UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2013
OR
¨ | 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.
(Exact name of registrant as specified in its charter)
Delaware | 76-0419383 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1500 Liberty Ridge Drive, Suite 3000
Wayne, Pennsylvania 19087
(Address of principal executive offices and Zip Code)
(610) 249-2000
(Registrants 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 requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 49,207,850 shares of Common Stock, par value $0.01 per share, as of April 22, 2013.
GARDNER DENVER, INC.
2
PART I FINANCIAL INFORMATION
GARDNER DENVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31, |
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2013 | 2012 | |||||||
Revenues |
$ | 513,541 | $ | 604,356 | ||||
Cost of sales |
339,595 | 401,789 | ||||||
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Gross profit |
173,946 | 202,567 | ||||||
Selling and administrative expenses |
102,462 | 105,913 | ||||||
Other operating expense, net |
8,107 | 16,862 | ||||||
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Operating income |
63,377 | 79,792 | ||||||
Interest expense |
2,677 | 3,834 | ||||||
Other income, net |
(1,308 | ) | (1,223 | ) | ||||
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Income before income taxes |
62,008 | 77,181 | ||||||
Provision for income taxes |
16,122 | 22,066 | ||||||
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Net income |
45,886 | 55,115 | ||||||
Less: Net income attributable to noncontrolling interests |
203 | 283 | ||||||
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Net income attributable to Gardner Denver |
$ | 45,683 | $ | 54,832 | ||||
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Net earnings per share attributable to Gardner Denver common stockholders |
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Basic earnings per share |
$ | 0.93 | $ | 1.08 | ||||
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Diluted earnings per share |
$ | 0.93 | $ | 1.08 | ||||
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Cash dividends declared per common share |
$ | 0.05 | $ | 0.05 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
GARDNER DENVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31, |
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2013 | 2012 | |||||||
Comprehensive Income Attributable to Gardner Denver |
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Net income attributable to Gardner Denver |
$ | 45,683 | $ | 54,832 | ||||
Other comprehensive income, net of tax: |
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Foreign currency translation adjustments, net |
(28,501 | ) | 27,251 | |||||
Foreign currency gains (losses), net |
(6,501 | ) | 2,009 | |||||
Unrecognized gains on cash flow hedges, net |
134 | 46 | ||||||
Pension and other postretirement prior service cost and gain or loss, net |
1,742 | (350 | ) | |||||
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Total other comprehensive income (loss), net of tax |
(33,126 | ) | 28,956 | |||||
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Comprehensive income attributable to Gardner Denver |
$ | 12,557 | $ | 83,788 | ||||
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Comprehensive Income Attributable to Noncontrolling Interests |
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Net income attributable to noncontrolling interests |
$ | 203 | $ | 283 | ||||
Other comprehensive income, net of tax: |
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Foreign currency translation adjustments, net |
(60 | ) | 59 | |||||
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Total other comprehensive income, net of tax |
(60 | ) | 59 | |||||
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Comprehensive income attributable to noncontrolling interests |
143 | 342 | ||||||
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Total Comprehensive Income |
$ | 12,700 | $ | 84,130 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
GARDNER DENVER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
March 31, 2013 |
December 31, 2012 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ | 225,401 | $ | 254,000 | ||||
Accounts receivable (net of allowance of $11,507 at March 31, 2013 and $11,606 at December 31, 2012) |
428,654 | 444,815 | ||||||
Inventories, net |
372,218 | 343,197 | ||||||
Deferred income taxes |
26,945 | 22,708 | ||||||
Other current assets |
45,376 | 52,269 | ||||||
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Total current assets |
1,098,594 | 1,116,989 | ||||||
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Property, plant and equipment (net of accumulated depreciation of $390,569 at March 31, 2013 and $385,472 at December 31, 2012) |
295,498 | 295,244 | ||||||
Goodwill |
668,130 | 680,900 | ||||||
Other intangibles, net |
326,511 | 339,724 | ||||||
Other assets |
66,669 | 68,947 | ||||||
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Total assets |
$ | 2,455,402 | $ | 2,501,804 | ||||
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Short-term borrowings and current maturities of long-term debt |
$ | 305,946 | $ | 359,433 | ||||
Accounts payable |
200,203 | 198,388 | ||||||
Accrued liabilities |
206,071 | 210,672 | ||||||
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Total current liabilities |
712,220 | 768,493 | ||||||
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Long-term debt, less current maturities |
17,829 | 9,727 | ||||||
Postretirement benefits other than pensions |
3,978 | 4,296 | ||||||
Deferred income taxes |
67,164 | 69,066 | ||||||
Other liabilities |
186,152 | 196,059 | ||||||
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Total liabilities |
987,343 | 1,047,641 | ||||||
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Gardner Denver stockholders equity: |
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Common stock, $0.01 par value; 100,000,000 shares authorized; 49,207,444 and 49,144,212 shares outstanding at March 31, 2013 and December 31, 2012, respectively |
601 | 601 | ||||||
Capital in excess of par value |
623,330 | 618,454 | ||||||
Retained earnings |
1,269,453 | 1,226,237 | ||||||
Accumulated other comprehensive income |
4,050 | 37,176 | ||||||
Treasury stock at cost; 10,933,185 and 10,932,361 shares at March 31, 2013 and December 31, 2012, respectively |
(430,922 | ) | (430,853 | ) | ||||
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Total Gardner Denver stockholders equity |
1,466,512 | 1,451,615 | ||||||
Noncontrolling interests |
1,547 | 2,548 | ||||||
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Total stockholders equity |
1,468,059 | 1,454,163 | ||||||
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Total liabilities and stockholders equity |
$ | 2,455,402 | $ | 2,501,804 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
GARDNER DENVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31, |
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2013 | 2012 | |||||||
Cash Flows From Operating Activities |
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Net income |
$ | 45,886 | $ | 55,115 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
14,896 | 19,089 | ||||||
Foreign currency transaction (gain) loss, net |
(81 | ) | 1,530 | |||||
Net (gain) loss on asset dispositions |
(114 | ) | 516 | |||||
Stock issued for employee benefit plans |
222 | 271 | ||||||
Stock-based compensation expense |
2,047 | 2,321 | ||||||
Excess tax benefits from stock-based compensation |
(504 | ) | (1,303 | ) | ||||
Deferred income taxes |
(4,288 | ) | (9,294 | ) | ||||
Changes in assets and liabilities: |
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Receivables |
9,327 | (127 | ) | |||||
Inventories |
(34,314 | ) | (40,042 | ) | ||||
Accounts payable and accrued liabilities |
5,150 | 25,092 | ||||||
Other assets and liabilities, net |
(218 | ) | (4,601 | ) | ||||
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Net cash provided by operating activities |
38,009 | 48,567 | ||||||
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Cash Flows From Investing Activities |
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Capital expenditures |
(6,834 | ) | (13,104 | ) | ||||
Disposals of property, plant and equipment |
353 | 6,138 | ||||||
Other, net |
| (1 | ) | |||||
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Net cash used in investing activities |
(6,481 | ) | (6,967 | ) | ||||
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Cash Flows From Financing Activities |
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Principal payments on short-term borrowings |
(991 | ) | (1,883 | ) | ||||
Proceeds from short-term borrowings |
1,011 | 2,926 | ||||||
Principal payments on long-term debt |
(122,523 | ) | (56,501 | ) | ||||
Proceeds from long-term debt |
67,200 | 54,010 | ||||||
Proceeds from stock option exercises |
2,102 | 1,775 | ||||||
Excess tax benefits from stock-based compensation |
504 | 1,303 | ||||||
Purchase of treasury stock |
(67 | ) | (9,841 | ) | ||||
Cash dividends paid |
(2,462 | ) | (2,551 | ) | ||||
Other |
(1,145 | ) | (1,085 | ) | ||||
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Net cash used in financing activities |
(56,371 | ) | (11,847 | ) | ||||
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Effect of exchange rate changes on cash and cash equivalents |
(3,756 | ) | 1,850 | |||||
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Net increase in cash and cash equivalents |
(28,599 | ) | 31,603 | |||||
Cash and cash equivalents, beginning of year |
254,000 | 155,259 | ||||||
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Cash and cash equivalents, end of period |
$ | 225,401 | $ | 186,862 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
GARDNER DENVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and amounts described in millions)
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Gardner Denver, Inc. and its majority-owned subsidiaries (collectively referred to herein as Gardner Denver or the Company). All intercompany transactions and accounts have been eliminated in consolidation.
The financial information presented as of any date other than December 31, 2012 has been prepared from the books and records of the Company without audit. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial statements.
The unaudited interim condensed consolidated financial statements should be read in conjunction with the complete consolidated financial statements and notes thereto included in Gardner Denvers Annual Report on Form 10-K for the year ended December 31, 2012.
The results of operations for the three-month period ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year. The balance sheet at December 31, 2012 has been derived from the audited financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements.
Other than as specifically indicated in these Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, the Company has not materially changed its significant accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2012.
New Accounting Standards
Recently Adopted Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). This update requires the following new disclosures related to certain recognized financial instruments subject to master netting arrangements or similar agreements: (i) the gross amounts of recognized financial assets and liabilities; (ii) the amounts offset under current GAAP; (iii) the net amounts presented in the balance sheet; (iv) the amounts subject to an enforceable master netting arrangement or similar agreement that
7
were not included in (ii); and (v) the net amount representing the difference between (iii) and (iv). The update also requires qualitative disclosures related to counterparties, setoff rights, and terms of enforceable master netting arrangements and related agreements depending on their effect or potential effect on the entitys financial position. The new disclosures enable financial statement users to compare balance sheets prepared under GAAP and International Financial Reporting Standards (IFRS), which are subject to different offsetting models. In January 2013, the FASB issued ASU No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (ASU 2013-01), clarifying that the scope of ASU 2011-11 will apply to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with existing relevant GAAP or subject to a master netting arrangement or similar agreement. ASU 2013-01 and ASU 2011-11 are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The Company adopted this guidance on January 1, 2013. Adoption of this guidance did not have a significant effect on the Companys condensed consolidated financial statements and related disclosures.
In November 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220) Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which defers the effective date of presentation requirements included in ASU 2011-05 related to reclassification adjustments. In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02), requiring companies to present information about the amounts reclassified out of accumulated other comprehensive income in their annual financial statements in a single note or on the face of the financial statements. Public companies are also required to provide this information in their interim financial statements. ASU 2013-02 requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. For amounts that that are not required to be reclassified to net income in their entirety, companies are required to cross reference to other disclosures that provide additional detail about those amounts. ASU 2013-02 is effective for public entities for annual reporting periods beginning after December 15, 2012, and for interim periods within those years. The Company adopted this guidance on January 1, 2013. Adoption of this guidance did not have a significant effect on the Companys condensed consolidated financial statements and related disclosures.
Note 2. Entry into Merger Agreement
On March 7, 2013, the Company entered into a definitive merger agreement with an affiliate of Kohlberg Kravis Roberts & Co. L.P. (KKR), pursuant to which the Company would be acquired by an affiliate of KKR for $76.00 per share in cash and would cease to be a publicly traded company. Consummation of the merger is subject to shareholder approval, certain customary closing conditions and regulatory approvals. Subject to satisfaction of the closing conditions and receipt of the required approvals, it is expected that the merger will close in the third quarter of 2013.
Under the merger agreement, the Company is subject to customary covenants regarding the operation of the business of the Company and its subsidiaries prior to the closing. The Company is also subject to customary restrictions on its ability to solicit alternative acquisition proposals from third parties and communicate with third parties regarding alternative acquisition proposals; however, prior to approval of the merger by the Companys shareholders, these restrictions are subject to a customary fiduciary-out provision, which provides for certain exceptions to the restrictions imposed by the merger agreement.
8
If the Company terminates the merger agreement under certain circumstances, the Company will be required to pay a termination fee of $103.4 million and reimbursement of KKRs expenses up to $10 million. The merger agreement also provides that KKR will be required to pay the Company a reverse termination fee equal to $263.1 million if the merger agreement is terminated by KKR under certain circumstances.
Additionally, in connection with the Companys entry into the merger agreement with KKR, the Company entered into Amendment No. 2 to its Amended and Restated Rights Agreement, dated as of March 7, 2013, between the Company and Wells Fargo Bank, National Association, which rendered the rights agreement inapplicable to the transactions contemplated under the merger agreement between the Company and KKR.
Note 3. Restructuring
In 2011, the Company recorded approximately $8.6 million in charges associated with streamlining of manufacturing operations and other cost reduction initiatives. In addition, the 2011 charges included costs associated with the establishment of a centralized European shared service center in the Czech Republic. The Company substantially completed the restructuring actions commenced in 2011 during 2012. The Company recorded charges related to 2011 plans of $1.1 million for the year ended December 31, 2012.
In 2012, the Company launched a broader restructuring program designed to optimize the Companys global manufacturing footprint, better serve customers and expand margins. The initial phase of the global restructuring effort was commenced in the first quarter of 2012. These restructuring actions were primarily focused on the European and North American operations included in the Industrial Products Group reportable segment. These actions, once completed, will reduce the Companys global headcount by approximately 7% (based on employee census figures as of December 31, 2011). In addition, the Company closed three production facilities in 2012, including two facilities in the U.S. and one in Sweden. The Company expects to close an additional facility in the UK in the second quarter of 2013. The Company recorded charges related to the initial phase of the restructuring plans of $17.5 million for the year ended December 31, 2012 and $2.1 million for the three-month period ended March 31, 2013. The Company expects to complete the specific steps contemplated by this initial phase by the end of 2013 and to incur related additional charges of approximately $4.3 million.
On August 16, 2012, the Company announced the launch of phase two of the restructuring program, which is primarily focused on the European operations included in the Industrial Products Group reportable segment. Phase two involves further reductions in the number of manufacturing facilities and associated headcount. Phase two of the program is subject to required consultations with local stakeholders, including employee representatives, and will continue until the end of 2015.
The Company expects to incur severance and other employment related benefit costs in the range of $60 to $65 million and other costs in the range of $15 to $20 million for phase one and phase two of the restructuring program. Additionally, non-cash charges, primarily related to fixed assets, are expected to be in the range of $10 to $15 million.
9
Charges recorded in connection with restructuring plans are included in Other operating expense, net in the Condensed Consolidated Statements of Operations, and are summarized for the years ended December 31, 2011 and 2012 and the three-month period ended March 31, 2013 by reportable segment as follows:
Industrial Products Group |
Engineered Products Group |
Total | ||||||||||
Fiscal year 2011 |
$ | 6,621 | $ | 1,963 | $ | 8,584 | ||||||
Fiscal year 2012 |
14,761 | 3,909 | 18,670 | |||||||||
Three-month period ended March 31, 2013 |
1,440 | 625 | 2,065 | |||||||||
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Total |
$ | 22,822 | $ | 6,497 | $ | 29,319 | ||||||
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The following table summarizes the activity in the restructuring accrual accounts for the three-month period ended March 31, 2013:
Termination Benefits |
Other | Total | ||||||||||
Balance as of December 31, 2012 |
$ | 6,491 | $ | 1,056 | $ | 7,547 | ||||||
Charged to expense |
1,553 | 512 | 2,065 | |||||||||
Payments |
(2,416 | ) | (546 | ) | (2,962 | ) | ||||||
Other, net |
(175 | ) | (16 | ) | (191 | ) | ||||||
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Balance as of March 31, 2013 |
$ | 5,453 | $ | 1,006 | $ | 6,459 | ||||||
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Note 4. Inventories
Inventories as of March 31, 2013 and December 31, 2012 consisted of the following:
March 31, 2013 |
December 31, 2012 |
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Raw materials, including parts and subassemblies |
$ | 278,855 | $ | 256,055 | ||||
Work-in-process |
49,938 | 44,417 | ||||||
Finished goods |
62,994 | 62,230 | ||||||
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391,787 | 362,702 | |||||||
Excess of FIFO costs over LIFO costs |
(19,569 | ) | (19,505 | ) | ||||
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Inventories, net |
$ | 372,218 | $ | 343,197 | ||||
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10
Note 5. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill attributable to each reportable segment for the three-month period ended March 31, 2013, and the year ended December 31, 2012, are presented in the table below:
Industrial Products Group |
Engineered Products Group |
Total | ||||||||||
Balance as of December 31, 2011 |
$ | 358,235 | $ | 318,347 | $ | 676,582 | ||||||
Adjustments |
(634 | ) | | (634 | ) | |||||||
Divestitures |
(195 | ) | | (195 | ) | |||||||
Foreign currency translation |
1,670 | 3,477 | 5,147 | |||||||||
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Balance as of December 31, 2012 |
359,076 | 321,824 | 680,900 | |||||||||
Foreign currency translation |
(8,831 | ) | (3,939 | ) | (12,770 | ) | ||||||
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Balance as of March 31, 2013 |
$ | 350,245 | $ | 317,885 | $ | 668,130 | ||||||
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The following table presents the gross carrying amount and accumulated amortization of identifiable intangible assets, other than goodwill, at the dates presented:
March 31, 2013 | December 31, 2012 | |||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
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Amortized intangible assets: |
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Customer lists and relationships |
$ | 171,572 | $ | (47,742 | ) | $ | 174,660 | $ | (46,764 | ) | ||||||
Acquired technology |
99,495 | (60,350 | ) | 101,178 | (60,233 | ) | ||||||||||
Trademarks |
52,944 | (12,957 | ) | 57,609 | (13,004 | ) | ||||||||||
Other |
11,675 | (10,768 | ) | 11,917 | (10,862 | ) | ||||||||||
Unamortized intangible assets: |
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Trademarks |
122,642 | | 125,223 | | ||||||||||||
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Total other intangible assets |
$ | 458,328 | $ | (131,817 | ) | $ | 470,587 | $ | (130,863 | ) | ||||||
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Amortization of intangible assets for the three-month periods ended March 31, 2013 and 2012 was $4.3 million and $7.5 million, respectively. The decrease in amortization expense in 2013 is primarily due to a $3.4 million non-recurring amortization expense of customer backlog during 2012 related to the Robuschi acquisition. Amortization of intangible assets recorded as of March 31, 2013 is anticipated to be approximately $16.7 million annually in 2013 through 2017 based upon exchange rates as of March 31, 2013. The decrease in the carrying amount of identifiable assets other than goodwill between December 31, 2012 and March 31, 2013 was primarily due to the effect of changes in foreign currency exchange rates.
