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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934: For the fiscal year ended December 31, 2002
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934: For the transition period from to
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Commission file number 1-13215
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GARDNER DENVER, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 76-0419383
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1800 Gardner Expressway, Quincy, IL 62301
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(Address of Principal Executive Offices) (Zip Code)
(217) 222-5400
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value
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(Title of Class)
Rights to Purchase Preferred Stock
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No
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The aggregate market value of the registrant's voting stock held by
non-affiliates as of March 14, 2003 was $293,064,485.
The number of shares outstanding of the registrant's Common Stock, as of March
14, 2003 was 16,031,974.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Gardner Denver, Inc. Proxy Statement, dated March 21, 2003
(incorporated into Part III of this Annual Report on Form 10-K).
Portions of the 2002 Annual Report to Stockholders (incorporated into Parts
I and II of this Annual Report on Form 10-K).
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PART I
ITEM 1. BUSINESS
GENERAL
Gardner Denver, Inc. ("Gardner Denver" or the "Company") believes, based on
total sales in the United States, it is one of the leading manufacturers of
stationary air compressors and blowers for industrial applications. Stationary
air compressors are used in manufacturing, process applications and materials
handling, and to power air tools and equipment. Blowers are used primarily in
pneumatic conveying, wastewater aeration and engineered vacuum systems. Gardner
Denver also believes that it is one of the leading manufacturers of pumps used
in oil and natural gas production, well-servicing and drilling and water jetting
systems.
In 2002, Gardner Denver had revenues of $418.2 million, of which approximately
84 percent were derived from sales of compressed air products while
approximately 16 percent were from sales of pump products. Approximately 63
percent of the total revenues in 2002 were derived from sales in the United
States and approximately 37 percent were from sales to customers in various
countries outside the United States. Of the total non-U.S. sales, 56 percent
were to Europe, 17 percent to Asia, 12 percent to Canada, 12 percent to Latin
America and 3 percent to other regions.
HISTORY
The Company's business of manufacturing industrial and petroleum equipment began
in 1859 when Robert W. Gardner redesigned the fly-ball governor to provide speed
control for steam engines. By 1900, the then Gardner Company had expanded its
product line to include steam pumps and vertical high-speed air compressors. In
1927, the Gardner Company merged with Denver Rock Drill, a manufacturer of
equipment for oil wells and mining and construction, and became the
Gardner-Denver Company. In 1979, the Gardner-Denver Company was acquired by
Cooper Industries, Inc. ("Cooper") and operated as 10 unincorporated divisions.
Two of these divisions, the Gardner-Denver Air Compressor Division and the
Petroleum Equipment Division, were combined in 1985 to form the Gardner-Denver
Industrial Machinery Division (the "Division"). The OPI(R) pump product line was
purchased in 1985 and added to the Division. In 1987, Cooper acquired the
Sutorbilt(R) and DuroFlow(R) blower product lines and the Joy(R) industrial
compressor product line, which were also consolidated into the Division.
Effective December 31, 1993, the assets and liabilities of the Division were
transferred by Cooper to the Company, which had been formed as a wholly-owned
subsidiary of Cooper. On April 15, 1994, the Company was spun-off as an
independent company to the shareholders of Cooper.
Gardner Denver has completed fourteen acquisitions since becoming an independent
company. In 1996, Gardner Denver acquired NORAMPTCO, Inc., renamed Gardner
Denver Holdings Inc., and its primary operating subsidiary Lamson Corporation
("Lamson"). Lamson designs, manufactures and sells multistage centrifugal
blowers and exhausters used in various industrial and wastewater applications.
Lamson's products complemented the Company's product offering by enabling it to
expand its participation in environmental and industrial segments requiring air
and gas management.
Also in 1996, the Company acquired TCM Investments, Inc., an oilfield pump
manufacturer based in Tulsa, Oklahoma. This acquisition extended the Company's
well stimulation pump
2
product line, provided a physical presence in the oilfield market and allowed
Gardner Denver to become a major supplier of repair parts and remanufacturing
services to some of the Company's customers.
In 1997, the Company acquired Oy Tamrotor Ab ("Tamrotor"), located in Tampere,
Finland. Tamrotor designs and manufactures lubricated rotary screw compressor
air ends and packages. The addition of Tamrotor provided the Company with a
manufacturing base in Europe and growth opportunities through complementary
product lines and international market penetration. In 1999, the Company
liquidated Tamrotor and now conducts business in Finland as Gardner Denver OY.
In January 1998, the Company purchased Champion Pneumatic Machinery Company,
Inc. ("Champion"). Champion, located in Princeton, Illinois, is a leading
manufacturer of low horsepower reciprocating compressors. Champion opened new
market opportunities for Gardner Denver products and expanded the range of
reciprocating compressors available to existing distributors of Gardner
Denver(R) branded products.
In January 1998, the Company also acquired Geological Equipment Corporation
("Geoquip"), a leading manufacturer of pumps, ranging from 350 to 2,400
horsepower, in Fort Worth, Texas. The operation also remanufactures pumps and
provides repair services. The addition of Geoquip enhanced the Gardner Denver
well servicing product line, expanded the Company's presence in remanufacturing
and repair services and introduced the Company to the water jetting market.
The Company purchased the Wittig Division of Mannesmann Demag AG ("Wittig") in
March 1998. Wittig, located in Schopfheim, Germany, is a leading manufacturer of
rotary sliding vane compressors and vacuum pumps. Wittig's products primarily
serve the truck blower market for liquid and dry bulk conveyance, as well as
other industrial applications. The acquisition of Wittig expanded the Company's
manufacturing presence in Europe and provided distribution channels for its
blower products, which are produced in the United States.
In April 1999, the Company acquired Allen-Stuart Equipment Company, Inc.
("Allen-Stuart"), located in Houston, Texas. Allen-Stuart, which also conducts
business as the Gardner Denver Engineered Packaging Center, designs, fabricates
and services custom-engineered packages for blower and compressor equipment in
air and gas applications. This entity also distributes Gardner Denver(R) blowers
in Texas. The addition of Allen-Stuart enhanced the Company's ability to supply
engineered packages, incorporating the wide range of compressor and blower
products manufactured by Gardner Denver.
In April 1999, the Company also purchased Butterworth Jetting Systems, Inc., a
manufacturer of water jet pumps and systems serving the industrial cleaning and
maintenance market, located in Houston, Texas. This operation, which was renamed
Gardner Denver Water Jetting Systems, Inc., expanded the Company's position in
the rapidly growing water jet market.
In October 1999, the Company acquired Air Relief, Inc. ("Air Relief"), located
in Mayfield, Kentucky. Air Relief is an independent provider of replacement
parts and service for centrifugal compressors. This operation enhanced the
Company's ability to penetrate the centrifugal compressor market by adding key
engineering, assembly, sales and service capabilities.
In January 2000, the Company acquired Invincible Airflow Systems, Co.
("Invincible"). Invincible, located in Baltic, Ohio, manufactures single and
fabricated multistage centrifugal
3
blowers and engineered vacuum systems. Invincible extended Gardner Denver's
product offering for the industrial cleaning market and introduced the Company's
centrifugal blowers to new markets.
