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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13215
GARDNER DENVER, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 76-0419383
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1800 GARDNER EXPRESSWAY
QUINCY, ILLINOIS 62301
(Address of Principal Executive Offices and Zip Code)
(217) 222-5400
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirement
for the past 90 days.
Yes X No
-------------- ---------------
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes X No
-------------- ---------------
Number of shares outstanding of the issuer's Common Stock, par
value $0.01 per share, as of May 2, 2005: 20,122,571 shares.
===============================================================================
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,
-------------------------
2005 2004
--------- ---------
Revenues $ 238,824 154,428
Costs and expenses
Cost of sales 161,014 104,511
Depreciation and amortization 7,282 5,133
Selling and administrative expenses 52,424 34,903
Interest expense 4,033 2,022
Other income, net (632) (2,076)
--------- ---------
Total costs and expenses 224,121 144,493
--------- ---------
Income before income taxes 14,703 9,935
Provision for income taxes 4,411 3,378
--------- ---------
Net income $ 10,292 6,557
========= =========
Basic earnings per share $ 0.51 0.40
========= =========
Diluted earnings per share $ 0.50 0.39
========= =========
The accompanying notes are an integral part of this statement.
- 2 -
GARDNER DENVER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2005 2004
------------ ------------
ASSETS
Current assets
Cash and equivalents $ 52,697 64,601
Receivables, net 160,957 163,927
Inventories, net 134,357 138,386
Deferred income taxes 9,812 9,465
Other current assets 10,181 9,143
------------ ------------
Total current assets 368,004 385,522
------------ ------------
Property, plant and equipment, net 145,483 148,819
Goodwill 372,353 374,159
Other intangibles, net 108,930 110,173
Other assets 13,578 9,936
------------ ------------
Total assets $ 1,008,348 1,028,609
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current maturities
of long-term debt $ 26,345 32,949
Accounts payable and accrued liabilities 170,730 206,069
------------ ------------
Total current liabilities 197,075 239,018
------------ ------------
Long-term debt, less current maturities 290,866 280,256
Postretirement benefits other than pensions 30,402 30,503
Deferred income taxes 23,960 21,324
Other liabilities 50,594 52,032
------------ ------------
Total liabilities $ 592,897 623,133
------------ ------------
Stockholders' equity
Common stock, $0.01 par value; 50,000 shares authorized;
20,106 shares outstanding at March 31, 2005 219 217
Capital in excess of par value 265,963 262,091
Retained earnings 149,722 139,430
Accumulated other comprehensive income 26,812 30,185
Treasury stock at cost, 1,760 shares at
March 31, 2005 (27,265) (26,447)
------------ ------------
Total stockholders' equity 415,451 405,476
------------ ------------
Total liabilities and stockholders' equity $ 1,008,348 1,028,609
============ ============
The accompanying notes are an integral part of this statement.
- 3 -
GARDNER DENVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2005 2004
----------- -----------
Cash flows from operating activities
Net income $ 10,292 6,557
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 7,282 5,133
Unrealized foreign currency transaction gain, net (147) (1,282)
Net gain on asset dispositions (29) (53)
Stock issued for employee benefit plans 897 659
Deferred income taxes 1,029 (984)
Changes in assets and liabilities
Receivables (4,772) (774)
Inventories (446) (3,831)
Accounts payable and accrued liabilities (21,951) (3,007)
Other assets and liabilities, net (4,205) 1,105
----------- -----------
Net cash (used) provided by operating activities (12,050) 3,523
----------- -----------
Cash flows from investing activities
Business acquisitions, net of cash acquired (896) (81,322)
Capital expenditures (5,154) (3,849)
Divestiture of non-core businesses (2,231) --
Disposals of property, plant and equipment 54 202
----------- -----------
Net cash used in investing activities (8,227) (84,969)
----------- -----------
Cash flows from financing activities
Principal payments on short-term borrowings (8,240) --
Principal payments on long-term debt (23,365) (124,056)
Proceeds from long-term debt 39,458 21,331
Proceeds from issuance of common stock -- 79,557
Proceeds from stock options 2,977 2,292
Purchase of treasury stock (818) (197)
----------- -----------
Net cash provided by (used in) financing activities 10,012 (21,073)
----------- -----------
Effect of exchange rate changes on cash and equivalents (1,639) 1,235
----------- -----------
Decrease in cash and equivalents (11,904) (101,284)
Cash and equivalents, beginning of period 64,601 132,803
----------- -----------
Cash and equivalents, end of period $ 52,697 31,519
=========== ===========
The accompanying notes are an integral part of this statement.