11
Note 6. Accrued Liabilities
Accrued liabilities as of March 31, 2013 and December 31, 2012 consisted of the following:
March 31, 2013 |
December 31, 2012 |
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Salaries, wages and related fringe benefits |
$ | 53,866 | $ | 53,328 | ||||
Taxes |
35,069 | 31,865 | ||||||
Advance payments on sales contracts |
39,518 | 39,567 | ||||||
Product warranties |
23,866 | 24,429 | ||||||
Other |
53,752 | 61,483 | ||||||
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Total accrued liabilities |
$ | 206,071 | $ | 210,672 | ||||
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A reconciliation of the changes in the accrued product warranty liability for the three-month periods ended March 31, 2013 and 2012 is as follows:
Three Months
Ended March 31, |
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2013 | 2012 | |||||||
Balance at beginning of period |
$ | 24,429 | $ | 22,939 | ||||
Product warranty accruals |
5,097 | 6,828 | ||||||
Settlements |
(5,230 | ) | (5,434 | ) | ||||
Effect of foreign currency translation |
(430 | ) | 339 | |||||
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Balance at end of period |
$ | 23,866 | $ | 24,672 | ||||
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Note 7. Pension and Other Postretirement Benefits
The following table summarizes the components of net periodic benefit cost for the Companys defined benefit pension plans and other postretirement benefit plans recognized for the three-month periods ended March 31, 2013 and 2012:
Three Months Ended March 31, | ||||||||||||||||||||||||
Pension Benefits | Other Postretirement Benefits |
|||||||||||||||||||||||
U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
Service cost |
$ | | $ | | $ | 348 | $ | 288 | $ | 7 | $ | 7 | ||||||||||||
Interest cost |
702 | 826 | 2,619 | 2,674 | 50 | 182 | ||||||||||||||||||
Expected return on plan assets |
(1,123 | ) | (1,074 | ) | (2,742 | ) | (2,570 | ) | | | ||||||||||||||
Recognition of: |
||||||||||||||||||||||||
Unrecognized prior service cost |
| | 11 | 9 | (357 | ) | (15 | ) | ||||||||||||||||
Unrecognized net actuarial loss (gain) |
447 | 475 | 560 | 309 | (255 | ) | (202 | ) | ||||||||||||||||
Gain due to settlements or curtailments |
| | (7 | ) | | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total net periodic benefit cost (income) |
$ | 26 | $ | 227 | $ | 789 | $ | 710 | $ | (555 | ) | $ | (28 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
12
Note 8. Debt
The Companys debt at March 31, 2013 and December 31, 2012 is summarized as follows:
March 31, 2013 |
December 31, 2012 |
|||||||
Short-term borrowings |
$ | 2,879 | $ | 2,288 | ||||
|
|
|
|
|||||
Long-term debt: |
||||||||
Credit Line, due 2013 (1) |
$ | 85,000 | $ | 112,000 | ||||
Term Loan, denominated in U.S. dollars (USD), due 2013 (2) |
198,077 | 214,615 | ||||||
Term Loan, denominated in euros (EUR), due 2013 (3) |
19,245 | 29,718 | ||||||
Secured Mortgages (4) |
3,770 | 3,880 | ||||||
Capitalized leases and other long-term debt |
14,804 | 6,659 | ||||||
|
|
|
|
|||||
Total long-term debt, including current maturities |
320,896 | 366,872 | ||||||
Current maturities of long-term debt |
303,067 | 357,145 | ||||||
|
|
|
|
|||||
Total long-term debt, less current maturities |
$ | 17,829 | $ | 9,727 | ||||
|
|
|
|
(1) | The loans under this facility may be denominated in USD or several foreign currencies. The interest rates under the facility are based on prime, federal funds and/or the London Interbank offer rate (LIBOR) for the applicable currency. At March 31, 2013, the applicable rate was 2.0%, and the weighted-average rate was 1.9% for the three-month period ended March 31, 2013. |
(2) | The interest rate for this loan varies with prime, federal funds and/or LIBOR. At March 31, 2013, the applicable rate was 1.8%, and the weighted-average rate was 1.9% for the three-month period ended March 31, 2013. |
(3) | The interest rate for this loan varies with LIBOR. At March 31, 2013, this rate was 2.1%, and the weighted-average rate was 2.1% for the three-month period ended March 31, 2013. |
(4) | This amount consists of a fixed-rate commercial loan with an outstanding balance of 2,941 at March 31, 2013. The loan is secured by the Companys facility in Bad Neustadt, Germany. |
13
Note 9. Stock-Based Compensation
Total stock-based compensation expenses were $2.0 million and $2.3 million with related tax benefits of $0.7 million and $0.7 million during the three-month periods ended March 31, 2013 and March 31, 2012, respectively. Stock-based compensation expense is presented in Selling and administrative expenses in the Condensed Consolidated Statements of Operations.
Stock Option Awards
A summary of the Companys stock option activity for the three-month period ended March 31, 2013 is presented in the following table (underlying shares in thousands):
Shares | Outstanding Weighted- Average Exercise Price (per share) |
Aggregate Intrinsic Value |
Weighted- Average Remaining Contractual Life |
|||||||||||||
Outstanding at December 31, 2012 |
626 | $ | 53.03 | |||||||||||||
Granted |
| $ | | |||||||||||||
Exercised |
(58 | ) | $ | 36.27 | ||||||||||||
Forfeited |
(15 | ) | $ | 70.93 | ||||||||||||
Expired or canceled |
| $ | | |||||||||||||
|
|
|
|
|||||||||||||
Outstanding at March 31, 2013 |
553 | $ | 54.31 | $ | 11,725 | 4.1 years | ||||||||||
Vested and expected to vest at March 31, 2013 |
547 | $ | 54.12 | $ | 11,697 | 4.1 years | ||||||||||
Exercisable at March 31, 2013 |
400 | $ | 48.05 | $ | 10,983 | 3.5 years |
The aggregate intrinsic value was calculated as the difference between the exercise price of the underlying stock options and the quoted closing price of the Companys common stock at March 31, 2013 multiplied by the number of in-the-money stock options. There were no stock options granted during the three-month period ended March 31, 2013. Pre-tax unrecognized stock-based compensation expense for stock options, net of estimated forfeitures, was $2.7 million as of March 31, 2013 and will be recognized over a weighted-average period of 1.7 years.
The total pre-tax intrinsic values of stock options exercised during the three-month periods ended March 31, 2013 and 2012 were $2.1 million and $2.2 million, respectively.
Valuation Assumptions
The fair value of each stock option grant under the Companys Amended and Restated Long-Term Incentive Plan was estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average assumptions used for the periods indicated are noted in the table below; however, there were no stock options granted during the three-month period ended March 31, 2013:
14
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Assumptions: |
||||||||
Risk-free interest rate |
N/A | 0.7 | % | |||||
Dividend yield |
N/A | 0.3 | % | |||||
Volatility factor |
N/A | 47 | ||||||
Expected life (in years) |
N/A | 4.1 |
Restricted Share Awards
A summary of the Companys restricted share award activity for the three-month period ended March 31, 2013 is presented in the following table (underlying shares in thousands):
Shares | Weighted- Average Grant- Date Fair Value (per share) |
|||||||
Nonvested at December 31, 2012 |
113 | $ | 65.50 | |||||
Granted |
101 | $ | 74.77 | |||||
Vested |
(3 | ) | $ | 43.43 | ||||
Forfeited |
(8 | ) | $ | 55.33 | ||||
|
|
|||||||
Nonvested at March 31, 2013 |
203 | $ | 70.82 | |||||
|
|
The restricted shares granted in the three-month period ended March 31, 2013 were valued at the market close price of the Companys common stock on the grant date. Pre-tax unrecognized compensation expense for nonvested restricted share awards, net of estimated forfeitures, was $8.3 million as of March 31, 2013, which will be recognized over a weighted-average period of 2.5 years. The total fair value of restricted share awards that vested during the three-month periods ended March 31, 2013 and 2012 was $0.2 million and $2.4 million, respectively.
Note 10. Stockholders Equity and Earnings Per Share
In November 2008, the Companys Board of Directors authorized a share repurchase program to acquire up to 3.0 million shares of the Companys outstanding common stock. In November 2011, the Companys Board of Directors authorized a share repurchase program to acquire up to 1.3 million shares of the Companys outstanding common stock plus an additional amount of common stock to offset dilution resulting from grants under the Companys equity compensation plans. The Companys common stock repurchases during the year ended December 31, 2012 exhausted the availability under the share repurchase programs announced in November 2008 and November 2011.
15
In May 2012, the Companys Board of Directors authorized an additional share repurchase program to acquire up to 1.6 million shares of the Companys outstanding common stock plus an additional amount of common shares to offset dilution resulting from grants under the Companys equity compensation plans. As of March 31, 2013, there were 1.6 million shares available for purchase under this program.
All common stock acquired under repurchase programs is held as treasury stock and is available for general corporate purposes.
The following table details the calculation of basic and diluted earnings per common share for the three-month periods ended March 31, 2013 and 2012 (shares in thousands):
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Net income attributable to Gardner Denver |
$ | 45,683 | $ | 54,832 | ||||
Weighted average shares of common stock outstanding: |
||||||||
Basic |
49,161 | 50,638 | ||||||
Effect of stock-based compensation awards |
196 | 299 | ||||||
|
|
|
|
|||||
Diluted |
49,357 | 50,937 | ||||||
|
|
|
|
|||||
Earnings Per Share: |
||||||||
Basic |
$ | 0.93 | $ | 1.08 | ||||
|
|
|
|
|||||
Diluted |
$ | 0.93 | $ | 1.08 | ||||
|
|
|
|
For the three-month periods ended March 31, 2013 and 2012, respectively, equity-based awards to purchase 297 thousand and 260 thousand shares of common stock were outstanding but not included in the computation of diluted earnings per common share because their effect would have been anti-dilutive.
Note 11. Accumulated Other Comprehensive Income
The Companys other comprehensive income (loss) consists of (i) unrealized foreign currency net gains and losses on the translation of the assets and liabilities of its foreign operations, (ii) realized and unrealized foreign currency gains and losses on intercompany notes of a long-term nature and certain hedges of foreign subsidiaries, net of income taxes, (iii) unrealized gains and losses on cash flow hedges (consisting of interest rate swaps), net of income taxes, and (iv) pension and other postretirement prior service cost and actuarial gains or losses, net of income taxes.
The tax effect of each component of other comprehensive income for the three months ended March 31, 2013 is presented in the following table:
Before-Tax Amount |
Tax (Expense) or Benefit |
Net of Tax Amount |
||||||||||
Foreign currency translation adjustments, net |
$ | (28,501 | ) | $ | | $ | (28,501 | ) | ||||
Foreign currency loss, net |
(7,484 | ) | 983 | (6,501 | ) | |||||||
Unrecognized gain on cash flow hedges, net |
215 | (81 | ) | 134 | ||||||||
Pension and other postretirement benefit prior service cost and gain or loss, net |
2,333 | (591 | ) | 1,742 | ||||||||
|
|
|
|
|
|
|||||||
Other comprehensive loss |
$ | (33,437 | ) | $ | 311 | $ | (33,126 | ) | ||||
|
|
|
|
|
|
16
Changes in accumulated other comprehensive income by component for the three months ended March 31, 2013 are presented in the following table (1):
Cumulative Currency Translation Adjustment |
Foreign Currency Gains and (Losses) |
Unrealized (Losses) Gains on Cash Flow Hedges |
Pension and Postretirement Benefit Plans |
Total | ||||||||||||||||
Balance as of December 31, 2012 |
$ | 58,374 | $ | 22,162 | $ | (314 | ) | $ | (43,046 | ) | $ | 37,176 | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive income (loss) before reclassifications |
(28,501 | ) | (6,501 | ) | (53 | ) | 1,351 | (33,704 | ) | |||||||||||
Amounts reclassified from accumulated other comprehensive income (2) |
| | 187 | 391 | 578 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net current-period other comprehensive income (loss) |
(28,501 | ) | (6,501 | ) | 134 | 1,742 | (33,126 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of March 31, 2013 |
$ | 29,873 | $ | 15,661 | $ | (180 | ) | $ | (41,304 | ) | $ | 4,050 | ||||||||
|
|
|
|
|
|
|
|
|
|
(1) | All amounts are net of tax. Amounts in parentheses indicate debits. |
(2) | See the following table for details concerning these reclassifications. |
Reclassifications out of accumulated other comprehensive income for the three months ended March 31, 2013 are presented in the following table:
Details about Accumulated Other Comprehensive Income Components |
Amount Reclassified from Accumulated Other Comprehensive Income |
Affected Line Item in the Statement Where Net Income is Presented | ||||
Loss on cash flow hedges |
||||||
Interest rate swaps |
$ | 301 | Interest expense | |||
|
|
|||||
301 | Total before tax | |||||
(114 | ) | Income tax benefit | ||||
|
|
|||||
$ | 187 | Net of tax | ||||
|
|
|||||
Amortization of defined benefit pension and other postretirement benefit items |
||||||
Prior-service costs |
(346 | )(3) | ||||
Actuarial losses |
752 | (3) | ||||
|
|
|||||
406 | Total before tax | |||||
(15 | ) | Income tax benefit | ||||
|
|
|||||
$ | 391 | Net of tax | ||||
|
|
|||||
Total reclassifications for the period |
$ | 578 | Net of tax | |||
|
|
(3) | These components are included in the computation of net periodic benefit cost (see Note 7 Pension and Other Postretirement Benefits for additional details). |
17
Note 12. Hedging Activities and Fair Value Measurements
Hedging Activities
The Company is exposed to certain market risks during the normal course of its business arising from adverse changes in commodity prices, interest rates, and foreign currency exchange rates. The Companys exposure to these risks is managed through a combination of operating and financing activities. The Company selectively uses derivative financial instruments (derivatives), including foreign currency forward contracts and interest rate swaps, to manage the risks from fluctuations in foreign currency exchange rates and interest rates, respectively. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in commodity prices, interest rates, and foreign currency exchange rates can be volatile, and the Companys risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Companys financial results.
The Companys exposure to interest rate risk results primarily from its borrowings of $323.8 million at March 31, 2013. The Company manages its debt centrally, considering tax consequences and its overall financing strategies. The Company manages its exposure to interest rate risk by maintaining a mixture of fixed and variable rate debt and, from time to time, uses pay-fixed interest rate swaps as cash flow hedges of variable rate debt in order to adjust the relative proportions.
A substantial portion of the Companys operations is conducted by its subsidiaries outside of the U.S. in currencies other than the USD. Almost all of the Companys non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. The USD, EUR, British pound sterling (GBP), and Chinese yuan (CNY) are the principal currencies in which the Company and its subsidiaries enter into transactions. The Company is exposed to the impacts of changes in foreign currency exchange rates on the translation of its non-U.S. subsidiaries assets, liabilities, and earnings into USD. The Company partially offsets these exposures by having certain of its non-U.S. subsidiaries act as the obligor on a portion of its borrowings and by denominating such borrowings, as well as a portion of the borrowings for which the Company is the obligor, in currencies other than the USD.
