regulation 14A promulgated under the Exchange Act; provided that, without limitation, a Change of Control shall be deemed to have occurred at such time as (i) any "person" within the meaning of Section 14(d) of the Exchange Act, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 2.6 "Change of Control Price" means the higher of (i) the Fair Market Value on the date of determination of the Change of Control or (ii) the highest price per share actually paid for the Common Stock in connection with the Change of Control of the Company. 2.7 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.8 "Committee" means the Management Development and Compensation Committee of the Board, or such other committee designated by the Board to administer the Plan, provided that the members of the Committee qualify as disinterested administrators under Rule 16b-3 of the Exchange Act. 2.9 "Common Stock" means the Common Stock, par value $0.01 per share, of the Company. 2.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.11 "Fair Market Value" means the average of the high and low price of a share of Common Stock as reported on the composite tape for securities listed on the Stock Exchange for the applicable date, provided that if no sales of Common Stock were made on the Stock Exchange on that date, the average of the high and low prices as reported on the composite tape for the preceding day on which sales of Common Stock were made. 2.12 "Participant" means an officer or employee of the Company or its subsidiaries who is selected by the Committee to participate in the Plan, and nonemployee directors of the Company to the extent provided in Section 11 hereof. 2.13 "Stock Exchange" means the composite tape of the New York Stock Exchange ("NYSE") or, if the Common Stock is no longer included on the NYSE, then such other market price reporting system on which the Common Stock is traded or quoted designated by the Committee after it determines that such other exchange is both reliable and reasonably accessible. 3. ADMINISTRATION 3.1 The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and the acts of a majority of a quorum shall be the acts of the Committee. 3.2 Subject to the provisions of the Plan, the Committee (i) shall select the Participants, determine the type of Awards to be made to Participants, determine the shares or share units subject to Awards, and (ii) shall have the authority to interpret the Plan, to establish, amend, and rescind any Administrative Policies, to determine the terms and provisions of any agreements entered into hereunder, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it shall deem desirable to carry it into effect. The determinations of the Committee in the administration of the Plan, as described herein, shall be final and conclusive, provided, however, that no action shall be taken which will prevent the options granted under Section 11 or any Award granted under the Plan from meeting the requirements for exemption from Section 16(b) of the Exchange Act, or subsequent comparable statute, as set forth in Rule 16(b)-3 of the Exchange Act or any subsequent comparable rule. 3.3 In order to enable Participants who are foreign nationals or employed outside the United States, or both, to receive Awards under the Plan, the Committee may adopt such amendments, Administrative Policies, subplans and the like as are necessary or advisable, in the opinion of the Committee, to effectuate the purposes of the Plan. 4. ELIGIBILITY All employees of the Company and its subsidiaries who have demonstrated significant management potential or who have the capacity for contributing in a substantial measure to the successful performance of the Company, as determined by the Committee, are eligible to be Participants in the Plan. Participants may receive one or more Awards under the Plan. Directors of the Corporation other than directors who are employees of the Corporation shall be eligible only to receive stock options pursuant to Section 11 hereof. 5. SHARES SUBJECT TO THE PLAN 5.1 The aggregate number of shares of Common Stock available for grant of Awards under the Plan shall be that number of shares remaining available for grant under the Plan on the close of business on the date immediately prior to the 1999 Annual Meeting of Stockholders plus 500,000, subject to the adjustments provided for in Section 15 hereof. Shares of Common Stock available for issuance under the Plan may be authorized and unissued shares or treasury shares, as the Company may from time to time determine. 5.2 Shares of Common Stock subject to an Award that expires unexercised or that is forfeited, terminated or canceled, in whole or in part, or is paid in cash in lieu of Common Stock, shall thereafter again be available for grant under the Plan, provided that if the Participant who had been granted such Award (i) was an officer subject to the provisions of Section 16(b) of the Exchange Act and (ii) received benefits of ownership of such shares for purposes of Section 16(b) of the Exchange Act (such as dividends with respect to forfeited shares of restricted stock), such shares shall not thereafter be available for grant under the Plan to officers subject to the provisions of Section 16(b) of the Exchange Act. 6. AWARDS Awards under the Plan may consist of: stock options (either incentive stock options within the meaning of Section 422 of the Code or nonstatutory stock options), stock appreciation rights, restricted stock grants and performance shares; provided that no participant may be granted Awards during any calendar year with respect thereto in excess of 180,000 shares of Common Stock. Awards of performance shares and restricted stock may provide the Participant with dividends or dividend equivalents and voting rights prior to vesting (whether based on a period of time or based on attainment of specified performance conditions). The terms, conditions and restrictions of each Award shall be set forth in an Award Agreement. 7. STOCK OPTIONS 7.1 Grants. Awards may be granted in the form of stock options. Stock options may be incentive stock options within the meaning of Section 422 of the Code or nonqualified stock options (i.e., stock options which are not incentive stock options), or a combination of both, or any particular type of tax advantage option authorized by the Code from time to time. 7.2 Terms and Conditions of Options. An option shall be exercisable in whole or in such installments and at such times and upon such terms as may be determined by the Committee; provided, however, that no stock option shall be exercisable more than ten years after the date of grant thereof. The option exercise price shall be established by the Committee, but such price shall not be less than the Fair Market Value on the date of the stock option's grant subject to adjustment as provided in Section 15 hereof. 7.3 Restrictions Relating to Incentive Stock Options. Stock options issued in the form of incentive stock options shall, in addition to being subject to all applicable terms, conditions, restrictions and limitations established by the Committee, comply with Section 422 of the Code. Incentive stock options shall be granted only to full time employees of the Company and its subsidiaries within the meaning of Section 424 of the Code. The aggregate Fair Market Value (determined as of the date the option is granted) of shares with respect to which incentive stock options are exercisable for the first time by an individual during any calendar year (under this Plan or any other plan of the Company which provides for the granting of incentive stock options) may not exceed $100,000 or such other number as may be applicable under the Code from time to time. 7.4 Payment. Upon exercise, a Participant may pay the option exercise price of a stock option in cash, shares of Common Stock, stock appreciation rights or a combination of the foregoing, or such other consideration as the Committee may deem appropriate. The Committee shall establish appropriate methods for accepting Common Stock and may impose such conditions as it deems appropriate on the use of such Common Stock to exercise a stock option. 7.5 Additional Terms and Conditions. The Committee may, by way of the Award Agreement or Administrative Policies, establish such other terms, conditions or restrictions, if any, on any stock option award, provided they are consistent with the Plan. The Committee may condition the vesting of stock options on the achievement of financial performance criteria established by the Committee at the time of grant. 8. STOCK APPRECIATION RIGHTS 8.1 Grants. Awards may be granted in the form of stock appreciation rights ("SARs"). SARs shall entitle the recipient to receive a payment equal to the appreciation in market value of a stated number of shares of Common Stock from the price stated in the Award Agreement to the Fair Market Value on the date of exercise or surrender. An SAR may be granted in tandem with all or a portion of a related stock option under the Plan ("Tandem SARs"), or may be granted separately ("Freestanding SARs"); provided, however, that Freestanding SARs shall be granted only to Participants who are foreign nationals or are employed outside of the United States, or both, and as to whom the Committee determines the interests of the Company could not as conveniently be served by the grant of other forms of Awards under the Plan. A Tandem SAR may be granted either at the time of the grant of the related stock option or at any time thereafter during the term of the stock option. An SAR may be exercised no sooner than six months after it is granted. In the case of SARs granted in tandem with stock options granted prior to the grant of such SARs, the appreciation in value shall be appreciation from the option exercise price of such related stock option to the Fair Market Value on the date of exercise. 8.2 Terms and Conditions of Tandem SARs. A Tandem SAR shall be exercisable to the extent, and only to the extent, that the related stock option is exercisable. Upon exercise of a Tandem SAR as to some or all of the shares covered in an Award, the related stock option shall be cancelled automatically to the extent of the number of SAR's exercised, and such shares shall not thereafter be eligible for grant under Section 5 hereof. 8.3 Terms and Conditions of Freestanding SARs. Freestanding SARs shall be exercisable in whole or in such installments and at such times as may be determined by the Committee. The base price of a Freestanding SAR shall be determined by the Committee; provided, however, that such price shall not be less than the Fair Market Value on the date of the award of the Freestanding SAR. 8.4 Deemed Exercise. The Committee may provide that an SAR shall be deemed to be exercised at the close of business on the scheduled expiration date of such SAR, if at such time the SAR by its terms is otherwise exercisable and, if so exercised, would result in a payment to the Participant. 8.5 Additional Terms and Conditions. The Committee may, by way of the Award Agreement or Administrative Policies, determine such other terms, conditions and restrictions, if any, on any SAR Award, provided they are consistent with the Plan. 9. RESTRICTED STOCK AWARDS 9.1 Grants. Awards may be granted in the form of restricted stock ("Restricted Stock Awards"). Restricted Stock Awards shall be awarded in such numbers and at such times as the Committee shall determine. 9.2 Award Restrictions. Restricted Stock Awards shall be subject to such terms, conditions or restrictions as the Committee deems appropriate including, but not limited to, restrictions on transferability, requirements of continued employment, individual performance or the financial performance of the Company. The period of vesting and the forfeiture restrictions shall be established by the Committee at the time of grant, except that each restriction period shall not be less than 12 months. 9.3 Rights as Shareholders. During the period in which any restricted shares of Common Stock are subject to forfeiture restrictions imposed under the preceding paragraph, the Committee may, in its discretion, grant to the Participant to whom such restricted shares have been awarded, all or any of the rights of a shareholder with respect to such shares, including, but not limited to, the right to vote such shares and to receive dividends. 9.4 Evidence of Award. Any Restricted Stock Award granted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book entry registration or issuance of a stock certificate or certificates. 10. PERFORMANCE SHARES 10.1 Grants. Awards may be granted in the form of shares of Common Stock that are earned only after the attainment of predetermined performance targets during a performance period as established by the Committee ("Performance Shares"). 10.2 Performance Criteria. The Committee may grant an Award of Performance Shares to Participants as of the first day of each Performance Period. As used herein, the term "Performance Period" means the period during which a Performance Target is measured and the term "Performance Target" means the predetermined goals established by the Committee. A Performance Target will be established at the beginning of each Performance Period. A Performance Target shall be based upon one or any combination of the following goals or business criteria: (i) revenues of the Company; (ii) operating income of the Company; (iii) net income of the Company; (iv) earnings per share of the Company's Common Stock; (v) the Company's return on equity; (vi) cash flow of the Company; or (vii) Company stockholder total return. The Committee shall be permitted to make adjustments when determining the attainment of a Performance Target to reflect extraordinary or nonrecurring items or events, or unusual nonrecurring gains or losses identified in the Company's financial statements, as long as any such adjustments are made in a manner consistent with Section 162(m) to the extent applicable. Awards of Performance Shares made to Participants subject to Section 162(m) of the Code are intended to qualify under Section 162(m) and provisions of such Awards shall be interpreted in a manner consistent with that intent to the extent appropriate. The foregoing provisions of this Section 10.2 also shall be applicable to grants of Restricted Stock Awards make under Section 9 hereof to the extent such Restricted Stock Awards are subject to the financial performance of the Company. At the end of the Performance Period, Performance Shares shall be converted into Common Stock (or cash or a combination of Common Stock and cash, as determined by the Award Agreement) and distributed to Participants based upon such entitlement. Award payments made in cash rather than the issuance of Common Stock shall not, by reason of such payment in cash, result in additional shares being available for reissuance pursuant to Section 5 hereof. 10.3 Additional Terms and Conditions. The Committee may, by way of the Award Agreement or Administrative Policies, determine the manner of payment of Awards of Performance Shares and other terms, conditions or restrictions, if any, on any Award of Performance Shares, provided they are consistent with the Plan. 11. DIRECTORS' STOCK OPTIONS 11.1 Grants. Awards may be granted to nonemployee directors only in the form of stock options satisfying the requirements of this Section 11 ("Director Stock Options"). Subject to Section 15 hereof, on the date following the commencement of the Company's annual meeting of stockholders each year, there shall be granted to each nonemployee director an option to purchase 3,000 shares of Common Stock. All such options shall be nonstatutory stock options. 