-----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, SNF6BZOlbb/i5teZo1IolaCFIklb+KU2L60u0FHtkHGk2FKDBqjmHJC8FYlZF54t g/kCze5aqT2w2E/X2fMUlw== 0001068800-99-000358.txt : 19990817 0001068800-99-000358.hdr.sgml : 19990817 ACCESSION NUMBER: 0001068800-99-000358 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARDNER DENVER INC CENTRAL INDEX KEY: 0000916459 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 760419383 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13215 FILM NUMBER: 99691352 BUSINESS ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 BUSINESS PHONE: 2172225400 MAIL ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 FORMER COMPANY: FORMER CONFORMED NAME: GARDNER DENVER MACHINERY INC DATE OF NAME CHANGE: 19931221 10-Q 1 GARDNER DENVER, INC. FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-13215 GARDNER DENVER, INC. (Exact name of Registrant as Specified in its Charter) DELAWARE 76-0419383 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1800 GARDNER EXPRESSWAY QUINCY, ILLINOIS 62301 (Address of Principal Executive Offices and Zip Code) (217) 222-5400 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No --- --- Number of shares outstanding of the issuer's Common Stock, par value $.01 per share, as of July 29, 1999: 14,923,368 shares. =========================================================================== PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. GARDNER DENVER, INC. CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share amounts) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ----------------------- 1999 1998 1999 1998 ------- -------- -------- -------- Revenues $85,410 $103,509 $155,634 $193,301 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 56,726 70,131 105,086 129,529 Depreciation and amortization 3,391 3,221 6,910 6,116 Selling and administrative expenses 13,967 13,738 25,765 26,692 Interest expense 1,469 1,386 2,676 2,565 Other expense 103 123 226 278 ------- -------- -------- -------- Income before income taxes 9,754 14,910 14,971 28,121 Provision for income taxes 3,765 5,710 5,779 10,840 ------- -------- -------- -------- Net income $ 5,989 $ 9,200 $ 9,192 $ 17,281 ======= ======== ======== ======== Basic earnings per share $ 0.40 $ 0.57 $ 0.61 $ 1.08 ======= ======== ======== ======== Diluted earnings per share $ 0.39 $ 0.55 $ 0.60 $ 1.04 ======= ======== ======== ======== The accompanying notes are an integral part of this statement.
- 2 - GARDNER DENVER, INC. CONSOLIDATED BALANCE SHEET (dollars in thousands, except per share amounts)
(UNAUDITED) JUNE 30, DECEMBER 31, 1999 1998 ----------- ------------ ASSETS Current assets: Cash and equivalents $ 19,932 $ 24,474 Receivables, net 71,425 69,617 Inventories, net 58,559 53,115 Deferred income taxes 2,307 2,445 Other 2,646 2,154 -------- -------- Total current assets 154,869 151,805 -------- -------- Property, plant and equipment, net 60,719 59,261 Intangibles, net 121,442 114,254 Deferred income taxes 9,965 12,172 Other assets 4,666 4,638 -------- -------- Total assets $351,661 $342,130 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt $ 282 $ 2,452 Accounts payable and accrued liabilities 53,313 60,806 -------- -------- Total current liabilities 53,595 63,258 -------- -------- Long-term debt, less current maturities 103,733 81,058 Postretirement benefits other than pensions 44,780 46,612 Other long-term liabilities 8,051 8,516 -------- -------- Total liabilities 210,159 199,444 -------- -------- Stockholders' equity: Common stock, $.01 par value; 50,000,000 shares authorized; 14,903,980 shares issued and outstanding at June 30, 1999 165 163 Capital in excess of par value 155,164 153,656 Treasury stock at cost, 1,585,790 shares at June 30, 1999 (23,213) (12,259) Retained earnings 12,498 3,306 Accumulated other comprehensive loss (3,112) (2,180) -------- -------- Total stockholders' equity 141,502 142,686 -------- -------- Total liabilities and stockholders' equity $351,661 $342,130 ======== ======== The accompanying notes are an integral part of this statement
- 3 - GARDNER DENVER, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in thousands) (Unaudited)
SIX MONTHS ENDED JUNE 30, ----------------------- 1999 1998 -------- -------- Cash flows from operating activities: Net income $ 9,192 $ 17,281 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,910 6,116 Stock issued for employee benefit plans 981 963 Deferred income taxes 3,102 (189) Changes in assets and liabilities: Receivables 845 (13,953) Inventories (2,700) (1,373) Accounts payable and accrued liabilities (10,422) 1,766 Other assets and liabilities, net (2,682) (470) -------- -------- Net cash provided by operating activities 5,226 10,141 -------- -------- Cash flows from investing activities: Business acquisitions, net of cash acquired (17,014) (39,295) Foreign currency hedging transactions 2,424 851 Capital expenditures (6,261) (6,269) Disposals of plant and equipment 581 --- -------- -------- Net cash used for investing activities (20,270) (44,713) -------- -------- Cash flows from financing activities: Principal payments on long-term debt (16,163) (28,890) Proceeds from long-term borrowings 37,940 67,450 Debt issuance costs --- (67) Proceeds from stock options 529 316 Purchase of treasury stock (10,954) --- Other --- (163) -------- -------- Net cash provided by financing activities 11,352 38,646 -------- -------- Effect of exchange rate changes on cash and equivalents (850) (1,359) -------- -------- (Decrease) increase in cash and equivalents (4,542) 2,715 -------- -------- Cash and equivalents, beginning of period 24,474 8,831 -------- -------- Cash and equivalents, end of period $ 19,932 $ 11,546 ======== ======== The accompanying notes are an integral part of this statement.