The Company acquired Jetting Systems & Accessories, Inc. ("JSA") in April 2000
and CRS Power Flow, Inc. ("CRS") in July 2000. JSA and CRS are located in
Houston, Texas, and both manufacture aftermarket products for the water jetting
industry. These two acquisitions complemented the Company's product offering for
the water jetting market and further leveraged Gardner Denver's commitment to
being a full service provider in the water jetting industry.
In September 2001, the Company acquired Hamworthy Belliss & Morcom ("Belliss &
Morcom"), headquartered in Gloucester, England. Belliss & Morcom manufactures
and distributes reciprocating air compressors used for a variety of niche
applications, such as polyethylene terephthalate ("PET") bottle blowing,
breathing air equipment and compressed natural gas. The acquisition of Belliss &
Morcom broadened the Company's range of product offerings, strengthened its
distribution and service networks and increased its participation in sales of
products with applications that have the potential to grow faster than the
overall industrial economy.
In September 2001, the Company also acquired Hoffman Air and Filtration Systems
("Hoffman"). Hoffman, previously headquartered in Syracuse, New York,
manufactures and distributes multistage centrifugal blowers and vacuum systems,
primarily for wastewater treatment and industrial applications. The acquisition
of Hoffman expanded Gardner Denver's product offering and distribution
capabilities and enhanced its position as a leading international supplier of
centrifugal products to the air and gas handling industry. During 2002,
manufacturing of Hoffman products was transferred to the Company's existing
centrifugal blower facility in Peachtree City, Georgia.
MARKETS AND PRODUCTS
Gardner Denver designs, manufactures and markets compressed air products and
pump products. A description of the particular products manufactured and sold by
Gardner Denver in its two reportable segments is set forth below.
Compressed Air Products Segment
In the Compressed Air Products segment, Gardner Denver designs, manufactures,
markets and services the following products and related aftermarket parts for
industrial and commercial applications: rotary screw, reciprocating, sliding
vane and centrifugal compressors, positive displacement and centrifugal blowers.
Sales of compressed air products by Gardner Denver in 2002 were $350.0 million,
of which approximately 60 percent were to customers in the United States.
Reciprocating compressors range from 0.5 to 1,500 horsepower and are sold under
the Gardner Denver(R), Champion(R), Commandair(R) and Belliss & Morcom(R)
trademarks. Rotary screw compressors range from 5 to 680 horsepower and are sold
under the Gardner Denver(R), Electra-Screw(R), Electra-Saver(R), Enduro(R),
RotorChamp(R), Twistair(R), Tamrotor(R), and Tempest(R) trademarks. Centrifugal
compressors range from 400 to 1,500 horsepower and are sold under the GD Turbo
name.
4
Blowers are used to produce a high volume of air at low pressures and vacuums.
Centrifugal blowers produce a constant level of pressure and varying volumes of
airflow. Positive displacement blowers provide a constant volume of airflow at
varying levels of pressure. The Company's positive displacement blowers range
from 0 to 36 pounds per square inch gauge (PSIG) pressure and 0-28 inches of
mercury ("Hg) vacuum and 0 to 43,000 cubic feet per minute (CFM) and are sold
under the trademarks Sutorbilt(R), DuroFlow(R), CycloBlower(R) and TurboTron(R).
The Company's multistage centrifugal blowers are sold under the trademarks
Lamson(R) and Hoffman(R) and range from 0.5 to 25 PSIG pressure and 0-18 "Hg
vacuum and 100 to 50,000 CFM. The Company's rotary sliding vane compressors and
vacuum pumps range from 0 to 150 PSIG and 0 to 3,000 CFM and are sold under the
trademark Wittig(R).
The Company's engineered vacuum systems are used in industrial cleaning and
maintenance and are sold under the Invincible(R) and Cat Vac(R) trademarks.
Almost all domestic manufacturing plants and industrial facilities, as well as
many service industries, utilize air compressors and/or blowers. The largest
customers for Gardner Denver's compressor products are durable and non-durable
goods manufacturers; process industries (petroleum, primary metals,
pharmaceutical, food and paper); original equipment manufacturers ("OEMs");
manufacturers of carpet cleaning equipment, pneumatic conveying equipment, and
dry and liquid bulk transports; wastewater treatment facilities; and automotive
service centers and niche applications such as polyethylene terephthalate
("PET") bottle blowing, breathing air equipment and compressed natural gas.
Manufacturers of machinery and related equipment use stationary compressors for
automated systems, controls, materials handling and special machinery
requirements. The petroleum, primary metals, pharmaceutical, food and paper
industries require compressed air for process, instrumentation and control,
packaging and pneumatic conveying.
Blowers are instrumental to local utilities for aeration in treating industrial
and municipal waste. Blowers are also used in service industries, for example,
residential carpet cleaning to vacuum moisture from carpets during the
shampooing and cleaning process. Blowers and rotary vane compressors are used on
trucks to vacuum leaves and debris from street sewers and to unload liquid and
dry bulk and powder materials such as cement, grain and plastic pellets.
Additionally, blowers are used in numerous chemical process applications.
Pump Products Segment
Gardner Denver designs, manufactures, markets and services a diverse group of
pumps, water jetting systems and related aftermarket parts used in oil and
natural gas production, well servicing and drilling and industrial cleaning and
maintenance. Sales of pump products in 2002 were $68.1 million, of which
approximately 78 percent were to customers in the United States.
Positive displacement reciprocating pumps are marketed under the Gardner
Denver(R), Geoquip(R), Ajax(R) and OPI(R) trademarks. Typical applications of
Gardner Denver(R) pumps in oil and natural gas production include oil transfer,
water flooding, salt water disposal, pipeline
5
testing, ammine pumping for gas processing, re-pressurizing, enhanced oil
recovery, hydraulic power and other liquid transfer applications. Gardner
Denver's production pumps range from 16 to 600 horsepower and consist of
horizontal and vertical designed pumps.
Gardner Denver markets one of the most complete product lines of well servicing
pumps. Well servicing operations include general workover service, completions
(bringing wells into production after drilling), and plugging and abandonment of
wells. Gardner Denver's well servicing products consist of high pressure plunger
pumps ranging from 165 to 400 horsepower.
Gardner Denver also manufactures intermittent duty triplex and quintuplex
plunger pumps ranging from 250 to 3,000 horsepower for well cementing and
stimulation, including reservoir fracturing or acidizing. Duplex pumps, ranging
from 16 to 135 horsepower, are produced for shallow drilling, which includes
water well drilling, seismic drilling and mineral exploration. Continuous duty
triplex mud pumps for oil and natural gas drilling rigs range from 275 to 2,000
horsepower. A small portion of Gardner Denver(R) and Ajax(R) pumps are sold for
use in industrial applications.
The Company's water jetting systems are used in industrial cleaning and
maintenance and are sold under the Liqua-Blaster(R) and American Water
Blaster(R) trademarks. Applications in this market segment include runway and
shiphull cleaning, concrete demolition and metal surface preparation.
For financial information over the past three years on the Company's performance
by industry segment and the Company's international sales, refer to Note 15 of
the Notes to Consolidated Financial Statements included in Gardner Denver's 2002
Annual Report to Stockholders and incorporated herein by reference.