11.2 Option Exercise Price. The option exercise price of Director Stock Options shall be 100 percent of the Fair Market Value on the date such options are granted. The Committee shall be authorized to compute the price per share on the date of grant. Payment of the option exercise price may be made in cash or in shares of Common Stock or a combination of cash and Common Stock. 11.3 Option Agreement. Director Stock Options shall be evidenced by an Award Agreement, dated as of the date of the grant, which agreement shall be in such form, consistent with the terms and requirements of this Section 11, as shall be approved by the Committee from time to time and executed on behalf of the Company by its chief executive officer. 11.4 Terms and Conditions of Director Stock Option. Director Stock Options shall become fully exercisable on the first anniversary of the date of grant and shall terminate upon the expiration of five years from the date of grant. To the extent an option is not otherwise exercisable at the date of the nonemployee director's retirement under a retirement plan or policy of the Company, it shall become fully exercisable upon such retirement provided, however, that Director Stock Options shall not become exercisable under this sentence prior to the expiration of six months from the date of grant. Upon such retirement, such options shall be exercisable for a period of one year, subject to the original term thereof. Options not otherwise exercisable at the time of the disability or death of a nonemployee director during continued service with the Company shall become fully exercisable upon his disability or death, unless the date of disability or death occurs prior to the expiration of six months from the date of grant. Upon the disability or death of a nonemployee director while in service as a director, such options shall remain exercisable (subject to the original term of the option) for a period of one year after the date of disability or of death. To the extent an option is exercisable on the date a director ceases to be a director (other than by reason of disability, death or retirement), the option shall continue to be exercisable (subject to the original term of the option) for a period of 90 days thereafter. 11.5 Transferability. No option shall be transferable by a nonemployee director except by will or the laws of descent and distribution, and during the director's life time options may be exercised only by him or his legal representative. 11.6 Change of Control. Director Stock Options not otherwise exercisable at the time of a Change of Control shall become fully exercisable upon such Change of Control; provided, however, that options shall not become exercisable under this provision prior to the expiration of six months from the date of grant. In the case of a Change of Control: (i) The Company shall make payment to directors with respect to Director Stock Options in cash in an amount equal to the appreciation in the value of the Director Stock Option from the option exercise price specified in the Award Agreement to the Change of Control Price. (ii) The cash payments to directors shall be due and payable, and shall be paid by the Company, immediately upon the occurrence of such Change of Control; and (iii) After the payment provided for in (i) above, nonemployee directors shall have no further rights under Director Stock Options outstanding at the time of such Change in Control. 11.7 Initial Grant to Directors. Effective on the date for the distribution of the Common Stock by Cooper Industries, Inc. ("Distribution Date"), each nonemployee director shall be granted an option for 2,000 shares of Common Stock at an exercise price equal to the average closing price of the Common Stock for the 30 trading days beginning five days after the Distribution Date. The options will become exercisable on the first anniversary of the date of grant and will expire five years after the date of grant. Pursuant to Section 15 of the Plan, each Initial Grant to nonemployee directors that was outstanding on January 15, 1997 was increased to 4,000 shares and to 6,000 shares on December 29, 1997. Except as provided in this Section 11.7, the terms and conditions of the initial options shall be as set forth in Section 11 of the Plan. 12. DIVIDENDS AND DIVIDEND EQUIVALENTS; DEFERRALS 12.1 If an Award is granted in the form of a Restricted Stock Award or a Freestanding SAR, the Committee may choose, at the time of the grant of the Award, to include as part of such Award an entitlement to receive dividends or dividend equivalents, subject to such terms, conditions, restrictions or limitations, if any, as the Committee may establish. Dividends and dividend equivalents shall be paid in such form and manner and at such time as the Committee shall determine. 12.2 The Committee may permit Participants to elect to defer the issuance of shares or the settlement of Awards in cash under Administrative Policies established by the Committee. It may also provide that deferred settlements include the payment or crediting of interest on the deferral amounts or the payment or crediting of dividend equivalents on deferred settlements denominated in shares. 13. TERMINATION OF EMPLOYMENT The Committee shall adopt Administrative Policies determining the entitlement of Participants who cease to be employed by either the Company or its subsidiaries due to death, disability, resignation, termination or retirement pursuant to an established retirement plan or policy of the Company or its subsidiaries. 14. ASSIGNMENT AND TRANSFER The rights and interests of a Participant under the Plan may not be assigned, encumbered or transferred except, in the event of the death of a Participant, by will or the laws of descent and distribution. Notwithstanding the foregoing, the Committee may, in its discretion, grant stock options to one or more executive officers of the Company on terms that permit the stock options to be transferred by any such executive officer, for estate planning purposes, to (a) the executive officer's spouse, children, grandchildren, parents, siblings, stepchildren, stepgrandchildren or in-laws ("Family Members"), (b) entities that are exclusively family-related, including trusts for the exclusive benefit of Family Members and limited partnerships or limited liability companies in which Family Members are the only partners or members, or (c) such other persons or entities specifically approved by the Committee. The terms and conditions applicable to the transfer of any such stock options shall be established by the Committee, in its discretion but consistent with this Section 14, and shall be contained in the applicable stock option agreement between the Company and the executive officer. 15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION In the event of any change in the outstanding shares of Common Stock by reason of a reorganization, recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation or any change in the corporate structure or shares of the Company, the maximum aggregate number and class of shares as to which Awards may be granted under the Plan and the shares issuable pursuant to then outstanding Awards shall be appropriately adjusted by the Committee, whose determination shall be final. 16. WITHHOLDING TAXES The Company shall have the right to deduct from any payment to be made pursuant to the Plan the amount of any taxes required by law to be withheld therefrom, or to require a Participant to pay to the Company such amount required to be withheld prior to the issuance or delivery of any shares of Stock or the payment of cash under the Plan. The Committee may, in its discretion, permit a Participant to elect to satisfy such withholding obligation by having the Company retain the number of shares of Common Stock whose Fair Market Value equals the amount required to be withheld. Any fraction of a share of Common Stock required to satisfy such obligation shall be disregarded and the amount due shall instead be paid in cash to the Participant. 17. REGULATORY APPROVALS AND LISTINGS Notwithstanding anything contained in this Plan to the contrary, the Company shall have no obligation to issue or deliver certificates of Common Stock evidencing Restricted Stock Awards or any other Award payable in Common Stock prior to (i) the obtaining of any approval from any governmental agency which the Company shall, in its sole discretion, determine to be necessary or advisable, (ii) the admission of such shares to listing on the Stock Exchange and (iii) the completion of any registration or other qualification of said shares under any state or federal law or ruling of any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable. 18. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or its subsidiaries. Further, the Company and its subsidiaries expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any Award Agreement entered into hereunder. 19. CHANGE OF CONTROL In the event of a Change of Control, (i) all SARs which have not been granted in tandem with stock options and which have been outstanding for at least six months shall become exercisable in full, (ii) the restrictions applicable to all shares of restricted stock shall lapse and such shares shall be deemed fully vested and all restricted stock granted in the form of share units shall be paid in cash, (iii) all Performance Shares shall be deemed to be earned in full and all Performance Shares granted in the form of share units shall be paid in cash, and (iv) any Participant who has been granted a stock option which is not exercisable in full shall be entitled, in lieu of the exercise of the portion of the stock option which is not exercisable, to obtain a cash payment in an amount equal to the difference between the option price of such stock option and (A) in the event the Change of Control is the result of a tender offer or exchange offer for the Common Stock, the final offer price per share paid for the Common Stock, or such lower price as the Committee may determine with respect to any incentive stock option to preserve its incentive stock option status, multiplied by the number of shares of Common Stock covered by such portion of the stock option, or (B) in the event the Change of Control is the result of any other occurrence, the aggregate value of the Common Stock covered by such portion of the stock option, as determined by the Committee at such time. The Committee may, in its discretion, include such further provisions and limitations in any agreement documenting such Awards as it may deem equitable and in the best interests of the Company. 20. AMENDMENT The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that no amendment shall be made without stockholder approval if such approval is necessary in order for the Plan to continue to comply with Rule 16b-3 under the Exchange Act; and provided further, that the provisions of Section 11 shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. 21. GOVERNING LAW The validity, construction and effect of the Plan and any actions taken or relating to the Plan shall be determined in accordance with the laws of the State of Delaware and applicable Federal law. 22. RIGHTS AS SHAREHOLDER Except as otherwise provided in the Award Agreement, a Participant shall have no rights as a shareholder until he or she becomes the holder of record. To the extent any person acquires a right to receive payments from the Company under this Plan, such rights shall be no greater than the rights of an unsecured creditor of the Company. 23. EFFECTIVE DATE The Plan shall be effective upon approval by the Board and approval by the holders of a majority of the shares of Common Stock. Subject to earlier termination pursuant to Section 20, the Plan shall have a term of 10 years from its effective date. After termination of the Plan, no future Awards may be granted but previously made Awards shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of the Plan. 24. INITIAL GRANT OF STOCK OPTIONS Notwithstanding the provisions of Section 7 of the Plan, an initial grant of options for the aggregate amount of 675,000 shares of Common Stock (adjusted for the two stock splits completed in 1997) shall be made on December 31, 1993 to the persons and in the amounts shown on Exhibit A attached hereto. The initial options shall have an exercise price equal to the average closing price of the Common Stock for the 30 trading days beginning five days after the date of the distribution of Common Stock by Cooper Industries, Inc. (adjusted for the two stock splits completed in 1997). The options will expire on December 31, 1998 and shall vest as to one-third of such options on each of the first three anniversaries of the date of grant. EX-13 3 PORTIONS OF ANNUAL REPORT Gardner Denver - ------------------------------------------------------------------------- Financial History (dollars in thousands, except per share data)
Year ended December 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- Income Statement Data: Revenues $384,992 291,547 218,000 191,541 175,854 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 252,842 191,617 148,191 132,876 126,802 Depreciation and amortization 12,978 9,662 8,097 8,263 12,908 Selling and administrative expenses 53,793 39,938 30,169 25,632 25,994 Interest expense 4,849 3,937 3,104 4,950 4,667 Other expense 636 242 -- -- -- Nonrecurring expense -- -- -- -- 99,710 - --------------------------------------------------------------------------------------------------------------------------------- 325,098 245,396 189,561 171,721 270,081 - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 59,894 46,151 28,439 19,820 (94,227) Provision (benefit) for income taxes 23,089 18,500 11,533 8,226 (4,612) - --------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 36,805 27,651 16,906 11,594 (89,615) ================================================================================================================================= Basic earnings (loss) per share $ 2.29 1.84 1.16 0.81 (6.41) ================================================================================================================================= Diluted earnings (loss) per share $ 2.22 1.74 1.11 0.79 (6.39) ================================================================================================================================= December 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data: Total assets $342,130 268,269 235,756 184,251 203,315 Long-term debt (excluding current maturities) 81,058 51,227 55,069 36,661 56,103 Other long-term obligations 55,128 56,237 57,289 60,754 64,446 Stockholders' equity $142,686 103,611 74,118 55,234 42,295 ================================================================================================================================= In 1994, through April 15, Gardner Denver, Inc. ("Gardner Denver" or the "Company") was a wholly-owned subsidiary of Cooper Industries, Inc. As such, the first quarter expenses were lower than if Gardner Denver had been a stand-alone company. In 1994, the Company had nonrecurring expenses related to the discontinuance of product lines, write-off of goodwill and reserve for the sale of the Company's foundry. Earnings per share have been adjusted for two stock splits effected in the form of stock dividends in 1997. See Note 1 to the Consolidated Financial Statements.