- 4 -
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands, except per share amounts or amounts described in millions)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Gardner Denver, Inc. and its subsidiaries ("Gardner Denver" or
the "Company"). All significant inter-company transactions and accounts have
been eliminated.
The financial information presented as of any date other than December 31
has been prepared from the books and records without audit. The accompanying
condensed consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information
and footnotes required by generally accepted accounting principles for
complete statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of such financial statements, have been included.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
incorporated by reference in Gardner Denver's Annual Report on Form 10-K for
the year ended December 31, 2004.
The results of operations for the three months ended March 31, 2005 are not
necessarily indicative of the results to be expected for the full year.
STOCK-BASED COMPENSATION PLANS
As allowed under Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," the Company measures its
compensation cost of equity instruments issued under employee compensation
plans using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. Stock options granted during the three months
ended March 31, 2005 and 2004 were exercisable at prices equal to the fair
market value of the Company's common stock on the dates the options were
granted; and accordingly, no compensation expense has been recognized. If
the Company had accounted for stock-based
- 5 -
compensation using the fair value recognition provisions of SFAS No. 123 and
related amendments, net income and basic and diluted earnings per share
would have been as follows:
THREE MONTHS
ENDED MARCH 31,
-------------------------
2005 2004
--------- ---------
Net income, as reported $ 10,292 6,557
Less: Total stock-based employee compensation
expense determined under fair value method, net of
related tax effects (348) (305)
--------- ---------
Pro forma net income $ 9,944 6,252
========= =========
Basic earnings per share, as reported $ 0.51 0.40
========= =========
Basic earnings per share, pro forma $ 0.50 0.38
========= =========
Diluted earnings per share, as reported $ 0.50 0.39
========= =========
Diluted earnings per share, pro forma $ 0.48 0.37
========= =========
NEW ACCOUNTING STANDARDS
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory
Costs - an amendment to ARB No. 43, Chapter 4." This statement amends
previous guidance and requires expensing for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
In addition, the statement requires that allocation of fixed production
overheads to inventory be based on the normal capacity of production
facilities. SFAS No. 151 is effective for inventory costs incurred during
annual periods beginning after June 15, 2005. The Company is currently
evaluating the impact of SFAS No. 151 on its future consolidated financial
statements.
In December 2004, the FASB issued a revision to SFAS No. 123, "Accounting
for Stock-Based Compensation," SFAS No. 123-R, "Share-Based Payment." SFAS
No. 123-R focuses primarily on transactions in which an entity exchanges its
equity instruments for employee services and generally establishes standards
for the accounting for transactions in which an entity obtains goods or
services in share-based payment transactions. As allowed by the Securities
Exchange Commission, the Company will adopt SFAS No. 123-R in the first
quarter of 2006 and is currently evaluating its effect on the Company's
financial condition, results of operations and cash flows.
- 6 -
NOTE 2. CONSUMMATED ACQUISITIONS
On January 2, 2004, the Company acquired the outstanding shares of Syltone
plc ("Syltone"), previously a publicly traded company listed on the London
Stock Exchange. Syltone, previously headquartered in Bradford, United
Kingdom ("U.K."), is one of the world's largest manufacturers of equipment
used for loading and unloading liquid and dry bulk products on commercial
transportation vehicles. This equipment includes compressors, blowers and
other ancillary products that are complementary to the Company's product
lines. Syltone is also one of the world's largest manufacturers of fluid
transfer equipment (including loading arms, swivel joints, couplers and
valves) used to load and unload ships, tank trucks and rail cars. The
purchase price of (pounds)63.0 million (or approximately $112.5 million),
including assumed bank debt (net of cash acquired) and direct acquisition
costs, was paid in the form of cash ((pounds)46.3 million), new loan notes
((pounds)5.2 million) and the assumption of Syltone's existing bank debt,
net of cash acquired ((pounds)11.5 million). The purchase price allocation
for Syltone was finalized in 2004 and no supplemental pro forma results are
necessary as the Company's 2004 results included Syltone for the entire
period presented.