The Company and its subsidiaries are also subject to the risk that arises when they, from time to time, enter into transactions in currencies other than their functional currency. To mitigate this risk, the Company and its subsidiaries typically settle intercompany trading balances monthly. The Company also selectively uses forward currency contracts to manage this risk. These contracts for the sale or purchase of European and other currencies generally mature within one year.
The Company records its derivatives as assets or liabilities on the balance sheet at fair value. Changes in the fair value of derivatives are recognized either in net income or in other comprehensive income, depending on the designated purpose of the derivative. All cash flows associated with derivatives are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows.
Fluctuations due to changes in foreign currency exchange rates in the value of non-USD borrowings that have been designated as hedges of the Companys net investment in foreign operations are included in other comprehensive income.
18
The following tables summarize the notional amounts, fair values and classification of the Companys outstanding derivatives by risk category and instrument type within the Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012:
March 31, 2013 | ||||||||||||||
Balance Sheet Location | Notional Amount (1) |
Asset Derivatives Fair Value (1) |
Liability Derivatives Fair Value (1) |
|||||||||||
Derivatives designated as hedging instruments |
||||||||||||||
Interest rate swap contracts |
Other liabilities | $ | 175,000 | $ | | $ | 318 | |||||||
Derivatives not designated as hedging instruments |
||||||||||||||
Foreign currency forwards |
Other current assets | $ | 44,948 | $ | 652 | $ | 16 | |||||||
Foreign currency forwards |
Accrued liabilities | $ | 19,465 | $ | | $ | 987 |
December 31, 2012 | ||||||||||||||
Balance Sheet Location | Notional Amount (1) |
Asset Derivatives Fair Value (1) |
Liability Derivatives Fair Value (1) |
|||||||||||
Derivatives designated as hedging instruments |
||||||||||||||
Interest rate swap contracts |
Other liabilities | $ | 200,000 | $ | | $ | 533 | |||||||
Derivatives not designated as hedging instruments |
||||||||||||||
Foreign currency forwards |
Other current assets | $ | 49,823 | $ | 792 | $ | 21 | |||||||
Foreign currency forwards |
Accrued liabilities | $ | 88,000 | $ | | $ | 223 |
(1) | Notional amounts represent the gross contract amounts of the outstanding derivatives excluding the total notional amount of positions that have been effectively closed through offsetting positions. The net gains and net losses associated with positions that have been effectively closed through offsetting positions but not yet settled are included in the asset and liability derivatives fair value columns, respectively. |
19
The Companys foreign currency forward contracts are subject to master netting arrangements or agreements between the Company and the counterparty for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract. The tables below show the effects and potential effects of netting arrangements on the Companys Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012:
March 31, 2013 | ||||||||||||||||||||||||||
(i) | (ii) | (iii)=(i)(ii) | (iv) | (v)=(iii)-(iv) | ||||||||||||||||||||||
Included as Assets or |
Gross Offset in |
Net Presented |
Gross Amounts Not Offset in the Balance Sheet |
|||||||||||||||||||||||
Description | Liabilities in the Balance Sheet |
Gross Amounts Recognized |
the Balance Sheet |
in the Balance Sheet |
Financial Instruments |
Cash Collateral Received |
Net Amount |
|||||||||||||||||||
Foreign currency forwards |
Assets | $ | 652 | $ | 16 | $ | 636 | $ | 604 | $ | | $ | 32 | |||||||||||||
Foreign currency forwards |
Liabilities | $ | 987 | $ | | $ | 987 | $ | 939 | $ | | $ | 48 | |||||||||||||
Interest rate swap contracts |
Liabilities | $ | 318 | $ | | $ | 318 | $ | | $ | | $ | 318 | |||||||||||||
December 31, 2012 | ||||||||||||||||||||||||||
(i) | (ii) | (iii)=(i)(ii) | (iv) | (v)=(iii)-(iv) | ||||||||||||||||||||||
Included as Assets or |
Gross Offset in |
Net Presented |
Gross Amounts Not Offset in the Balance Sheet |
|||||||||||||||||||||||
Description | Liabilities in the Balance Sheet |
Gross Amounts Recognized |
the Balance Sheet |
in the Balance Sheet |
Financial Instruments |
Cash Collateral Received |
Net Amount |
|||||||||||||||||||
Foreign currency forwards |
Assets | $ | 792 | $ | 21 | $ | 771 | $ | 659 | $ | | $ | 112 | |||||||||||||
Foreign currency forwards |
Liabilities | $ | 223 | $ | | $ | 223 | $ | 90 | $ | | $ | 133 | |||||||||||||
Interest rate swap contracts |
Liabilities | $ | 533 | $ | | $ | 533 | $ | | $ | | $ | 533 |
20
Gains and losses on derivatives designated as cash flow hedges included in the Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2013 and 2012, are as presented in the table below:
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Interest rate swap contracts (1) |
||||||||
Gain or (loss) recognized in AOCI on derivatives (effective portion) |
$ | (84 | ) | $ | (209 | ) | ||
Gain or (loss) reclassified from AOCI into income (effective portion) |
(301 | ) | (283 | ) | ||||
Gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing) |
90 | |
(1) | Losses on derivatives reclassified from accumulated other comprehensive income (AOCI) into income (effective portion) were included in Interest expense in the Condensed Consolidated Statements of Operations. |
At March 31, 2013, the Company is the fixed rate payor on six interest rate swap contracts that effectively fix the LIBOR-based index used to determine the interest rates charged on a total of $175.0 million of the Companys LIBOR-based variable rate borrowings. These contracts carry fixed rates ranging from 0.3% to 2.2% and have expiration dates ranging from 2013 to 2014. These swap agreements qualify as hedging instruments and have been designated as cash flow hedges of forecasted LIBOR-based interest payments. Based on LIBOR-based swap yield curves as of March 31, 2013, the Company expects to reclassify losses of $0.3 million out of AOCI into earnings during the next 12 months. The Companys LIBOR-based variable rate borrowings outstanding at March 31, 2013 were $278.1 million and 15.0 million.
There were 25 foreign currency forward contracts outstanding as of March 31, 2013 with notional amounts ranging from $0.1 million to $23.8 million. The Company has not designated any forward contracts as hedging instruments. The majority of these contracts are used to hedge the change in fair value of recognized foreign currency denominated assets or liabilities caused by changes in foreign currency exchange rates. The changes in the fair value of these contracts generally offset the changes in the fair value of a corresponding amount of the hedged items, both of which are included in the Other operating expense, net, line on the face of the Condensed Consolidated Statements of Operations. The Company recorded net losses of $1.9 million and $29 during the three-month periods ended March 31, 2013 and 2012, respectively, relating to foreign currency forward contracts outstanding during all or part of each period. Total net foreign currency gains or losses reported in Other operating expense, net were gains of $0.8 million and losses of $1.5 million for the three-month periods ended March 31, 2013 and 2012, respectively.
As of March 31, 2013 and December 31, 2012, the Company designated its Euro Term Loan of approximately 15.0 million and 22.5 million, respectively, as a hedge of the Companys net investment in European subsidiaries with EUR functional currencies. Accordingly, changes in the recorded value of this debt due to changes in the USD to EUR exchange rate are recorded through other comprehensive income. During the three-month periods ended March 31, 2013 and 2012, the Company recorded gains of $0.5 million and losses of $0.9 million, net of tax, respectively, through other comprehensive income. As of March 31, 2013 and December 31, 2012, the net balances of such gains and losses included in accumulated other comprehensive income were losses of $2.3 million and $2.8 million, net of tax, respectively.
21
Fair Value Measurements
The Companys financial instruments consist primarily of cash equivalents, trade receivables, trade payables, deferred compensation assets and obligations, derivatives and debt instruments. The book values of these instruments are a reasonable estimate of their respective fair values.
The following table summarizes the Companys financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2013:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial Assets |
||||||||||||||||
Foreign currency forwards (1) |
$ | | $ | 652 | $ | | $ | 652 | ||||||||
Trading securities held in deferred compensation plan (2) |
4,091 | | | 4,091 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 4,091 | $ | 652 | $ | | $ | 4,743 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial Liabilities |
||||||||||||||||
Foreign currency forwards (1) |
$ | | $ | 1,003 | $ | | $ | 1,003 | ||||||||
Interest rate swaps (3) |
| 318 | | 318 | ||||||||||||
Phantom stock plan (4) |
| 5,551 | | 5,551 | ||||||||||||
Deferred compensation plan (5) |
4,091 | | | 4,091 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 4,091 | $ | 6,872 | $ | | $ | 10,963 | ||||||||
|
|
|
|
|
|
|
|
(1) | Based on calculations that use readily observable market parameters such as spot and forward rates as their basis. |
(2) | Based on the observable price of publicly traded mutual funds which are classified as trading securities and accounted for using the mark-to-market method. |
(3) | Measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curve as of March 31, 2013. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties. |
(4) | Based on the price of the Companys common stock. |
(5) | Based on the fair value of the investments in the deferred compensation plan. |
Note 13. Income Taxes
The following table summarizes the Companys income tax provision and effective income tax rate for the three-month periods ended March 31, 2013 and 2012:
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Income before income taxes |
$ | 62,008 | $ | 77,181 | ||||
Provision for income taxes |
$ | 16,122 | $ | 22,066 | ||||
Effective income tax rate |
26.0 | % | 28.6 | % |
22
The decrease in the provision for income taxes and effective tax rate for the three-month period ended March 31, 2013 when compared to the same three-month period of 2012 is primarily due to the enactment of the American Taxpayer Relief Act of 2012 in January 2013 and decreased profits in jurisdictions with higher tax rates, which were partially offset by tax costs associated with cash repatriation.
The Company changed the classification of certain components of foreign jurisdiction current income tax receivable and deferred tax balances, as well as the presentation of the tax impact of intercompany profit eliminations, in its presentation of its Condensed Consolidated Balance Sheet as of December 31, 2012.
Note 14. Supplemental Information
The components of Other operating expense, net, and supplemental cash flow information for the three-month periods ended March 31, 2013 and 2012 are as follows:
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Other Operating Expense, Net |
||||||||
Foreign currency (gains) losses, net |
$ | (81 | ) | $ | 1,530 | |||
Restructuring charges, net (1) |
2,065 | 14,415 | ||||||
Other, net (2) |
6,123 | 917 | ||||||
|
|
|
|
|||||
Total other operating expense, net |
$ | 8,107 | $ | 16,862 | ||||
|
|
|
|
|||||
Supplemental Cash Flow Information |
||||||||
Cash taxes paid |
$ | 7,089 | $ | 19,949 | ||||
Interest paid |
1,987 | 2,939 |
(1) | See Note 3 Restructuring. |
(2) | In the three months ended March 31, 2012, Other, net, primarily relates to costs incurred in connection with our exploration of strategic alternatives to enhance shareholder value. |
Note 15. Contingencies
The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of its size and sector. In addition, due to the bankruptcies of several asbestos manufacturers and other primary defendants, among other things, the Company has been named as a defendant in a number of asbestos-related personal injury lawsuits. The Company has also been named as a defendant in a number of silica-related personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources and typically the Company is one of approximately 25 or more named defendants. In the Companys experience to date, the substantial majority of the plaintiffs have not suffered an injury for which the Company bears responsibility.
Predecessors to the Company sometimes manufactured, distributed and/or sold products allegedly at issue in the pending asbestos and silica-related lawsuits (the Products). However, neither the Company nor its predecessors ever mined, manufactured, mixed, produced or distributed asbestos fiber or silica sand, the materials that allegedly caused the injury underlying the lawsuits. Moreover, the asbestos-containing components of the Products, if any, were enclosed within the subject Products.
23
The Company has entered into a series of agreements with certain of its or its predecessors legacy insurers and certain potential indemnitors to secure insurance coverage and/or reimbursement for the costs associated with the asbestos and silica-related lawsuits filed against the Company. The Company has also pursued litigation against certain insurers or indemnitors where necessary. The latest of these actions, Gardner Denver, Inc. v. Certain Underwriters at Lloyds, London, et al., was filed on July 9, 2010, in the Eighth Judicial District, Adams County, Illinois, as case number 10-L-48 (the Adams County Case). In the lawsuit, the Company seeks, among other things, to require certain excess insurer defendants to honor their insurance policy obligations to the Company, including payment in whole or in part of the costs associated with the asbestos-related lawsuits filed against the Company. In October 2011, the Company reached a settlement with one of the excess insurer defendants for approximately the amount of such defendants policy that was subject to the lawsuit. A related action was brought by certain insurance companies against the Company and defendants in the Adams County Case. In this lawsuit, Continental Casualty Company, et al. v. Gardner Denver, Inc., et al., filed on October 31, 2012, in the Circuit Court of Cook County, Illinois, County Department Chancery Division, as case number 12CH40019 (the Cook County Case), the plaintiff insurance companies are seeking a declaration of the parties respective rights and obligations under certain insurance policies. Substantially all of the Companys expected future recoveries of the costs associated with the asbestos-related lawsuits are the subject of the Adams County Case and the Cook County Case.
The Company believes that the pending and future asbestos and silica-related lawsuits are not likely to, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: the Companys anticipated insurance and indemnification rights to address the risks of such matters; the limited potential asbestos exposure from the Products described above; the Companys experience that the vast majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica from or relating to the Products or for which the Company otherwise bears responsibility; various potential defenses available to the Company with respect to such matters; and the Companys prior disposition of comparable matters. However, inherent uncertainties of litigation and future developments, including, without limitation, potential insolvencies of insurance companies or other defendants, an adverse determination in the Adams County Case, or other inability to collect from the Companys historical insurers or indemnitors, could cause a different outcome. While the outcome of legal proceedings is inherently uncertain, based on presently known facts, experience, and circumstances, the Company believes that the amounts accrued on its balance sheet are adequate and that the liabilities arising from the asbestos and silica-related personal injury lawsuits will not have a material adverse effect on the Companys consolidated financial position, results of operations or liquidity. Other Liabilities within the Consolidated Balance Sheet includes a $69.7 million litigation reserve as of March 31, 2013 with respect to potential liability arising from the Companys asbestos-related litigation. In the event of unexpected future developments, it is possible that the ultimate resolution of these matters may be material to the Companys consolidated financial position, results of operation or liquidity. However, at this time, based on presently available information, the Company views this possibility as remote.
The Company has been identified as a potentially responsible party (PRP) with respect to several sites designated for cleanup under U.S. federal Superfund or similar state laws that 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,
24
the PRPs typically allocate the investigation and cleanup costs based upon the volume of waste contributed by each PRP. Based on currently available information, the Company was only a small contributor to these waste sites, and the Company has, or is attempting to negotiate, de minimis settlements for their cleanup. The cleanup of the remaining sites is substantially complete and the Companys future obligations entail a share of the sites ongoing operating and maintenance expense.
The Company is also addressing three on-site cleanups for which it is the primary responsible party. Two of these cleanup sites are in the operation and maintenance stage and the third is in the implementation stage. Based on currently available information, the Company does not anticipate that any of these sites will result in material additional costs beyond those already accrued on its balance sheet.
The Company has an accrued liability on its balance sheet to the extent costs are known or can be reasonably estimated for its remaining financial obligations for these matters. Based upon consideration of currently available information, the Company does not anticipate any material 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. It is the Companys policy to expense legal costs as incurred.
In connection with the Companys entry into a definitive merger agreement with KKR, four purported shareholders have filed substantially similar complaints. On March 14, 2013, a purported shareholder of Gardner Denver filed a complaint styled as a class action lawsuit in the Court of Common Pleas in Chester County, Pennsylvania, which we refer to as the Chester County Common Pleas Court. The case caption of this complaint, which we refer to as the Carson Complaint, is: Jack Carson, Individually and on behalf of all others similarly situated, v. Gardner Denver, Inc., Renaissance Parent Corp., Renaissance Acquisition Corp., Kohlberg Kravis Roberts & Co., L.P., Michael C. Arnold, Donald G. Barger, John D. Craig, Raymond R. Hipp, David D. Petratis, Diane K. Schumacher, Charles L. Szews, Richard L. Thompson and Michael M. Larsen, No. 13-02341.
On March 15, 2013, a second purported shareholder of Gardner Denver filed a substantially similar complaint, which we refer to as the Shoemaker Complaint, in Chester County Common Pleas Court captioned Glenn Shoemaker, Individually and on Behalf of All Others Similarly Situated, v. Gardner Denver, Inc., et al., No. 13-02372. Unlike the Carson Complaint, the Shoemaker Complaint does not name Mr. Larsen or KKR as defendants. Both complaints assert that the members of the Board of Directors breached their fiduciary duties in agreeing to the merger, and that Gardner Denver, Parent, Acquisition Sub and, in the case of the Carson Complaint, KKR aided and abetted in the breaches of fiduciary duties. The Carson Complaint seeks to enjoin the merger and seeks other equitable relief. The Shoemaker Complaint seeks money damages.