12 - ------------------------------------------------------------------------ Management's Discussion and Analysis The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. ======================================================================== Overview The Company's operations are organized into two separate reportable segments - Compressed Air Products and Petroleum Products. In the Compressed Air Products segment, the Company designs, manufactures, markets and services reciprocating, rotary screw and sliding vane air compressors and blowers for industrial applications. The largest markets for Gardner Denver's compressors and blowers are durable goods manufacturers; process industries such as petroleum, primary metals, pharmaceuticals, food and paper; original equipment manufacturers; manufacturers of carpet cleaning equipment, pneumatic conveying equipment and dry bulk trailers; wastewater treatment facilities; and automotive service centers. Revenues of the Compressed Air Products segment constituted approximately 78% of total revenues in 1998. In the Petroleum Products segment, the Company designs, manufactures, markets and services a diverse group of pumps used in oil and natural gas production, well servicing and stimulation, oil and gas drilling and water blast markets. Typical applications include oil transfer, salt water disposal, ammine pumping for gas processing, enhanced oil recovery, hydraulic power, and other liquid transfer applications. Revenues of the Petroleum Products segment constituted approximately 22% of total revenues in 1998. The Company sells its products through independent distributors, sales representatives and directly to original equipment manufacturers, engineering firms and end users. In January 1998, the Company purchased Champion Pneumatic Machinery Company, Inc. ("Champion"). Champion, located in Princeton, Illinois, is a leading manufacturer of low horsepower reciprocating compressors. Champion opens new market opportunities for Gardner Denver products and expands the range of reciprocating compressors available to existing distributors. In January 1998, the Company also acquired Geological Equipment Corporation ("Geoquip"), a leading manufacturer of pumps, ranging from 350 to 2,400 horsepower, in Fort Worth, Texas. The operation also remanufactures pumps and provides repair services. The addition of Geoquip enhances the Gardner Denver well servicing product line, expands the Company's presence in remanufacturing and repair services and introduces the Company to the fast-growing water blast market. The Company purchased the Wittig Division of Mannesmann Demag AG ("Wittig") in March 1998. Wittig, located in Schophfeim, Germany, is a leading manufacturer of rotary sliding vane compressors and vacuum pumps. Wittig's products primarily serve the truck blower market for liquid and dry bulk conveyance, as well as other industrial applications. The acquisition of Wittig expands the Company's manufacturing presence in Europe and provides distribution channels for its positive displacement blowers, which are produced in the United States. The Champion and Wittig acquisitions are included in the Company's Compressed Air Products segment. Geoquip is included in the Company's Petroleum Products segment. In 1997, Gardner Denver acquired Oy Tamrotor Ab ("Tamrotor"). Tamrotor, formerly a subsidiary of Tamrock Corporation, is located in Tampere, Finland, and designs and manufactures lubricated rotary screw compressor air ends. The addition of Tamrotor provided Gardner Denver with a manufacturing base in Europe as well as market penetration in several European compressor markets. Tamrotor is included in the Company's Compressed Air Products segment. In 1996, Gardner Denver completed two acquisitions. The first acquisition was NORAMPTCO, Inc. (renamed Gardner Denver Holdings Inc.), including its primary operating subsidiary, Lamson Corporation ("Lamson"). Lamson designs, manufactures and sells multistage centrifugal blowers and exhausters used in various industrial and wastewater applications. The acquisition complemented the Company's product offering by enabling it to participate in the centrifugal segment of the air and gas handling industry. In addition, since centrifugal blowers operate at reduced noise levels, the acquisition allowed the Company to compete in niche markets having lower noise requirements. This acquisition is included in the Company's Compressed Air Products segment. The second acquisition in 1996 was TCM Investments, Inc. ("TCM"), an oil field pump manufacturer based in Tulsa, Oklahoma. This acquisition further extended the Company's product line in well stimulation pumps, provided a physical presence in the oil field market and allowed Gardner Denver to become a sole source supplier of repair parts and remanufacturing services to some of the Company's customers. TCM is included in the Company's Petroleum Products segment. The acquisitions completed in 1996, 1997 and 1998 provide growth opportunities through synergistic product lines and international market penetration. The following table sets forth percentage relationships to revenues of certain income statement items for the years presented. 13 Gardner Denver - ------------------------------------------------------------------------- Management's Discussion and Analysis
Year ended December 31, ----------------------------------- 1998 1997 1996 - --------------------------------------------------------------------------------------------------- Revenues 100.0% 100.0 100.0 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 65.7 65.7 68.0 Depreciation and amortization 3.4 3.3 3.7 Selling and administrative expenses 14.0 13.7 13.8 Interest expense 1.2 1.4 1.4 Other expense 0.1 0.1 -- - --------------------------------------------------------------------------------------------------- 84.4 84.2 86.9 - --------------------------------------------------------------------------------------------------- Income before income taxes 15.6 15.8 13.1 Provision for income taxes 6.0 6.3 5.3 - --------------------------------------------------------------------------------------------------- Net income 9.6% 9.5 7.8 ===================================================================================================
YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED DECEMBER 31, 1997 ======================================================================== Revenues Revenue growth in 1998 was primarily achieved through acquisitions and incremental shipments of petroleum products from backlog. Revenues were $385.0 million in 1998, which was $93.4 million or 32% higher than in 1997 and included $78.9 million from acquisitions completed since June 1997. Excluding incremental revenue from acquisitions, revenues increased $14.5 million (5%), primarily through shipments of petroleum products from the December 31, 1997 order backlog. Revenues in the Compressed Air Products segment increased $70.2 million (31%) to $298.4 million in 1998 compared to 1997. Excluding incremental revenues from acquisitions, which contributed $68.7 million, Compressed Air Product revenues increased $1.5 million. Although revenues increased in this segment during the first part of 1998 as a result of the penetration of niche markets, such as field gas gathering, and growth in the U.S. economy, demand for compressed air products slowed during the second half of 1998 as overall manufacturing output decreased in the United States. This reduced demand caused revenues in this segment for the last half of 1998 to be less than revenues for the last half of 1997, excluding acquisitions. In the Petroleum Products segment, revenues increased $23.2 million (37%) to $86.6 million in 1998, compared to 1997. An acquisition contributed $10.2 million of this increase. Excluding incremental revenues from this acquisition, petroleum products revenues increased $13.0 million (21%), primarily as a result of shipping drilling pumps from the order backlog that existed at the end of 1997. ========================================================================= Costs and Expenses Gross margin (defined as revenues less cost of sales) in 1998 increased $32.2 million (32%) to $132.2 million from $99.9 million in 1997 primarily as a result of the additional sales volume. Incremental gross margin due to acquisitions completed since June 1997 accounted for $23.7 million of this increase. In 1998, gross margins were enhanced $4.5 million as a result of the liquidation of LIFO inventory layers, compared to $1.2 million in 1997. Gross margin was negatively affected by $1.1 million of severance and relocation expenses related primarily to re-sizing the Petroleum Products segment in response to decreased demand and integrating acquisitions in the fourth quarter of 1998. As a percentage of revenues, gross margin was 34.3% in both 1998 and 1997. The acquisitions completed since June 1997 negatively affected the gross margin percentage as these entities currently generate lower gross margins than the Company's previously existing operations. Excluding the impact of acquisitions, LIFO income and the fourth quarter severance and relocation expenses noted above, gross margin as a percentage of revenues improved to 34.3% in 1998 from 33.9% in 1997. This improvement in gross margin percentage was primarily the result of increased leverage of production overhead costs, petroleum product price increases implemented in 1997, cost reduction efforts such as manufacturing process improvements and an improved sales mix. These positive factors were partially offset by incremental expenses related to a plant relocation, which was completed in the fourth quarter of 1998, and the negative effects of inflation. Depreciation and amortization increased 34% to $13.0 million in 1998, compared with $9.7 million in 1997. Of the $3.3 million increase, $2.9 million is due to acquisitions completed in 1997 and 1998. Increased levels of capital expenditures also contributed to the increase in depreciation expense. Depreciation and amortization as a percentage of revenues was 3.4% in 1998, compared to 3.3% in 1997. Selling and administrative expenses increased in 1998 by 35% to $53.8 million from $39.9 million for 1997. Approximately $12.6 million of the $13.9 million increase is attributable to newly acquired operations. The remaining increase is due primarily to expenses related to a plant and division headquarters relocation, which was completed in the fourth quarter of 1998. As a percentage of revenues, selling and administrative expenses were 14.0% in 1998, compared to 13.7% in 1997. The increase in this ratio is attributable to acquisitions completed since June 1997, which have higher costs relative to sales than the Company's existing operations. Excluding these acquisitions, selling and administrative expenses, as a percentage of revenues, decreased to 13.5% in 1998, from 13.7% in the previous year. Compressed Air Products' operating earnings (defined as revenues less cost of sales, depreciation and amortization, and selling and administrative expenses, excluding unallocated corporate administrative expenses) increased $6.9 million or 18% over 1997 levels to $45.5 million. As a percentage of revenues, operating earn- 14 - ------------------------------------------------------------------------- ings declined to 15.2% in 1998 compared to 16.9% in 1997. This deterioration in Compressed Air Products operating earnings (as a percentage of revenues), is primarily due to newly acquired operations. These acquired operations currently generate lower operating earnings (after amortization of goodwill associated with the acquisitions) than the Company's previously existing operations. Operating earnings (as a percentage of revenues) were also negatively affected by expenses associated with a plant and division headquarters relocation, completed in the fourth quarter of 1998, and the impact of fourth quarter expenses associated with further integrating recent acquisitions, partially offset by incremental LIFO income generated in 1998. Operating earnings in the Petroleum Products segment increased $8.7 million to $21.9 million, a 66% increase from 1997. As a percentage of revenues, operating earnings for this segment improved significantly to 25.3% in 1998 compared to 20.9% in 1997. This improvement was primarily the result of significant volume increases, as the Company was able to increase the leverage of its manufacturing operations and administrative expenses, incremental LIFO income compared to the prior year and price increases implemented in the second half of 1997. This improvement was partially offset by the impact of fourth quarter expenses associated with re-sizing the segment in response to decreased demand. Interest expense increased $0.9 million (23%) for 1998 compared to 1997, due to incremental debt incurred for the acquisitions, partially offset by a lower overall average borrowing rate in 1998. The average interest rate for 1998 was 5.8% compared to 7.3% for 1997, primarily due to lower interest rates on incremental 1998 borrowings. See Note 9 to the Consolidated Financial Statements for further information on the Company's borrowing arrangements. ========================================================================= Income Income before income taxes increased $13.7 million (30%), to $59.9 million in 1998 from $46.2 million in 1997. Approximately $3.6 million of this improvement is attributable to the incremental impact of acquisitions completed since June 1997, net of goodwill amortization and interest expense on debt incurred to complete these transactions. The remaining $10.1 million increase is primarily a result of higher revenue volume, incremental LIFO income, increased leverage of costs and lower interest expense (excluding debt related to acquisitions) in 1998, compared to the previous year. The provision for income taxes increased by $4.6 million to $23.1 million in 1998 compared to 1997, as a result of the increase in income before taxes, partially offset by a reduction in the Company's overall effective tax rate. The Company's effective tax rate for 1998 was 38.6%, compared to 40.1% for 1997. The lower effective tax rate in 1998 is due to savings from the Foreign Sales Corporation ("FSC"), the lower statutory tax rate in Finland compared to the United States and the implementation of other tax strategies. Net income increased $9.1 million, or 33%, to $36.8 million ($2.22 diluted earnings per share) in 1998 compared to $27.7 million ($1.74 diluted earnings per share) in 1997. In 1998, net income included approximately $2.2 million ($0.13 diluted earnings per share) incremental after-tax income from acquisitions and $2.1 million ($0.13 diluted earnings per share) additional after-tax LIFO income, compared to 1997. Net income for 1998 was reduced by $0.6 million ($0.04 diluted earnings per share) due to after-tax expenses to re-size the Petroleum Products segment and integrate acquisitions. Excluding incremental income from acquisitions and LIFO, and expenses incurred to re-size the Petroleum Products segment and integrate acquisitions, net income increased $5.4 million (20%) in 1998 compared to 1997 and diluted earnings per share increased $0.26. This increase was primarily attributable to sales volume growth of petroleum products, the related increased leverage of manufacturing costs and administrative expenses, and price increases for petroleum products. ========================================================================= Outlook During the third quarter of 1998, demand for the Company's petroleum products reached its lowest level of the previous four quarters as a result of the decline in the prices of oil and natural gas during the year. Orders for petroleum products were $56.2 million in 1998, including $7.3 million from acquisitions, a decrease of $30.3 million compared to 1997. Order backlog for the Petroleum Products segment was $6.5 million on December 31, 1998, compared to $32.6 million at the end of 1997. The Company does not believe that demand for its petroleum products will recover in 1999. Future increases in demand for these products are dependent upon appreciation in oil and natural gas prices, which the Company cannot predict. However, even if the price of oil and natural gas were to increase, the Company believes such a recovery would occur too late in 1999 to significantly improve its financial results. Even with the significantly lower revenue projections for petroleum products, the Company believes that this segment will continue to generate operating earnings in 1999. In general, demand for compressed air products follows economic growth patterns as indicated by the rate of change in industrial production and capacity utilization rates. In 1998, orders for compressed air products, including $65.3 million from acquisitions, increased $33.9 million to $276.5 million, compared to 1997. Order backlog for the Compressed Air Products segment was $43.7 million as of December 31, 1998, including $4.1 million from acquisitions, compared to $58.5 million as of December 31, 1997. The Company experienced softer orders for its industrial products, primarily during the second half of 1998, which is expected to limit the rate of revenue growth for compressor products during the first and second quarters of 1999. At present, the Company anticipates cost reduction efforts and the financial benefits of completing acquisition integration projects to enhance profitability in 1999. However, the decreased revenues as a result of depressed demand for petroleum products and softer orders for compressed air products will result in unfavorable earnings comparisons in 1999 compared to 1998. Accordingly, based on its current economic outlook, the Company anticipates that diluted earnings per share will be approximately 20% to 25% lower in 1999 compared to 1998. YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996 ========================================================================= Revenues Revenues for 1997 increased $73.5 million or 34% over 1996 to $291.5 million. Revenues in the Compressed Air Products segment improved 21% to $228.2 million, while revenues in the Petroleum Products segment increased 111% to $63.3 million. 