On September 1, 2004, the Company acquired nash_elmo Holdings, LLC ("Nash
Elmo"). Nash Elmo is a leading global manufacturer of industrial vacuum
pumps and is primarily split between two businesses, liquid ring pumps and
side channel blowers. Both businesses' products are complementary to the
Compressor and Vacuum Products segment's existing product portfolio. The
purchase price of $224.6 million, including assumed bank debt (net of cash
acquired) and direct acquisition costs, was paid in cash and the assumption
of certain of Nash Elmo's debt ($10.4 million). There are no additional
contingent payments or commitments related to this acquisition.
The Nash Elmo purchase price (including direct acquisition costs) has been
allocated primarily to receivables ($35,629); inventory ($47,749); property,
plant and equipment ($34,461); intangible assets ($171,423); other assets
($6,880); accounts payable and accrued liabilities ($49,515); net deferred
income tax liabilities ($18,515) and other long-term liabilities ($3,547),
based on their estimated fair values on the date of acquisition. This
allocation reflects the Company's preliminary estimates of the purchase
price allocation and is subject to change upon completion of appraisals in
2005. Further, other assets and liabilities may be identified to which a
portion of the purchase price could be allocated.
The following table summarizes the preliminary fair values of the intangible
assets acquired in the Nash Elmo acquisition:
Amortized intangible assets:
Customer lists and relationships $ 44,000
Other 7,245
Unamortized intangible assets:
Goodwill 92,178
Tradenames 28,000
------------
Total intangible assets $ 171,423
============
- 7 -
The preliminary weighted average amortization period for customer lists and
relationships and other amortized intangible assets is 20 years and 5 years,
respectively. The total amount of goodwill that is expected to be deductible
for tax purposes is approximately $10 to $15 million. The assignment of
goodwill has been allocated to the Compressor and Vacuum Products segment.
The following table summarizes the unaudited supplemental pro forma
information for the three months ended March 31, 2004, as if the Nash Elmo
acquisition had been completed on January 1, 2004 (this unaudited
information is subject to change upon finalization of the purchase price
allocation of Nash Elmo):
UNAUDITED
THREE MONTHS ENDED
MARCH 31, 2004
------------------
Revenues $ 205,245
==================
Net Income $ 4,669
==================
Diluted earnings per share $ 0.28
==================
The 2004 pro forma net income reflects the negative impact of a one-time
adjustment on cost of sales of approximately $1.2 million stemming from
recording Nash Elmo's inventory at fair value.
In January 2005, the Company acquired certain assets associated with a small
business that develops, manufactures and markets compressed air control
system products. These products are complementary to the Compressor and
Vacuum Products segment's existing product portfolio.
All acquisitions have been accounted for by the purchase method and,
accordingly, their results are included in the Company's consolidated
financial statements from the respective dates of acquisition. Under the
purchase method, the purchase price is allocated based on the fair value of
assets received and liabilities assumed as of the acquisition date.