- 4 - NOTES TO CONDENSED FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Basis of Presentation. The accompanying condensed financial statements include the accounts of Gardner Denver, Inc. ("Gardner Denver" or the "Company") and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. Investments in entities in which the Company has twenty to fifty percent ownership are accounted for by the equity method. The financial information presented as of any date other than December 31 has been prepared from the books and records without audit. The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial statements, have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto incorporated by reference in Gardner Denver's Annual Report on Form 10-K for the year ended December 31, 1998. The results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the full year. NOTE 2. RECENT 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. The Company 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 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 A.G. ("Wittig") for approximately $10.5 million. Wittig is located in Schopfheim, Germany. The purchase price - 5 - 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. On April 1, 1999, the Company acquired 100% of the stock of the Allen- Stuart Equipment Company ("Allen-Stuart") and on April 5, 1999, the Company acquired 100% of the stock of Butterworth Jetting Systems, Inc. ("Butterworth"). Allen-Stuart, located in Houston, Texas, designs and fabricates custom-engineered packages for blower and compressor equipment in air and gas applications. Allen-Stuart serves a wide variety of industrial companies, including petrochemical, power generation, oil and natural gas production and refining. Butterworth, also located in Houston, Texas, is a manufacturer of water jet pumps and systems serving the industrial cleaning and maintenance market. Applications in this market include runway and ship-hull cleaning, concrete demolition and metal surface preparation. The aggregate purchase price for these acquisitions was approximately $17.5 million. The purchase price of each acquisition was allocated to assets and liabilities based on their respective fair values at the date of acquisition and resulted in an aggregate excess of net assets acquired of $10.7 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, Allen-Stuart and Butterworth 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 the acquisitions of Allen-Stuart and Butterworth have not been finalized. NOTE 3. EARNINGS PER SHARE. The following table details the calculation of basic and diluted earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 1999 1998 1999 1998 ------- ------- ------- ------- Basic EPS: Net income $ 5,989 $ 9,200 $ 9,192 $17,281 ======= ======= ======= ======= Shares Weighted average number of common shares outstanding 14,895 16,115 15,070 16,035 ======= ======= ======= ======= Basic earnings per common share $ 0.40 $ 0.57 $ 0.61 $ 1.08 ======= ======= ======= ======= - 6 - THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 1999 1998 1999 1998 ------- ------- ------- ------- Diluted EPS: Net income $ 5,989 $ 9,200 $ 9,192 $17,281 ======= ======= ======= ======= Shares Weighted average number of common shares outstanding 14,895 16,115 15,070 16,035 Assuming conversion of dilutive stock options issued and outstanding 386 593 361 645 ------- ------- ------- ------- Weighted average number of common shares outstanding, as adjusted 15,281 16,708 15,431 16,680 ======= ======= ======= ======= Diluted earnings per common share $ 0.39 $ 0.55 $ 0.60 $ 1.04 ======= ======= ======= =======
NOTE 4. INVENTORIES.
JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Raw materials, including parts and subassemblies $39,142 $42,006 Work-in-process 9,395 8,167 Finished goods 23,296 17,159 Perishable tooling and supplies 2,525 2,525 ------- ------- 74,358 69,857 Excess of current standard costs over LIFO costs (6,912) (7,037) Allowance for obsolete and slow- moving inventory (8,887) (9,705) ------- ------- Inventories, net $58,559 $53,115 ======= =======
NOTE 5. LONG TERM DEBT. As of June 30, 1999 the Company was not in technical compliance with three covenants associated with its commercial bank line of credit. These violations related to exceeding capital expenditure limitations, nonperformance in providing stock pledge agreements for a foreign subsidiary acquired in March 1998 and nonperformance in executing guarantees on domestic subsidiaries acquired in April 1999. The bank group has waived these debt compliance requirements by entering into an amendment and waiver to the credit agreement, dated as of August 12, 1999. NOTE 6. COMPREHENSIVE INCOME. For the three months ended June 30, 1999 and 1998, comprehensive income was $4.9 million and $9.2 million, respectively. For the six months ended June 30, 1999 and 1998, comprehensive income was $8.3 million and $17.3 million, respectively. Items impacting the - 7 - Company's comprehensive income, but not included in net income, consist of foreign currency translation adjustments. NOTE 7. CASH FLOW INFORMATION. In the first six months of 1999 and 1998, the Company paid $5.4 million and $11.3 million, respectively, to the various taxing authorities for income taxes. Interest paid for the first six months of 1999 and 1998, totaled $2.7 million and $2.5 million respectively. NOTE 8. SEGMENT INFORMATION.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- -------------------- 1999 1998 1999 1998 ------- -------- -------- -------- Revenues: Compressed Air Products $78,960 $ 78,086 $142,550 $148,116 Petroleum Products 6,450 25,423 13,084 45,185 ------- -------- -------- -------- Total $85,410 $103,509 $155,634 $193,301 ======= ======== ======== ======== Operating Earnings: Compressed Air Products $11,682 $ 10,684 $ 18,261 $ 21,362 Petroleum Products 202 6,247 600 10,659 ------- -------- -------- -------- Total 11,884 16,931 18,861 32,021 Interest expense 1,469 1,386 2,676 2,565 General corporate 661 635 1,214 1,335 ------- -------- -------- -------- Income before income taxes $ 9,754 $ 14,910 $ 14,971 $ 28,121 ======= ======== ======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS. PERFORMANCE IN THE QUARTER ENDED JUNE 30, 1999 COMPARED WITH THE QUARTER ENDED JUNE 30, 1998 Revenues Revenues decreased $18.1 million (17%) to $85.4 million for the three months ended June 30, 1999, compared to the same period of 1998. Excluding incremental revenue from acquisitions which the Company completed in April 1999, revenues decreased $22.9 million (22%) over the same period of 1998. See Note 2 to the Financial Statements for further information on the Company's recent acquisitions. For the three months ended June 30, 1999, revenues for the Compressed Air Products segment increased $0.9 million (1%) to $79.0 million compared to the same period of 1998. Excluding incremental revenue from acquisitions completed in April 1999, which contributed $4.8 million, compressed air product revenues decreased $3.9 million (5%). This reduction was primarily