On March 27, 2013, a third purported shareholder of Gardner Denver filed a substantially similar complaint, which we refer to as the White Complaint, in the Delaware Court of Chancery captioned Daniel White, individually and on behalf of all others similarly situated, v. Larsen, et al., C.A. No. 8439-VCN. The White Complaint asserts that the members of the Board of Directors breached their fiduciary duties in agreeing to the merger, and that Gardner Denver, Parent, Acquisition Sub and KKR aided and abetted in the breaches of fiduciary duties. The White Complaint seeks to enjoin the merger and an award of money damages.
On April 22, 2013, a fourth purported shareholder of Gardner Denver filed a complaint, which we refer to as the Minzer Complaint, in the Delaware Court of Chancery captioned Shoshana Minzer, individually and on behalf of all others similarly situated, v. Larsen, et al., C.A. No. 8498. The Minzer Complaint asserts that the members of the Board of Directors breached their fiduciary duties in agreeing to the merger and in failing to make material disclosures in the preliminary proxy statement filed in connection with the merger, and that Gardner Denver, Parent, Acquisition, Acquisition Sub and KKR aided and abetted in the breaches of fiduciary duties. The Minzer Complaint seeks to enjoin the merger and an award of money damages.
On April 25, 2013, plaintiff Glenn Shoemaker filed a complaint, which we refer to as the Shoemaker Delaware Complaint, in the Delaware Court of Chancery captioned Glenn Shoemaker, Individually and on Behalf of All Others Similarly Situated, v. Gardner Denver, Inc., et al., C.A. No. 8505. The Shoemaker Delaware Complaint makes substantively identical allegations to the Minzer Complaint: asserting that the members of the Board of Directors breached their fiduciary duties in agreeing to the merger and in failing to make material disclosures in the preliminary proxy statement filed in connection with the merger, and that Parent, Acquisition Sub and KKR aided and abetted in the breaches of fiduciary duties. The Shoemaker Delaware Complaint seeks to enjoin the merger.
The Company believes that the lawsuits filed in connection with the Companys entry into a merger agreement with KKR are without merit and intends to vigorously defend against them. Additional lawsuits arising out of or relating to the merger agreement or the merger may be filed in the future. There is no assurance that the Company or any of the other defendants will be successful in the outcome of the pending or any potential future lawsuits.
25
Note 16. Segment Results
The Company evaluates the performance of its reportable segments based on, among other measures, operating income, which is defined as income before interest expense, other income, net, and income taxes. Reportable segment operating income and segment operating margin (defined as segment operating income divided by segment revenues) are indicative of short-term operating performance and ongoing profitability. Management closely monitors the operating income and operating margin of each reportable segment to evaluate past performance and actions required to improve profitability.
In the Industrial Products Group, the Company designs, manufactures, markets and services the following products and related aftermarket parts for industrial and commercial applications: rotary screw, reciprocating, and sliding vane air and gas compressors; positive displacement, centrifugal and side channel blowers; and vacuum pumps primarily serving manufacturing, transportation and general industry and selected OEM and engineered system applications. The Company also markets and services complementary ancillary products. Stationary air compressors are used in manufacturing, process applications and materials handling, and to power air tools and equipment. Blowers are used primarily in pneumatic conveying, wastewater aeration, numerous applications in industrial manufacturing and engineered vacuum systems. The markets served by the Industrial Products Group are primarily located in Europe, the U.S. and Asia.
In the Engineered Products Group, the Company designs, manufactures, markets and services a diverse group of pumps, compressors, liquid ring vacuum pumps, water jetting and loading arm systems and related aftermarket parts. These products are used in well drilling, well servicing and production of oil and natural gas; industrial, commercial and transportation applications; and in industrial cleaning and maintenance. Liquid ring pumps are used in many different applications such as water removal, distilling, reacting, flare gas recovery, efficiency improvement, lifting and handling, and filtering, principally in the pulp and paper, industrial manufacturing, petrochemical and power industries. This segment also designs, manufactures, markets and services other engineered products and components and equipment for the chemical, petroleum and food industries. The markets served by the Engineered Products Group are primarily located in the U.S., Europe, Canada and Asia.
26
The following table provides financial information by reportable segment for the three-months ended March 31, 2013 and 2012:
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Industrial Products Group |
||||||||
Revenues |
$ | 301,852 | $ | 325,827 | ||||
Operating income (1) |
29,843 | 15,539 | ||||||
Operating income as a percentage of revenues |
9.9 | % | 4.8 | % | ||||
Engineered Products Group |
||||||||
Revenues |
$ | 211,690 | $ | 278,529 | ||||
Operating income |
33,534 | 64,253 | ||||||
Operating income as a percentage of revenues |
15.8 | % | 23.1 | % | ||||
Reconciliation of Segment Results to Consolidated Results |
||||||||
Total segment operating income |
$ | 63,377 | $ | 79,792 | ||||
Interest expense |
2,677 | 3,834 | ||||||
Other income, net |
(1,308 | ) | (1,223 | ) | ||||
|
|
|
|
|||||
Consolidated income before income taxes |
$ | 62,008 | $ | 77,181 | ||||
|
|
|
|
(1) | See Note 3 Restructuring. |
27
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following managements discussion and analysis of financial condition and results of operations should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2012, including the financial statements, accompanying notes and managements discussion and analysis of financial condition and results of operations, and the interim condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q.
Merger Agreement
On March 7, 2013, the Company entered into a definitive merger agreement with an affiliate of KKR, pursuant to which the Company would be acquired by an affiliate of KKR for $76.00 per share in cash and would cease to be a publicly traded company. Consummation of the merger is subject to shareholder approval, certain customary closing conditions and regulatory approvals. Subject to satisfaction of the closing conditions and receipt of the required approvals, it is expected that the merger will close in the third quarter of 2013.
Under the merger agreement, the Company is subject to customary covenants regarding the operation of the business of the Company and its subsidiaries prior to the closing. The Company is also subject to customary restrictions on its ability to solicit alternative acquisition proposals from third parties and communicate with third parties regarding alternative acquisition proposals; however, prior to approval of the merger by the Companys shareholders, these restrictions are subject to a customary fiduciary-out provision, which provides for certain exceptions to the restrictions imposed by the merger agreement.
If the Company terminates the merger agreement under certain circumstances, the Company will be required pay a termination fee of $103.4 million or reimbursement of KKRs expenses up to $10 million. The merger agreement also provides that KKR will be required to pay the Company a reverse termination fee equal to $263.1 million if the merger agreement is terminated under certain circumstances.
Additionally, in connection with the Companys entry into the merger agreement with KKR, the Company entered into Amendment No. 2 to its Amended and Restated Rights Agreement, dated as of March 7, 2013, between the Company and Wells Fargo Bank, National Association, which rendered the rights agreement inapplicable to the transactions contemplated under the merger agreement between the Company and KKR.
The foregoing description of the Agreement and Plan of Merger and Amendment No. 2 to the Amended and Restated Rights Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of such agreements attached as exhibits to the Current Report on Form 8-K filed with the SEC on March 8, 2013.
Reportable Segments
In the Industrial Products Group, the Company designs, manufactures, markets and services the following products and related aftermarket parts for industrial and commercial applications: rotary screw, reciprocating, and sliding vane air compressors; and positive displacement, centrifugal and side channel blowers; primarily serving general industrial and OEM applications. This segment also markets and services complementary ancillary products. Stationary air compressors are used in manufacturing, process applications and materials handling, and to power air tools and equipment. Blowers are used primarily in pneumatic conveying, wastewater aeration, numerous applications in industrial manufacturing and engineered vacuum systems. The markets served are primarily in Europe, the U.S. and Asia.
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In the Engineered Products Group, the Company designs, manufactures, markets and services a diverse group of products for industrial, commercial and OEM applications, engineered systems and general industry. Products include reciprocating pumps, liquid ring pumps, diaphragm vacuum pumps, water jetting systems and related aftermarket parts. These products are used in oil and natural gas well drilling, servicing and production; medical and laboratory; and in industrial cleaning and maintenance. Liquid ring pumps are used in many different applications such as water removal, distilling, reacting, flare gas recovery, efficiency improvement, lifting and handling, and filtering, principally in the pulp and paper, industrial manufacturing, petrochemical and power industries. This segment also designs, manufactures, markets and services other fluid transfer components and equipment for the chemical, petroleum and food industries. The markets served are primarily in the U.S., Europe, Canada and Asia.
The Company evaluates the performance of its reportable segments based on operating income, which is defined as income before interest expense, other income, net, and income taxes. Reportable segment operating income and segment operating margin (defined as segment operating income divided by segment revenues) are indicative of short-term operating performance and ongoing profitability. Management closely monitors the operating income and operating margin of each business segment to evaluate past performance and identify actions required to improve profitability. See Note 16 Segment Results in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Non-GAAP Financial Measures
To supplement the Companys financial information presented in accordance with GAAP, management, from time to time, uses additional non-GAAP financial measures to clarify and enhance understanding of past performance and prospects for the future. The Company believes the non-GAAP financial measures provide important supplemental information to both management and investors regarding financial and business trends used in assessing its results of operations. The Company believes excluding the specified items from operating income and diluted earnings per share (DEPS) provides a more meaningful comparison to the corresponding reported periods and internal budgets and forecasts, assists investors in performing analysis that is consistent with financial models developed by investors and research analysts, provides management with a more relevant measurement of operating performance and is more useful in assessing management performance. Such measures are provided in addition to and should not be considered to be a substitute for, or superior to, the comparable measure under GAAP.
Results of Operations
Performance during the Quarter Ended March 31, 2013 Compared
with the Quarter Ended March 31, 2012
Revenues
Revenues decreased $90.9 million, or 15.0%, to $513.5 million in the three-month period ended March 31, 2013, compared to $604.4 million in the same three-month period in 2012. This decrease was attributable to lower volume ($93.1 million, or 15.4%) and unfavorable changes in foreign currency exchange rates ($1.9 million, or 0.3%); partially offset by price increases ($4.1 million, or 0.7%).
29
Revenues in the Industrial Products Group decreased $23.9 million, or 7.3%, to $301.9 million in the three-month period ended March 31, 2013, compared to $325.8 million in the same three-month period in 2012. This decrease reflects lower volume ($27.0 million, or 8.2%) and unfavorable changes in foreign currency exchange rates ($1.5 million, or 0.5%); partially offset by price increases ($4.6 million, or 1.4%). The volume decrease was primarily attributable to a weak global macroeconomic environment resulting in lower demand for industrial products, principally in the U.S., Europe, and China.
Revenues in the Engineered Products Group decreased $66.8 million, or 24.0%, to $211.7 million in the three-month period ended March 31, 2013, compared to $278.5 million in the same three-month period in 2012. This decrease reflects lower volume ($65.9 million, or 23.7%), unfavorable changes in foreign currency exchange rates ($0.4 million, or 0.1%), and price decreases ($0.5 million, or 0.2%). The volume decrease primarily reflected weaker demand for well servicing pumps and related services.
Gross Profit
Gross profit decreased $28.7 million, or 14.2%, to $173.9 million in the three-month period ended March 31, 2013, compared to $202.6 million in the same three-month period in 2012, and as a percentage of revenues was 33.9% in 2013, compared to 33.5% in 2012. The decrease in gross profit primarily reflects the overall volume declines and net unfavorable effects of changes in foreign currency exchange rates; partially offset by price increases as discussed above. Gross profit for the three-month period ended March 31, 2012 was negatively impacted by amortization of $4.0 million related to a fair value adjustment associated with Robuschi inventory. The increase in gross profit as a percentage of revenues was due to the benefits of operational improvements, cost reductions, and favorable product mix.
Selling and Administrative Expenses
Selling and administrative expenses decreased $3.4 million, or 3.2%, to $102.5 million in the three-month period ended March 31, 2013, compared to $105.9 million in the same three-month period in 2012. This decrease primarily reflects a $3.4 million non-recurring amortization expense of customer backlog during the three-month period ended March 31, 2012 related to the Robuschi acquisition, the benefits of cost containment and restructuring actions, and the favorable effect of changes in foreign currency exchange rates. As a percentage of revenues, selling and administrative expenses increased to 20.0% in the first quarter of 2013 compared to 17.5% in the first quarter of 2012, primarily as a result of lower revenues in 2013.
Other Operating Expense, Net
Other operating expense, net, decreased $8.8 million, to $8.1 million in the three-month period ended March 31, 2013, compared to $16.9 million in the same three-month period in 2012. This decrease primarily relates to lower restructuring charges of $2.1 million during the three-month period ended March 31, 2013 compared to restructuring charges of $14.4 million during the three-month period ended March 31, 2012. See Note 3 Restructuring in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for an explanation of the Companys restructuring activities. Results for the three-month period ended March 31, 2013 include $6.1 million of costs incurred in connection with exploring strategic alternatives to enhance shareholder value.
30
Operating Income
Operating income decreased $16.4 million, to $63.4 million in the three-month period ended March 31, 2013, compared to $79.8 million in the same three-month period in 2012. Operating income as a percentage of revenues in the first quarter of 2013 was 12.3% compared to 13.2% in the first quarter of 2012. This decrease was primarily due to the overall volume declines and net unfavorable effects of changes in foreign currency exchange rates; partially offset by price increases and decreased selling and administrative and other operating expenses as discussed above. Charges associated with profit improvement initiatives and costs incurred in connection with exploring strategic alternatives to enhance shareholder value totaled $8.8 million, or 1.7% of revenues, in the first quarter of 2013. Charges associated with profit improvement initiatives, purchase accounting adjustments, and other items totaled $22.9 million, or 3.8% of revenues, in the first quarter of 2012.
The Industrial Products Group generated segment operating income and segment operating margin of $29.8 million and 9.9%, respectively, in the three-month period ended March 31, 2013, compared to $15.5 million and 4.8%, respectively, in the same three-month period in 2012 (see Note 16 Segment Results in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a reconciliation of segment operating income to consolidated operating income). The year over year improvement in operating income and operating margin was primarily attributable to price increases, lower restructuring charges, and the non-recurring amortization of acquisition fair value adjustments related to inventory and backlog for the three-month period ended March 31, 2012; partially offset by the lower volumes and net unfavorable effect of changes in foreign currency exchange rates as discussed above. Charges associated with profit improvement initiatives and costs incurred in connection with our exploration of strategic alternatives to enhance shareholder value totaled $5.3 million, or 1.8% of segment revenues, in the first quarter of 2013. Charges associated with profit improvement initiatives, purchase accounting adjustments, and other items totaled $20.2 million, or 6.2% of segment revenues, in the first quarter of 2012.
The Engineered Products Group generated segment operating income and segment operating margin of $33.5 million and 15.8%, respectively, in the three-month period ended March 31, 2013, compared to $64.3 million and 23.1%, respectively, in the same three-month period in 2012 (see Note 16 Segment Results in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a reconciliation of segment operating income to consolidated operating income). The year over year decline in operating income and operating margin was primarily attributable to lower volumes, particularly for well servicing products and related services, and the net unfavorable effect of changes in foreign currency exchange rates as discussed above. Charges associated with profit improvement initiatives and costs incurred in connection with our exploration of strategic alternatives to enhance shareholder value totaled $3.5 million, or 1.6% of segment revenues, in the first quarter of 2013. Charges associated with profit improvement initiatives and other items totaled $2.5 million, or 0.9% of segment revenues, in the first quarter of 2012.
Interest Expense
Interest expense decreased $1.1 million, to $2.7 million in the three-month period ended March 31, 2013, compared to $3.8 million in the same three-month period in 2012 primarily due to lower average borrowings and interest rates in the first quarter of 2013. The weighted average interest rate, including the amortization of debt issuance costs and capital leases, decreased to 3.2% in the first quarter of 2013 compared to 3.8% in the first quarter of 2012.
31
Provision for Income Taxes
The provision for income taxes was $16.1 million and the effective tax rate was 26.0% for the three-month period ended March 31, 2013, compared to $22.1 million and 28.6%, respectively, in the same three-month period in 2012. The decrease in the provision for income taxes and effective tax rate for the three-month period ended March 31, 2013 when compared to the same three-month period of 2012 is primarily due to the enactment of the American Taxpayer Relief Act of 2012 in January 2013 and decreased profits in jurisdictions with higher tax rates, which were partially offset by tax costs associated with cash repatriation.
Net Income Attributable to Gardner Denver
Net income attributable to Gardner Denver of $45.7 million and diluted earnings per share (DEPS) of $0.93 for the three-month period ended March 31, 2013 compares with net income attributable to Gardner Denver and DEPS of $54.8 million and $1.08, respectively, for the same three-month period in 2012. This decrease reflects the net effect of the operating income, interest expense and income tax factors discussed above. Results in the first quarter of 2013 included profit improvement initiatives and costs incurred in connection with exploring strategic alternatives to enhance shareholder value totaling $6.5 million after income taxes, or $0.13 on a diluted per share basis. Results in the first quarter of 2012 included charges for profit improvement initiatives, purchase accounting adjustments, and other items totaling $16.4 million after income taxes, or $0.32 on a diluted per share basis.