CUSTOMERS AND CUSTOMER SERVICE
Gardner Denver sells its products through independent distributors and sales
representatives and directly to OEMs, engineering firms and end users. Gardner
Denver uses a direct sales force to service OEM and engineering firm accounts
because these typically require more technical assistance, shipment scheduling
and product service.
As a majority of Gardner Denver's products are marketed through independent
distribution, Gardner Denver is committed to developing and supporting its
distribution network of over 1,500 distributors and representatives. Gardner
Denver has a Master Distribution Center in Memphis, Tennessee that stocks parts,
accessories, blowers and small compressor products in order to provide adequate
and timely availability. Gardner Denver also provides its distributors with
sales and product literature, technical assistance and training programs,
advertising and sales promotions, order-entry and tracking systems and an annual
restocking program. Gardner Denver participates in major trade shows and has a
telemarketing department to generate sales leads and support the distributors'
sales staffs.
The Company's distributors maintain an inventory of complete units and parts and
provide aftermarket service to end users. There are several hundred field
service representatives for Gardner Denver products in the distributor network.
Gardner Denver's service personnel and product engineers provide the
distributors' service representatives with technical assistance and
6
field training, particularly with respect to installation and repair of
equipment.
Gardner Denver also provides aftermarket support through its remanufacturing
facilities in Indianapolis, Indiana; Fort Worth, Texas; and Mayfield, Kentucky.
The Indianapolis operation remanufactures and repairs air ends for rotary screw
compressors, blowers and reciprocating compressors. The Fort Worth facility
repairs and remanufactures well servicing pumps. The Mayfield operation provides
aftermarket parts and repairs for centrifugal compressors.
Outside the United States, Gardner Denver markets its products through a network
of sales representatives, as well as distributors and direct sales persons. As a
result of the Lamson, Wittig and Hoffman acquisitions, the Company operates
blower packaging operations in Canada, France, Germany and the United Kingdom.
As a result of the Tamrotor and Bellis & Morcom acquisitions, the Company
operates compressor manufacturing and packaging facilities in Canada, Finland
and the United Kingdom.
COMPETITION
Gardner Denver's principal competitors in sales of compressed air products
include Ingersoll-Rand, Sullair (owned by United Technologies Corporation),
Atlas Copco, Quincy Compressor (owned by En Pro Industries), CompAir and Roots.
The principal competitors in sales of petroleum pump products include
National-Oilwell and SPM Flow Control, Inc. The principal competitors in sales
of water jetting systems include NLB Corp., WOMA Apparatebau GmbH and Hammelmann
Maschinenfabrik GmbH. Each of the Company's business segments has a strong
reputation and the Company's trademarks are recognized both domestically and
internationally.
Demand for compressed air products is dependent upon capital spending by
manufacturing and process industries, and general economic conditions. Demand
for pump products is primarily tied to the number of working and available
drilling rigs and oil and natural gas prices. The principal competitive factors
in both segments are quality, performance, price and availability. The relative
importance of each of these factors varies depending on the specific type of
product.
Compressed air and pump products are best characterized as mature, with steady
and slow technological advances. Technological trends in compressed air products
include, among others, development of oil-free air compressors, increased
product efficiency, reduction of noise levels, and advanced control systems to
upgrade the flexibility and precision of regulating pressure and capacity.
Emerging compressed air products market niches result from new technologies in
plastics extrusion, oil and natural gas well drilling, field gas gathering,
mobile and stationary vacuum applications, utility and fiber optic installation,
environmental impact minimization, as well as other factors. Trends in pump
products include, among others, development of larger horsepower and lighter
weight pumps.
RESEARCH AND DEVELOPMENT
The Company actively engages in a continuing research and development program.
The Gardner Denver research and development centers are dedicated to various
activities, including new product development, product performance improvement
and new product applications.
7
Gardner Denver's products are designed to satisfy the safety and performance
standards set by various industry groups and testing laboratories. Care is
exercised throughout the manufacturing and final testing process to ensure that
products conform to industry, government and customer specifications.
Gardner Denver has representatives on the American Petroleum Institute's working
committee and the Company has relationships with standard enforcement
organizations such as Underwriters Laboratories (U.L.), Det Norske Veritas (DNV)
and the Canadian Standard Association (C.S.A.). The Company maintains ISO 9001
certification on the quality systems at a majority of its manufacturing and
design locations.
Expenditures for research and development sponsored by the Company were $2.4
million in 2002, $2.5 million in 2001 and $3.0 million in 2000.
MANUFACTURING
Gardner Denver has nineteen manufacturing facilities that utilize a broad
variety of processes. At its manufacturing locations, the Company maintains
advanced manufacturing, quality assurance and testing equipment geared to the
specific products that it manufactures, and uses extensive process automation in
its manufacturing operations. Most of the manufacturing facilities utilize
computer aided numerical control tools and manufacturing techniques that
concentrate the equipment necessary to produce similar products in one area of
the plant (cell manufacturing). One operator using cell manufacturing can
monitor and operate several machines, as well as assemble and test products made
by such machines, thereby improving operating efficiency and product quality
while reducing the amount of work-in-process and finished product inventories.
RAW MATERIALS
The primary raw materials used by Gardner Denver are cast iron and steel. Such
materials are generally available from a number of suppliers. The Company does
not currently have long-term contracts with its suppliers of raw materials, but
believes that its sources of raw materials are reliable and adequate for its
needs. The Company utilizes single sources of supply for certain iron castings
and other selected components. A disruption in deliveries from a given supplier
could therefore have an adverse effect on the Company's ability to meet its
commitments to customers. Nevertheless, the Company believes that it has
appropriately balanced this risk against the cost of sustaining a greater number
of suppliers. Moreover, the Company has sought, and will continue to seek, cost
reductions in its purchases of materials and supplies by consolidating its
purchases, pursuing alternate sources of supply and using online bidding
competitions among potential suppliers.
The Company's largest supplier of iron castings, Atchison Casting Corporation
("Atchison") announced in August 2002 that it would downsize its LaGrange,
Missouri foundry ("LaGrange Foundry"), ceasing production and focusing the
facility on pattern repair, maintenance and storage. Atchison later decided to
completely close this facility. As a result, the Company began to implement its
previously developed contingency plan to secure alternative supply sources. The
Company does not anticipate that the closure of the LaGrange Foundry will
materially impact its long-term financial performance. However, there was a
negative impact (approximately $0.01 to $0.03 diluted EPS) on the Company's
financial performance in
8
the fourth quarter of 2002, as additional costs were incurred related to
expediting castings from new suppliers. The Company currently expects additional
negative impact (approximately $0.02 to $0.04 diluted EPS) in the first quarter
of 2003, as the Company's plan is carried out and alternative iron casting
supply sources are fully integrated into the Company's supply and manufacturing
processes. The most significant aspects of this change should be completed by
the end of the first quarter of 2003 and the Company expects to benefit going
forward from reduced material costs from alternate suppliers.
Historically, the Company has not experienced any significant supply problems in
its operations other than the LaGrange Foundry closure noted above; however,
there can be no assurance that this will be the case in the future.