related to declining industrial production in the United States during the second half of 1998 which reduced orders for compressor products. Petroleum Products segment revenues decreased - 8 - $19.0 million (75%) to $6.5 million for the three months ended June 30, 1999, compared to the same period of 1998. This reduction was primarily due to lower oil prices in the second half of 1998 which resulted in lower orders and backlog for petroleum products in 1999. Costs and Expenses Gross margin (defined as sales less cost of sales excluding depreciation and amortization) for the three months ended June 30, 1999 decreased $4.7 million (14%) to $28.7 million from $33.4 million in the same period of 1998. Gross margin as a percentage of revenues (gross margin percentage) increased to 33.6% in the three-month period of 1999 from 32.2% in the same period of 1998. This increase in the gross margin percentage was principally attributable to a change in sales mix, combined with improved operating efficiencies at our new manufacturing facility in Georgia. Depreciation and amortization increased 5% to $3.4 million in the first three months of 1999, compared with $3.2 million for the same period of 1998. The increase in depreciation and amortization expense was due to goodwill amortization associated with acquisitions and ongoing capital expenditures. For the three-month periods, depreciation and amortization expense as a percentage of revenues increased to 4.0% in 1999 from 3.1% in 1998. This percentage increase is due to the factors noted above, combined with the effect of lower revenues. Selling and administrative expenses increased in the three months of 1999 by 2% to $14.0 million from $13.7 million in the same period of 1998. Incremental expenses of $0.9 million related to acquisitions were offset by decreases in manpower levels and discretionary spending. Excluding the incremental impact of acquisitions, selling and administrative expenses decreased by 5% from the comparable 1998 period. As a percentage of revenues, selling and administrative expenses for the three-month periods increased to 16.4% in 1999 from 13.3% in 1998. This percentage increase is primarily due to the decrease in revenues and the acquisitions referred to above which have higher selling and administrative expenses relative to sales than the Company's existing operations. The Compressed Air Products segment generated operating margins (defined as revenues, less cost of sales, depreciation and amortization, and selling and administrative expenses excluding unallocated corporate administrative expenses) of 14.8% for the three-month period ended June 30, 1999, an increase from 13.7% for the three-month period of 1998. This improvement is due to manpower reductions, reduced discretionary spending, improved operating efficiencies at our new manufacturing facility in Georgia and other cost reduction efforts. This improvement was partially offset by an increased allocation of shared costs since the segment's revenues represent a greater percentage of the Company's total revenues in 1999 as compared to 1998. The Petroleum Products segment generated operating margins of 3.1% for three-month period ended June 30, 1999, compared to 24.6% for the same period in 1998. This decline is primarily attributable to the negative impact of decreased leverage of the segment's fixed and semi-fixed costs over a lower revenue base, partially offset by manpower reductions, reduced discretionary spending and other cost reduction efforts. - 9 - Interest expense increased $0.1 million in the three-month period of 1999 compared to the same period of 1998 due to higher average borrowings in 1999. The average interest rate was 6.0% for both three- month periods ended 1999 and 1998. Income before income taxes declined $5.2 million (35%) to $9.8 million for the three months ended June 30, 1999, compared to the same period of 1998. This decrease is primarily the result of lower revenues discussed above. Compared to 1998, the provision for income taxes decreased by $1.9 million to $3.8 million for the three months primarily as a result of the decreased income before taxes. The Company's effective tax rate for the three months ended June 30, 1999 was 38.6%, compared to 38.3% in the prior year period. Net income for the three months ended June 30, 1999 decreased $3.2 million (35%) to $6.0 million ($0.39 diluted earnings per share), compared to $9.2 million ($0.55 diluted earnings per share) for the same period of 1998. This reduction in net income is attributable to the same factors that resulted in decreased income before taxes noted above. PERFORMANCE IN THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1998 Revenues Revenues decreased $37.7 million (19%) to $155.6 million for the six months ended June 30, 1999, compared to the same period of 1998. Excluding incremental revenue from acquisitions which the Company has completed since late January 1998, revenues decreased $49.2 million (25%) over the same period of 1998. See Note 2 to the Financial Statements for further information on the Company's recent acquisitions. For the six months ended June 30, 1999, revenues for the Compressed Air Products segment decreased $5.6 million (4%) to $142.6 million compared to the same period of 1998. Excluding incremental revenue from acquisitions since late January 1998, which contributed $11.5 million, compressed air product revenues decreased $17.1 million (12%). This reduction was primarily related to declining industrial production in the United States during the second half of 1998 which reduced orders for compressor products. Petroleum Products segment revenues decreased $32.1 million (71%) to $13.1 million for the six months ended June 30, 1999, compared to the same period of 1998. This reduction was primarily due to lower oil prices in the second half of 1998 which resulted in lower orders and backlog for petroleum products in 1999. Costs and Expenses Gross margin (defined as sales less cost of sales excluding depreciation and amortization) for the six months ended June 30, 1999 decreased $13.2 million (21%) to $50.5 million from $63.8 million in the same period of 1998. Gross margin as a percentage of revenues (gross margin percentage) decreased to 32.5% in the six-month period of 1999 from 33.0% in the same period of 1998. This reduction in the gross margin percentage was principally attributable to two factors. First, acquisitions completed since late January 1998 negatively affected the gross margin percentage as these companies currently generate lower gross margins than the Company's previously existing operations. Second, the negative impact of decreased leverage of - 10 - production overhead costs over a lower revenue base was only partially offset by cost reduction efforts and increased operating efficiencies at our new manufacturing facility in Georgia. Depreciation and amortization increased 13% to $6.9 million in the first six months of 1999, compared with $6.1 million for the same period of 1998. The increase in depreciation and