NOTE 3. INVENTORIES
MARCH 31, DECEMBER 31,
2005 2004
------------- -------------
Raw materials, including parts and
subassemblies $ 59,169 62,477
Work-in-process 24,740 23,405
Finished goods 56,727 57,321
------------- -------------
140,636 143,203
Excess of FIFO costs over LIFO costs (6,279) (4,817)
------------- -------------
Inventories, net $ 134,357 138,386
============= =============
- 8 -
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill attributable to each business
segment for the three months ended March 31, 2005, are as follows:
COMPRESSOR & FLUID
VACUUM TRANSFER
PRODUCTS PRODUCTS TOTAL
------------ --------- ---------
Balance as of December 31, 2004 $ 336,075 $ 38,084 $ 374,159
Acquisitions 530 -- 530
Foreign currency translation (2,169) (167) (2,336)
------------ --------- ---------
Balance as of March 31, 2005 $ 334,436 $ 37,917 $ 372,353
============ ========= =========
Other intangible assets at March 31, 2005 and December 31, 2004 consisted of
the following:
MARCH 31, 2005 DECEMBER 31, 2004
---------------------------------- ------------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
----------- ------------ ----------- ------------
Amortized intangible assets:
Customer lists and relationships $ 53,740 $ (2,819) 53,855 (2,153)
Acquired technology 19,723 (10,336) 19,218 (9,732)
Other 11,676 (3,076) 11,352 (2,508)
Unamortized intangible assets:
Trademarks 40,022 -- 40,141 --
----------- ------------ ----------- ------------
Total other intangible assets $ 125,161 $ (16,231) 124,566 (14,393)
=========== ============ =========== ============
Amortization of intangible assets was $1.8 million and $1.0 million for the
three months ended March 31, 2005 and 2004, respectively. Amortization of
intangible assets is anticipated to be approximately $7.0 million per year
for 2005 through 2009 based upon intangible assets with finite useful lives
included in the balance sheet as of December 31, 2004.
NOTE 5. ACCRUED PRODUCT WARRANTY
The following is a rollforward of the Company's warranty accrual for the
three months ended March 31, 2005 and 2004:
THREE MONTHS ENDED
MARCH 31,
------------------------------
2005 2004
----------- -----------
Balance at beginning of period $ 10,671 6,635
Product warranty accruals 2,185 1,853
Settlements (1,970) (1,802)
Other (acquisitions and foreign
currency translation) (154) 1,398
----------- -----------
Balance at end of period $ 10,732 8,084
=========== ===========
- 9 -
NOTE 6. PENSION AND OTHER POSTRETIREMENT BENEFITS
The following table provides the components of net periodic expense for the
Company's defined benefit pension plans and other postretirement benefit
plans for the three months ended March 31, 2005 and 2004:
PENSION BENEFITS
----------------------------------------------- OTHER
POSTRETIREMENT
U.S. PLANS NON-U.S. PLANS BENEFITS
------------------------------------------------------------------------
2005 2004 2005 2004 2005 2004
------------------------------------------------------------------------
Service cost $ 603 574 $ 1,250 791 $ -- --
Interest cost 888 853 1,991 1,310 380 425
Expected return on plan assets (975) (950) (2,038) (1,286) -- --
Amortization of transition liability -- -- -- -- -- --
Amortization of prior-service cost (25) (24) -- 5 (25) (25)
Amortization of net loss (gain) 110 53 40 59 (150) (65)
------------------------------------------------------------------------
Net periodic expense $ 601 506 $ 1,243 879 $ 205 335
========================================================================
NOTE 7. EARNINGS PER SHARE
The following table details the calculation of basic and diluted earnings
per share:
THREE MONTHS ENDED
MARCH 31,
------------------------------
2005 2004
------------- -------------
Basic EPS:
Net income $ 10,292 6,557
============= =============
Shares:
Weighted average number of common shares outstanding 20,044 16,352
============= =============
Basic earnings per common share $ 0.51 0.40
============= =============
Diluted EPS:
Net income $ 10,292 6,557
============= =============
Shares:
Weighted average number of common shares outstanding 20,044 16,352
Assuming conversion of dilutive stock options issued and outstanding 594 401
------------- -------------
Weighted average number of common shares outstanding, as adjusted
20,638 16,753
============= =============
Diluted earnings per common share $ 0.50 0.39
============= =============
NOTE 8. COMPREHENSIVE INCOME
For the three months ended March 31, 2005 and 2004, comprehensive income was
$6.9 million and $6.7 million, respectively. Items impacting the Company's
comprehensive income, but not included in net income, consist of foreign
currency translation adjustments, including realized and unrealized gains
and losses (net of income taxes) on the foreign currency hedge of the
Company's net investment in a foreign subsidiary, fair market value
adjustments of interest rate swaps and additional minimum pension liability
(net of income taxes).
- 10 -
NOTE 9. CASH FLOW INFORMATION
In the first three months of 2005 and 2004, the Company paid $1.4 million
and $0.7 million, respectively, to the various taxing authorities for income
taxes. Interest paid for the first three months of 2005 and 2004 was $4.1
million and $2.0 million, respectively.