15 Gardner Denver - ------------------------------------------------------------------------- Management's Discussion and Analysis Revenues included approximately $48.7 million attributable to the incremental revenues from three acquisitions completed since August 1996. Excluding incremental revenues from acquisitions, revenues increased approximately $24.8 million (11%) for the year, compared to 1996, due to significant growth in oil and gas well drilling and servicing, and continued expansion of the U.S. economy which strengthened demand for compressor products. Revenues in the Compressed Air Products segment increased $40.2 million in 1997. Acquisitions generated approximately $36.4 million of the increase. Excluding the incremental revenues from acquisitions, revenues for this segment increased 2% in 1997 compared to the previous year, primarily due to price increases. Price increases were implemented in 1997 for most products in the Compressed Air Products segment, generally offsetting cost increases. Selected revenue volume increases resulted from expansion of industrial investment and niche compressor applications in the petroleum industry. The order backlog as of December 31, 1997 for the Company's compressor products, excluding acquisitions, increased 34% to $49.7 million, compared to the previous year. In the Petroleum Products segment, revenues increased 111% to $63.3 million for the year ended December 31, 1997, compared to 1996. Incremental revenues from acquisitions generated $12.3 million of the $33.3 million increase in revenues. Significant price increases were implemented in this segment in 1997. The remaining revenue increase resulted from volume growth in oil and gas well drilling and well servicing activity. The order backlog for the Company's petroleum products, as of December 31, 1997, increased 247% to $32.6 million, compared to the previous year. ========================================================================= Costs and Expenses Gross margins (defined as revenues less cost of sales) increased $30.1 million, or 43%, to $99.9 million in 1997 compared to 1996, as a result of the additional sales volume. Incremental gross margin due to the acquisitions accounted for $17.5 million of the increase. As a percentage of revenues, gross margins increased to 34.3% in 1997 from 32.0% in 1996. In 1997, gross margins were enhanced $1.2 million as a result of the liquidation of LIFO inventory layers, compared to an increase of $2.0 million in 1996. The Lamson acquisition positively affected the gross margin percentage, since its products are sold by commissioned sales representatives rather than through distributors which resell to the end user, resulting in higher mark-ups. Excluding the acquisition of Lamson and LIFO income, gross margin as a percentage of revenues improved to 33.3% in 1997 from 30.6% in 1996. The higher gross margin as a percentage of revenues was a result of the combined effects of cost reduction efforts such as manufacturing process improvements, leverage of fixed costs over higher volume and price increases. Manufacturing process improvements included programs to reduce set-up, improve quality, reduce rework and improve production flow. Programs were also put in place in 1996 and 1997 to reduce costs for purchased parts used in the Company's products. Depreciation and amortization increased $1.6 million in 1997 from 1996 levels. Depreciation expense increased $0.8 million in 1997 compared to 1996, primarily as a result of acquisitions. Excluding acquisitions, depreciation declined $0.4 million, as additional assets became fully depreciated. Amortization expense increased $0.8 million, or 29%, from the prior year, primarily due to amortization of goodwill related to the 1996 and 1997 acquisitions. As a percentage of revenues, depreciation and amortization declined to 3.3% in 1997 from 3.7% in 1996, due to the effect of higher revenues. Selling and administrative expenses increased by 32% to $39.9 million for 1997 from $30.2 million in 1996. Newly acquired operations accounted for approximately $5.8 million of the $9.7 million increase. The remainder of the increase was due primarily to higher manpower levels and an increase in travel and purchased services, most of which was related to the increased revenues and integration of acquisitions. As a percentage of revenues, selling and administrative expenses decreased to 13.7% in 1997 from 13.8% in 1996. Operating earnings for the Compressed Air Products segment increased 27% over 1996 to $38.6 million. As a percentage of revenues, operating earnings were 16.9% in 1997 compared to 16.2% in 1996. The increase was due to additional revenues and improved manufacturing efficiencies. The Petroleum Products segment had operating earnings of $13.2 million in 1997, compared to $2.3 million in 1996. The Company was able to leverage its manufacturing operations and obtain significant price increases as a result of the increased demand for petroleum products, resulting in operating earnings of 20.9% of petroleum products revenues, compared to 7.5% in 1996. Interest expense for 1997 increased $0.8 million to $3.9 million due to incremental debt incurred for the acquisitions and higher average interest rates. Interest rates on the Company's long-term debt in 1997 averaged 7.3%, compared to 7.1% in 1996. The higher interest rate was primarily due to a $35 million senior note (the "Note") issued in September 1996 at a fixed rate of approximately 7.3% and the assumption of a fixed rate industrial development bond as part of one of the acquisitions. ========================================================================= Income Income before taxes increased $17.8 million, or 62%, to $46.2 million from $28.4 million. Approximately $6.8 million of this improvement was provided by the incremental impact of acquisitions, net of goodwill amortization and interest expense on debt incurred to complete these transactions. The remaining $11.0 million increase was primarily a result of incremental revenues, improved gross margin and lower interest expense (excluding debt related to acquisitions) in 1997 compared to the previous year. Income tax expense increased $7.0 million from 1996 to $18.5 million, a 60% increase, as a result of the incremental income before taxes. The Company's effective tax rate in 1997 was 40.1% compared to 40.6% in 1996. The lower effective tax rate in 1997 was due to the savings from the FSC, the lower statutory tax rate in Finland compared to the United States and the implementation of other tax strategies, partly offset by an increase in nondeductible goodwill related to the acquisitions. Net income increased $10.7 million, or 64%, to $27.7 million for 1997 compared to $16.9 million for 1996. The increase in net income included approximately $3.1 million incremental after-tax income from the acquisitions, offset by $0.5 million less in after-tax LIFO income in 1997 compared to 1996. Excluding LIFO income and incremental income from acquisitions, net income increased $8.2 million (52%) for the year due to revenue growth and process improvements in manufacturing operations. On a per share basis, diluted earnings increased $0.63 (57%) to $1.74 in 1997, compared to $1.11 in the 16 - ------------------------------------------------------------------------- previous year. Excluding LIFO income and incremental income from acquisitions, diluted earnings per share increased $0.47 (46%) in 1997 compared to the previous year. LIQUIDITY AND CAPITAL RESOURCES ========================================================================= Operating Working Capital During 1998, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) increased $8.0 million to $61.9 million. Excluding the impact of operating working capital acquired as a result of the Company's 1998 acquisitions and the impact of changes in foreign currency exchange rates, operating working capital decreased by $5.7 million in 1998. Receivables were reduced by $2.7 million, primarily as a result of intensified collection efforts. Inventories decreased $11.7 million principally as a result of reductions in petroleum products inventory due to product shipments, coupled with continued improvement in inventory turnover in both segments as programs to reduce all categories of inventory yielded positive results. Reduced spending and inventory purchases resulted in an $8.7 million decrease in accounts payable and accrued liabilities. ========================================================================= Cash Flows During 1998, the Company generated cash flows from operations totaling $52.5 million, an increase of $11.7 million (29%) compared to 1997. This increase was primarily the result of incremental net income and increased depreciation and amortization, combined with the reductions in operating working capital discussed above (net of the impact of acquired working capital and changes in foreign exchange rates). During 1998, the Company borrowed $18.0 million under a new revolving credit facility and utilized the funds to repay all outstanding commitments under its previous credit facility. The Company also borrowed $40.0 million to finance acquisitions, and issued $10.5 million of its common stock to fund a portion of the purchase price for Geoquip. Cash flows from the items discussed above enabled the Company to spend $19.7 million on capital expenditures, repurchase $11.2 million of the Company's common stock and repay $38.8 million of long-term debt, and resulted in an increase in the cash balance of $15.6 million as of December 31, 1998. ========================================================================= Capital Expenditures and Commitments Capital projects to increase operating efficiency and flexibility, expand production capacity and improve product quality resulted in expenditures totaling $19.7 million in 1998. This was $9.9 million higher than the level in 1997, primarily due to expenditures for production equipment and construction of the new manufacturing facility in Peachtree City, Georgia and capital invested in recently acquired operations. In 1997, the Company announced that it would close its centrifugal blower manufacturing plant in Syracuse, New York, and consolidate operations at its new site in Georgia. The new plant began operations in the fourth quarter of 1998, at which time the Syracuse plant was shut down. The Company anticipates that capital expenditures will decrease to approximately $15 million in 1999, primarily due to completion of the new facility in Georgia in 1998. Commitments for capital expenditures at December 31, 1998 totaled $6.9 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. The shares will be purchased from time to time in open market or private transactions. In 1998, 755,100 shares were repurchased under this repurchase program at a cost of $11.2 million. ========================================================================= Liquidity During 1998, the Company entered into a new revolving line of credit agreement with an aggregate $125.0 million borrowing capacity (the "Credit Line") and terminated the previous line of credit. On December 31, 1998, the Credit Line had an outstanding balance of approximately $36.0 million, leaving $89.0 million available for future use. The Credit Line requires no principal payments during the term of the agreement, which expires in January 2003. The Company's borrowing arrangements are generally unsecured and permit certain investments and dividend payments. There are no material restrictions on the Company as a result of these arrangements, other than customary covenants regarding certain earnings, liquidity, and capital ratios. In April 1998, the Fayette County Development Authority issued $9.5 million in industrial revenue bonds (the "IRB"), on behalf of the Company, to finance the cost of constructing and equipping the Company's new manufacturing facility in Georgia. The principal amount of the IRB is to be repaid in full in March 2018. The IRB is secured by a letter of credit. Management currently expects that the Company's future cash flows will be sufficient to fund the scheduled debt service under the Note, the Credit Line and the IRB and provide required resources for working capital and capital investments. ========================================================================= Market Risk The Company is exposed to market risk related to changes in interest rates and European and other foreign currency exchange rates, and selectively uses derivative financial instruments, including forwards and swaps, to manage these risks. The Company does not hold derivatives for trading purposes. The value of market-risk sensitive derivatives and other financial instruments is subject to change as a result of movements in market rates and prices. Sensitivity analysis is one technique used to evaluate these impacts. Based on a hypothetical ten percent change in interest rates or ten percent weakening in the U.S. Dollar across relevant foreign currencies, principally the German Mark and Finnish Markka, the potential losses in future earnings, fair value and cash flows are not material. ========================================================================= Impact of Year 2000 Issues "Year 2000 Issues" are the result of computer programs being written using two digits, rather than four, to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices 17 Gardner Denver - ------------------------------------------------------------------------- Management's Discussion and Analysis or statements, perform material requirements planning or engage in similar normal business activities. The Company believes the 1997 and 1998 implementations of new and upgraded management information systems appropriately address the Year 2000 Issues for the programs replaced with these systems. These upgrades