amortization expense was due to goodwill amortization associated with acquisitions and ongoing capital expenditures. For the six-month periods, depreciation and amortization expense as a percentage of revenues increased to 4.4% in 1999 from 3.2% in 1998. This percentage increase is due to the factors noted above, combined with the effect of lower revenues. Selling and administrative expenses decreased in the six months of 1999 by 3% to $25.8 million from $26.7 million in the same period of 1998. Incremental expenses of $2.4 million related to acquisitions were offset by decreases in manpower levels and discretionary spending. Excluding the impact of acquisitions completed since late January 1998, selling and administrative expenses decreased by more than 12% from the comparable 1998 period. As a percentage of revenues, selling and administrative expenses for the six-month periods increased to 16.6% in 1999 from 13.8% in 1998. This percentage increase is primarily due to the decrease in revenues and the acquisitions referred to above, which have higher selling and administrative expenses relative to sales than the Company's existing operations. The Compressed Air Products segment generated operating margins (defined as revenues, less cost of sales, depreciation and amortization, and selling and administrative expenses excluding unallocated corporate administrative expenses) of 12.8% for the six-month period ended June 30, 1999, a decrease from 14.4% for the six-month period of 1998. This decline is due to the negative impact of decreased leverage of the segment's fixed and semi-fixed costs over a lower revenue base and the effect of newly acquired operations that currently generate lower operating margins (after amortization of goodwill associated with the acquisitions) than the Company's previously existing operations. The operating margin was also negatively impacted by an increased allocation of shared costs since the segment's revenues represent a greater percentage of the Company's total revenues in 1999 as compared to 1998. Manpower reductions, reduced discretionary spending and other cost reduction efforts partially offset these negative factors. The Petroleum Products segment generated operating margins of 4.6% for six-month period ended June 30, 1999, compared to 23.6% for the same period in 1998. This decline is primarily attributable to the negative impact of decreased leverage of the segment's fixed and semi-fixed costs over a lower revenue base, partially offset by manpower reductions, reduced discretionary spending and other cost reduction efforts. Interest expense increased $0.1 million for the six-month period of 1999, compared to the comparable period of 1998, due to higher average borrowings in 1999, partially offset by lower average interest rates. The average interest rate for the six-month period of 1999 was 5.8%, compared to 6.2% for the same period of 1998. Income before income taxes declined $13.2 million (47%) to $15.0 million for the six months ended June 30, 1999, compared to the same period of 1998. This decrease is primarily the result of lower revenues and reduced gross margins discussed above. - 11 - Compared to 1998, the provision for income taxes decreased by $5.1 million to $5.8 million for the six month period, as a result of the decreased income before taxes. The Company's effective tax rate was 38.6% for the six month periods in both 1999 and 1998. Net income for the six months ended June 30, 1999 decreased $8.1 million (47%) to $9.2 million ($0.60 diluted earnings per share), compared to $17.3 million ($1.04 diluted earnings per share) for the same period of 1998. This reduction in net income is attributable to the same factors that resulted in decreased income before taxes noted above. Outlook Demand for petroleum products is related to market expectations concerning prices of oil and natural gas. During the first quarter of 1999, orders for the Company's petroleum products reached their lowest level of the previous twelve months as a result of the substantial decline in the prices of oil and natural gas in 1998. Orders for petroleum products were $6.2 million in the second quarter, a decrease of $16.4 million compared to the same period of 1998. For the first six months of 1999, petroleum product orders were $10.1 million, a decrease of $26.6 million compared to the same period of 1998. Compared to June 30, 1998, backlog for this business segment declined $24.6 million to $3.6 million on June 30, 1999. Increases in demand for these products are dependent upon sustained appreciation in oil and natural gas prices, which the Company cannot predict. However, the price of oil increased significantly during the first half of 1999 and if it remains at current elevated levels, the Company believes a recovery in demand could occur late in 1999. Nonetheless, the Company anticipates significantly lower revenue for petroleum products in 1999, but 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 GDP, manufacturing capacity utilization and industrial production. In the second quarter of 1999, orders for compressed air products were $77.3 million, including $7.2 million from acquisitions, compared to $69.4 million in the same period of 1998. For the first six months of 1999, orders for compressed air products, including $11.8 million from acquisitions, were $142.6 million, compared to $134.5 million in the same period of 1998. The Company experienced softer orders for compressed air products, beginning in the second half of 1998 due to slowing growth in industrial production in the United States, which resulted in reduced revenue for compressed air products through the second quarter of 1999. However, localized demand for compressed air products has improved recently and the order rate for this segment increased approximately 7% in the second quarter of 1999, compared to that of the first quarter. Backlog for this segment was $50.7 million as of June 30, 1999, including $8.6 million from acquisitions, compared to $51.1 million as of June 30, 1998. 