NOTE 10. CONTINGENCIES
The Company is a party to various legal proceedings, lawsuits and
administrative actions, which are of an ordinary or routine nature. In
addition, due to the bankruptcies of several asbestos manufacturers and
other primary defendants, the Company has been named as a defendant in an
increasing number of asbestos personal injury lawsuits. The Company has also
been named as a defendant in an increasing number of silicosis personal
injury lawsuits. The plaintiffs in these suits allege exposure to asbestos
or silica from multiple sources and typically the Company is one of
approximately 25 or more named defendants. In the Company's experience, the
vast majority of the plaintiffs are not impaired with a disease for which
the Company bears any responsibility.
Predecessors to the Company manufactured, distributed and sold products
allegedly at issue in the pending asbestos and silicosis litigation lawsuits
(the "Products"). The Company has potential responsibility for certain of
these Products, namely: (a) air compressors which used asbestos containing
components manufactured and supplied by third parties; and (b) portable air
compressors used in sandblasting operations as a component of sandblasting
equipment manufactured and sold by others. The sandblasting equipment is
alleged to have caused the silicosis disease plaintiffs claim in these
cases.
Neither the Company nor its predecessors ever mined, manufactured, mixed,
produced or distributed asbestos fiber. The asbestos-containing components
used in the Products were completely encapsulated in a protective
non-asbestos binder and enclosed within the subject Products. Furthermore,
the Company has never manufactured or distributed portable air compressors.
The Company has entered into a series of cost sharing agreements with
multiple insurance companies to secure coverage for asbestos and silicosis
lawsuits. The Company also believes some of the potential liabilities
regarding these lawsuits are covered by indemnity agreements with other
parties. The Company's uninsured settlement payments for past asbestos and
silicosis lawsuits have been immaterial.
The Company believes that the pending and future asbestos and silicosis
lawsuits will not, in the aggregate, have a material adverse effect on its
consolidated financial position, results of operations or liquidity, based
on: the Company's anticipated insurance and indemnification rights to
address the risks of such matters; the limited potential asbestos exposure
from the components described above; the Company's experience that the vast
majority of plaintiffs are not impaired with a disease attributable to
alleged exposure to asbestos or silica from or relating to the Products;
various potential defenses available to the Company with respect to such
matters; and the Company's prior disposition of comparable matters. However,
due to inherent uncertainties of litigation and because future developments
could cause a different outcome, there can be no assurance that the
resolution of pending or future lawsuits, whether by judgment, settlement or
dismissal, will not have a material adverse effect on its consolidated
financial position, results of operations or liquidity.
- 11 -
The Company has also been identified as a potentially responsible party with
respect to several sites designated for environmental cleanup under various
state and federal laws. The Company does not own any of these sites. The
Company does not believe that the future potential costs related to these
sites will have a material adverse effect on its consolidated financial
position, results of operations or liquidity.
NOTE 11. SEGMENT INFORMATION
Subsequent to the acquisition of Nash Elmo, the Company continues to be
organized based upon the products and services it offers and has four
operating divisions: Compressor, Blower, Liquid Ring Pump and Fluid
Transfer. These divisions comprise two reportable segments, Compressor and
Vacuum Products (formerly Compressed Air Products) and Fluid Transfer
Products. The Compressor, Blower (which now includes Nash Elmo's side
channel blower business) and Liquid Ring Pump (consisting of Nash Elmo's
liquid ring pump business) Divisions are aggregated into one reportable
segment (Compressor and Vacuum Products) since the long-term financial
performance of these businesses are affected by similar economic conditions,
coupled with the similar nature of their products, manufacturing processes
and other business characteristics. During the third quarter of 2004, the
Company's former Pump and Fluid Transfer Divisions were combined into one
division, Fluid Transfer. These two divisions were previously aggregated
into one reportable segment (Fluid Transfer Products) primarily due to the
same factors as noted above, and thus, there has been no change to the Fluid
Transfer Products segment.