include significant enhancements for purposes other than addressing Year 2000 Issues. The Company has completed its assessment of the impact of Year 2000 Issues on other parts of its business, including embedded systems not involving information technology. The Company expects to implement the remaining upgrades necessary to address Year 2000 Issues by the first half of 1999. The Company anticipates that the costs incurred solely to address its Year 2000 Issues will be less than $0.5 million. The Company is communicating with its significant suppliers and customers to determine the extent to which the Company would be vulnerable to those third parties' failure to remediate their own Year 2000 Issues. The Company is also in the process of performing on-site reviews of critical suppliers and customers to assess their state of readiness as considered appropriate. If required modifications related to Year 2000 Issues are not successfully made on a timely basis by the Company or its significant suppliers or customers, the Company's operations, liquidity or financial condition could be materially affected. Although not anticipated, the most reasonably likely worst case scenario of failure by the Company or its significant suppliers or customers to resolve the Year 2000 Issues would be a short-term interruption of manufacturing operations at one or more of the Company's facilities and a short-term inability on the part of the Company to deliver product to customers. As noted above, the Company expects its internal systems to be Year 2000 compliant in a timely manner. However, the success of the Company's suppliers and customers in remediating their respective Year 2000 Issues is not within the Company's control. The Company does not currently expect that its operations will be materially impacted by its suppliers' or customers' Year 2000 Issues. Nonetheless, the Company is currently developing contingency plans, particularly as related to its significant suppliers, which include the identification and qualification of alternate supply sources for key materials and services. ========================================================================= Impact of the Conversion to the Euro On January 1, 1999, eleven of the member countries of the European Union converted from their sovereign currencies to a common currency, the euro. At that time, fixed conversion rates between the legacy currencies and the euro were set. The Company has evaluated the potential effect upon its business of the euro conversion, and developed plans to address any such effect, including changes to information systems to accommodate various aspects of the new currency and potentially increased competitive pressures from greater price transparency. Given the status of the implementation of new and upgraded information systems at appropriate locations and the relative size of its current European operations, the Company does not anticipate that its consolidated financial position, results of operations or liquidity will be materially adversely affected as a result of the euro conversion. ========================================================================= New Accounting Standard In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133" or the "Statement"). The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability, measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 1999 and will be adopted at that time. The Company has reviewed its current derivative instruments and hedging activities and has determined that the adoption of SFAS 133 would not have a material impact on its consolidated financial statements as of December 31, 1998. ======================================================================== Cautionary Statements Regarding Forward-Looking Statements This Annual Report to Stockholders, including Management's Discussion and Analysis and the Chairman's Letter, contains forward- looking statements within the meaning of the federal securities laws. As a general matter, forward-looking statements are those focused upon anticipated events or trends and expectations and beliefs relating to matters that are not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. Such uncertainties and factors could cause actual results of the Company to differ materially from those matters expressed in or implied by such forward-looking statements. Such uncertainties and factors could include among others: the speed with which the Company is able to integrate its recent acquisitions and realize the related financial benefits; the level of oil and natural gas prices, drilling and production, which affect demand for the Company's petroleum products; pricing of Gardner Denver's products; changes in the general level of industrial production and industrial capacity utilization rates in the United States and the rate of economic growth outside the United States, which affect demand for the Company's compressed air products; the degree to which the Company is able to penetrate niche markets; the successful implementation of cost reduction efforts; and the extent to which the Company is able to operate without disruption due to Year 2000 Issues. 18 - ------------------------------------------------------------------------- Report of Management The Company's management is responsible for the integrity and accuracy of the financial statements. Management believes that the financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances. In preparing the financial statements, management makes informed judgments and estimates, where necessary, to reflect the expected effects of events and transactions that have not been completed. In meeting its responsibility for the reliability of the financial statements, management relies on a system of internal accounting controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. The design of this system recognizes that errors or irregularities may occur and that estimates and judgments are required to assess the relative cost and expected benefits of the controls. Management believes that the Company's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period. The Audit and Finance Committee of the Board of Directors (the "Committee"), which is comprised solely of Directors who are not employees of the Company, is responsible for monitoring the Company's accounting and reporting practices. The Committee meets with management periodically to review its activities and ensure that it is properly discharging its responsibilities. The Committee also meets periodically with the independent auditors, who have free access to the Committee and the Board of Directors, to discuss internal accounting control and auditing, financial reporting and tax matters. The independent auditors are engaged to express an opinion on the Company's consolidated financial statements. Their opinion is based on procedures which they believe to be sufficient to provide reasonable assurance that the financial statements contain no material errors. /s/ Ross J. Centanni Ross J. Centanni Chairman, President and Chief Executive Officer /s/ Philip R. Roth Philip R. Roth Vice President, Finance and Chief Financial Officer - ------------------------------------------------------------------------- Report of Independent Public Accountants To Gardner Denver, Inc. We have audited the accompanying consolidated balance sheet of Gardner Denver, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gardner Denver, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP St. Louis, Missouri February 12, 1999 19 Gardner Denver - ------------------------------------------------------------------------- Consolidated Statement of Operations (dollars in thousands, except per share amounts)
Year ended December 31, -------------------------------------- 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------ Revenues $384,992 291,547 218,000 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 252,842 191,617 148,191 Depreciation and amortization 12,978 9,662 8,097 Selling and administrative expenses 53,793 39,938 30,169 Interest expense 4,849 3,937 3,104 Other expense 636 242 -- - ------------------------------------------------------------------------------------------------------------ 325,098 245,396 189,561 - ------------------------------------------------------------------------------------------------------------ Income before income taxes 59,894 46,151 28,439 Provision for income taxes 23,089 18,500 11,533 - ------------------------------------------------------------------------------------------------------------ Net income $ 36,805 27,651 16,906 ============================================================================================================ Basic earnings per share $ 2.29 1.84 1.16 ============================================================================================================ Diluted earnings per share $ 2.22 1.74 1.11 ============================================================================================================ The accompanying notes are an integral part of this statement.
20 - ------------------------------------------------------------------------ Consolidated Balance Sheet (dollars in thousands, except per share amounts)
Year ended December 31, ----------------------- 1998 1997 - --------------------------------------------------------------------------------------------- Assets Current assets: Cash and equivalents $ 24,474 8,831 Receivables (net of allowances of $4,371 in 1998 and $2,866 in 1997) 69,617 62,307 Inventories, net 53,115 48,324 Deferred income taxes 2,445 2,784 Other 2,154 1,768 - --------------------------------------------------------------------------------------------- Total current assets 151,805 124,014 - --------------------------------------------------------------------------------------------- Property, plant and equipment, net 59,261 37,530 Intangibles, net 114,254 85,524 Deferred income taxes 12,172 15,845 Other assets 4,638 5,356 - --------------------------------------------------------------------------------------------- Total assets $342,130 268,269 ============================================================================================= Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings and current maturities of long-term debt $ 2,452 459 Accounts payable and accrued liabilities 60,806 56,735 - --------------------------------------------------------------------------------------------- Total current liabilities 63,258 57,194 - --------------------------------------------------------------------------------------------- Long-term debt, less current maturities 81,058 51,227 Postretirement benefits other than pensions 46,612 50,689 Other long-term liabilities 8,516 5,548 - --------------------------------------------------------------------------------------------- Total liabilities 199,444 164,658 ============================================================================================= Stockholders' equity: Common stock, $.01 par value; 50,000,000 shares authorized; 15,496,849 and 15,435,953 shares issued and outstanding in 1998 and 1997, respectively 163 154 Capital in excess of par value 153,656 139,524 Treasury stock at cost, 803,286 and 18,937 shares in 1998 and 1997, respectively (12,259) (333) Retained earnings (deficit) 3,306 (33,432) Accumulated other comprehensive loss (2,180) (2,302) - --------------------------------------------------------------------------------------------- Total stockholders' equity 142,686 103,611 - --------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $342,130 268,269 ============================================================================================= The accompanying notes are an integral part of this statement.
21 Gardner Denver - ------------------------------------------------------------------------ Consolidated Statement of Stockholders' Equity (dollars in thousands)
Accumulated Capital In Retained Other Total Common Excess of Treasury (Deficit) Comprehensive Stockholders' Comprehensive Stock Par Value Stock Earnings Income (Loss) Equity Income (Loss) - ----------------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1996 $144 133,079 (77,989) 55,234 Stock issued for benefit plans and options 4 2,033 2,037 Net income 16,906 16,906 16,906 Foreign currency translation adjustments (59) (59) (59) - ----------------------------------------------------------------------------------------------------------------------------------- 16,847 ====== Balance December 31, 1996 $148 135,112 -- (61,083) (59) 74,118 ==================================================================================================================== Stock issued for benefit plans and options 6 4,412 4,418 Treasury stock (333) (333) Net income 27,651 27,651 27,651 Foreign currency translation adjustments (2,243) (2,243) (2,243) - ----------------------------------------------------------------------------------------------------------------------------------- 25,408 ====== Balance December 31, 1997 $154 139,524 (333) (33,432) (2,302) 103,611 ==================================================================================================================== Stock issued for benefit plans and options 5 3,636 3,641 Stock issued for acquisition 4 10,496 10,500 Treasury stock (11,926) (11,926) Other (67) (67) Net income 36,805 36,805 36,805 Foreign currency translation adjustments 122 122 122 - ----------------------------------------------------------------------------------------------------------------------------------- 36,927 ====== Balance December 31, 1998 $163 153,656 (12,259) 3,306 (2,180) 142,686 ==================================================================================================================== The accompanying notes are an integral part of this statement.
22 - ------------------------------------------------------------------------ Consolidated Statement of Cash Flows (dollars in thousands)
Year ended December 31, -------------------------------------- 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 36,805 27,651 16,906 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,978 9,662 8,097 LIFO liquidation income (4,541) (1,220) (2,021) Stock issued for employee benefit plans 2,423 1,769 1,389 Deferred income taxes 3,403 2,471 456 Changes in assets and liabilities: Receivables 2,669 (7,822) 3,155 Inventories 11,695 5,476 8,604 Accounts payable and accrued liabilities (8,702) 6,757 837 Other assets and liabilities, net (4,211) (3,942) (3,493) - ------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 52,519 40,802 33,930 - ------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Business acquisitions, net of cash (37,578) (26,211) (34,845) Capital expenditures (19,679) (9,808) (4,171) Disposals of property, plant and equipment 602 117 735 Foreign currency hedging transactions (427) (1,971) -- - ------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (57,082) (37,873) (38,281) - ------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Principal payments on long-term debt (38,833) (27,986) (52,556) Proceeds from long-term borrowings 69,512 23,000 63,000 Purchase of treasury stock (11,926) (333) -- Proceeds from stock options 1,218 2,649 648 Other (136) -- -- - ------------------------------------------------------------------------------------------------------------ Net cash provided by (used for) financing activities 19,835 (2,670) 11,092 - ------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash and equivalents 371 (38) -- - ------------------------------------------------------------------------------------------------------------ Increase in cash and equivalents 15,643 221 6,741 Cash and equivalents, beginning of year 8,831 8,610 1,869 - ------------------------------------------------------------------------------------------------------------ Cash and equivalents, end of year $ 24,474 8,831 8,610 ============================================================================================================ The accompanying notes are an integral part of this statement.