32
Outlook
Engineered Products Group
In the first quarter of 2013, orders in the Engineered Products Group decreased 28.7% to $230.1 million, compared to $322.8 million in the first quarter of 2012. The decrease in orders was primarily due to weaker demand for drilling and well servicing pumps, OEM pumps, and loading arms, which was partially offset by increased demand for liquid-ring vacuum pumps. Orders were also negatively impacted by unfavorable changes in foreign currency exchange rates ($0.3 million, or 0.1%). Order backlog for the Engineered Products Group increased 11.7% to $312.0 million as of March 31, 2013 from $279.3 million at December 31, 2012 due to the level of orders for the three-month period ended March 31, 2013 relative to shipments (net increase in backlog of $36.8 million, or 13.2%) and the unfavorable effect of changes in foreign currency exchange rates ($4.1 million, or 1.5%). Compared to the prior year backlog of $463.9 million, order backlog decreased 32.7%, due to the level of orders for the trailing twelve-month period ended March 31, 2013 relative to shipments (net decrease in backlog of $147.6 million, or 31.8%) and the unfavorable changes in foreign currency exchange rates ($4.3 million, or 0.9%).
Orders in the Engineered Products Group have historically corresponded to demand for petrochemical products and have been influenced by prices and inventory levels for oil and natural gas, rig count, and other economic factors which the Company cannot reasonably predict. Accordingly, the markets for some of our engineered products tend to be very cyclical. These factors have caused the level of demand for certain of our engineered products to change rapidly at times (both positively as well as negatively) and these trends are expected to continue in the future. Due to these factors, revenues for engineered products depends more on existing backlog levels than for our industrial products.
Orders for well servicing products in 2012 were negatively impacted by declining natural gas prices and excessive natural gas inventory levels. The well servicing business is part of our Petroleum & Industrial Pumps business (P&IP). Approximately 65% of P&IPs total 2012 revenues were derived from the well servicing business, which includes sales of OEM pressure pumps, fluid-ends and repairs. Well servicing revenues in 2012 were approximately evenly-split between sales of OEM pressure pumps and aftermarket revenues. Well servicing revenues experienced significant declines in the second half of 2012 due to lower order levels and the resulting effects on ending backlog. The Company expects that revenues in 2013 for well servicing products will continue to be significantly impacted by the currently low backlog level for these products and external factors affecting customer demand.
Industrial Products Group
The Company believes that demand for products in its Industrial Products Group generally correlates with the rate of total industrial capacity utilization and the rate of change of industrial production because compressed air is often used as a fourth utility in the manufacturing process. Capacity utilization rates above 80% have historically indicated a good demand environment for industrial equipment such as compressor and vacuum products. Over longer time periods, the Company believes that demand also tends to follow economic growth patterns indicated by the rates of change in the gross domestic product around the world. The global economic crisis was followed in 2010 and 2011 by improvements in global capacity utilization rates; however, these trends decelerated in 2012 as well as during the first quarter of 2013, as macroeconomic conditions displayed persistent signs of weakness in many geographic regions, including in the U.S., Europe, and China. These conditions will continue to impact the level of demand for products in the Industrial Products Group.
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Orders in the Industrial Products Group in the first quarter of 2013 decreased 10.8% to $318.8 million, compared to $357.5 million in the first quarter of 2012. The decrease in orders was primarily due to weaker macroeconomic conditions in all geographic regions relative to the first quarter of 2012 ($37.3 million, or 10.4%). Orders were also negatively impacted by unfavorable changes in foreign currency exchange rates ($1.4 million, or 0.4%). Order backlog for the Industrial Products Group decreased 2.7% to $239.8 million as of March 31, 2013 from $246.5 million at December 31, 2012 due to the level of orders for the three-month period ended March 31, 2013 relative to shipments (net decrease in backlog of $0.7 million, or 0.3%) and the unfavorable effect of changes in foreign currency exchange rates ($6.0 million, or 2.4%). Compared to the prior year backlog of $291.4 million, order backlog decreased 17.7% due to the level of orders for the trailing twelve-month period ended March 31, 2013 relative to shipments (net decrease in backlog of $45.1 million, or 15.5%) and the unfavorable changes in foreign currency exchange rates ($6.5 million, or 2.2%). The Company currently expects that global macroeconomic conditions will continue to impact demand levels for products in the Industrial Products Group.
Order backlog consists of orders believed to be firm for which a customer purchase order has been received or communicated. However, since orders may be rescheduled or cancelled, order backlog is not necessarily indicative of future revenue levels.
Restructuring and Profitability Improvement
In 2012, the Company launched a broad restructuring program designed to optimize the Companys global manufacturing footprint, better serve customers and expand margins. The initial phase of the global restructuring effort was commenced in the first quarter of 2012. These restructuring actions were primarily focused on the European and North American operations included in the Industrial Products Group reportable segment. These actions, once completed, will reduce the Companys global headcount by approximately 7% (based on employee census figures as of December 31, 2012). In addition, the Company closed three production facilities in 2012, including two facilities in the U.S. and one in Sweden. The Company expects to close an additional facility in the UK in the second quarter of 2013. The Company recorded charges related to the initial phase of the restructuring plans of $17.5 million for the year ended December 31, 2012 and $2.1 million for the three-month period ended March 31, 2013. The Company expects to complete the specific steps contemplated by this initial phase by the end of 2013 and to incur related additional charges of approximately $4.3 million.
On August 16, 2012, the Company announced the launch of phase two of the restructuring program, which is primarily focused on the European operations included in the Industrial Products Group reportable segment. Phase two involves further reductions in the number of manufacturing facilities and associated headcount. Phase two of the program is subject to required consultations with local stakeholders, including employee representatives, and will continue until the end of 2015.
The Company expects to incur severance and other employment related benefit costs in the range of $60 to $65 million and other costs in the range of $15 to $20 million for phase one and phase two of the restructuring program. Additionally, non-cash charges, primarily related to fixed assets, are expected to be in the range of $10 to $15 million. Phase one and phase two of the restructuring program are expected to generate annualized, pre-tax cost savings of $35 to $40 million by 2016, with $10 to $15 million expected to be achieved in 2013. The Company expects that the restructuring program will be able to be funded with existing cash resources and cash flows from operations.
34
Liquidity and Capital Resources
Working Capital
March 31, 2013 |
December 31, 2012 |
Increase (Decrease) |
||||||||||
Net Working Capital: |
||||||||||||
Total current assets |
$ | 1,098,594 | $ | 1,116,989 | $ | (18,395 | ) | |||||
Less: Total current liabilities |
712,220 | 768,493 | (56,273 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net working capital |
$ | 386,374 | $ | 348,496 | $ | 37,878 | ||||||
|
|
|
|
|
|
|||||||
March 31, 2013 |
December 31, 2012 |
Increase (Decrease) |
||||||||||
Operating Working Capital: |
||||||||||||
Accounts receivable, net |
$ | 428,654 | $ | 444,815 | $ | (16,161 | ) | |||||
Plus: Inventories, net |
372,218 | 343,197 | 29,021 | |||||||||
Less: Accounts payable |
200,203 | 198,388 | 1,815 | |||||||||
Less: Accrued liabilities |
206,071 | 210,672 | (4,601 | ) | ||||||||
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Operating working capital |
$ | 394,598 | $ | 378,952 | $ | 15,646 | ||||||
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Inventory Turns |
3.6 | 4.5 | (0.9 | ) | ||||||||
Days Sales in Receivables |
75 | 69 | 6 |
Net working capital increased $37.9 million to $386.4 million at March 31, 2013 from $348.5 million at December 31, 2012. Operating working capital increased $15.6 million to $394.6 million at March 31, 2013 from $379.0 million at December 31, 2012 due to higher inventory and lower accrued liabilities, partially offset by lower accounts receivable and higher accounts payable. The decrease in accounts receivable was primarily due to lower levels of sales and the effect of changes in foreign currency exchange rates ($7.9 million). Days sales in receivables increased to 75 at March 31, 2013 from 69 at December 31, 2012 and 73 days at March 31, 2012 primarily due to lower average daily sales in the first quarter of 2013. The increase in inventory primarily reflects the decline in shipments coupled with contracted inventory purchases during the three-month period ended March 31, 2013, particularly in the well servicing business, which were partially offset by the effect of changes in foreign currency exchange rates ($7.4 million). Inventory turns declined to 3.6 at March 31, 2013 compared to 4.5 at December 31, 2012 and March 31, 2012, due primarily to the higher inventory levels as discussed above. The increase in accounts payable was primarily due to the timing of payments to vendors.
Cash Flows
Cash provided by operating activities decreased $10.6 million to $38.0 million in the three-month period ended March 31, 2013 from $48.6 million in the three-month period ended March 31, 2012. This decrease was primarily due to lower net income (excluding non-cash charges for depreciation and amortization and unrealized foreign currency transaction gains and losses) in 2013 compared to 2012 and net changes in working capital.
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Operating working capital used cash of $19.8 million in the first quarter of 2013 compared to a use of $15.1 million in the first quarter of 2012. Changes in accounts receivable generated cash of $9.3 million in the three-month period ended March 31, 2013 compared to cash used in accounts receivable of zero in the three-month period ended March 31, 2012, reflective of changes in the volume and timing of sales within these periods. Cash used in inventory of $34.3 million and $40.0 million in the three-month periods ended March 31, 2013 and 2012, respectively, primarily reflected the accumulation of raw materials inventory due to the decline in shipments coupled with contracted inventory purchases during the three-month period ended March 31, 2013, particularly in the well servicing business; which was in contrast to the increase in inventory due to growth in orders and backlog during the same three-month period of 2012. Changes in accounts payable and accrued expenses generated cash of $5.2 million in the first quarter of 2013 and $25.1 million in the first quarter of 2012. The year over year decrease was primarily due to reduced purchasing levels and cost containment in 2013 in response to declines in orders and low backlog levels, which was in contrast to the steady growth in orders and backlog during the same three-month period of 2012.
Net cash used in investing activities of $6.5 million and $7.0 million in the three-month periods ended March 31, 2013 and 2012, respectively, consisted primarily of capital expenditures on assets intended to increase productivity and reduce costs. The Company currently expects capital expenditures to total approximately $50 million for the full year in 2013. As a result of the Companys application of lean principles, non-capital or less capital-intensive solutions are often utilized in process improvement initiatives and capital replacement. Capital expenditures related to environmental projects have not been significant in the past and are not expected to be significant in the foreseeable future. Net cash used in investing activities for the three-month period ended March 31, 2012 also included $6.1 million of proceeds for long-lived asset disposals, which were primarily related to the sale of a previously-exited manufacturing plant.
Net cash used in financing activities was $56.4 million and $11.8 million in the three-month periods ended March 31, 2013 and 2012, respectively. Cash provided by operating activities was used for net repayments of short-term and long-term borrowings totaling $55.3 million in the first quarter of 2013, compared to $1.4 million in the first quarter of 2012. Cash used for the repurchase of shares of the Companys common stock totaled zero in the three-month period ended March 31, 2013 compared to $9.8 million in the three-month period ended March 31, 2012, including shares exchanged or surrendered in connection with its stock option plans of zero in the first quarter of 2013 and $1.0 million in the first quarter of 2012. Cash dividends paid were $2.5 million and $2.6 million ($0.05 per common share) in each of the first quarters of 2013 and 2012, respectively.
Share Repurchase Program
In November 2008, the Companys Board of Directors authorized a share repurchase program to acquire up to 3.0 million shares of the Companys outstanding common stock. In November 2011, the Companys Board of Directors authorized a share repurchase program to acquire up to 1.3 million shares of the Companys outstanding common stock plus an additional amount of common stock to offset dilution resulting from grants under the Companys equity compensation plans. The Companys repurchases during the year ended December 31, 2012 exhausted the availability under the share repurchase programs announced in November 2008 and 2011.
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In May 2012, the Companys Board of Directors authorized an additional share repurchase program to acquire up to 1.6 million shares of the Companys outstanding common stock plus an additional amount of common shares to offset dilution resulting from grants under the Companys equity compensation plans. As of March 31, 2013, there were 1.6 million shares available for purchase under this program.
All common stock acquired under repurchase programs is held as treasury stock and is available for general corporate purposes.
Liquidity
The Companys debt to total capital ratio (defined as total debt divided by the sum of total debt plus total stockholders equity) was 18.1% as of March 31, 2013 compared to 20.2% as of December 31, 2012. This decrease primarily reflects a $45.4 million net decrease in borrowings.
The Companys primary cash requirements include working capital, capital expenditures, principal and interest payments on indebtedness, cash dividends on its common stock, selective acquisitions and common stock repurchases. The Companys primary sources of funds are its net cash flows from operating activities and availability under its Revolving Line of Credit (as defined below). At March 31, 2013, the Company had cash and cash equivalents of $225.4 million, of which $3.1 million was pledged to financial institutions as collateral to support issued standby letters of credit and similar instruments. The Company also had $212.6 million of unused availability under its Revolving Line of Credit at March 31, 2013. Based on the Companys financial position at March 31, 2013 and its pro-forma results of operations for the twelve months then ended, the unused availability under its Revolving Line of Credit would not have been limited by the financial ratio covenants in the 2008 Credit Agreement (as described below).
On September 19, 2008, the Company entered into the 2008 Credit Agreement consisting of (i) a $310.0 million Revolving Line of Credit (the Revolving Line of Credit), (ii) a $180.0 million term loan (U.S. Dollar Term Loan) and (iii) a 120.0 million term loan (Euro Term Loan). On November 21, 2011 the Company executed an amendment to the 2008 Credit Agreement increasing the U.S. Dollar Term Loan by $200.0 million. In addition, the 2008 Credit Agreement provides for a possible increase in the revolving credit facility of up to an additional $200.0 million. The Companys 2008 Credit Agreement is currently scheduled to expire on October 15, 2013. The Company expects to refinance the debt under the 2008 Credit Agreement with a new credit agreement that meets the Companys financing requirements prior to October 15, 2013. There are no known trends, demands, commitments, events or uncertainties of which the Company is aware that could be reasonably expected to affect the Companys ability to refinance the debt under the 2008 Credit Agreement prior to its expiration. The Company expects that its plans to refinance the debt under the 2008 Credit Agreement prior to October 15, 2013 will have no impact on the Companys operations.
The interest rates per annum applicable to loans under the 2008 Credit Agreement are, at the Companys option, either a base rate plus an applicable margin percentage or a Eurocurrency rate plus an applicable margin. The base rate is the greater of (i) the prime rate or (ii) one-half of 1% over the weighted average of rates on overnight federal funds as published by the Federal Reserve Bank of New York. The Eurocurrency rate is LIBOR.
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The initial applicable margin percentage over LIBOR under the 2008 Credit Agreement was 2.5% with respect to the term loans and 2.1% with respect to loans under the Revolving Line of Credit, and the initial applicable margin percentage over the base rate was 1.25% with respect to floating rate loans. After the Companys delivery of its financial statements and compliance certificate for each fiscal quarter, the applicable margin percentages are subject to adjustments based upon the ratio of the Companys consolidated total debt to consolidated adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (each as defined in the 2008 Credit Agreement) being within certain defined ranges. At March 31, 2013, the applicable margin percentage over LIBOR under the 2008 Credit Agreement was a weighted average of 1.59% with respect to the term loans and 1.65% with respect to loans under the Revolving Line of Credit, and the applicable margin percentage over the base rate was 0.75% with respect to floating rate loans.
The obligations under the 2008 Credit Agreement are guaranteed by the Companys existing and future domestic subsidiaries. The obligations under the 2008 Credit Agreement are also secured by a pledge of the capital stock of each of the Companys existing and future material domestic subsidiaries, as well as 65% of the capital stock of each of the Companys existing and future first-tier material foreign subsidiaries.
The 2008 Credit Agreement includes customary covenants. Subject to certain exceptions, these covenants restrict or limit the ability of the Company and its subsidiaries to, among other things: incur liens; engage in mergers, consolidations and sales of assets; incur additional indebtedness; pay dividends and redeem stock; make investments (including loans and advances); enter into transactions with affiliates, make capital expenditures and incur rental obligations above defined thresholds. In addition, the 2008 Credit Agreement requires the Company to maintain compliance with certain financial ratios on a quarterly basis, including a maximum total leverage ratio test and a minimum interest coverage ratio test. As of March 31, 2013, the Company was in compliance with each of the financial ratio covenants under the 2008 Credit Agreement.