THREE MONTHS ENDED
MARCH 31,
--------------------------
2005 2004
----------- ----------
Revenues
Compressor and Vacuum Products $192,726 122,996
Fluid Transfer Products 46,098 31,432
----------- ----------
Total 238,824 154,428
=========== ==========
Operating Earnings
Compressor and Vacuum Products 13,432 8,274
Fluid Transfer Products 4,672 1,607
----------- ----------
Total 18,104 9,881
Interest expense 4,033 2,022
Other expense (income), net (632) (2,076)
----------- ----------
Income before income taxes $ 14,703 9,935
=========== ==========
NOTE 12. PENDING ACQUISITION
On March 8, 2005, the Company signed a definitive agreement to acquire
Thomas Industries Inc. ("Thomas"), a New York Stock Exchange listed company
trading under the ticker symbol "TII." Thomas is a worldwide leader in the
design, manufacture and marketing of precision engineered pumps, compressors
and blowers. The agreed-upon purchase price is $40.00 per share for all
outstanding shares and share equivalents (approximately $734 million) and
the assumption of $9.5 million of long-term capitalized lease obligations.
As of December 31, 2004, Thomas had $267 million in cash, cash equivalents
and short-term investments. The net transaction value, including assumed
debt and net of cash, is expected to be approximately $476 million.
- 12 -
NOTE 13. SUBSEQUENT EVENT
Pursuant to its previously filed shelf registration with the Securities and
Exchange Commission, the Company completed an offering of 5,000,000 shares
of its common stock for proceeds of approximately $176 million (net of
direct costs associated with the offering) on May 4, 2005. The Company has
also granted the underwriters an option to purchase up to 750,000 additional
shares of common stock within 30 days, to cover over-allotments. The Company
also completed an offering of $125 million of its 8% Senior Subordinated
Notes due in 2013 in a private placement on May 4, 2005. The Company intends
to use the proceeds from the shares and notes, plus other available funds,
to finance its pending acquisition of Thomas and to repay certain
outstanding indebtedness. The proceeds from the notes will be placed in
escrow until the completion of the acquisition, which is subject to Thomas'
shareholder approval, regulatory approvals and other customary conditions.
If the closing of the Thomas acquisition does not occur by December 31,
2005, the notes will be redeemed.
- 13 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RECENT DEVELOPMENTS.
Proposed Thomas Industries Inc. Acquisition
On March 8, 2005, the Company signed a definitive agreement to acquire
Thomas Industries Inc. ("Thomas"), a New York Stock Exchange listed company
trading under the ticker symbol "TII." Thomas is a worldwide leader in the
design, manufacture and marketing of precision engineered pumps, compressors
and blowers. The agreed-upon purchase price is $40.00 per share for all
outstanding shares and share equivalents (approximately $734 million) and
the assumption of $9.5 million of long-term capitalized lease obligations.
As of December 31, 2004, Thomas had $267 million in cash, cash equivalents
and short-term investments. The net transaction value, including assumed
debt and net of cash, is expected to be approximately $476 million.
Thomas is a leading supplier of pumps, compressors and blowers to the
original equipment manufacturer (OEM) market in such applications as medical
equipment, gasoline vapor and refrigerant recovery, automotive and
transportation applications, printing, packaging, tape drives and laboratory
equipment. Thomas designs, manufacturers, markets, sells and services these
products through worldwide operations with regional headquarters as follows:
North American Group - Sheboygan, Wisconsin; European Group - Puchheim,
Germany; and Asia Pacific Group - Hong Kong, China.
Thomas has wholly-owned operations in 21 countries on five continents. Its
primary manufacturing facilities are located in Sheboygan, Wisconsin,
Monroe, Louisiana, Skokie, Illinois and Syracuse, New York; Schopfheim,
Fahrnau, Puchheim and Memmingen, Germany; and Wuxi, China. The manufacturing
operations in the United States produce rotary vane, linear, piston and
diaphragm pumps and compressors, and various liquid pump technologies. These
products are directly sold worldwide to OEM's, as well as through fluid
power and industrial distributors. The German operations manufacture a
complementary line of rotary vane, linear, diaphragm, gear, side channel,
radial, claw, screw and rotary lobe pumps, compressors and blowers, as well
as various liquid pump technologies, air-centers and centralized systems.