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 the anticipated delay in orders compared to previous expectations, the Company now anticipates that diluted earnings per share will be approximately 30% to 35% lower in 1999 compared to 1998. - 12 - LIQUIDITY AND CAPITAL RESOURCES Operating Working Capital During the six months ended June 30, 1999, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) increased $14.7 million, with acquisitions completed in 1999 representing $5.1 million of this increase. Excluding acquisitions, the remaining increase in operating working capital is related to a decrease in accounts payable and accrued liabilities and an increase in inventory, partially offset by a decrease in receivables. The decrease in accounts payable and accrued liabilities and receivables is due to reduced spending and revenues. The increase in inventory is primarily due to the timing of shipments and a buildup of some petroleum products inventory in anticipation of a potential recovery in demand in late 1999. Cash Flows During the six months of 1999, the Company generated cash flows from operations totaling $5.2 million, a decrease of $4.9 million (48%) from the comparable period in 1998. This reduction was primarily the result of the decrease in net income and accounts payable and accrued liabilities, partially offset by lower receivables as discussed previously. Net borrowings of long-term debt totaled $21.8 million and $11.0 million of treasury stock was purchased during the six months ended June 30, 1999. The cash flows provided by operating and financing activities and used for investing activities resulted in a net cash decrease of $4.5 million for the six months ended June 30, 1999. Capital Expenditures and Commitments Capital projects to increase operating efficiency, production capacity and product quality resulted in expenditures of $6.3 million in the first six months of both 1999 and 1998. Commitments for capital expenditures at June 30, 1999 totaled $4.6 million. Management expects additional capital authorizations to be committed during the remainder of the year and that capital expenditures for 1999 will approximate $15 million, primarily due to expenditures for machining capacity and cost reduction projects. Capital expenditures related to environmental projects have not been significant in the past and are not expected to be significant in the foreseeable future. In October 1998, Gardner Denver's Board of Directors authorized the repurchase of up to 1,600,000 shares of the Company's common stock to be used for general corporate purposes. Approximately 200,000 shares remain available for repurchase under this program. The Company has also established a Stock Repurchase Program for its executive officers to provide a means for them to sell Gardner Denver common stock and obtain sufficient funds to meet alternative minimum tax obligations which arise from the exercise of incentive stock options. During the six months ended June 30, 1999, 766,342 shares were repurchased under these repurchase programs at a cost of $10.7 million. As of June 30, 1999, a total of 1,521,442 shares have been repurchased at a cost of $22.8 million under both repurchase programs. 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 June 30, 1999, the Credit Line had an outstanding balance of approximately $55.7 million, leaving $69.3 million available for letters of credit or future borrowings. The Credit - 13 - 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. As of June 30, 1999, the Company was not in technical compliance with three covenants associated with its Credit Line. These violations related to exceeding capital expenditure limitations, nonperformance in providing stock pledge agreements for a foreign subsidiary acquired in March 1998 and nonperformance in executing guarantees on domestic subsidiaries acquired in April 1999. The bank group has waived these debt compliance requirements by entering into an amendment and waiver to the credit agreement, dated as of August 12, 1999. Management currently expects that the Company's future cash flows will be sufficient to fund the scheduled debt service under existing credit facilities and provide required resources for working capital and capital investments. 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 or statements, perform material requirements planning or engage in similar normal business activities. The Company believes the 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 end of the third quarter of 1999. These upgrades relate primarily to the systems utilized by operations acquired in 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 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 - 14 - 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 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 necessary 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 STANDARDS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays the effective date of SFAS 133 for one year, to fiscal years beginning after June 15, 2000 and thus, the Company will adopt SFAS 133 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 June 30, 1999. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis 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 - 15 - 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes in the Company's exposure to market risk between December 31, 1998 and June 30, 1999. - 16 - PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders (the "Annual Meeting") was held pursuant to notice on May 4, 1999. At the Annual Meeting, Donald G. Barger, Jr., Raymond R. Hipp and Michael Sebastian were elected to serve as directors for a three-year term expiring in 2002. Richard L. Thompson was elected to serve as a director for a one-year term expiring in 2000. There were 12,551,421 affirmative votes cast and 223,155 votes withheld concerning Mr. Barger's election as a director; 12,544,031 affirmative votes cast and 230,545 votes withheld concerning Mr. Hipp's election as a director; 12,536,419 affirmative votes cast and 238,157 votes withheld concerning Mr. Sebastian's election as a director; and 12,552,814 affirmative votes cast and 221,762 votes withheld concerning Mr. Thompson's election as a director. At the Annual Meeting, the Company's stockholders approved an amendment to the Company's Long-Term Incentive Plan, increasing the shares available for issuance by 500,000. There were 10,447,281 affirmative votes cast, 2,238,896 votes against and 88,399 abstaining votes concerning this amendment. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: 10.0.1 Amendment and Waiver No. 1, dated as of August 12, 1999, to the Credit Agreement dated as of January 20, 1998. 27.0 Financial Data Schedule. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended June 30, 1999. - 17 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GARDNER DENVER, INC. Date: August 13, 1999 By: /s/Ross J. Centanni ---------------------------------- Ross J. Centanni Chairman, President & CEO Date: August 13, 1999 By: /s/Philip R. Roth ---------------------------------- Philip R. Roth Vice President, Finance & CFO Date: August 13, 1999 By: /s/Daniel C. Rizzo, Jr. ---------------------------------- Daniel C. Rizzo, Jr. Vice President and Corporate Controller (Chief Accounting Officer) - 18 - GARDNER DENVER, INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 10.0.1 Amendment and Waiver No. 1, dated as of August 12, 1999, to the Credit Agreement, dated as of January 20, 1998. 