BACKLOG
The Company's backlog was approximately $65.3 million at December 31, 2002 as
compared to approximately $79.2 million at December 31, 2001. This decrease was
primarily due to declining demand of petroleum pump products stemming from lower
rig counts. Backlog consists of orders believed to be firm for which a customer
purchase order has been received or communicated and which are scheduled for
shipment within twelve months. Since orders may be rescheduled or canceled,
backlog does not necessarily reflect future sales levels.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The Company believes that the success of its business depends more on the
technical competence, creativity and marketing abilities of its employees than
on any individual patent, trademark or copyright. Nevertheless, as part of its
ongoing research, development and manufacturing activities, the Company has a
policy of seeking appropriate patents concerning new products and product
improvements.
In the aggregate, patents and trademarks are of considerable importance to the
manufacturing and marketing of many of the Company's products. However, the
Company does not consider any single patent or trademark, or group of patents or
trademarks, to be material to its business as a whole, except for the Gardner
Denver(R) trademark. Other important trademarks used by Gardner Denver include
DuroFlow(R), Sutorbilt(R), CycloBlower(R), Wittig(R), Lamson(R), Tamrotor(R),
OPI(R), Champion(R), Geoquip(R), Belliss & Morcom(R) and Hoffman(R). Joy(R) is
a registered trademark of Joy Technologies, Inc. Gardner Denver has the right to
use the Joy(R) trademark on aftermarket parts until November 2027. The Company's
right to use this trademark on air compressors expired in November 1995.
Pursuant to trademark license agreements, Cooper has rights to use the Gardner
Denver(R) trademark for certain power tools and Gardner Denver has rights to use
the Ajax(R) trademark for petroleum pump products. Gardner Denver has registered
its trademarks in the countries where it is deemed necessary.
The Company also relies upon trade secret protection for its confidential and
proprietary information. The Company routinely enters into confidentiality
agreements with its employees. There can be no assurance, however, that others
will not independently obtain similar information and techniques or otherwise
gain access to the Company's trade secrets or that the Company can effectively
protect its trade secrets.
9
EMPLOYEES
As of February 2003, the Company had approximately 1,900 full-time employees, of
which approximately 650, including most of the employees in Finland, Germany and
the United Kingdom, were represented by labor unions. In April 2002, the Company
and the union at the Quincy, Illinois plant executed a five-year labor contract.
The Company believes its current relations with employees are satisfactory.
ENVIRONMENTAL MATTERS
The Company is subject to numerous federal, state, local and foreign laws and
regulations relating to the storage, handling, emission, disposal and discharge
of materials into the environment. The Company believes that its existing
environmental control procedures are adequate and it has no current plans for
substantial capital expenditures in this area. Gardner Denver has an
environmental policy that confirms its commitment to a clean environment and to
compliance with environmental laws. Gardner Denver has an active environmental
management program aimed at compliance with existing environmental regulations
and developing methods to eliminate or significantly reduce the generation of
pollutants in the manufacturing processes.
The Company has been identified as a potentially responsible party ("PRP") with
respect to eight sites designated for cleanup under federal "Superfund" or
similar state laws, which impose liability for cleanup of certain waste sites
and for related natural resource damages. Persons potentially liable for such
costs and damages generally include the site owner or operator and persons that
disposed or arranged for the disposal of hazardous substances found at those
sites. Although these laws impose joint and several liability, in application,
the PRPs typically allocate the investigation and cleanup costs based upon the
volume of waste contributed by each PRP. Based on currently available
information, Gardner Denver was only a small contributor to six of these waste
sites and has reached, or is attempting to negotiate, de minimus settlements for
their cleanup. The cleanup of the remaining two sites is substantially complete
and the Company's future obligations entail a share of the sites' ongoing
operating and maintenance expense.
The Company has an accrued liability on its balance sheet to the extent costs
are known or can be estimated for its remaining financial obligations. Based
upon consideration of currently available information, the Company does not
anticipate any materially adverse effect on its results of operations, financial
condition, liquidity or competitive position as a result of compliance with
federal, state, local or foreign environmental laws or regulations or cleanup
costs relating to the sites discussed above.
AVAILABLE INFORMATION
Our Internet website address is http://www.gardnerdenver.com. We provide copies
of the following reports available free of charge through our Internet website,
as soon as reasonably practicable after they have been filed with or furnished
to the Securities Exchange Commission pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934: our annual report on Form 10-K; quarterly
reports on Form 10-Q; current reports on Form 8-K; and amendments to those
reports. Information on our website does not constitute part of this annual
report on Form 10-K.
10
ITEM 2. PROPERTIES
As of December 31, 2002, Gardner Denver has nineteen manufacturing plants, three
of which are remanufacturing operations, one distribution center, several
warehouses and numerous sales offices. The significant facilities are as
follows:
Owned
Location Facility Type Sq. Feet or Leased
-------- ------------- -------- ---------
Quincy, Illinois Executive, Administrative 604,000 Owned
and Sales Offices;
Manufacturing - pump and
compressed air products
Sedalia, Missouri Manufacturing - compressed 325,000 Owned
air products
Princeton, Illinois Manufacturing - compressed 130,000 Owned
air products
Peachtree City, Georgia Administrative and Sales 120,000 Leased
Offices; Manufacturing -
compressed air products
Memphis, Tennessee Distribution Center 98,000 Owned
and Warehouse
Houston, Texas Manufacturing - pump 61,000 Leased
products
Fishers, Indiana Remanufacturing - 60,000 Leased
compressed air products
Houston, Texas Manufacturing - compressed 57,200 Leased
air products
Baltic, Ohio Manufacturing-compressed 48,000 Owned
air products
Tulsa, Oklahoma Manufacturing - 46,000 Owned
pump products
Fort Worth, Texas Remanufacturing - 42,000 Owned
pump products
Mayfield, Kentucky Remanufacturing - compressed 41,200 Owned
air products
Tulsa, Oklahoma Manufacturing - 24,000 Leased
pump products
Manteca, California Manufacturing and Warehouse - 19,200 Owned
compressed air products
Syracuse, New York Sales Office 9,500 Owned
Oklahoma City, Oklahoma Sales Office and 8,000 Owned
Warehouse
Gloucester, United Kingdom Administrative and Sales 196,000 Owned
Offices; Manufacturing -
compressed air products
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Tampere, Finland Administrative and Sales 112,500 Leased
Offices; Manufacturing -
compressed air products
Schopfheim, Germany Administrative and Sales 93,600 Owned
Offices; Manufacturing -
compressed air products
Toronto, Canada Administrative and Sales 10,000 Leased
Offices; Manufacturing -
compressed air products
Sao Paulo, Brazil Administrative and Sales 10,000 Leased
Offices
Manchester, United Kingdom Administrative and Sales 10,000 Leased
Offices; Manufacturing -
compressed air products
Toronto, Canada Administrative and Sales 9,000 Leased
Offices; Manufacturing -
compressed air products
Bezons, France Administrative and Sales 6,300 Leased
Offices
The Peachtree City, Georgia facility is currently leased from the Fayette County
Development Authority in connection with industrial revenue bond financing. The
Company has an option to purchase the property at a nominal price when the bonds
are repaid in 2018.
In 2002, the Company announced it would close its Syracuse, New York facility
acquired in the Hoffman acquisition. As a result, the manufacturing of the
Hoffman centrifugal blower product line was transferred to the Company's
existing centrifugal blower facility in Peachtree City, Georgia and the 107,000
square foot Syracuse plant was shut down, remains idle and is offered for sale.