The 2008 Credit Agreement contains customary events of default, including upon a change of control. If an event of default occurs, the lenders under the 2008 Credit Agreement will be entitled to take various actions, including the acceleration of amounts due under the 2008 Credit Agreement.
The U.S. Dollar and Euro Term Loans have a final maturity of October 15, 2013. The U.S. Dollar Term Loan includes remaining quarterly principal payments aggregating to approximately $198.1 million in 2013. The Euro Term Loan includes remaining quarterly principal payments in Euros aggregating to approximately $19.8 million in 2013 (based on USD exchange rates as of March 31, 2013).
The Revolving Line of Credit also matures on October 15, 2013. Loans under this facility may be denominated in USD or several foreign currencies and may be borrowed by the Company or two of its foreign subsidiaries as outlined in the 2008 Credit Agreement. On March 31, 2013, the Revolving Line of Credit had an outstanding principal balance of $85.0 million. In addition, letters of credit in the amount of $12.4 million were outstanding on the Revolving Line of Credit at March 31, 2013, leaving $212.6 million available for future use, subject to the terms of the Revolving Line of Credit.
Management currently expects that the Companys cash on hand and future cash flows from operating activities will be sufficient to fund its working capital, capital expenditures, scheduled principal and interest payments on indebtedness, cash dividends on its common stock and potential stock repurchases, and restructuring costs for at least the next twelve months. The Company expects to refinance the debt under the 2008 Credit Agreement with a new credit agreement that meets the Companys financing requirements prior to October 15, 2013 as discussed above. The majority of the Companys cash is in jurisdictions outside of the U.S. However, the Company believes its U.S. operations will generate sufficient cash flows from operations along with its availability under its Revolving Line of Credit to satisfy its cash needs in the U.S. The Company
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considers undistributed earnings related to non-U.S. subsidiaries to be permanently reinvested in these foreign operations. The Company does not intend to repatriate these foreign earnings; however, tax liabilities may arise in the future if these foreign earnings are distributed. A deferred tax liability of $2.6 million is recorded as of March 31, 2013 related to the expected distribution of certain foreign earnings during 2013.
Contractual Obligations and Commitments
The following table and accompanying disclosures summarize the Companys significant contractual obligations at March 31, 2013 and the effect such obligations are expected to have on its liquidity and cash flow in future periods:
Payments Due by Period | ||||||||||||||||||||
(Dollars in millions) | Total | Balance of 2013 |
20142015 | 20162017 | After 2017 |
|||||||||||||||
Contractual Cash Obligations |
||||||||||||||||||||
Debt |
$ | 308.5 | $ | 305.1 | $ | 0.8 | $ | 0.7 | $ | 1.9 | ||||||||||
Estimated interest payments (1) |
12.1 | 5.0 | 2.3 | 1.6 | 3.2 | |||||||||||||||
Capital leases and other long-term debt |
15.2 | 0.6 | 1.7 | 1.9 | 11.0 | |||||||||||||||
Operating leases |
110.1 | 22.5 | 41.4 | 21.9 | 24.3 | |||||||||||||||
Purchase obligations (2) |
264.5 | 242.0 | 22.5 | | | |||||||||||||||
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Total |
$ | 710.4 | $ | 575.2 | $ | 68.7 | $ | 26.1 | $ | 40.4 | ||||||||||
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(1) | Estimated interest payments for long-term debt were calculated as follows: for fixed-rate debt and term debt, interest was calculated based on applicable rates and payment dates; for variable-rate debt and/or non-term debt, interest rates and payment dates were estimated based on managements determination of the most likely scenarios for each relevant debt instrument. |
(2) | Purchase obligations consist primarily of agreements to purchase inventory or services made in the normal course of business to meet operational requirements. The purchase obligation amounts do not represent the entire anticipated purchases in the future, but represent only those items for which the Company is contractually obligated as of March 31, 2013. For this reason, these amounts will not provide a complete and reliable indicator of the Companys expected future cash outflows. |
The above table does not include the Companys total pension and other postretirement benefit liabilities and net deferred income tax liabilities recognized on the consolidated balance sheet as of March 31, 2013 because such liabilities, due to their nature, do not represent expected liquidity needs. There have not been material changes to such liabilities or the Companys minimum pension funding obligations other than as disclosed in Note 7 Pension and Other Postretirement Benefits and Note 13 Income Taxes in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Also please refer to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
In the normal course of business, the Company or its subsidiaries may sometimes be required to provide surety bonds, standby letters of credit or similar instruments to guarantee its performance of contractual or legal obligations. As of March 31, 2013, the Company had $73.8 million in such instruments outstanding and had pledged $3.1 million of cash to the issuing financial institutions as collateral for such instruments.
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Contingencies
Refer to Note 15 Contingencies in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for a description of various legal proceedings, lawsuits and administrative actions.
New Accounting Standards
Refer to Note 1 Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for a description of new accounting pronouncements, including the expected impact on the Companys Condensed Consolidated Financial Statements and related disclosures.
Critical Accounting Policies and Estimates
Management has evaluated the accounting policies used in the preparation of the Companys condensed financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the Companys 2012 Annual Report on Form 10-K, filed on February 27, 2013, in the Critical Accounting Policies and Estimates section of Managements Discussion and Analysis and in Note 1 Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements. There were no significant changes to the Companys critical accounting polices during the quarter ended March 31, 2013.
Cautionary Statement Regarding Forward-Looking Statements
All of the statements in Managements Discussion and Analysis of Financial Condition and Results of Operations, other than historical facts, are forward-looking statements, including, without limitation, the statements made under the caption Outlook. As a general matter, forward-looking statements are those focused upon anticipated events or trends, expectations, and beliefs relating to matters that are not historical in nature. The words could, should, feel, anticipate, aim, preliminary, expect, believe, estimate, intend, intent, plan, will, foresee, project, forecast, or the negative thereof or variations thereon, and similar expressions identify forward-looking statements.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for these forward-looking statements. In order to comply with the terms of the safe harbor, Gardner Denver, Inc. (the Company or Gardner Denver) notes that forward-looking statements are subject to known and unknown risks, uncertainties and other factors relating to the Companys operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. These known and unknown risks, uncertainties and other factors could cause actual results to differ materially from those matters expressed in, anticipated by or implied by such forward-looking statements.
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These risks, uncertainties and other factors include, but are not limited to: (1) risks relating to the proposed merger of the Company including, but not limited to: (i) the risk that the merger may not be consummated in a timely manner, if at all, (ii) the risk that a closing condition to the merger agreement may not be satisfied, (iii) the failure to receive, on a timely basis or otherwise, the required approvals by the Companys shareholders with regard to the merger agreement, (iv) the risk that the definitive merger agreement may be terminated in circumstances that require the Company to pay KKR a termination fee of $103.4 million and reimbursement of their expenses of up to $10 million, (v) risks related to the diversion of managements attention from the Companys ongoing business operations, (vi) risks regarding the failure of the relevant KKR affiliate to obtain the necessary financing to complete the merger, (vii) the effect of the announcement of the merger on the Companys business relationships (including, without limitation, customers and suppliers), operating results and business generally, (viii) risks related to obtaining the requisite consents to the merger, including, without limitation, the timing (including possible delays) and receipt of regulatory approvals from various domestic and foreign governmental entities (including any conditions, limitations or restrictions placed on these approvals) and the risk that one or more governmental entities may deny approval, and (ix) the ability of the Company to retain and hire key personnel pending the consummation of the proposed merger, and (x) pending shareholder litigation could prevent or delay the merger or otherwise negatively impact our business and operations; (2) the risks that the Company will not realize the expected financial benefits from restructuring actions; (3) exposure to cycles in specific markets, particularly the level of oil and natural gas prices and oil and natural gas drilling production, which affect demand for the Companys petroleum products, and industrial production and manufacturing capacity utilization rates, which affect demand for the Companys industrial products; (4) the risks and costs associated with the actions of shareholders; (5) the Companys exposure to the risks associated with instability in the global economy, which may negatively impact its revenues, liquidity, suppliers and customers; (6) the risks associated with the potential loss of key customers for petroleum products and the potential resulting negative impact on the Companys profitability and cash flows; (7) the risks associated with competition in the Companys market segments, particularly the pricing of the Companys products; (8) the loss of, or disruption in, the Companys distribution network could have a negative impact on the Companys ability to ship products, meet customer demand, and otherwise operate its business; (9) the risks of large or rapid increases in raw material costs or substantial decreases in their availability, and the Companys dependence on particular suppliers, particularly copper, aluminum, iron casting and other metal suppliers; (10) economic, political and other risks associated with the Companys international sales and operations, including changes in currency exchange rates (primarily between the U.S. Dollar (USD), the euro (EUR), the British pound sterling (GBP) and the Chinese Yuan (CNY)); (11) the risks associated with potential changes in shale oil and gas regulation; (12) the risks associated with potential product liability and warranty claims due to the nature of the Companys products; (13) the ability to attract and retain quality executive management and other key personnel; (14) the risk that communication or information systems failure may disrupt the Companys business and result in financial loss and liability to its customers; (15) the ability to avoid employee work stoppages and other labor difficulties; (16) the risks associated with pending asbestos and silica-related personal injury lawsuits; (17) the risk of non-compliance with U.S. and foreign laws and regulations applicable to the Companys international operations, including the U.S. Foreign Corrupt Practices Act and other similar laws; (18) the risks associated with environmental compliance costs and liabilities, including the compliance costs and liabilities of future climate change regulations; (19) the risks associated with enforcing the Companys intellectual property rights and defending against potential intellectual property claims; (20) the risk of possible future charges if the Company determines that the value of goodwill and other intangible assets, representing a significant portion of the Companys total assets, are impaired; (21) risks associated with the Companys indebtedness and changes in the availability or costs of new financing to support the Companys operations and future investments; (22) risks associated with the Companys inability to access capital; (23) the ability to continue to identify and complete strategic acquisitions and effectively integrate such acquired companies to achieve desired financial benefits; (24) changes in discount rates used for actuarial assumptions in pension and other postretirement obligation and expense calculations and market performance of pension plan assets; and (25) the risk that the Company is unable to develop new products and technologies, which may negatively impact our sales and market share. The foregoing factors should not be construed as exhaustive and should be read together with important information regarding risks and factors that may affect the Companys future performance set forth under Item 1A Risk Factors in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
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These statements reflect the current views and assumptions of management with respect to future events. The Company does not undertake, and hereby disclaims, any duty to update these forward-looking statements, even though its situation and circumstances may change in the future. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. The inclusion of any statement in this report does not constitute an admission by the Company or any other person that the events or circumstances described in such statement are material.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to certain market risks during the normal course of business arising from adverse changes in commodity prices, interest rates, and currency exchange rates. The Companys exposure to these risks is managed through a combination of operating and financing activities. The Company selectively uses derivative financial instruments (derivatives), including foreign currency forward contracts and interest rate swaps, to manage the risks from fluctuations in currency exchange rates and interest rates. The Company does not hold derivatives for trading or speculative purposes. Fluctuations in commodity prices, interest rates, and currency exchange rates can be volatile, and the Companys risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Companys financial results.
Notional transaction amounts and fair values for the Companys outstanding derivatives, by risk category and instrument type, as of March 31, 2013 and December 31, 2012, are summarized in Note 12 Hedging Activities and Fair Value Measurements in the Notes to Condensed Consolidated Financial Statements.
Commodity Price Risk
The Company is a purchaser of certain commodities, principally aluminum. In addition, the Company is a purchaser of components and parts containing various commodities, including cast iron, aluminum, copper and steel. The Company generally buys these commodities and components based upon market prices that are established with the vendor as part of the purchase process. The Company does not use commodity financial instruments to hedge commodity prices.
The Company has long-term contracts with some of its suppliers of key components. However, to the extent that commodity prices increase and the Company does not have firm pricing from its suppliers, or its suppliers are not able to honor such prices, then the Company may experience margin declines to the extent it is not able to increase selling prices of its products.
Interest Rate Risk
The Companys exposure to interest rate risk results primarily from its borrowings of $323.8 million at March 31, 2013. The Company manages its debt centrally, considering tax consequences and its overall financing strategies. The Company manages its exposure to interest rate risk by maintaining a mixture of fixed and variable rate debt and uses pay-fixed interest rate swaps as cash flow hedges of variable rate debt in order to adjust the relative proportions. The interest rates on approximately 55% of the Companys borrowings were effectively fixed as of March 31, 2013. If the relevant LIBOR amounts for all of the Companys borrowings had been 100 basis points higher than actual in the three-month period ended March 31, 2013, the Companys interest expense would have increased by $0.4 million.
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Exchange Rate Risk
A substantial portion of the Companys operations is conducted by its subsidiaries outside of the U.S. in currencies other than the USD. Almost all of the Companys non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. Other than the USD, the EUR, GBP, and CNY are the principal currencies in which the Company and its subsidiaries enter into transactions. The Company and its subsidiaries are also subject to the risk that arises when they, from time to time, enter into transactions in currencies other than their functional currency. To mitigate this risk, the Company and its subsidiaries typically settle intercompany trading balances monthly. The Company also selectively uses forward currency contracts to manage this risk. At March 31, 2013, the notional amount of open forward currency contracts was $64.4 million and their aggregate fair value was a liability of $0.4 million.
To illustrate the impact of currency exchange rates on the Companys financial results, the Companys operating income for the three-month period ended March 31, 2013 would have decreased by approximately $5.1 million if the USD had been 10% more valuable than actual relative to other currencies. This calculation assumes that all currencies change in the same direction and proportion to the USD and that there are no indirect effects of the change in the value of the USD such as changes in non-USD sales volumes or prices.
Item 4. Controls and Procedures
The Companys management carried out an evaluation (as required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), with the participation of the President, Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon this evaluation, the President, Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q, such that the information relating to the Company and its consolidated subsidiaries required to be disclosed by the Company in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms, and (ii) is accumulated and communicated to the Companys management, including its principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In addition, the Companys management carried out an evaluation, as required by Rule 13a-15(d) of the Exchange Act, with the participation of the President, Chief Executive Officer and Chief Financial Officer, of changes in the Companys internal control over financial reporting. Based on this evaluation, the President, Chief Executive Officer and Chief Financial Officer concluded that there were no changes in the Companys internal control over financial reporting that occurred during the quarter ended March 31, 2013 that have materially affected, or that are reasonably likely to materially affect, the Companys internal control over financial reporting.
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The Company is a party to various legal proceedings and administrative actions. The information regarding these proceedings and actions is included under Note 15 Contingencies in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
The Company updated the risk factors previously disclosed in Part I, Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2012, as set forth below.
We face risks and uncertainties related to the announcement and pendency of the merger of the Company with an entity formed by Kohlberg Kravis Roberts & Co. L.P. (KKR) that could have a material adverse impact on our business, financial condition, financial results, and stock price.
Completion of the proposed merger is subject to the satisfaction of various conditions, including the receipt of approvals from our shareholders and from government or regulatory agencies. There is no assurance that all of the various conditions will be satisfied, or that the merger will be completed on the proposed terms, within the expected timeframe, or at all.
The proposed merger gives rise to inherent risks that include:
| pending shareholder litigation could prevent or delay the merger or otherwise negatively impact our business and operations; |
| if the merger is not completed, the share price of our common stock will change to the extent that the current market price of the Companys stock reflects an assumption that the merger will be completed; |
| the amount of the cash payment to be paid under the merger agreement is fixed and will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or results of operations or in the event of any change in the market price of, analyst estimates of, or projections relating to, our common stock; |
| legal or regulatory proceedings, including regulatory approvals from various domestic and foreign governmental entities (including any conditions, limitations or restrictions placed on these approvals) and the risk that one or more governmental entities may delay or deny approval, or other matters that affect the timing or ability to complete the transaction as contemplated; |
| the ability of the relevant KKR affiliate entity to obtain the necessary financing to complete the merger; |
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| the possibility of disruption to our business, including increased costs as well as diversion of management time and resources; |
| difficulties maintaining business and operational relationships, including relationships with customers, suppliers, and other business partners; |
| the inability to attract and retain key personnel pending consummation of the proposed merger; |
| the inability to pursue alternative business opportunities or make changes to our business pending the completion of the proposed merger; |
| the requirement to pay a termination fee of $103.4 million and reimbursement of KKRs expenses up to $10 million if the Company terminates the merger agreement under certain circumstances; |
| developments beyond the Companys control, including but not limited to changes in domestic or global economic conditions that may affect the timing or success of the proposed merger; and |
| the risk that if the proposed merger is not completed, the market price of the Companys common stock could decline, investor confidence could decline, shareholder litigation could be brought against the Company, relationships with customers, suppliers and other business partners may be adversely impacted, we may be unable to retain key personnel, and profitability may be adversely impacted due to costs incurred in connection with the proposed merger. |
For additional information regarding factors that could affect the Companys results of operations, financial condition and liquidity, see (i) the risk factors discussion provided under Part I, Item 1A of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and (ii) the Cautionary Statement Regarding Forward-Looking Statements included in Part I, Item 2 of this Quarterly Report on Form 10-Q, which are incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of equity securities during the three months ended March 31, 2013 are listed in the following table.