27.0 Financial Data Schedule. - 19 - EX-10.0.1 2 AMENDMENT AND WAIVER NO. 1 TO CREDIT AGREEMENT Exhibit 10.0.1 AMENDMENT AND WAIVER NO. 1 TO CREDIT AGREEMENT DATED AS OF JANUARY 20, 1998 THIS AMENDMENT AND WAIVER NO. 1 TO CREDIT AGREEMENT ("Amendment") is made as of August 12, 1999 by and among GARDNER DENVER, INC. (f/k/a Gardner Denver Machinery Inc., the "Borrower"), the financial institutions listed on the signature pages hereof as lenders (the "Lenders"), THE FIRST NATIONAL BANK OF CHICAGO, individually as a Lender, as LC Issuer and as agent (the "Agent") for the Lenders under that certain Credit Agreement dated as of January 20, 1998 by and among the Borrower, the Lenders and the Agent (as amended, modified or restated, the "Credit Agreement"). Defined terms used herein and not otherwise defined herein shall have the meaning given to them in the Credit Agreement. WITNESSETH WHEREAS, the Borrower, the Lenders and the Agent are parties to the Credit Agreement; WHEREAS, the Borrower has requested that the Lenders waive certain provisions of the Credit Agreement and amend the Credit Agreement in certain respects; and WHEREAS, the Lenders and the Agent are willing to waive certain provisions of the Credit Agreement and amend the Credit Agreement on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders and the Agent have agreed to the following waivers of and amendments to the Credit Agreement. 1. AMENDMENTS TO CREDIT AGREEMENT. Effective as of August 12, ------------------------------ 1999 and subject to the satisfaction of the conditions precedent set forth in Section 3 below, the Credit Agreement is hereby amended as --------- follows: 1.1. ARTICLE I OF THE CREDIT AGREEMENT IS HEREBY AMENDED AS --------- FOLLOWS: 1.1.1. THE DEFINITIONS OF "AGREED CURRENCIES," "BUSINESS DAY," "EUROCURRENCY BASE RATE" AND "OBLIGOR SUBSIDIARY" ARE DELETED IN THEIR ENTIRETY AND THE FOLLOWING SUBSTITUTED THEREFOR: - 1 - "AGREED CURRENCIES" means (i) Dollars, (ii) so long as such currencies remain Eligible Currencies, Pounds Sterling, French Francs, Deutsche Marks, Canadian Dollars, Swiss Francs, Japanese Yen, Italian Lire and Dutch Guilders; (iii) from and after becoming generally available in the international currency and exchange markets, euro only for so long as the euro is and remains an Eligible Currency, and (iv) any other Eligible Currency which the Borrower requests the Agent to include as an Agreed Currency hereunder and which is acceptable to one-hundred percent (100%) of the Lenders; provided that the Agent shall promptly notify each Lender of each such request and each Lender shall be deemed not to have agreed to each such request unless its written consent thereto has been received by the Agent within five (5) Business Days from the date of such notification by the Agent to such Lender. "BUSINESS DAY" means (i) with respect to any borrowing, payment or rate selection of Eurocurrency Advances, a day (other than Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States Dollars and the other Agreed Currencies (other than the euro) are carried on in the London interbank market, (ii) with respect to any Advances denominated in euro, a day (other than Saturday or Sunday) on which a clearing system determined by the Agent to be suitable for clearing or settlement of the euro is open for business, and (iii) for all other purposes, a day (other than Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities. "EUROCURRENCY BASE RATE" means, with respect to a ---------------------- Eurocurrency Advance for any specified Eurocurrency Interest Period: (a) for any Eurocurrency Advance in any Alternate Currency other than euro, either: (i) the rate of interest per annum equal to the rate for deposits in the applicable Agreed Currency in the approximate amount of the pro rata share of the Agent of such Eurocurrency Advance with a maturity approximately equal to such Interest Period which appears on Telerate Page 3740 or Telerate Page 3750, as applicable, or, if there is more than one such rate, the average of such rates rounded to the nearest 1/100 of 1%, as of 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period or (ii) if no such rate of interest appears on Telerate Page 3740 or Telerate Page 3750, as applicable, for any specified Interest Period, the rate at which deposits in the applicable Agreed Currency are offered by the Agent to first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, in the approximate amount of the Pro Rata Share of First Chicago of such Eurocurrency Advance and having a maturity approximately equal to such Interest Period; and - 2 - (b) with respect to any Eurocurrency Advance in euro for any Interest Period, the interest rate per annum equal to the rate determined by the Agent to be the rate at which deposits in euro appear on that page of the Bloomberg's or Reuters' Screen which displays British Bankers Association Interest Settlement Rates for deposits in euro for such Interest Period or, if such page or service shall cease to be available, such other page or such other service (as the case may be) for the purpose of displaying British Bankers Association Interest Settlement Rates for euro as the Agent, in its discretion, shall select; provided, that if no such -------- rate is displayed for euro and the relevant Interest Period and there is no euro alternative service on which two or more such quotations for euro are displayed, then Eurocurrency Base Rate shall be an interest rate per annum equal to rate per annum at which deposits in euro are offered by the Agent for that Interest Period to prime banks in the London interbank market on or about 11:00 a.m. (London time) on the date which is two (2) Business Days prior to the first day of such Interest Period. The terms "Telerate Page 3740" and "Telerate Page 3750" mean the display designated as "Page 3740" and "Page 3750", as applicable, on the Associated Press-Dow Jones Telerate Service (or such other page as may replace Page 3740 or Page 3750, as applicable, on the Associated Press-Dow Jones Telerate Service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association interest rate settlement rates for the relevant Agreed Currency). Any Eurocurrency Base Rate determined on the basis of the rate displayed on Telerate Page 3740 or Telerate Page 3750, or on the Bloomberg's or Reuter's Screen, in accordance with the foregoing provisions of this subparagraph shall be subject to corrections, if any, made in such rate and displayed by the Associated Press-Dow Jones Telerate Service, or Bloomberg's or Reuters, as applicable, within one hour of the time when such rate is first displayed by such service. "OBLIGOR SUBSIDIARY" means (i) a Subsidiary which is a party to a Subsidiary Guaranty or (ii) a Material Foreign Subsidiary in connection with which a Pledge Agreement has been executed. 1.1.2. INSERT THE FOLLOWING DEFINITIONS IN THE APPROPRIATE ALPHABETICAL LOCATIONS: "EURO" means the euro referred to in Council Regulation (EC) No. 1103/97 dated June 17, 1997 passed by the Council of the European Union, or, if different, the then lawful currency of the member states of the European Union that participate in the third stage of the Economic and Monetary Union. "NATIONAL CURRENCY UNIT" means the unit of currency (other than a euro unit) of each member state of the European Union that participates in the third stage of the Economic and Monetary Union. - 3 - 1.2. SECTION 2.12 IS AMENDED AS FOLLOWS: ------------ 1.2.1. TO DELETE THE THIRD SENTENCE THEREFROM AND SUBSTITUTE THE FOLLOWING THEREFOR: Each Advance shall be repaid or prepaid and each payment of interest thereon shall be paid in the currency in which such Advance was made or, where such currency has converted to the euro, in the euro. 1.2.2. TO ADD THE FOLLOWING AT THE END THEREOF: For purposes of this Section 2.12, the commencement of the ------------ third stage of European Economic and Monetary Union shall not constitute the imposition of currency control or exchange regulations. 