The Company leases sales office space in various U.S. locations and foreign
countries, and warehouse space in Singapore and Finland.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings and administrative actions.
The information regarding these proceedings and actions under "Contingencies"
contained on pages 17 and 18 and under Note 13 contained on page 37 of Gardner
Denver's 2002 Annual Report to Stockholders, is hereby incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matters
were submitted to a vote of the stockholders.
EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Company, their positions with the Company,
business history and
12
certain other information, as of March 15, 2003, are set forth below. These
officers serve at the pleasure of the Board of Directors.
Name Office Age
---- ------ ---
Ross J. Centanni Chairman, President and Chief Executive Officer 57
Michael Carney Vice President and General Manager, 45
Blower Division
Helen W. Cornell Vice President, Strategic Planning and Operations Support 44
Steven M. Krivacek Vice President, Human Resources 54
Tracy D. Pagliara Vice President, General Counsel and Secretary 40
Philip R. Roth Vice President, Finance and Chief Financial Officer 52
J. Dennis Shull Vice President and General Manager, 54
Compressor Division
Richard C. Steber Vice President and General Manager, 52
Pump Division
Ross J. Centanni, age 57, has been President and Chief Executive Officer and a
director of Gardner Denver since its incorporation in November 1993. He has been
Chairman of Gardner Denver's Board of Directors since November 1998. Prior to
Gardner Denver's spin-off from Cooper, he was Vice President and General Manager
of Gardner Denver's predecessor, the Gardner-Denver Industrial Machinery
Division, where he also served as Director of Marketing from August 1985 to June
1990. He has a B.S. degree in industrial technology and an M.B.A. degree from
Louisiana State University. Mr. Centanni is a director of Esterline
Technologies, a publicly held manufacturer of components for avionics,
propulsion and guidance systems, and Denman Services, Inc., a privately held
supplier of medical products. He is also a member of the Petroleum Equipment
Suppliers Association Board of Directors and the Executive Committee of the
International Compressed Air and Allied Machinery Committee.
Michael S. Carney, age 45, joined the Company as Vice President and General
Manager, Gardner Denver Blower Division in November 2001. Prior to joining
Gardner Denver, Mr. Carney worked for Woods Equipment Company from 1995 to May
2001. The last position he held with Woods was Vice President, Construction
Business. From 1979 to 1995, Mr. Carney worked for General Electric Company in
various management positions. Mr. Carney has a B.S.M.E. from the University of
Notre Dame, a M.S.E.E. from the University of Cincinnati, and an M.S.I.A. from
Purdue University.
Helen W. Cornell, age 44, has been Vice President, Strategic Planning and
Operations Support of the Company since August 2001. She served as Vice
President, Compressor Operations for the Compressor and Pump Division from April
2000 until being appointed to her present position. From November 1993 until
accepting her operations role, Ms. Cornell held positions of increasing
responsibility as the Corporate Secretary and Treasurer of the Company, serving
in the role of Vice President, Corporate Secretary and Treasurer from April 1996
until April 2000. She holds a B.S. degree in accounting from the University of
Kentucky and an M.B.A. from Vanderbilt University. She is a Certified Public
Accountant and a Certified Management Accountant.
Steven M. Krivacek, age 54, has been Vice President, Human Resources for Gardner
Denver
13
since March 1995. He previously served the Company as Director of Human
Resources from 1986 until his promotion. Mr. Krivacek has a B.A. in economics
from California University of Pennsylvania and an M.A. in industrial relations
from St. Francis University.
Tracy D. Pagliara, age 40, has been Vice President, General Counsel and
Secretary of Gardner Denver since August 2000. Prior to joining Gardner Denver,
Mr. Pagliara held positions of increasing responsibility in the legal
departments of Verizon Communications/GTE Corporation from August 1996 to August
2000 and Kellwood Company from May 1993 to August 1996, ultimately serving in
the role of Assistant General Counsel for each company. Mr. Pagliara, a
Certified Public Accountant, has a B.S. degree in accounting and Juris Doctorate
degree from the University of Illinois.
Philip R. Roth, age 52, joined the Company as Vice President, Finance and Chief
Financial Officer in May 1996. Prior to joining Gardner Denver, Mr. Roth was
employed by Emerson Electric Co. for fifteen years, most recently as the Vice
President, Finance and Chief Financial Officer of the Wiegand Industrial
Division. Mr. Roth, a Certified Public Accountant, received his B.S. degree in
Business Administration from the University of Missouri and an M.B.A. from the
Olin School of Business at Washington University.
J. Dennis Shull, age 54, has been Vice President and General Manager, Gardner
Denver Compressor Division since January 2002. He previously served the Company
as Vice President and General Manager, Gardner Denver Compressor and Pump
Division since its organization in August 1997. Prior to August 1997, he served
as Vice President, Sales and Marketing since the Company's incorporation in
November 1993. From August 1990 until November 1993, Mr. Shull was the Director
of Marketing for the Division. Mr. Shull has a B.S. degree in business from
Northeast Missouri State University and an M.A. in business from Webster
University.
Richard C. Steber, age 52, joined the Company as Vice President and General
Manager of the Gardner Denver Pump Division in January 2002. Prior to joining
Gardner Denver, he was employed by Goulds Pumps, a division of ITT Industries,
for twenty-five years, most recently as the President and General Manager. He
previously held positions of Vice President for both the sales and marketing
organizations at Goulds Pumps, with domestic and international responsibility.
Mr. Steber has a B.S. degree in engineering from the State University of New
York College of Environmental Science and Forestry at Syracuse University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under "Stock Information" and "Dividends," contained on page 40
of Gardner Denver's 2002 Annual Report to Stockholders, is hereby incorporated
herein by reference. The information in Item 12 under "Equity Compensation Plan
Information" contained on page 16 of this annual report on Form 10-K is hereby
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information under "Financial History," contained on page 12 of Gardner
Denver's 2002
14
Annual Report to Stockholders, is hereby incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information under "Management's Discussion and Analysis," contained on pages
13 through 19 of Gardner Denver's 2002 Annual Report to Stockholders, is hereby
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under "Management's Discussion and Analysis - Market Risk,"
contained on page 17 of Gardner Denver's 2002 Annual Report to Stockholders, is
hereby incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information under "Reports of Independent Public Accountants" and
"Consolidated Financial Statements and Notes," contained on pages 21 through 39
of Gardner Denver's 2002 Annual Report to Stockholders, is hereby incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 26, 2002, the Board of Directors of Gardner Denver, Inc. ("Gardner
Denver"), based on the recommendation of its Audit Committee, dismissed Arthur
Andersen LLP ("Andersen") as Gardner Denver's independent public accountants and
engaged KPMG LLP ("KPMG") to serve as Gardner Denver's independent public
accountants for the fiscal year 2002, effective immediately.