Period |
Total Number of Shares Purchased(1) |
Average Price Paid per Share(2) |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3)(4) |
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(3) |
||||||||||||
1,600,000 | ||||||||||||||||
January 1, 2013 January 31, 2013 |
| | | 1,600,000 | ||||||||||||
February 1, 2013 February 28, 2013 |
948 | 70.84 | | 1,600,000 | ||||||||||||
March 1, 2013 March 31, 2013 |
| | | 1,600,000 | ||||||||||||
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Total |
948 | 70.84 | | 1,600,000 | ||||||||||||
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45
(1) | Includes shares exchanged or surrendered in connection with the exercise or vesting of equity awards under Gardner Denvers Amended and Restated Long-Term Incentive Plan. |
(2) | Excludes commissions. |
(3) | In November 2008, the Board of Directors authorized the Company to acquire up to 3.0 million shares of the Companys outstanding common stock. In November 2011, the Board of Directors authorized the Company to acquire up to 1.3 million shares of its common stock, plus an additional amount to offset dilution resulting from grants under the Companys equity compensation plans. The repurchases during the year ended December 31, 2012 exhausted the availability under these programs. In May 2012, the Companys Board of Directors authorized an additional share repurchase program to acquire up to 1.6 million shares of the Companys outstanding common stock plus an additional amount of common shares to offset dilution resulting from grants under the Companys equity compensation plans. As of March 31, 2013, there were 1.6 million shares available for repurchase under this program. |
(4) | The number of shares purchased includes common stock purchased to offset dilution resulting from grants under the Companys equity compensation plans. |
See the list of exhibits in the Index to Exhibits to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
46
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. (Registrant) | ||||
Date: April 26, 2013 | By: | /s/ Michael M. Larsen | ||
| ||||
Michael M. Larsen | ||||
President and Chief Executive Officer | ||||
Date: April 26, 2013 | By: | /s/ Michael M. Larsen | ||
| ||||
Michael M. Larsen | ||||
Chief Financial Officer | ||||
Date: April 26, 2013 | By: | /s/ David J. Antoniuk | ||
| ||||
David J. Antoniuk | ||||
Vice President and Corporate Controller | ||||
(Principal Accounting Officer) |
47
GARDNER DENVER, INC.
Exhibit No. |
Description | |
2.1 | Agreement and Plan of Merger, dated as of March 7, 2013, by and among Renaissance Parent Corp., Renaissance Acquisition Corp. and Gardner Denver, Inc., filed as Exhibit 2.1 to Gardner Denver, Inc.s Current Report on Form 8-K, filed on March 8, 2013, and incorporated herein by reference. | |
3.1 | Certificate of Incorporation of Gardner Denver, Inc., as amended on May 3, 2006, filed as Exhibit 3.1 to Gardner Denver, Inc.s Current Report on Form 8-K, filed May 3, 2006, and incorporated herein by reference. | |
3.2 | Amended and Restated Bylaws of Gardner Denver, Inc., filed as Exhibit 3.2 to Gardner Denver, Inc.s Current Report on Form 8-K, filed August 4, 2008, and incorporated herein by reference. | |
4.1 | Amended and Restated Rights Agreement, dated as of January 17, 2005, between Gardner Denver, Inc. and National City Bank as Rights Agent, filed as Exhibit 4.1 to Gardner Denver, Inc.s Current Report on Form 8-K, filed January 21, 2005, and incorporated herein by reference. | |
4.2 | Amendment No. 1 to the Amended and Restated Rights Agreement, dated as of October 29, 2009, between Gardner Denver, Inc. and Wells Fargo Bank, National Association as Rights Agent, filed as Exhibit 4.2 to Gardner Denver, Inc.s Current Report on Form 8-K, filed October 29, 2009, and incorporated herein by reference. | |
4.3 | Amendment No. 2 to the Amended and Restated Rights Agreement, dated as of March 7, 2013, by and between Gardner Denver, Inc. and Wells Fargo Bank, National Association, filed as Exhibit 4.1 to Gardner Denver, Inc.s Current Report on Form 8-K, filed March 8, 2013, and incorporated herein by reference. | |
10.1* | Waiver and Release Agreement, dated January 18, 2013, between Gardner Denver, Inc. and Brian Cunkelman. | |
31.1* | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1** | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2** | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS§ | XBRL Instance Document | |
101.SCH§ | XBRL Taxonomy Extension Schema Document | |
101.CAL§ | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB§ | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE§ | XBRL Taxonomy Extension Presentation Linkbase Document |
48
* | Filed herewith. | |
** | This exhibit is furnished herewith and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. | |
§ | These exhibits are furnished herewith. In accordance with Rule 406T of Regulation S-T, these exhibits are not deemed to be filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are not deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections. |
49
Exhibit 10.1
Waiver and Release Agreement
Page 1 of 5
WAIVER AND RELEASE AGREEMENT
I, Brian Cunkelman, understand my last day of employment with Gardner Denver, Inc. (GDI) is January 18, 2013 (Termination of Employment Date), and I accept the following, which GDI promises to me, in consideration for the promises I make in this Waiver and Release Agreement (this Release or Agreement):
| Payment of the sum of Five Hundred and Sixty Thousand Dollars ($560,000), less applicable withholdings, representing the sum of my current base salary and target annual bonus opportunity as provided for under the terms and conditions of the Companys executive severance program. This payment will be made within fifteen (15) days of my establishing U.S. tax residency status; |
| Payment of a sum equivalent to eighteen (18) months of COBRA medical and dental insurance premiums, to be made payable to me in lump sum, less applicable withholdings, payable within fifteen (15) days of my establishing U.S. tax residency status; and |
| Payment, representing my 2012 executive annual bonus award under the Gardner Denver, Inc. Executive Annual Bonus Plan for the pro-rated performance period starting April 1, 2012 and ending December 31, 2012. The payment, if any, will be based on the actual results achieved under the terms of the executive annual bonus plan as determined by the Management Development and Compensation Committee (the MDCC) at its first regularly scheduled meeting in 2013. The payment, less applicable withholdings, will be made upon the first practical payroll date occurring after the MDCC determines the actual results achieved at the aforementioned meeting. Any such payment is subject to all of the terms and conditions of the Executive Annual Bonus Plan. |
| Other Benefits: |
| Reasonable executive outplacement benefits, as contracted by the Company, for a period of up to eighteen (18) months, with a maximum benefit of $50,000. |
| Repatriation benefits to support the return of my family and I to the United States. These benefits consist of one-way economy airfare for me, my spouse and children, as well as transcontinental shipment of my household goods to my local US address. These repatriation benefits shall be provided no later than December 31, 2013. I acknowledge that I am not entitled to any other repatriation allowance, temporary living, storage or other benefits under any agreement with GDI. |
| All expatriate benefits and allowances currently provided under the Summary of International Assignment Provisions dated October 28, 2011 will cease effective January 31, 2013, with the following exceptions noted: housing rental and school assistance payments will terminate February 28, 2013. The Company-leased vehicle will be returned by January 31, 2013. |
| My eligibility and right to payment under the GDI retirement savings plan and supplemental excess defined contribution plan will be governed exclusively by the terms and conditions of applicable plan document(s), using my Termination of Employment Date as my separation from service and/or termination date as such is defined in the applicable plan document(s). I understand that my contributions and the company contributions will cease on my Termination of Employment Date, except to the extent otherwise required under Section 409A of the Internal Revenue Code of 1986, as amended, to avoid the adverse tax consequences thereunder. |
1
Waiver and Release Agreement
Page 2 of 5
| Vesting on all unvested stock options terminates on my Termination of Employment Date. Any stock options that have vested prior to my Termination of Employment Date, but have not been exercised by me, may be exercised until April 17, 2013. Thereafter, I have forfeited any vested and unexercised options. The parties agree that these provisions amend, to the extent required, the applicable award agreements for such awards, which agreements, and the forfeiture provisions therein, shall otherwise continue to apply. |
| All unvested restricted stock unit awards terminate on my Termination of Employment Date. |
| Except as set forth above with respect to my annual 2012 bonus, my participation in any GDI bonus plans, including but not limited to the Executive Annual Bonus Plan, Management Incentive Plan and the Long-Term Incentive Plan, will cease as of my Termination of Employment Date. |
| In accordance with, and subject to, that certain Relocation Acknowledgement Clause dated October 28, 2011, I am not obligated to repay or reimburse GDI for any GDI-paid relocation expenses or other relocation or expatriate benefits. |
| I understand that I will continue to receive GDIs executive tax return preparation service regarding my 2012 and 2013 tax returns through PricewaterhouseCoopers (2012) and Rubin Brown (2013) and will continue to qualify for tax equalization payments related to GDI paid income as otherwise described in that International Assignment Tax Equalization Agreement entered into with the Company on October 31, 2011 for my 2012 and 2013 tax years. Any such tax return preparation services and any tax equalization payments due me shall be provided no later than December 31, 2014. I will continue to be bound by the terms of the International Assignment Tax Equalization Agreement, including any repayment obligations I have in accordance with that agreement. |
| I understand that I will have the right to elect COBRA benefits under the GDI medical and dental plans in accordance with federal law. |
| I understand that I will be paid for any accrued but unpaid base salary and for any unused vacation through the Termination of Employment Date. Such payment will be made at the next practicable payroll date. |
| I understand that all other company benefits cease on my Termination of Employment Date. Notwithstanding anything herein to the contrary, I specifically acknowledge that I am not entitled to any additional severance or separation payments under any other agreement, plan, program, policy or arrangement, and hereby waive any claim thereto. |
Notwithstanding any provision herein to the contrary, any payments described in this Agreement shall be subject to all applicable tax withholdings.
(1.) Complete and General Release. In consideration for receiving the pay and benefits set forth above, I, for myself and my heirs, agents, executors, administrators, successors and assigns, release, relinquish, waive and forever discharge GDI, its subsidiaries, affiliates and all other related entities; its and their predecessors, successors and assigns; the past, present and future officers, directors, shareholders, trustees, members, employees, attorneys and agents of any of the previously listed entities; any benefits plan maintained by any of the previously listed entities at any time; and the past, present and future sponsors, insurers, trustees, fiduciaries and administrators of such benefit plans (collectively Released Parties) from all
2
Waiver and Release Agreement
Page 3 of 5
claims, liabilities, demands and causes of action or suits of any kind, known or unknown, fixed or contingent, of whatsoever kind or nature that I ever had, now have or may claim to have as of the date of the signing of this Agreement, including but not limited to, those arising out of my employment with GDI and my separation from that employment. This Release includes, but is not limited to, a release of the following types of claims:
(a) Claims of discrimination, harassment or retaliation, whether based on race, color, religion, gender, sex, age, sexual orientation, handicap and/or disability, national origin, whistle blowing or any other legally protected class;
(b) Claims under the FEDERAL AGE DISCRIMINATION IN EMPLOYMENT ACT, 29 U.S.C. section 621 et seq., and all other federal, state and local laws, statutes and ordinances governing or concerning employment;
(c) Claims under the Worker Adjustment and Retraining Notification Act;
(d) Claims under federal, state or local laws, regulations, ordinances or court decisions of any kind;
(e) Contract claims (whether express or implied);
(f) Tort claims, including without limitation, wrongful termination, defamation, negligence, invasion of privacy or emotional distress;
(g) Claims under the Family and Medical Leave Act;
(h) Claims under the Employee Retirement Income Security Act; and
(i) Claims for attorneys fees and costs.
Notwithstanding any other provision of this Release, the following are not barred by this Release: (i) claims relating to the validity of this Release; (ii) claims by either party to enforce this Release; (iii) claims that may arise after the date this Release is signed; and (iv) claims that are not legally waivable. This Release includes all claims for accrued or future wages, salary, or benefits, but does not extend to my right to vested accrued benefits as set forth in the plan documents of GDI governing such benefit programs and the right under federal or state law to continue certain benefit coverages. I understand that any and all claims for, and any rights to, any such vested accrued benefits are governed exclusively by the plan documents of GDI, and that I have no rights or entitlement arising from any contract or any other source to any such benefits from GDI other than as provided by such plan documents as modified or limited by this Agreement.
In addition, this Release will not operate to limit or bar my right to file an administrative charge of discrimination with the Equal Employment Opportunity Commission (EEOC) or to testify, assist or participate in an investigation, hearing or proceeding conducted by the EEOC. However, this Release does bar my right to recover any personal or monetary relief, including if I or anyone on by behalf seeks to file a lawsuit on the same basis as the charge of discrimination.
(2.) Return of All GDI Property. I agree that on my Termination of Employment Date, I will return to my immediate supervisor all property and possession of GDI, its subsidiaries, affiliates and all other related entities, including but not limited to keys, access cards, credit cards, electronics, storage media, machinery, computer files and documents, and any other GDI property in my possession related to GDIs business or customer information.
3
Waiver and Release Agreement
Page 4 of 5
(3.) No Admission of Liability. I acknowledge that this Agreement is not an admission of liability or wrongdoing by GDI or any other Released Party.
(4.) Non-Competition/Non-Solicitation. I agree that for a period of twenty-four (24) months following the termination of my employment, I will not (i) compete with GDI by performing work for a direct competitor of GDI, its subsidiaries or its affiliates; and/or (ii) be or become a partner, owner, investor, officer, director, member, employee, independent contractor, agent of, consultant to or give financial or other assistance to, any corporation, partnership, joint venture or any other entity, person or contemplated enterprise engaging in or planning to engage in any activities competitive with GDI, its subsidiaries or its affiliates. For the avoidance of doubt, this prohibition specifically applies, but is in no way limited to, any such entity, person or contemplated enterprise contemplating a purchase of GDI, some or all of GDIs business, or all of (or substantially all of) GDIs assets.
I further agree that for a period of twenty-four (24) months following the termination of my employment, I shall not directly or indirectly (i) induce, solicit, request or advise any Customers (as defined below) to patronize any business which competes with any business of GDI or its affiliates for which I have had any management responsibility during my affiliation with GDI; or (ii) entice, solicit, request or advise any employee of GDI or its affiliates to accept employment (or other affiliation) with any other person, firm or business. As used above, Customers means all customers of any business of GDI or its affiliates with which I had contact or for which I had management responsibility during my affiliation with GDI.
I acknowledge and agree that my breach of the covenants contained in this paragraph 4 will cause immediate and irreparable harm to GDI, that the restrictions of this paragraph are reasonable, and that GDI shall be entitled to injunctive relief to enjoin any continuing breach of this paragraph and to actual and consequential damages resulting therefrom (including attorney fees to enforce this provision).
(5.) Confidential and Proprietary Information of the Company. During my employment with GDI, I had access to much of GDIs confidential information including but not limited to: product margins, product strengths and weaknesses, GDI policies, objectives, strategies, long range plans, plans for market product development, financial information, payroll information, personnel information and other similar information. For purposes of this paragraph, Confidential Information includes all information developed by or for GDI of which I gained or acquired knowledge by reason of my employment with GDI that is not generally known in the industry or not publicly available. I agree that I will keep all Confidential Information in trust for the use and benefit of GDI and not disclose the same to any third party, except as required by applicable law or as authorized in writing by GDI. I will also continue to abide by all confidentiality restrictions pursuant to other agreements which I have executed with GDI prior to the date of this Agreement.
(6.) Non-Disparagement. I agree not to disparage, denigrate, or defame GDI, its affiliates, directors, employees and/or executive officers, or any of its or their business products or services.
(7.) Cooperation. I agree that I will cooperate with GDI and its attorneys in the prosecution or defense of any litigation, or matters concerning which litigation subsequently arises, which occurred or accrued during my employment, and I understand that I will be reimbursed for reasonable expenses incurred through such cooperation.
(8.) Consideration Period / Right to Revoke Period. I understand that I have until and including February 8, 2013, a period of twenty-one (21) days to review and consider this Agreement. I may return this Agreement in less than the full consideration period only if my decision to shorten it was knowing and voluntary and was not induced in any way by GDI. I understand that I have a seven-day period after signing this Agreement to revoke or rescind this Agreement. Such revocation must be in writing and directed to Susan A. Gunn, 1500 Liberty Ridge Drive, Suite 3000, Wayne, Pennsylvania 19087.
4
Waiver and Release Agreement
Page 5 of 5
(9.) Savings Clause. I agree that if any part or provision of this Agreement is deemed by any court to be invalid, void or unenforceable for any reason, the remainder of the terms and provisions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
(10.) Governing Law. This agreement shall be governed by and enforced in accordance with the laws and jurisdiction of the Commonwealth of Pennsylvania.