1.3. THE FOLLOWING SHALL BE INSERTED AT THE END OF ARTICLE II AS SECTION 2.23: ------------ 2.23. European Economic and Monetary Union. ------------------------------------ 2.23.1. Advances in Euro. If any Advance made ---------------- would, but for the provisions of this Section 2.23.1, -------------- be capable of being made in either the euro or in a National Currency Unit, such Advance shall be made in the euro unless otherwise consented to by the Agent. 2.23.2. Rounding and Other Consequential Changes. ---------------------------------------- With effect on and after the date hereof: (i) without prejudice to any method of conversion or rounding prescribed by any legislative measures of the Council of the European Union, each reference in this Agreement to a fixed amount or to fixed amounts in a National Currency Unit to be paid to or by the Agent shall, notwithstanding any other provision of this Agreement, be replaced by a reference to such comparable and convenient fixed amount or fixed amounts in the euro as the Agent may from time to time specify; and (ii) the Agent may notify the other parties to this Agreement of any modifications to this Agreement which the Agent (acting reasonably and after consultation with the other parties to this Agreement) determines to be necessary as a result of the commencement of the third stage of the European Economic and Monetary Union. Notwithstanding any other provision of this Agreement, any modifications of which the Agent so notifies the other parties shall take effect in accordance with the terms of such notification. So far as possible, such modifications shall be such as to put the parties in the same position as if the euro Implementation Date had not occurred. However, if and to the - 4 - extent that the Agent determines that it is not possible to put the parties in such position, the Agent may give priority to putting the Agent, the Arranger and the Lenders into such position. 1.4 SECTION 6.15 IS AMENDED TO ADD THE FOLLOWING TO THE END ------------ THEREOF: In addition to the foregoing provisions, if any Foreign Subsidiary becomes a Material Foreign Subsidiary (whether through investment, add-on acquisitions, growth or otherwise), the Borrower shall or shall cause its applicable domestic Subsidiary promptly (but in any event within 60 days following the end of the fiscal quarter during which such Foreign Subsidiary becomes a Material Foreign Subsidiary) to execute a Pledge Agreement with respect to the stock of such material Foreign Subsidiary, provided the Lien created under such Pledge Agreement shall be extended equally and ratably to the Senior Noteholders pursuant to a collateral sharing agreement, intercreditor agreement or collateral trust agreement executed with the Senior Noteholders or with respect to the Indebtedness evidenced by the Senior Notes on terms and conditions reasonably acceptable to the Agent; and shall deliver appropriate corporate resolutions, opinions and other documentation in form and substance satisfactory to the Agent in connection therewith; provided, however, that the provisions of -------- ------- this sentence shall not be applicable to Gardner Denver Wittig GmbH, provided the Borrower is in compliance with the provisions of Section 6.24. ------------ 1.5 SECTION 6.23 IS AMENDED TO ADD THE FOLLOWING AT THE END ------------ THEREOF: Notwithstanding anything herein to the contrary, for purposes of calculating compliance with the provisions of this Section 6.23 as ------------ of the end of the fiscal quarter ending September 30, 1999, there shall be excluded from such calculations the amount of Capital Expenditures incurred during the previous 12-month period with respect to the Borrower's Peachtree facility in Atlanta, Georgia so long as the aggregate amount (without limitation as to time) of Capital Expenditures expended for such facility do not exceed $9,000,000. 1.5 SECTION 6.24 IS AMENDED TO DELETE THE PHRASE "(OTHER ------------ THAN OY TAMROTOR AB)" CONTAINED THEREIN AND TO SUBSTITUTE IT WITH "(OTHER THAN OY TAMROTOR AB OR ANY OTHER FOREIGN SUBSIDIARY OF THE BORROWER INTO WHICH OY TAMROTOR AB IS MERGED OR LIQUIDATED)". 2. Waivers. Effective as of the date hereof and subject to the ------- satisfaction of the conditions precedent set forth in Section 3 below, --------- the Lenders hereby waive: (a) the Borrower's non-compliance with the provisions of Section 6.23 of the Credit Agreement for the quarters ending ------------ December 31, 1998, March 31, 1999 and June 30, 1999 resulting from Capital Expenditures incurred with respect to the Borrower's Peachtree facility in Atlanta, Georgia so long as the aggregate amount (without limitation - 5 - as to time) of Capital Expenditures expended for such facility do not exceed $9,000,000; and (b) the Borrower's non-compliance with the provisions of Section 6.10 of the Credit Agreement with respect to Subsidiaries ------------ (other than Foreign Subsidiaries) of the Borrower created or acquired since the date of the Credit Agreement. 3. CONDITIONS OF EFFECTIVENESS. This Amendment shall become --------------------------- effective and be deemed effective as of August 12, 1999, if, and only if, the Agent shall have received each of the following: (a) duly executed originals of this Amendment from the Borrower and each of the Lenders; (b) a duly executed supplement to the Subsidiary Guaranty in form and substance acceptable to the Agent or a duly executed Subsidiary Guaranty, substantially in the form of Exhibit "B" to the Credit Agreement, duly executed and delivered by each Subsidiary of the Borrower (other than Foreign Subsidiaries) which have become Subsidiaries since the date of the Credit Agreement, together with: (i) copies of the articles or certificate of incorporation of such Subsidiaries, together with all amendments, and a certificate of good standing, both certified by the appropriate governmental officer in its jurisdiction of incorporation; (ii) copies, certified by the Secretary or Assistant Secretary of such Subsidiaries, of its by-laws and of its Board of Directors' resolutions authorizing its execution of the Subsidiary Guaranty and certifying that no amendments have been made to its articles or certificate of incorporation subsequent to the date of certification by the applicable governmental officer referred to in item (i) above; (iii) an incumbency certificate, executed by the Secretary or Assistant Secretary of such Subsidiaries, which shall identify by name and title and bear the signature of the officers of such Subsidiary authorized to sign the Subsidiary Guaranty; and (iv) an opinion of such Subsidiaries' counsel with respect to the Subsidiary Guaranties, in substantially the form of the opinion received at the closing of the Credit Agreement; (c) a reaffirmation from each of the Borrower's other Subsidiaries which are parties to a Subsidiary Guaranty in the form of Exhibit A attached hereto and made a part hereof; and --------- (d) such other documents, instruments and agreements as the Agent may reasonably request. 4. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. The ----------------------------------------------- Borrower hereby represents and warrant as follows: - 6 - (a) This Amendment and the Credit Agreement as previously executed and as amended hereby, constitute legal, valid and binding obligations of the Borrower and are enforceable against the Borrower in accordance with their terms. (b) Upon the effectiveness of this Amendment, the Borrower hereby reaffirms all covenants, representations and warranties made in the Credit Agreement and other loan documents, to the extent the same are not amended hereby, and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the effective date of this Amendment. (c) Other than the Defaults waived pursuant to Section 2 above, no Default or Unmatured Default has occurred under the Credit Agreement. 5. REFERENCE TO THE EFFECT ON THE CREDIT AGREEMENT. ----------------------------------------------- (a) Upon the effectiveness of Section 1 hereof, on and --------- after the date hereof, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Credit Agreement, as amended previously and as amended hereby. (b) Except as specifically amended and waived above, the Credit Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect, and are hereby ratified and confirmed. (c) Except to the limited extent set forth in Section 2 above, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or any of the Lenders, nor constitute a waiver of any provision of the Credit Agreement or any other documents, instruments and agreements executed and/or delivered in connection therewith. 6. COSTS AND EXPENSES. The Borrower agrees to pay all ------------------ reasonable costs, fees and out-of-pocket expenses (including attorneys' fees and expenses charged to the Agent) incurred by the Agent in connection with the preparation, arrangement, execution and enforcement of this Amendment. 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND ------------- CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAW PROVISIONS) OF THE STATE OF ILLINOIS. 8. HEADINGS. Section headings in this Amendment are included -------- herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 9. COUNTERPARTS. This Amendment may be executed by one or more ------------ of the parties to the Amendment on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A facsimile signature page hereto sent to the Agent or the Agent's counsel shall be effective as a counterpart signature provided each party executing such a facsimile counterpart agrees to deliver originals to the Agent thereof. - 7 - IN WITNESS WHEREOF, this Amendment and Waiver No. 1 has been duly executed as of the day and year first above written. GARDNER DENVER, INC. (formerly known as GARDNER DENVER MACHINERY INC.), as Borrower By: /s/ Helen W. Cornell --------------------------------------- Name: Helen W. Cornell Title: Vice President, Corporate Secretary & Treasurer THE FIRST NATIONAL BANK OF CHICAGO, Individually as a Lender, as LC Issuer and as Agent By: /s/ Patricia S. Carpen --------------------------------------- Name: Patricia S. Carpen Title: Vice President MERITA BANK PLC, as a Lender By: /s/ Anu Seppala --------------------------------------- Name: Anu Seppala Title: Vice President By: /s/ William Keller --------------------------------------- Name: William Keller Title: Vice President THE BANK OF NEW YORK, as a Lender By: /s/ John M. Lokay, Jr. --------------------------------------- Name: John M. Lokay, Jr. Title: Vice President - 8 - CREDIT AGRICOLE INDOSUEZ, as a Lender By: /s/ Raymond A. Falkenberg --------------------------------------- Name: Raymond A. Falkenberg Title: Vice President, Manager By: /s/ David Bouhl --------------------------------------- Name: David Bouhl Title: First Vice President Managing Director HARRIS TRUST & SAVINGS BANK, as a Lender By: /s/ Lee A. Vandermyde --------------------------------------- Name: Lee A. Vandermyde Title: Managing Director BANK OF AMERICA, NATIONAL ASSOCIATION (f/k/a NationsBank, N.A.), as a Lender By: /s/ Keith M. Schmelder --------------------------------------- Name: Keith M. Schmelder Title: Senior Vice President - 9 - EXHIBIT A TO AMENDMENT NO. 1 Reaffirmation of Subsidiary Guaranty ------------------------------------ Attached - 10 - REAFFIRMATION ------------- Each of the undersigned hereby acknowledges receipt of a copy of Amendment and Waiver No. 1 to the Agreement dated as of January 20, 1998, by and among Gardner Denver, Inc. (f/k/a Gardner Denver Machinery, Inc.), the Lenders and the Agent (as so amended thereby, the "Credit Agreement") which Amendment and Waiver No. 1 is dated as of August 12, 1999 (the "Amendment"). Capitalized terms used in this Reaffirmation and not defined herein shall have the meanings given to them in the Credit Agreement. Without in any way establishing a course of dealing by the Agent or any Lender, the undersigned reaffirms the terms and conditions of the Subsidiary Guaranty dated as of January 20, 1998 executed by it and acknowledges and agrees that such Subsidiary Guaranty and each and every other Loan Document executed by the undersigned in connection with the Credit Agreement remain in full force and effect and are hereby ratified, reaffirmed and confirmed. All references to the Credit Agreement contained in the above-referenced documents shall be a reference to the Credit Agreement as so amended by the Amendment and as the same may from time to time hereafter be amended, modified or restated. GARDNER DENVER INTERNATIONAL, INC. By: /s/ Helen W. Cornell ----------------------------------------------- Its: Vice President, Corporate Secretary & Treasurer GARDNER DENVER HOLDINGS INC. By: /s/ Helen W. Cornell ----------------------------------------------- Its: Vice President, Corporate Secretary & Treasurer ----------------------------------------------- LAMSON CORPORATION By: /s/ Helen W. Cornell ----------------------------------------------- Its: Vice President, Corporate Secretary & Treasurer ----------------------------------------------- TCM INVESTMENTS, INC. (individually and as successor to the business previously conducted by Adex, Inc.) By: /s/ Helen W. Cornell ----------------------------------------------- Its: Secretary & Treasurer ----------------------------------------------- - 11 - EX-27.0 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER, INC. FOR THE YEAR-TO-DATE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 19,932 0 76,072 (4,647) 58,559 154,869 167,906 (107,187) 351,661 53,595 104,015 163 0 0 141,339 351,661 154,824 155,634 104,940 105,086 146 338 2,676 14,971 5,779 9,192 0 0 0 9,192 0.61 0.60
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