23 Gardner Denver - ------------------------------------------------------------------------- Notes to Consolidated Financial Statements (dollars in thousands, except per share data) ========================================================================= Note 1: Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements reflect the operations of Gardner Denver, Inc. ("Gardner Denver" or the "Company") and its subsidiaries (formerly known as Gardner Denver Machinery Inc.). Certain prior year amounts have been reclassified to conform with current year presentation. All shares of common stock and per share amounts have been adjusted to give retroactive effect to a three-for-two stock split distributed on December 29, 1997 to stockholders of record at the close of business on December 8, 1997 and a two-for-one stock split distributed on January 15, 1997 to stockholders of record at the close of business on December 27, 1996. Both stock splits were effected in the form of a stock dividend. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. Investments in entities in which the Company has 20% to 50% ownership are accounted for by the equity method. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Foreign Currency Translation Assets and liabilities of the Company's foreign operations are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the year. Translation adjustments are reported in accumulated other comprehensive income, a separate component of stockholders' equity. Revenue Recognition The Company recognizes revenues when goods are shipped to the customer. Cash Equivalents Cash equivalents are highly liquid investments (valued at cost, which approximates fair value), acquired with an original maturity of three months or less. Inventories Inventories are carried at the lower of cost or market value, primarily using the last-in, first-out (LIFO) method. Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets: buildings - 10 to 45 years; machinery and equipment - 10 to 12 years; and tooling, dies, patterns, etc. - 5 years. Intangibles Intangibles consist primarily of goodwill related to the various purchase acquisitions that comprise the Company's business. Goodwill is amortized on a straight-line basis over the period estimated to be benefited, not exceeding 40 years. The Company assesses the recoverability of an intangible asset by determining whether the amortization of the asset balance over its remaining life can be recovered through related estimated undiscounted future cash flows. Income Taxes The Company has determined tax expense and other deferred tax information based on the liability method. Deferred income taxes are provided to reflect temporary differences between financial and tax reporting. Research and Development Costs for research and development are expensed as incurred and were $3,479, $2,845 and $2,405 for the years ended December 31, 1998, 1997 and 1996, respectively. Financial Instruments Included on the balance sheet is a foreign currency forward contract in Finnish Markka to hedge foreign exchange translation risk associated with the Company's investment in its Finnish subsidiary, Oy Tamrotor Ab ("Tamrotor"). The contract is marked to market and both unrealized and realized gains and losses are included as a component of accumulated other comprehensive income in stockholders' equity. There are no off balance sheet derivative financial instruments as of December 31, 1998. As of December 31, 1997, such instruments consisted of an interest rate swap agreement used to fix interest rates on floating rate debt. Earnings Per Share The 1998 and 1997 basic earnings per share were calculated based on 16,066,699 and 15,059,569 weighted average shares outstanding, respectively. The 1998 and 1997 diluted earnings per share were calculated based on 16,610,007 and 15,871,727 weighted average shares outstanding, respectively. For additional information on the calculation of earnings per share, see Note 8. 24 - ------------------------------------------------------------------------- ========================================================================= Note 2: Acquisitions On January 5, 1998, the Company acquired substantially all of the assets and assumed certain agreed upon liabilities of Geological Equipment Corporation ("Geoquip") located in Fort Worth, Texas, for approximately $12.0 million. Gardner Denver also paid approximately $2.0 million in cash to acquire patents, previously owned by Geoquip's shareholders, for products manufactured by Geoquip. The purchase price for the assets of Geoquip was paid in cash ($1.5 million) and 430,695 shares of Gardner Denver common stock. The purchase price was allocated to assets and liabilities based on their respective fair values at the date of acquisition and resulted in cost in excess of net assets acquired of $8.3 million. On January 29, 1998, the Company purchased substantially all of the assets and assumed certain agreed upon liabilities of Champion Pneumatic Machinery Company, Inc. ("Champion"), located in Princeton, Illinois, a subsidiary of CRL Industries, Inc., for approximately $23.5 million. The purchase price was allocated to assets and liabilities based on their respective fair values at the date of acquisition and resulted in cost in excess of net assets acquired of $16.8 million. On March 9, 1998, the Company purchased substantially all of the assets and assumed certain agreed upon liabilities of the Wittig Division of Mannesmann Demag AG ("Wittig") for approximately $10.5 million. Wittig is located in Schophfeim, Germany. The purchase price was allocated to assets and liabilities based on their respective fair values at the date of acquisition and resulted in cost in excess of net assets acquired of $3.6 million. On June 30, 1997, the Company purchased 100% of the issued and outstanding stock of Tamrotor, a subsidiary of Tamrock Corporation located in Tampere, Finland, for approximately $26.2 million. The purchase price was allocated to assets and liabilities based on their respective fair values at the date of acquisition, and resulted in cost in excess of net assets acquired of $15.4 million. On August 9, 1996, the Company purchased 100% of the issued and outstanding stock of Gardner Denver Holdings Inc., formerly NORAMPTCO, Inc. ("GDHI") for $26.8 million. The purchase price was allocated to assets and liabilities based on their respective fair values at the date of acquisition and resulted in cost in excess of net assets acquired of $26.4 million. On August 14, 1996, the Company purchased 100% of the issued and outstanding stock of TCM Investments, Inc. ("TCM") for $7.2 million. The purchase price was allocated to assets and liabilities based on their respective fair values at the date of acquisition and resulted in cost in excess of net assets acquired of $4.1 million. As a result of the stability of the product technology, markets and customers associated with these acquisitions, the cost in excess of net assets acquired for each acquisition is being amortized over 40 years using the straight-line method. All acquisitions, have been accounted for by the purchase method, and accordingly, the results of operations of Geoquip, Champion, Wittig, Tamrotor, GDHI and TCM are included in the Company's Consolidated Statement of Operations from the respective dates of acquisition. Certain estimates of fair market value of assets received and liabilities assumed were made with adjustments to each separate company's historical financial statements. The estimates and adjustments for Wittig have not been finalized. ========================================================================= Note 3: Inventories
December 31, ------------------------- 1998 1997 - --------------------------------------------------------------------------------------- Raw materials, including parts and subassemblies $42,006 47,992 Work-in-process 8,167 9,667 Finished goods 17,159 11,003 Perishable tooling and supplies 2,525 2,571 - --------------------------------------------------------------------------------------- 69,857 71,233 Excess of current standard costs over LIFO costs (7,037) (10,964) Allowance for obsolete and slow-moving inventory (9,705) (11,945) - --------------------------------------------------------------------------------------- Inventories, net $53,115 48,324 =======================================================================================
During 1998, 1997 and 1996, reductions in inventory quantities (net of acquisitions) resulted in liquidations of LIFO inventory layers carried at lower costs prevailing in prior years. The effect was to increase net income in 1998, 1997 and 1996 by $2,788, $732 and $1,213, respectively. It is the Company's policy to record the earnings effect of LIFO inventory liquidations in the quarter in which a decrease for the entire year becomes certain. In each of the years 1996 through 1998, the LIFO liquidation income was recorded in the fourth quarter. ========================================================================= 25 Gardner Denver - ------------------------------------------------------------------------- Notes to Consolidated Financial Statements (dollars in thousands, except per share data) ========================================================================= Note 4: Property, Plant and Equipment and Intangibles
December 31, --------------------------- 1998 1997 - --------------------------------------------------------------------------------------- Property, plant and equipment: Land and land improvements $ 4,453 2,836 Buildings 35,187 25,278 Machinery and equipment 78,950 67,850 Tooling, dies, patterns, etc. 28,241 26,462 Office furniture and equipment 10,144 9,353 Other 1,507 1,360 Construction in progress 6,823 3,484 - --------------------------------------------------------------------------------------- 165,305 136,623 Accumulated depreciation (106,044) (99,093) - --------------------------------------------------------------------------------------- Property, plant and equipment, net $ 59,261 37,530 ======================================================================================= Intangibles: Goodwill $ 132,541 102,351 Other 3,855 1,841 - --------------------------------------------------------------------------------------- 136,396 104,192 Accumulated amortization (22,142) (18,668) - --------------------------------------------------------------------------------------- Intangibles, net $ 114,254 85,524 =======================================================================================
========================================================================= Note 5: Accounts Payable and Accrued Liabilities
December 31, --------------------------- 1998 1997 - --------------------------------------------------------------------------------------- Accounts payable - trade $ 26,762 23,371 Salaries, wages and related fringe benefits 7,978 4,364 Product liability, workers' compensation and other insurance 3,752 3,595 Other 22,314 25,405 - --------------------------------------------------------------------------------------- Total accounts payable and accrued liabilities $ 60,806 56,735 =======================================================================================
========================================================================= Note 6: Pension and Other Postretirement Benefits The Company sponsors retirement plans covering substantially all employees. Benefits are provided to employees under defined benefit pay-related and service-related plans which are noncontributory. Annual contributions to retirement plans equal or exceed the minimum funding requirements of the Employee Retirement Income Security Act. In addition, salaried employees who retired prior to 1989, as well as certain other employees who were near retirement and elected to receive certain benefits, have retiree medical, prescription and life insurance benefits. All other active salaried employees will not have postretirement medical benefits. The hourly employees have separate plans with varying benefit formulas. In all cases, however, currently active hourly employees, except for certain employees who are near retirement, will not receive healthcare benefits after retirement. All of the Company's postretirement medical plans are unfunded. The following tables provide a reconciliation of the changes in both the pension and other postretirement plans' benefit obligations and fair value of assets over the two-year period ending December 31, 1998, and a statement of the funded status as of December 31, 1998 and 1997: 26 - -------------------------------------------------------------------------
Other Postretirement Pension Benefits Benefits ------------------------------------------------------------- 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Reconciliation of benefit obligation Obligation at January 1 $48,781 49,241 $ 27,939 27,990 Service cost 1,243 904 28 30 Interest cost 3,569 3,500 1,860 2,005 Plan amendments -- (1,339) -- -- Actuarial loss (gain) 3,782 1,327 (58) (71) Acquisition 2,328 -- -- -- Benefit payments (5,826) (4,852) (2,288) (2,015) Effect of exchange rate changes 229 -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Obligation at December 31 $54,106 48,781 $ 27,481 27,939 =========================================================================================================================== Reconciliation of fair value of plan assets Fair value of plan assets at January 1 $55,178 51,800 Actual return on plan assets 5,134 7,679 Employer contributions 597 551 Benefit payments (5,826) (4,852) - --------------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at December 31 $55,083 55,178 $ -- -- =========================================================================================================================== Funded status Funded status at December 31 $ 977 6,397 $(27,481) (27,939) Unrecognized transition asset (163) (372) -- -- Unrecognized prior-service cost (966) (1,052) (5,240) (6,440) Unrecognized gain (4,903) (8,090) (16,259) (18,598) - --------------------------------------------------------------------------------------------------------------------------- Accrued benefit liability $(5,055) (3,117) $(48,980) (52,977) ===========================================================================================================================
The aggregate accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets at December 31, 1998 and 1997 are as follows:
1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation $8,487 5,924 =========================================================================================================================== Fair value of plan assets $3,791 3,253 ===========================================================================================================================
The Company also sponsors defined contribution plans. Benefits are determined and funded annually based on terms of the plans or as stipulated in a collective bargaining agreement. 27 Gardner Denver - ------------------------------------------------------------------------- Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The following table provides the components of net periodic benefit expense (income) for the plans for the years ended December 31, 1998, 1997 and 1996.