I hereby acknowledge that I have carefully read and fully understand the provisions of this Agreement. I have not relied upon any other representation or statement, written or oral, except for those set forth in this Agreement. I also hereby acknowledge that GDI has recommended that I consult with an attorney and personal, financial and tax advisors prior to signing this Agreement, and I acknowledge that I have had adequate time to do so. I am entering into this Agreement knowingly and voluntarily and not as a result of any pressure, coercion or duress.
___/s/ Brian Cunkelman__________
Brian Cunkelman
Dated:__January 30, 2013__________
Accepted by:
GARDNER DENVER, INC.
By: __/s/ Susan Gunn_____________
Name:_Susan Gunn_______________
Title:_VP, Human Resources_________
Dated:__2/4/2013_________________
5
Exhibit 31.1
CEO Form 10-Q Certification
I, Michael M. Larsen, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Gardner Denver, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 26, 2013 | /s/ Michael M. Larsen | |||||
Michael M. Larsen | ||||||
President and Chief Executive Officer | ||||||
Gardner Denver, Inc. |
Exhibit 31.2
CFO Form 10-Q Certification
I, Michael M. Larsen, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Gardner Denver, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 26, 2013 | /s/ Michael M. Larsen | |||||
Michael M. Larsen | ||||||
Chief Financial Officer | ||||||
Gardner Denver, Inc. |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Gardner Denver, Inc. (the Company) on Form 10-Q for the period ended March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the Periodic Report), I, Michael M. Larsen, certify, pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, that:
(1) | The Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Michael M. Larsen |
Michael M. Larsen |
President and Chief Executive Officer |
Gardner Denver, Inc. |
April 26, 2013 |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Gardner Denver, Inc. (the Company) on Form 10-Q for the period ended March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the Periodic Report), I, Michael M. Larsen, certify, pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, that:
(1) | The Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Michael M. Larsen |
Michael M. Larsen |
Chief Financial Officer |
Gardner Denver, Inc. |
April 26, 2013 |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Schedule of Restructuring Charges by Reportable Segment (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 12 Months Ended | 27 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
Dec. 31, 2012
|
Dec. 31, 2011
|
Mar. 31, 2013
|
|||||
Restructuring Cost and Reserve [Line Items] | |||||||||
Restructuring charges | $ 2,065 | [1] | $ 14,415 | [1] | $ 18,670 | $ 8,584 | $ 29,319 | ||
Industrial Products Group
|
|||||||||
Restructuring Cost and Reserve [Line Items] | |||||||||
Restructuring charges | 1,440 | 14,761 | 6,621 | 22,822 | |||||
Engineered Products Group
|
|||||||||
Restructuring Cost and Reserve [Line Items] | |||||||||
Restructuring charges | $ 625 | $ 3,909 | $ 1,963 | $ 6,497 | |||||
|
Stockholders' Equity and Earnings Per Share - Additional Information (Detail)
|
3 Months Ended | |||||
---|---|---|---|---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
Nov. 30, 2008
2008 Stock Repurchase Program
|
Nov. 30, 2011
2011 Stock Repurchase Program
|
Mar. 31, 2013
2012 Stock Repurchase Program
|
May 31, 2012
2012 Stock Repurchase Program
|
|
Stockholders' Equity And Earnings Per Share [Line Items] | ||||||
Share repurchase, authorized | 3,000,000 | 1,300,000 | 1,600,000 | |||
Remaining shares available for purchase | 1,600,000 | |||||
Anti-dilutive equity-based awards outstanding | 297,000 | 260,000 |
Schedule of Debt and Capital Lease Obligations (Detail)
In Thousands, unless otherwise specified |
Mar. 31, 2013
USD ($)
|
Dec. 31, 2012
USD ($)
|
Mar. 31, 2013
Credit Line, Due 2013
USD ($)
|
Dec. 31, 2012
Credit Line, Due 2013
USD ($)
|
Mar. 31, 2013
Term Loan, Denominated In U.S. Dollars, Due 2013
USD ($)
|
Dec. 31, 2012
Term Loan, Denominated In U.S. Dollars, Due 2013
USD ($)
|
Mar. 31, 2013
Term Loan, Denominated In Euros ("EUR"), Due 2013
USD ($)
|
Dec. 31, 2012
Term Loan, Denominated In Euros ("EUR"), Due 2013
USD ($)
|
Mar. 31, 2013
Secured Mortgages
USD ($)
|
Mar. 31, 2013
Secured Mortgages
EUR (€)
|
Dec. 31, 2012
Secured Mortgages
USD ($)
|
Mar. 31, 2013
Capitalized Leases And Other Long-Term Debt
USD ($)
|
Dec. 31, 2012
Capitalized Leases And Other Long-Term Debt
USD ($)
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Debt Instrument [Line Items] | |||||||||||||||||||||||||||||
Short-term borrowings | $ 2,879 | $ 2,288 | |||||||||||||||||||||||||||
Total long-term debt, including current maturities | 320,896 | 366,872 | 85,000 | [1] | 112,000 | [1] | 198,077 | [2] | 214,615 | [2] | 19,245 | [3] | 29,718 | [3] | 3,770 | [4] | 2,941 | 3,880 | [4] | 14,804 | 6,659 | ||||||||
Current maturities of long-term debt | 303,067 | 357,145 | |||||||||||||||||||||||||||
Long-term debt, less current maturities | $ 17,829 | $ 9,727 | |||||||||||||||||||||||||||
|
Schedule of Calculation of Basic and Diluted Earnings Per Common Share (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
|
Schedule of Earnings Per Share, Basic and Diluted, by Common Class [Line Items] | ||
Net income (loss) attributable to Gardner Denver | $ 45,683 | $ 54,832 |
Basic | 49,161 | 50,638 |
Effect of stock-based compensation awards | 196 | 299 |
Diluted | 49,357 | 50,937 |
Earnings Per Share, Basic | $ 0.93 | $ 1.08 |
Earnings Per Share, Diluted | $ 0.93 | $ 1.08 |
Reconciliation of Changes in Accrued Product Warranty Liability (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
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Product Warranty Liability [Line Items] | ||
Balance at beginning of period | $ 24,429 | $ 22,939 |
Product warranty accruals | 5,097 | 6,828 |
Settlements | (5,230) | (5,434) |
Effect of foreign currency translation | (430) | 339 |
Balance at end of period | $ 23,866 | $ 24,672 |
Hedging Activities and Fair Value Measurements (Tables)
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Mar. 31, 2013
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Schedule of Notional Amounts, Fair Values and Classification of Company's Outstanding Derivatives by Risk Category And Instrument Type | The following tables summarize the notional amounts, fair values and classification of the Company’s outstanding derivatives by risk category and instrument type within the Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012:
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Foreign Currency Forward Contracts Subject to Master Netting Arrangements or Agreements between Company and Counterparty for Net Settlement of All Contracts | The Company’s foreign currency forward contracts are subject to master netting arrangements or agreements between the Company and the counterparty for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract. The tables below show the effects and potential effects of netting arrangements on the Company’s Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012:
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Schedule of Gains and Losses on Derivatives Designated as Cash Flow Hedges | Gains and losses on derivatives designated as cash flow hedges included in the Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2013 and 2012, are as presented in the table below:
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Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis | The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2013:
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Inventories (Tables)
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27 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2013
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Inventories | Inventories as of March 31, 2013 and December 31, 2012 consisted of the following:
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Stock Based Compensation - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Total stock-based compensation expenses | $ 2.0 | $ 2.3 |
Income tax benefits realized | 0.7 | 0.7 |
Total fair value of restricted share awards vested during the period | 0.2 | 2.4 |
Stock Option Awards
|
||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Pre-tax unrecognized compensation expense, net of estimated forfeitures | 2.7 | |
Weighted-average period of pre-tax unrecognized compensation expense for stock options to be recognized as expense, years | 1 year 8 months 12 days | |
Total pre-tax intrinsic value of stock options exercised | 2.1 | 2.2 |
Restricted Share Awards
|
||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Pre-tax unrecognized compensation expense, net of estimated forfeitures | $ 8.3 | |
Weighted-average period of pre-tax unrecognized compensation expense for stock options to be recognized as expense, years | 2 years 6 months |
Schedule of Changes in Carrying Amount of Goodwill Attributable to Each Business Segment (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2013
|
Dec. 31, 2012
|
|
Goodwill [Line Items] | ||
Beginning Balance | $ 680,900 | $ 676,582 |
Adjustments | (634) | |
Divestitures | (195) | |
Foreign currency translation | (12,770) | 5,147 |
Ending Balance | 668,130 | 680,900 |
Industrial Products Group
|
||
Goodwill [Line Items] | ||
Beginning Balance | 359,076 | 358,235 |
Adjustments | (634) | |
Divestitures | (195) | |
Foreign currency translation | (8,831) | 1,670 |
Ending Balance | 350,245 | 359,076 |
Engineered Products Group
|
||
Goodwill [Line Items] | ||
Beginning Balance | 321,824 | 318,347 |
Foreign currency translation | (3,939) | 3,477 |
Ending Balance | $ 317,885 | $ 321,824 |
Entry into Merger Agreement - Additional Information (Detail) (Kohlberg Kravis Roberts Co L P, USD $)
In Millions, except Per Share data, unless otherwise specified |
1 Months Ended | |||
---|---|---|---|---|
Mar. 07, 2013
|
Mar. 31, 2013
If the Company terminates the merger agreement
|
Mar. 31, 2013
If the Company terminates the merger agreement
Maximum
|
Mar. 31, 2013
If KKR terminates the merger agreement
|
|
Business Acquisition [Line Items] | ||||
Definitive merger agreement, acquisition price per share for outstanding common stock shares | $ 76.00 | |||
Merger agreement termination fee | $ 103.4 | $ 263.1 | ||
Merger agreement, reimbursement expense in case of termination | $ 10 |
Schedule of Weighted Average Valuation Assumptions (Detail)
|
3 Months Ended |
---|---|
Mar. 31, 2012
|
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Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items] | |
Risk-free interest rate | 0.70% |
Dividend yield | 0.30% |
Volatility factor | 47.00% |
Expected life (in years) | 4 years 1 month 6 days |
Summery of Information by Reportable Segment (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | |||||
---|---|---|---|---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
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Segment Reporting Information [Line Items] | ||||||
Revenues | $ 513,541 | $ 604,356 | ||||
Operating income | 63,377 | 79,792 | ||||
Interest expense | 2,677 | 3,834 | ||||
Other income, net | (1,308) | (1,223) | ||||
Consolidated income before income taxes | 62,008 | 77,181 | ||||
Industrial Products Group
|
||||||
Segment Reporting Information [Line Items] | ||||||
Revenues | 301,852 | 325,827 | ||||
Operating income | 29,843 | [1] | 15,539 | [1] | ||
Operating income as a percentage of revenues | 9.90% | 4.80% | ||||
Engineered Products Group
|
||||||
Segment Reporting Information [Line Items] | ||||||
Revenues | 211,690 | 278,529 | ||||
Operating income | $ 33,534 | $ 64,253 | ||||
Operating income as a percentage of revenues | 15.80% | 23.10% | ||||
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Foreign Currency Forward Contracts Subject to Master Netting Arrangements or Agreements between Company and Counterparty for Net Settlement of All Contracts (Detail) (USD $)
In Thousands, unless otherwise specified |
Mar. 31, 2013
|
Mar. 31, 2012
|
---|---|---|
Foreign Currency Forwards
|
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Derivative [Line Items] | ||
Gross Amount Recognized, Assets | $ 652 | $ 792 |
Gross Amount Offset in the Balance Sheet, Assets | 16 | 21 |
Net Amounts Presented in the Balance Sheet, Assets | 636 | 771 |
Gross Amounts Not Offset in the Balance Sheet, Financial Instruments, Assets | 604 | 659 |
Gross Amounts Not Offset in the Balance Sheet, Cash Collateral Received, Assets | ||
Net Amount, Assets | 32 | 112 |
Gross Amount Recognized, Liabilities | 987 | 223 |
Gross Amount Offset in the Balance Sheet, Liabilities | ||
Net Amounts Presented in the Balance Sheet, Liabilities | 987 | 223 |
Gross Amounts Not Offset in the Balance Sheet, Financial Instruments, Liabilities | 939 | 90 |
Gross Amounts Not Offset in the Balance Sheet, Cash Collateral Received, Liabilities | ||
Net Amount, Liabilities | 48 | 133 |
Interest Rate Swap Contracts
|
||
Derivative [Line Items] | ||
Gross Amount Recognized, Liabilities | 318 | 533 |
Gross Amount Offset in the Balance Sheet, Liabilities | ||
Net Amounts Presented in the Balance Sheet, Liabilities | 318 | 533 |
Gross Amounts Not Offset in the Balance Sheet, Cash Collateral Received, Liabilities | ||
Net Amount, Liabilities | $ 318 | $ 533 |
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
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U.S. Plans
|
||
Summary of Components of Net Periodic Benefit Cost and Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income [Line Items] | ||
Interest cost | $ 702 | $ 826 |
Expected return on plan assets | (1,123) | (1,074) |
Unrecognized net actuarial loss (gain) | 447 | 475 |
Total net periodic benefit cost (income) | 26 | 227 |
Non-U.S. Plans
|
||
Summary of Components of Net Periodic Benefit Cost and Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income [Line Items] | ||
Service cost | 348 | 288 |
Interest cost | 2,619 | 2,674 |
Expected return on plan assets | (2,742) | (2,570) |
Unrecognized prior service cost | 11 | 9 |
Unrecognized net actuarial loss (gain) | 560 | 309 |
Gain due to settlements or curtailments | (7) | |
Total net periodic benefit cost (income) | 789 | 710 |
Other Postretirement Benefits
|
||
Summary of Components of Net Periodic Benefit Cost and Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income [Line Items] | ||
Service cost | 7 | 7 |
Interest cost | 50 | 182 |
Unrecognized prior service cost | (357) | (15) |
Unrecognized net actuarial loss (gain) | (255) | (202) |
Total net periodic benefit cost (income) | $ (555) | $ (28) |
Restructuring
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Mar. 31, 2013
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Restructuring | Note 3. Restructuring In 2011, the Company recorded approximately $8.6 million in charges associated with streamlining of manufacturing operations and other cost reduction initiatives. In addition, the 2011 charges included costs associated with the establishment of a centralized European shared service center in the Czech Republic. The Company substantially completed the restructuring actions commenced in 2011 during 2012. The Company recorded charges related to 2011 plans of $1.1 million for the year ended December 31, 2012. In 2012, the Company launched a broader restructuring program designed to optimize the Company’s global manufacturing footprint, better serve customers and expand margins. The initial phase of the global restructuring effort was commenced in the first quarter of 2012. These restructuring actions were primarily focused on the European and North American operations included in the Industrial Products Group reportable segment. These actions, once completed, will reduce the Company’s global headcount by approximately 7% (based on employee census figures as of December 31, 2011). In addition, the Company closed three production facilities in 2012, including two facilities in the U.S. and one in Sweden. The Company expects to close an additional facility in the UK in the second quarter of 2013. The Company recorded charges related to the initial phase of the restructuring plans of $17.5 million for the year ended December 31, 2012 and $2.1 million for the three-month period ended March 31, 2013. The Company expects to complete the specific steps contemplated by this initial phase by the end of 2013 and to incur related additional charges of approximately $4.3 million. On August 16, 2012, the Company announced the launch of phase two of the restructuring program, which is primarily focused on the European operations included in the Industrial Products Group reportable segment. Phase two involves further reductions in the number of manufacturing facilities and associated headcount. Phase two of the program is subject to required consultations with local stakeholders, including employee representatives, and will continue until the end of 2015. The Company expects to incur severance and other employment related benefit costs in the range of $60 to $65 million and other costs in the range of $15 to $20 million for phase one and phase two of the restructuring program. Additionally, non-cash charges, primarily related to fixed assets, are expected to be in the range of $10 to $15 million.
Charges recorded in connection with restructuring plans are included in “Other operating expense, net” in the Condensed Consolidated Statements of Operations, and are summarized for the years ended December 31, 2011 and 2012 and the three-month period ended March 31, 2013 by reportable segment as follows:
The following table summarizes the activity in the restructuring accrual accounts for the three-month period ended March 31, 2013:
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Schedule of Gains and Losses on Derivatives Designated as Cash Flow Hedges (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | |||||
---|---|---|---|---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
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Interest rate swap contracts | ||||||
Gain or (loss) recognized in AOCI on derivatives (effective portion) | $ (84) | [1] | $ (209) | [1] | ||
Gain or (loss) reclassified from AOCI into income (effective portion) | (301) | [1] | (283) | [1] | ||
Gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing) | $ 90 | [1] | ||||
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