Andersen's audit reports on Gardner Denver's consolidated financial statements
for each of the fiscal years ended December 31, 2001 and 2000 did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 2001 and 2000 and through June 26,
2002, there were no disagreements with Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Andersen's satisfaction, would have caused
them to make reference to the subject matter in connection with their report on
Gardner Denver's consolidated financial statements for such years; and there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
Gardner Denver requested Andersen to furnish a letter addressed to the
Securities and Exchange Commission stating whether Andersen agreed with the
statements made above by Gardner Denver. A copy of that letter addressed to the
Securities and Exchange Commission, dated June 28, 2002, was included as Exhibit
16 to Gardner Denver Inc.'s Form 8-K, filed July 1, 2002.
15
During the years ended December 31, 2001 and 2000 and through June 26, 2002,
Gardner Denver did not consult KPMG with respect to the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on Gardner Denver's
consolidated financial statements, or any other matters or reportable events as
set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors contained under "Election of
Directors," "Nominees for Election," and "Directors Whose Terms of Office Will
Continue After the Meeting" contained on pages 2 through 4 of the Gardner Denver
Proxy Statement, dated March 21, 2003, is hereby incorporated herein by
reference. Information concerning the Company's executive officers is contained
in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information related to executive compensation contained under "Committees,
Compensation and Governance of the Board of Directors" on pages 4 through 8,
"Executive Management Compensation" on pages 10 through 13 and "Employee and
Executive Benefit Plans" contained on pages 18 through 19 of the Gardner Denver
Proxy Statement, dated March 21, 2003, is hereby incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under "Security Ownership of Management and Certain Beneficial
Owners" contained on pages 8 through 10 of the Gardner Denver Proxy Statement,
dated March 21, 2003, is hereby incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of December 31, 2002, with respect
to compensation plans which equity securities of the Registrant are authorized
for issuance:
- ---------------------------------------------------------------------------------------------------------------------
Number of securities
remaining available for
Number of securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants and (excluding securities
Plan Category warrants and rights rights reflected in column (A))
(A) (B) (C)
- ---------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 1,297,280 $17.15 1,045,454
- ---------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total 1,297,280 $17.15 1,045,454
- ---------------------------------------------------------------------------------------------------------------------
The number of securities remaining available for future issuance under the
Company's Long-Term Incentive Plan and Employee Stock Purchase Plan were
792,532 and 252,922, respectively, at December 31, 2002.
16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 14. CONTROLS AND PROCEDURES
During the 90-day period prior to the filing date of this report, management,
including the Company's Chairman, President and Chief Executive Officer and Vice
President, Finance and Chief Financial Officer, evaluated the effectiveness of
the design and operation of the Company's disclosure controls and procedures.
Based upon, and as of the date of that evaluation, the Chairman, President and
Chief Executive Officer and Vice President, Finance and Chief Financial Officer
concluded that the disclosure controls and procedures were effective in all
material respects, to ensure that information to be disclosed in the reports the
Company files and submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported as and when required.
There have been no significant changes in the Company's internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation. There were no significant
deficiencies or material weaknesses identified in the evaluation and therefore,
no corrective actions were taken.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Annual Report
---------------------------------------------
1. Financial Statements and the related report of independent public
accountants are incorporated by reference to the pages shown below in Gardner
Denver's 2002 Annual Report to Stockholders. Pursuant to Rule 2-02(e) of
Regulation S-X, our 2002 Annual Report includes a copy of the prior year's
Report of Independent Public Accountants from the prior independent public
accountants, Arthur Andersen LLP ("Andersen"). The report was previously issued
by Andersen, for our Annual Report for fiscal year 2001 and incorporated by
reference into our annual report on Form 10-K for the year ended December 31,
2001, and has not been reissued by Andersen. The report refers to previous
consolidated financial statements that are not included in the 2002 Annual
Report or this filing (consisting of the consolidated balance sheet as of
December 31, 2000 and the consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1999). After reasonable
efforts, and due to the fact that Andersen has ceased operations, we were unable
to obtain a reissued report and Andersen did not consent to the inclusion of its
previously issued report in our 2002 Annual Report or this filing. Because
Andersen did not consent to the inclusion of its report in our 2002 Annual
Report or this filing, it may be difficult to seek remedies against Andersen and
the ability to seek relief against Andersen may be impaired. See Exhibit 23.2 to
this annual report on Form 10-K for further discussion.
17
Page No.
--------
Reports of Independent Public Accountants 21
Consolidated Statements of Operations for Each of
the Three Years in the Period Ended December 31, 2002 22
Consolidated Balance Sheets as of
December 31, 2002 and December 31, 2001 23
Consolidated Statements of Stockholders' Equity for
Each of the Three Years in the Period Ended
December 31, 2002 24
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended December 31, 2002 25
Notes to Consolidated Financial Statements 26-39
The financial statement schedules listed below should be read in
conjunction with the financial statements listed above. Financial statement
schedules not included in this Annual Report on Form 10-K have been omitted
because they are not applicable or the required information is shown in the
financial statements or notes hereto.
2. Schedules
---------
Report of KPMG S-1
Schedule II - Valuation and Qualifying Accounts S-2
3. Exhibits
--------
3.1 Certificate of Incorporation of Gardner Denver, Inc.,
as amended on May 5, 1998, filed as Exhibit 3.1 to Gardner
Denver, Inc.'s Quarterly Report on Form 10-Q, dated
August 13, 1998, and incorporated herein by reference.
3.2 ByLaws of Gardner Denver, Inc., as amended on July 31, 2001,
filed as Exhibit 3.2 to Gardner Denver, Inc.'s Quarterly
Report on Form 10-Q, dated August 13, 2001, and incorporated
herein by reference.
4.1 Rights Agreement dated as of January 18, 1995, between
Gardner Denver Machinery Inc. and First Chicago Trust Company
of New York as Rights Agent, filed as Exhibit 4.0 to Gardner
Denver Machinery Inc.'s Current Report on Form 8-K, dated
January 18, 1995 (File No. 001-13215), and incorporated
herein by reference.
4.2 Note Purchase Agreement, dated as of September 26, 1996,
filed as Exhibit 4.0 to Gardner Denver Machinery Inc.'s
Quarterly Report on Form 10-Q, dated November 14, 1996
File No. 001-13215), and incorporated herein by reference.
18
4.2.1 Second Amendment dated August 31, 2001, to the Note Purchase
Agreement dated as of September 26, 1996 filed as Exhibit
4.2.1 on Form 10-Q, dated November 13, 2001 (File
No. 001-13215), and incorporated herein by reference.
10.0+ Amended and Restated Credit Agreement dated March 6, 2002,
among Bank One, NA (formerly known as The First National Bank
of Chicago) and the lenders named therein, filed as Exhibit
10.0 to Gardner Denver, Inc's Form 10-K, dated March 28,
2002, and incorporated herein by reference.
10.1* Gardner Denver, Inc. Long-Term Incentive Plan, as amended and
filed as Exhibit 10.1 on Gardner Denver, Inc's Form 10-Q,
dated August 13, 2002, and incorporated herein by reference.
10.2* Gardner Denver Machinery Inc. Supplemental Excess Defined
Benefit Plan filed as Exhibit 10.9 to Gardner Denver
Machinery Inc.'s Registration Statement on Form 10,
effective on March 31, 1994, and incorporated herein by
reference.
10.3* Gardner Denver Machinery Inc. Supplemental Excess Defined
Contribution Plan, filed as Exhibit 10.10 to Gardner Denver
Machinery Inc.'s Registration Statement on Form 10, effective
on March 31, 1994, and incorporated herein by reference.