Pension Benefits Other Postretirement Benefits -------------------------------------------------------------------------- 1998 1997 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Service cost $ 1,243 904 962 $ 28 30 100 Interest cost 3,569 3,500 2,850 1,860 2,005 1,800 Expected return on plan assets (4,443) (4,148) (3,774) -- -- -- Amortization of transition asset (209) (209) (220) -- -- -- Amortization of prior-service cost (86) 10 41 (1,200) (1,200) (1,200) Amortization of net gain (64) (16) -- (2,431) (2,504) (2,800) - ------------------------------------------------------------------------------------------------------------------------------- Net periodic benefit expense (income) 10 41 (141) $(1,743) (1,669) (2,100) Defined contribution plans 3,576 2,723 1,981 ================================== - --------------------------------------------------------------------------------------- Total retirement plan expense $ 3,586 2,764 1,840 ======================================================================================= COMPUTATIONAL ASSUMPTIONS Pension and Other Postretirement Benefits ---------------------------------------------------------- Net Pension Cost Benefit Obligation ---------------------------------------------------------- December 31, December 31, - ------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- Discount rate 7.25% 7.50% 7.00% 6.75% 7.25% Pension Benefits ---------------------------------------------------------- Rate of increase in compensation levels 5.50% 5.50% 5.50% 5.00% 5.50% Expected long-term rate of return on assets 8.50% 8.50% 8.50% -- -- ===============================================================================================================================
For measurement purposes, the annual rate of increase in the per capita cost of covered healthcare benefits assumed for 1998 was 7.5% for participants under age 65 and 6.5% for participants over age 65. The rates were assumed to decrease gradually each year to a rate of 5.5% for 2005 and remain at that level thereafter. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement medical plans. A one percentage point change in assumed healthcare cost trend rates would have the following effects:
One Percentage Point ----------------------- Increase Decrease - ----------------------------------------------------------------------------------------------- Effect on total of service and interest cost components of net periodic other postretirement benefit cost - increase (decrease) 8.9% (7.8%) Effect on the postretirement benefit obligation - increase (decrease) 9.6% (8.4%) ===============================================================================================
The full-time salaried and hourly employees of the Company's Wittig operation in Germany, acquired in March 1998, have pension benefits provided under defined benefit pay-related and service-related plans which are noncontributory. Consistent with the practice in Germany, these plans are unfunded. As a result of the acquisition of Wittig and the unfunded nature of the plans, the full amount of the projected pension benefit obligation as of the acquisition date was recorded as an accrued benefit liability on the Consolidated Balance Sheet. The change in the pension benefit obligation and the net periodic pension benefit expense from the acquisition date forward have been included in the preceding pension benefit tables. The full-time salaried and hourly employees of the Company's operations in Finland have pension benefits which are guaranteed by the Finnish government. Although the plans are similar to defined benefit plans, the guarantee feature of the government causes the substance of the plans to be defined contribution. Therefore, the discounted future liability of these plans is not included in the liability for defined benefit plans, but the expense for the Company's contribution is included in the pension benefit cost for defined contribution plans. Certain of the Company's full-time salaried and nonunion hourly employees are eligible to participate in the Company's Retirement Savings Plan (the "Savings Plan"), which is intended to meet the requirements of Section 401(k) of the Internal Revenue Code. The Company's matching contributions to the Savings Plan are in the form of the Company's common stock. 28 - ------------------------------------------------------------------------- ========================================================================= Note 7: Stock-Based Compensation Plans Under the Company's Long-Term Incentive Plan (the "Incentive Plan"), designated employees are eligible to receive awards in the form of stock options, stock appreciation rights, restricted stock grants or performance shares, as determined by the Management Development and Compensation Committee of the Board of Directors. An aggregate of 2,250,000 shares of common stock has been reserved for issuance under the Incentive Plan. Through December 31, 1998, the Company has granted options on 2,155,609 shares. Under the Incentive Plan, the option exercise price equals the fair market value of the common stock on the date of grant. One-third of employee options granted become vested and exercisable on each of the first three anniversaries of the date of grant. The options granted to employees in 1994, 1995 and 1997 expire five years after the date of grant. The options granted to employees in 1996 and 1998 expire ten years after the date of the grant. Under the Incentive Plan, each nonemployee director is automatically granted an option to purchase 3,000 shares of common stock on the day after each annual meeting of stockholders. These options are granted at the fair market value of the common stock on the date of grant, become exercisable on the first anniversary of the date of grant and expire five years after the date of grant. The Company has an employee stock purchase plan (the "Stock Purchase Plan") and has reserved 675,000 shares for issuance. All eligible employees who enroll in an offering receive options to purchase shares of common stock at the lesser of 90% of the fair market price of the stock on the offering date or 100% of the fair market price on the exercise date. Each offering under the Stock Purchase Plan requires participating employees to have the purchase price of the options withheld from their pay over a two year period. The exercise date for the previous offering was November 7, 1997, at which time employees elected to purchase 277,185 shares at the offering price of $5.12 per share. The exercise date for the most recent offering is November 8, 1999. As of December 31, 1998, employees had enrolled to purchase 77,490 shares at the current offering price of $21.97 per share. The Company accounts for both the Incentive Plan and the Stock Purchase Plan using the intrinsic value methodology prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), requires pro forma disclosure of the impact on earnings as if the compensation costs for these plans had been determined consistent with the fair value methodology of this Statement. The Company's net income and earnings per share would have been reduced to the following pro forma amounts under SFAS 123:
1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Net income As reported $36,805 27,651 16,906 Pro forma 35,655 26,817 16,328 Basic earnings per share As reported $ 2.29 1.84 1.16 Pro forma 2.22 1.78 1.12 Diluted earnings per share As reported $ 2.22 1.74 1.11 Pro forma 2.15 1.69 1.07 - -------------------------------------------------------------------------------------------------------------------------------
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. A summary of the status of the Company's Incentive Plan at December 31, 1998, 1997 and 1996, and changes during the years then ended, is presented in the table and narrative below (shares in thousands):
Wtd. Avg. Wtd. Avg. Wtd. Avg. Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------------------------------------------------------- 1998 1997 1996 ------------------------------------------------------------------------- Options outstanding, beginning of year 1,174 $ 6.91 1,371 $ 4.88 1,225 $3.33 Granted 257 26.01 159 18.28 384 8.77 Exercised (334) 3.64 (293) 3.96 (223) 3.18 Forfeited (20) 13.57 (63) 5.27 (15) 3.42 ----- ----- ----- Options outstanding, end of year 1,077 12.36 1,174 6.91 1,371 4.88 ===== ===== ===== Options exercisable, end of year 623 6.49 627 4.17 581 3.20 ===== ===== ===== Weighted average fair value of options granted 10.31 6.76 5.04 ===============================================================================================================================
29 Gardner Denver - ------------------------------------------------------------------------- Notes to Consolidated Financial Statements (dollars in thousands, except per share data) The following table summarizes information about fixed-price stock options outstanding at December 31, 1998 (shares in thousands):
Options Outstanding Options Exercisable ------------------------------------------------------------------------------ Number Wtd. Avg. Wtd. Avg. Number Wtd. Avg. Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 12/31/98 Contractual Life Price at 12/31/98 Price - ---------------------------------------------------------------------------------------------------------------------------- $ 3.00 - 5.00 372 1.1 years $ 3.57 372 $ 3.57 5.01 - 10.00 298 7.1 8.70 193 8.65 10.01 - 25.00 174 4.0 17.97 58 18.14 25.01 - 30.00 233 8.9 26.91 -- -- ============================================================================================================================
The fair value of each option grant under the Incentive Plan and the Stock Purchase Plan is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1998, 1997 and 1996, respectively: risk- free interest rates of 5.4%, 6.3% and 6.8%; expected lives of 4.8, 4.1 and 8.8 years; and expected volatility of 36%, 35% and 35%. No dividends payments are included in this valuation. ========================================================================= Note 8: Stockholders' Equity and Earnings Per Share At December 31, 1998 and 1997, 50,000,000 shares of $.01 par value common stock and 10,000,000 shares of $.01 par value preferred stock were authorized. Shares of common stock issued and outstanding at December 31, 1998 and 1997, were 15,496,849 and 15,435,953, respectively. No shares of preferred stock were issued or outstanding at December 31, 1998 or 1997. The shares of preferred stock, which may be issued without further stockholder approval (except as may be required by applicable law or stock exchange rules), may be issued in one or more series, with the number of shares of each series and the rights, preferences and limitations of each series to be determined by the Board of Directors. The following table details the calculation of basic and diluted earnings per share:
Year ended December 31, ------------------------------------------------------------------------------------------------ 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- Amt. Amt. Amt. Net Wtd. Avg. Per Net Wtd. Avg. Per Net Wtd. Avg. Per Income Shares Share Income Shares Share Income Shares Share - --------------------------------------------------------------------------------------------------------------------------------- Basic earnings per share: Income available to common stockholders $36,805 16,066,699 $2.29 $27,651 15,059,569 $1.84 $16,906 14,625,078 $1.16 ===== ===== ===== Diluted earnings per share: Effect of dilutive securities: Stock options granted and outstanding -- 543,308 -- 812,158 -- 669,252 - --------------------------------------------------------------------------------------------------------------------------------- Income available to common stockholders and assumed conversions $36,805 16,610,007 $2.22 $27,651 15,871,727 $1.74 $16,906 15,294,330 $1.11 =================================================================================================================================
30 - ------------------------------------------------------------------------- ========================================================================= Note 9: Long-Term Debt and Other Borrowing Arrangements
December 31, -------------------------- 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Credit line, due 2000 $ -- 15,000 Credit line, due 2003 35,987 -- Unsecured senior note, due 2006 35,000 35,000 Variable rate industrial revenue bond, due 2018 9,500 -- 5.0% Note, due 2001 636 828 3.0% Industrial development note, due 2001 209 281 Bank note due in Finnish Markka 20 575 Other 2 2 - ------------------------------------------------------------------------------------------------------------------- 81,354 51,686 Current maturities of long-term debt (296) (459) - ------------------------------------------------------------------------------------------------------------------- Long-term debt, less current maturities $81,058 51,227 =================================================================================================================== The facility, effective November 30, 1995, was terminated on January 20, 1998. The interest rate varied with market rates for prime, CD's and/or LIBOR and the Company's debt to adjusted income ratio. As of December 31, 1997, this rate was 6.5% and averaged 6.3% for the year ended December 31, 1997. The facility was effective January 20, 1998. The loans under the facility may be denominated in U.S. Dollars or in several foreign currencies. At December 31, 1998, the outstanding balance consisted of two loans: $24.0 million and DM20.0 million. The interest rate varies with market rates for federal funds and/or LIBOR for the applicable currency and the Company's debt to adjusted income ratio. As of December 31, 1998, the rate for the U.S. Dollar loan and the German Mark loan was 6.0% and 3.8%, respectively, and averaged 5.9% and 4.0%, respectively, for the year ended December 31, 1998. On September 26, 1996, the Company entered into an unsecured senior note agreement at a fixed interest rate of 7.3%. This debt matures in ten years and requires equal annual principal payments for seven years beginning September 26, 2000. The interest rate varies with market rates for tax-exempt industrial revenue bonds. As of December 31, 1998, this rate was 4.2% and averaged 3.5% for the year ended December 31, 1998. This Finnish Markka denominated debt was assumed upon the acquisition of Tamrotor and provides for an interest rate of 5.0%. The debt was used to purchase machinery and equipment and is secured by such equipment. ===================================================================================================================
On January 20, 1998, the Company entered into an agreement for a new revolving line of credit with an aggregate $125,000 borrowing capacity and terminated the previous agreement. Of the available credit line, $35,987 was outstanding at December 31, 1998, leaving $89,013 available for additional borrowings or to issue as letters of credit. The total debt balance will mature on January 20, 2003. In September 1996, the Company obtained fixed rate financing by entering into an unsecured senior note agreement for $35,000. This note has a ten-year final, seven-year average maturity with principal payments beginning in 2000. Both of the Company's borrowing agreements are unsecured and permit certain investments and dividend payments. There are no material restrictions on the Company as a result of these agreements, other than customary covenants regarding certain earnings, liquidity and capital ratios. On April 23, 1998, the Fayette County Development Authority issued $9,500 in industrial revenue bonds, on behalf of the Company, to finance the cost of constructing and equipping the new manufacturing facility in Peachtree City, Georgia. The principal for these industrial revenue bonds is to be repaid in full on March 1, 2018. These industrial revenue bonds are secured by a letter of credit. Maturities of long-term debt for the five years subsequent to December 31, 1998 are $296, $5,290, $5,281, $5,000 and $40,987, respectively. Included in short-term borrowings and current maturities of long- term debt is a credit facility for Tamrotor, denominated in Finnish Markka. At December 31, 1998, the outstanding balance under the facility was $2,156 and the interest rate was 3.6%. The average interest rate was 4.1% for the year ended December 31, 1998. Interest paid in 1998, 1997 and 1996 was $5,494, $4,374 and $2,423, respectively. The rentals for all operating leases were $2,531, $2,108 and $1,519 in 1998, 1997 and 1996, respectively. 31 Gardner Denver - ------------------------------------------------------------------------- Notes to Consolidated Financial Statements (dollars in thousands, except per share data) ========================================================================= Note 10: Segment Information The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). The Company is organized based on the products and services it offers. Under this organizational structure, the Company has three operating units: compressor products, blower products and petroleum products, which result in two reportable segments under SFAS 131, Compressed Air Products and Petroleum Products. The compressor and blower products operating units have been aggregated into one reportable segment (Compressed Air Products) since the long- term financial performance of these businesses are affected by similar economic conditions, coupled with the similar nature of their products, manufacturing processes, served markets and other business characteristics. The Compressed Air Products segment designs, manufactures, markets and services reciprocating, rotary screw and sliding vane compressors and blowers to serve all aspects of the industrial air market. The markets served are primarily in the United States, but a growing portion of revenue is from exports and expanding European operations. The Petroleum Products segment designs, manufactures, markets and services a diverse group of pump products used in oil and natural gas production, well servicing, oil and gas drilling and water blast markets. The accounting policies of the segments are the same as those described in Note 1. The Company evaluates the performance of its segments based on income before interest expense and income taxes. A portion of the expenses and certain assets attributable to corporate activity are not allocated to the segments. Unallocated assets primarily consist of cash and equivalents and deferred tax assets. Intersegment sales and transfers are not significant.