10.4* Amended and Restated Form of Indemnification Agreements
entered into between Gardner Denver, Inc. and its directors,
officers or representatives, filed as Exhibit 10.4 to Gardner
Denver, Inc's Form 10-K, dated March 28, 2002, and
incorporated herein by reference.
10.6* Gardner Denver, Inc. Phantom Stock Plan for Outside
Directors, as amended May 4, 1998 and March 7, 2000, with
an effective date of April 1, 2000, and incorporated
herein by reference.
10.7* Gardner Denver, Inc. Executive Stock Repurchase Program, as
filed as Exhibit 10.7 to Gardner Denver, Inc.'s Form 10-K
dated March 22, 2001, and incorporated herein by reference.
10.8* Gardner Denver, Inc. Incentive Stock Option Agreement, as
filed as Exhibit 10.8 to Gardner Denver, Inc.'s Form 10-K
dated March 22, 2001, and incorporated herein by reference.
10.9* Gardner Denver, Inc. Nonstatutory Stock Option Agreement, as
filed as Exhibit 10.9 to Gardner Denver, Inc.'s Form 10-K
dated March 22, 2001, and incorporated herein by reference.
10.10* Gardner Denver, Inc. Nonemployee Director Stock Option
Agreement, as filed as Exhibit 10.10 to Gardner Denver,
Inc.'s Form 10-K dated March 22, 2001, and incorporated
herein by reference.
19
10.11* Gardner Denver, Inc. Management Annual Incentive Plan dated
January 2, 2001, filed as Exhibit 10.11 to Gardner Denver,
Inc.'s Quarterly Report on Form 10-Q, dated May 14, 2001, and
incorporated herein by reference.
10.12* Form of Gardner Denver Inc. Long-Term Cash Bonus Agreement
between Gardner Denver, Inc. and executive bonus award
participants, filed as Exhibit 10.12 to Gardner Denver,
Inc's Form 10-K dated March 28, 2002, and incorporated
herein by reference.
10.13* Change in Control Agreement dated August 1, 2002, entered
into between Gardner Denver, Inc. and its Chief Executive
Officer, filed as Exhibit 10.13 to Gardner Denver, Inc.'s
Quarterly Report on 10-Q, dated August 13, 2002, and
incorporated herein by reference.
10.14* Form of Change in Control Agreement dated August 1, 2002,
entered into between Gardner Denver, Inc. and its executive
officers, filed as Exhibit 10.14 to Gardner Denver, Inc.'s
Quarterly Report on 10-Q, dated August 13, 2002, and
incorporated herein by reference.
13.0 The following portions of the Gardner Denver, Inc.
2002 Annual Report to Stockholders.
Page No.
--------
Financial History 12
Management's Discussion and Analysis 13-19
Reports of Independent Public Accountants 21
Consolidated Statements of Operations 22
Consolidated Balance Sheets 23
Consolidated Statements of Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26-39
Stock Information 40
Dividends 40
21.0 Subsidiaries of Gardner Denver, Inc.
23.1 Consent of KPMG.
23.2 Information Regarding Consent of Arthur Andersen LLP.
24.0 Powers of Attorney from members of the Gardner Denver Inc.
Board of Directors.
99.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
20
+ The registrant hereby agrees to furnish supplementally a copy of
any omitted schedules to this agreement to the SEC upon request.
* Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
-------------------
There were no reports on Form 8-K during the quarter ended
December 31, 2002.
21
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GARDNER DENVER, INC.
By /s/Ross J. Centanni
-----------------------------------
Name: Ross J. Centanni
Title: Chairman, President and CEO
Date: March 26, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/Ross J. Centanni Chairman, President and CEO March 26, 2003
- --------------------------- (Principal Executive Officer)
(Ross J. Centanni) and Director
/s/Philip R. Roth Vice President, Finance and CFO March 26, 2003
- --------------------------- (Principal Financial Officer)
(Philip R. Roth)
/s/Daniel C. Rizzo, Jr. Vice President and Corporate March 26, 2003
- --------------------------- Controller (Chief Accounting
(Daniel C. Rizzo, Jr.) Officer)
*Donald G. Barger, Jr. Director March 26, 2003
- ---------------------------
(Donald G. Barger, Jr.)
*Frank J. Hansen Director March 26, 2003
- ---------------------------
(Frank J. Hansen)
*Raymond R. Hipp Director March 26, 2003
- ---------------------------
(Raymond R. Hipp)
*Thomas M. McKenna Director March 26, 2003
- ---------------------------
(Thomas M. McKenna)
*Diane K. Schumacher Director March 26, 2003
- ---------------------------
(Diane K. Schumacher)
*Richard L. Thompson Director March 26, 2003
- ---------------------------
(Richard L. Thompson)
*By /s/Tracy D. Pagliara
---------------------------------------
(Tracy D. Pagliara, as Attorney-In-Fact
for each of the persons indicated)
22
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER
I, Ross J. Centanni, certify that:
1. I have reviewed this annual report on Form 10-K of Gardner Denver,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statement made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures 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
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ Ross J. Centanni
-------------------------
Ross J. Centanni
Chairman, President & CEO
March 26, 2003
23
CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER
I, Philip R. Roth, certify that:
1. I have reviewed this annual report on Form 10-K of Gardner Denver,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statement made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
d) designed such disclosure controls and procedures 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
annual report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
f) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
c) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
d) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ Philip R. Roth
-----------------------------
Philip R. Roth
Vice President, Finance & CFO
March 26, 2003
24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
of Gardner Denver, Inc.:
Under date of February 3, 2003, we reported on the consolidated balance sheet of
Gardner Denver, Inc. and subsidiaries as of December 31, 2002 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 2002, which are included in the 2002 annual report
on Form 10-K. In connection with our audit of the aforementioned consolidated
financial statements, we also audited the related financial statement schedule
included in the 2002 annual report on Form 10-K. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audit. The consolidated financial statements and the related financial statement
schedule of Gardner Denver, Inc. as of December 31, 2001 and for the years ended
December 31, 2001 and 2000 were audited by other auditors who have ceased
operations. In their report dated February 6, 2002, except with respect to the
matter discussed in Note 9, as to which the date is March 6, 2002, those
auditors stated that the supplementary information for the years ended December
31, 2001 and 2000, included in Schedule II was subjected to auditing procedures
applied in their audit of the 2001 and 2000 basic financial statements and, in
their opinion, fairly stated in all material respects, the financial data
required to be set forth therein in relation to the basic financial statements
for the years ended December 31, 2001 and 2000, taken as a whole.
In our opinion, such financial statement schedule for the year ended December
31, 2002, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in Note 5 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," in the year ending December 31, 2002.
/s/ KPMG LLP
St. Louis, Missouri
February 3, 2003
S-1
25
REPORT OF PREVIOUS INDEPENDENT PUBLIC ACCOUNTANTS
Pursuant to Rule 2-02(e) of Regulation S-X, below is a copy of the prior year's
Report of Independent Public Accountants from the prior independent public
accountants, Arthur Andersen LLP ("Andersen"). This report was previously issued
by Andersen, for filing with our annual report on Form 10-K for fiscal year
2001. This report refers to previous consolidated financial statements that are
not included in the 2002 annual report on Form 10-K (consisting of the
consolidated balance sheet as of December 31, 2000 and the consolidated
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1999). After reasonable efforts, and due to the fact that Andersen
has ceased operations, we have been unable to obtain a reissued report and
Andersen has not consented to the inclusion of its previously issued report in
this 2002 annual report on Form 10-K. Because Andersen has not consented to the
inclusion of its report in this annual report on Form 10-K, it may be difficult
to seek remedies against Andersen and the ability to seek relief against
Andersen may be impaired. See Exhibit 23.2 to this annual report on Form 10-K
for further discussion.
To Gardner Denver, Inc.
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in Gardner Denver,
Inc.'s. 2001 Annual Report to Stockholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 6, 2002 (except
with respect to the matter discussed in Note 9, as to which the date is March 6,
2002). Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. Schedule II included in this Form 10-K is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
February 6, 2002
(except with respect to the matter discussed in
Note 9, as to which the date is March 6, 2002)
26
GARDNER DENVER, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31,
(dollars in thousands)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION YEAR EXPENSES ACCOUNTS (1) DEDUCTIONS YEAR
----------- ------------ ---------- ------------ ---------- ----------
2002
- ----
Allowance for doubtful accounts $5,229 $1,905 $303 $(2,158) $5,279
2001
- ----
Allowance for doubtful accounts $5,169 $ 708 $454 $(1,102) $5,229
2000
- ----
Allowance for doubtful accounts $4,838 $ 635 $108 $ (412) $5,169
(1) Includes the allowance for doubtful accounts of acquired businesses at the
dates of acquisition and the effect of foreign currency translation
adjustments for those companies whose functional currency is not the U.S.
dollar.
S-2
27
GARDNER DENVER, INC.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
3.1 Certificate of Incorporation of Gardner Denver, Inc., as amended on
May 5, 1998, filed as Exhibit 3.1 to Gardner Denver, Inc.'s Quarterly
Report on Form 10-Q, dated August 13, 1998, and incorporated herein
by reference.
3.2 ByLaws of Gardner Denver, Inc., as amended on July 31 2001, filed as
Exhibit 3.2 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q,
dated August 13, 2001, and incorporated herein by reference.
4.1 Rights Agreement dated as of January 18, 1995, between Gardner Denver
Machinery Inc. and First Chicago Trust Company of New York as Rights
Agent, filed as Exhibit 4.0 to Gardner Denver Machinery Inc.'s Current
Report on Form 8-K, dated January 18, 1995 (File No. 001-13215), and
incorporated herein by reference.
4.2 Note Purchase Agreement, dated as of September 26, 1996, filed as
Exhibit 4.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form
10-Q, dated November 14, 1996 (File No. 001-13215), and incorporated
herein by reference.
4.2.1 Second Amendment dated August 31, 2001, to the Note Purchase Agreement
dated as of September 26, 1996 filed as Exhibit 4.2.1 on Form 10-Q,
dated November 13, 2001 (File No. 001-13215), and incorporated herein
by reference.
10.0+ Amended and Restated Credit Agreement dated March 6, 2002, among Bank
One, NA (formerly known as The First National Bank of Chicago) and the
lenders named therein, filed as Exhibit 10.0 to Gardner Denver, Inc.'s
Form 10-K, dated March 28, 2002, and incorporated herein by reference.
10.1* Gardner Denver, Inc. Long-Term Incentive Plan, as amended and filed as
Exhibit 10.1 to Gardner Denver, Inc.'s Form 10-Q dated August 13, 2002,
and incorporated herein by reference.
10.2* Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan
filed as Exhibit 10.9 to Gardner Denver Machinery Inc.'s Registration
Statement on Form 10, effective on March 31, 1994, and incorporated
herein by reference.
10.3* Gardner Denver Machinery Inc. Supplemental Excess Defined Contribution
Plan, filed as Exhibit 10.10 to Gardner Denver Machinery Inc.'s
Registration Statement on Form 10, effective on March 31, 1994, and
incorporated herein by reference.
10.4* Amended and Restated Form of Indemnification Agreements between Gardner
Denver,
28
Inc. and its directors, officers or representatives, filed as
Exhibit 10.4 to Gardner Denver, Inc's Form 10-K, dated March 28, 2002,
and incorporated herein by reference.
10.6* Gardner Denver, Inc. Phantom Stock Plan for Outside Directors, as
amended May 4, 1998 and March 7, 2000, with an effective date of April
1, 2000, and incorporated herein by reference.
10.7* Gardner Denver, Inc. Executive Stock Repurchase Program, filed as
Exhibit 10.7 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001,
and incorporated herein by reference.
10.8* Gardner Denver, Inc. Incentive Stock Option Agreement, filed as Exhibit
10.8 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001, and
incorporated herein by reference.
10.9* Gardner Denver, Inc. Nonstatutory Stock Option Agreement, filed as
Exhibit 10.9 to Gardner Denver, Inc.'s Form 10-K dated March 22, 2001,
and incorporated herein by reference.
10.10* Gardner Denver, Inc. Nonemployee Director Stock Option Agreement, filed
as Exhibit 10.10 to Gardner Denver, Inc.'s Form 10-K dated March 22,
2001, and incorporated herein by reference.
10.11* Gardner Denver, Inc. Management Annual Incentive Plan dated January 2,
2001, filed as Exhibit 10.11 to Gardner Denver, Inc.'s Quarterly Report
on Form 10-Q, dated May 14, 2001, and incorporated herein by reference.
10.12* Form of Gardner Denver, Inc. Long-Term Cash Bonus Agreement between
Gardner Denver, Inc. and executive bonus award participants, filed as
Exhibit 10.12 to Gardner Denver, Inc.'s Form 10-K, dated March 28,
2002, and incorporated herein by reference
10.13* Change in Control Agreement dated August 1, 2002, entered into between
Gardner Denver, Inc. and its Chief Executive Officer, filed as Exhibit
10.13 to Gardner Denver, Inc.'s Quarterly Report on 10-Q, dated August
13, 2002, and incorporated herein by reference.
10.14* Form of Change in Control Agreement dated August 1, 2002, entered into
between Gardner Denver, Inc. and its executive officers, filed as
Exhibit 10.14 to Gardner Denver, Inc.'s Quarterly Report on 10-Q, dated
August 13, 2002, and incorporated herein by reference.
29
13.0 The following portions of the Gardner Denver, Inc. 2002 Annual Report
to Stockholders.
Page No.
--------
Financial History 12
Management's Discussion and Analysis 13-19
Reports of Independent Public Accountants 21
Consolidated Statements of Operations 22
Consolidated Balance Sheets 23
Consolidated Statements of Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26-39
Stock Information 40
Dividends 40
21.0 Subsidiaries of Gardner Denver, Inc.
23.1 Consent of KPMG.
23.2 Information Regarding Consent of Arthur Andersen, LLP.
24.0 Powers of Attorney from members of the Gardner Denver, Inc. Board of
Directors.
99.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
+ The registrant hereby agrees to furnish supplementally a copy of any omitted
schedules to this Agreement to the SEC upon request.
* Indicates management contract or compensatory plan or arrangement.
30