Revenues Operating Earnings Identifiable Assets ------------------------------------------------------------------------------------------------------- Year ended December 31, Year ended December 31, December 31, - --------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- Compressed Air Products $298,440 228,214 188,027 $45,496 38,554 30,399 $252,386 199,205 166,987 Petroleum Products 86,552 63,333 29,973 21,911 13,211 2,258 50,653 41,604 38,812 ------------------------------------------------------------------------------------------------------- Total $384,992 291,547 218,000 67,407 51,765 32,657 303,039 240,809 205,799 ================================ Interest expense (4,849) (3,937) (3,104) General corporate (2,664) (1,677) (1,114) 39,091 27,460 29,957 ------------------------------------------------------------------ Income before income taxes $59,894 46,151 28,439 =============================== Total assets $342,130 268,269 235,756 =============================== Year ended December 31, ------------------------------- 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- Income from reductions of inventory quantities resulting in liquidations of LIFO inventory layers, included in operating earnings above: Compressed Air Products $ 2,543 442 1,164 Petroleum Products 1,998 778 857 - --------------------------------------------------------------------------------------------------------------------------------- Total $ 4,541 1,220 2,021 ================================================================================================================================= Provision for obsolete and slow-moving inventory, included in operating earnings above: Compressed Air Products $ 489 507 1,048 Petroleum Products 130 358 750 - --------------------------------------------------------------------------------------------------------------------------------- Total $ 619 865 1,798 ================================================================================================================================= Depreciation and amortization, included in operating earnings above: Compressed Air Products $10,602 8,458 7,043 Petroleum Products 2,376 1,204 1,054 - --------------------------------------------------------------------------------------------------------------------------------- Total $12,978 9,662 8,097 ================================================================================================================================= Capital expenditures: Compressed Air Products $17,025 7,755 3,510 Petroleum Products 2,654 2,053 661 - --------------------------------------------------------------------------------------------------------------------------------- Total $19,679 9,808 4,171 =================================================================================================================================
32 - -------------------------------------------------------------------------
Year ended December 31, Revenues outside the United States were -------------------------------- comprised of sales to unaffiliated companies in: 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- Europe $ 54,815 26,652 9,787 Canada 21,942 19,245 14,282 Latin America 10,837 12,413 10,434 Asia 6,512 14,240 14,937 Other 14,859 6,165 4,109 - --------------------------------------------------------------------------------------------------------------------------------- Total $108,965 78,715 53,549 ================================================================================================================================= Net long-lived assets by geographic area are as follows: December 31, -------------------------------- 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- United States $145,895 104,299 103,854 Europe 27,620 18,755 160 - --------------------------------------------------------------------------------------------------------------------------------- Total $173,515 123,054 104,014 =================================================================================================================================
========================================================================= Note 11: Income Taxes
Year ended December 31, -------------------------------- 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- Income taxes: Current: U.S. federal $ 16,164 13,936 9,422 U.S. state and local 1,847 1,593 1,385 International 1,066 253 -- - --------------------------------------------------------------------------------------------------------------------------------- Current 19,077 15,782 10,807 - --------------------------------------------------------------------------------------------------------------------------------- Deferred: U.S. federal 3,587 2,190 633 U.S. state and local 410 251 93 International 15 277 -- - --------------------------------------------------------------------------------------------------------------------------------- Deferred 4,012 2,718 726 - --------------------------------------------------------------------------------------------------------------------------------- Provision for income taxes $ 23,089 18,500 11,533 ================================================================================================================================= The differences between the provision for income taxes and income taxes using the U.S. federal income tax rate were as follows: Income tax provision at 35% $ 20,963 16,153 9,953 State and local income taxes 2,008 1,573 1,238 Nondeductible goodwill 979 769 592 Other, net (861) 5 (250) - --------------------------------------------------------------------------------------------------------------------------------- Total $ 23,089 18,500 11,533 ================================================================================================================================= Total income taxes paid $ 17,827 15,138 9,839 ================================================================================================================================= December 31, -------------------------------- 1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- Components of deferred tax balances: Deferred tax assets: Reserves and accruals $ 11,601 11,746 Postretirement benefits other than pensions 19,102 20,677 Other 628 175 - --------------------------------------------------------------------------------------------------------------------------------- Total deferred tax assets 31,331 32,598 - --------------------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: LIFO inventory (4,398) (4,039) Plant and equipment (5,048) (4,428) VEBA trust (643) (468) Other (6,625) (5,034) - --------------------------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities (16,714) (13,969) - --------------------------------------------------------------------------------------------------------------------------------- Net deferred tax assets $ 14,617 18,629 =================================================================================================================================
33 Gardner Denver - ------------------------------------------------------------------------- Notes to Consolidated Financial Statements (dollars in thousands, except per share data) U.S. taxes and foreign country withholding taxes are not provided on undistributed earnings of international subsidiaries because the Company intends to reinvest earnings indefinitely. The estimated amount of income taxes that would be incurred should such earnings be distributed is not significant due to available foreign tax credits. ========================================================================= Note 12: Off-Balance Sheet Risk, Concentrations of Credit Risk and Fair Value of Financial Instruments Off-Balance Sheet Risk and Concentrations of Credit Risk There were no off balance sheet derivative financial instruments as of December 31, 1998. As of December 31, 1997, such instruments consisted solely of an interest rate swap agreement used to fix interest rates on floating rate debt. This agreement was with a commercial bank and had a notional principal amount of $15,000. The swap provided a fixed interest rate of 6%. The interest rate swap terminated in November 1998. Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and markets into which the Company's products are sold, as well as their dispersion across many different geographic areas. As a result, as of December 31, 1998, the Company does not consider itself to have any significant concentrations of credit risk. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and equivalents, trade receivables, trade payables, debt instruments and a forward foreign currency contract hedging the Company's investment in its Finnish operations. The book values of these instruments are not materially different from their respective fair values. ========================================================================= Note 13: Contingencies The Company has been identified as a potentially responsible party ("PRP") with respect to various sites designated for cleanup under various state and federal laws. The Company does not own any of these sites. Current estimates of the Company's remaining maximum exposure before reimbursement by other PRP's are in a range between $1,300 and $3,600. The Company believes that the costs related to these sites will not have a materially adverse effect on its consolidated financial position, results of operations or liquidity. In addition to the environmental matters, the Company is a party to various other legal proceedings and administrative actions, most of which are of an ordinary or routine nature, incidental to the operations of the Company. ========================================================================= Note 14: Quarterly Financial Information (Unaudited)
1998 Quarter Ended ------------------------------------------------------ March 31, June 30, Sept. 30, Dec. 31, - --------------------------------------------------------------------------------------------------------------------- Revenues $89,792 103,509 96,605 95,086 Gross margin 30,394 33,378 32,581 35,797 Net income 8,081 9,200 8,748 10,776 Basic earnings per share $ 0.51 0.57 0.54 0.67 Diluted earnings per share $ 0.49 0.55 0.52 0.66 ===================================================================================================================== 1997 Quarter Ended ------------------------------------------------------ March 31, June 30, Sept. 30, Dec. 31, - --------------------------------------------------------------------------------------------------------------------- Revenues $66,075 69,447 76,451 79,574 Gross margin 21,622 23,704 25,742 28,862 Net income 5,324 6,813 6,965 8,549 Basic earnings per share $ 0.36 0.46 0.46 0.56 Diluted earnings per share $ 0.34 0.43 0.44 0.53 ===================================================================================================================== Gross margin equals revenues less cost of sales. Includes an increase in net income in 1998 and 1997 of $2,788 and $732, respectively, related to LIFO inventory liquidations.
34 Gardner Denver - ------------------------------------------------------------------------- Shareholder Information Stock Information Gardner Denver's common stock has traded on the New York Stock Exchange since August 14, 1997 under the ticker symbol GDI. Prior to this date, the Company's common stock traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol GDMI. On January 15, 1997, the Company effected a two-for-one stock split and on December 29, 1997, the Company completed a three-for- two stock split. The quarterly high and low sales prices for the Company's common stock for the two most recent years, adjusted to reflect these stock splits, as reported by the New York Stock Exchange and the Nasdaq Stock Market, are as follows:
- ----------------------------------------------------------------------------------------------------------------------------- High/Low Qtr 1 Qtr 2 Qtr 3 Qtr 4 - ----------------------------------------------------------------------------------------------------------------------------- 1998 $29 15/16 -- $19 1/2 30 7/16 -- 24 1/2 28 1/4 -- 13 23/32 18 3/4 -- 10 3/8 1997 $21 11/64 -- $10 11/64 20 21/64 -- 12 25 53/64 -- 17 21/64 28 27/64 -- 20 5/8 - -----------------------------------------------------------------------------------------------------------------------------
As of March 1, 1999, there were approximately 9,000 holders of record of Gardner Denver's common stock. Dividends Gardner Denver has not paid a cash dividend since its spin-off in April 1994. The cash flow generated by the Company is currently utilized for debt service and capital accumulation and reinvestment. Transfer Agent and Registrar First Chicago Trust Company, A Division of EquiServe P.O. Box 2500 Jersey City, New Jersey 07303-2500 (800) 519-3111 (201) 324-1225 (201) 222-4955 (for the hearing impaired) E-mail address: fctc@em.fcnbd.com News Releases by Fax Gardner Denver's news releases, including the quarterly earnings release, are available by fax, without charge, by calling (800) 758-5804, extension 303875, or by visiting our homepage at http://www.gardnerdenver.com. Form 10-K A copy of the annual report on Form 10-K filed with the Securities and Exchange Commission is available, without charge, upon written request to the Corporate Secretary at the Company's address indicated below. Annual Meeting The 1999 Annual Meeting of Stockholders will be held on May 4 at the Holiday Inn Quincy, 201 South Third Street, Quincy, Illinois, starting at 1:30 p.m. Corporate Offices Gardner Denver, Inc. 1800 Gardner Expressway Quincy, Illinois 62301 (217) 222-5400 E-mail address: mktg@gardnerdenver.com Internet Access For access to information on your Gardner Denver investment via the Internet, registered shareholders may contact the Company's transfer agent at (877) 843-9327 for a personal identification number and then visit their website at http://www.fctc.com. 35 Gardner Denver - ------------------------------------------------------------------------- Board of Directors Donald G. Barger, Jr. Vice President and Chief Financial Officer Hillenbrand Industries Inc. Ross J. Centanni Chairman, President and Chief Executive Officer Gardner Denver, Inc. Frank J. Hansen President and Chief Operating Officer IDEX Corporation Raymond R. Hipp Chairman, President and Chief Executive Officer Alternative Resources Corporation Thomas M. McKenna President United Sugars Corporation Alan E. Riedel Vice Chairman (retired) Cooper Industries, Inc. Michael J. Sebastian Executive Vice President (retired) Cooper Industries, Inc. Richard L. Thompson Group President and Executive Office Member Caterpillar Inc. - ------------------------------------------------------------------------- Corporate Officers Ross J. Centanni Chairman, President and Chief Executive Officer David Brown Vice President and General Manager, Gardner Denver Blower Division Helen W. Cornell Vice President, Corporate Secretary and Treasurer Steven M. Krivacek Vice President, Human Resources Daniel C. Rizzo, Jr. Vice President and Corporate Controller Philip R. Roth Vice President, Finance and Chief Financial Officer J. Dennis Shull Vice President and General Manager, Gardner Denver Compressor and Pump Division 36 EX-21.0 4 SCHEDULE OF SUBSIDIARIES Exhibit 21.0 GARDNER DENVER, INC. SCHEDULE OF SUBSIDIARIES YEAR ENDED DECEMBER 31, 1998
Name Subsidiary Uses Subsidiary Name Incorporation for Doing Business --------------- ------------- -------------------- Gardner Denver International, Inc. Delaware Gardner Denver International, Inc. Gardner Denver Export, Inc. Barbados Gardner Denver Export, Inc. Gardner Denver Holdings Inc. Delaware Gardner Denver Holdings Inc. Lamson Corporation TCM Investments, Inc. Oklahoma TCM Investments, Inc. Oy Tamrotor Ab Finland Oy Tamrotor Ab Gardner Denver Wittig GmbH Germany Gardner Denver Wittig GmbH Gardner Denver Oy Finland Gardner Denver Oy
EX-23.0 5 CONSENT OF EXPERT Exhibit 23.0 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 10-K for the year ended December 31, 1998, into the Company's previously filed Registration Statements on Form S-8, File Numbers 33-91088 and 333-24921. ARTHUR ANDERSEN LLP St. Louis, Missouri March 30, 1999 EX-24.0 6 POWER OF ATTORNEY Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1998 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at Atlanta , Georgia this 2nd day of March 1999. ----------- ------------ ------- /s/Thomas M. McKenna ---------------------------------- Thomas M. McKenna Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1998 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at Atlanta , Georgia this 2nd day of March 1999. ----------- ------------ ------- /s/Alan E. Riedel ------------------- Alan E. Riedel Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1998 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at Atlanta , Georgia this 2nd day of March 1999. ----------- ------------ ------- /s/Michael J. Sebastian ------------------------------------------- Michael J. Sebastian Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1998 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at Atlanta , Georgia this 2nd day of March 1999. ----------- ------------ ------- /s/Donald G. Barger, Jr. ------------------------------------ Donald G. Barger, Jr. Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1998 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at Atlanta , Georgia this 2nd day of March 1999. ----------- ------------ ------- /s/Frank J. Hansen ------------------ Frank J. Hansen Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1998 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at Atlanta , Georgia this 2nd day of March 1999. ----------- ------------ ------- /s/Richard L. Thompson -------------------------------- Richard L. Thompson Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1998 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at Atlanta , Georgia this 2nd day of March 1999. ----------- ------------ ------- /s/Raymond R. Hipp -------------------------------- Raymond R. Hipp EX-27 7 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER, INC. FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 DEC-31-1998 24,474 0 71,616 (4,371) 53,115 151,805 165,305 (106,044) 342,130 63,258 83,510 163 0 0 142,523 342,130 383,131 384,992 252,301 252,842 0 306 4,849 59,894 23,089 36,805 0 0 0 36,805 2.29 2.22
-----END PRIVACY-ENHANCED MESSAGE-----