These products are also distributed worldwide. The manufacturing facility in
China was constructed during late 2004 and will begin production in mid
2005.
Thomas' largest markets are Europe and the United States, which represented
approximately 52% and 38% of its revenues in 2004, respectively. Of the
total sales to Europe, approximately 61% were to Germany and 39% to other
European countries. Approximately 10% of Thomas' revenues were generated in
Asia Pacific. At December 31, 2004, Thomas employed approximately 2,200
people.
For the year ended December 31, 2004, Thomas' revenues and operating income
were $410 million and $209 million, respectively. Operating income for this
period included $19 million from Thomas' 32% interest in the Genlyte Thomas
Group LLC, a joint venture formed with The Genlyte Group Incorporated in
1998, and a $160 million nonrecurring gain on the sale of this joint venture
in July 2004. For the twelve-month period of 2004, operating income from
Thomas' Pumps and Compressors segment, net of corporate expenses, was $30
million. For the quarter ended March 31, 2005, Thomas' revenues and
operating income were $110 million and $9 million, respectively.
- 14 -
Gardner Denver has received a debt commitment to fully finance the
acquisition of Thomas. However, Gardner Denver intends to finance the
acquisition through an amended and restated senior secured bank facility,
its recently completed public offering of 5,000,000 shares of common stock
and the $125 million private debt placement (see further discussion under
Liquidity and Capital Resources). The acquisition is expected to close by
August 2005, subject to Thomas' shareholder approval, regulatory approvals
and other customary closing conditions.
Syltone and Nash Elmo Acquisitions
On January 2, 2004, the Company acquired the outstanding shares of Syltone
plc ("Syltone"), previously a publicly traded company listed on the London
Stock Exchange. Syltone, previously headquartered in Bradford, United
Kingdom ("U.K."), is one of the world's largest manufacturers of equipment
used for loading and unloading liquid and dry bulk products on commercial
transportation vehicles. This equipment includes compressors, blowers and
other ancillary products that are complementary to the Company's product
lines. Syltone is also one of the world's largest manufacturers of fluid
transfer equipment (including loading arms, swivel joints, couplers and
valves) used to load and unload ships, tank trucks and rail cars. The
purchase price of (pounds)63.0 million (or approximately $112.5 million),
including assumed bank debt (net of cash acquired) and direct acquisition
costs, was paid in the form of cash ((pounds)46.3 million), new loan notes
((pounds)5.2 million) and the assumption of Syltone's existing bank debt,
net of cash acquired ((pounds)11.5 million).
On September 1, 2004, the Company acquired Nash Elmo, a leading global
manufacturer of industrial vacuum pumps. Nash Elmo is primarily split
between two businesses, liquid ring pumps and side channel blowers. Both
businesses' products are complementary to the Compressor and Vacuum Products
segment's existing product portfolio. Nash Elmo, previously headquartered in
Trumbull, CT, has primary manufacturing facilities located in Bad Neustadt
and Nuremberg, Germany; Zibo, China; and Campinas, Brazil. For the year
ended December 31, 2003, Nash Elmo's revenues and earnings before income
taxes were $212.4 million and $7.8 million, respectively. Nash Elmo's
largest markets are in Europe, Asia, North America and South America.
Approximately 70% of Nash Elmo's revenues are generated from liquid ring
pump products (including related engineered systems and aftermarket
services), while the remaining 30% are derived from side channel blower
products (including aftermarket services).
Subsequent to the acquisition of Syltone and Nash Elmo, the Company
continues to be organized based upon the products and services it offers and
has four operating divisions: Compressor, Blower, Liquid Ring Pump and Fluid
Transfer. These divisions comprise two reportable segments, Compressor and
Vacuum Products (formerly Compressed Air Products) and Fluid Transfer
Products. The Compressor, Blower (which now includes the Syltone
transportation-related activities and Nash Elmo's side channel blower
business) and Liquid Ring Pump (consisting of Nash Elmo's liquid ring pump
business) Divisions are aggregated into one reportable segment (Compressor
and Vacuum Products) since the long-term financial performance of these
businesses are affected by similar economic conditions, coupled with the
similar nature of their products, manufacturing processes and other business
characteristics. During the third quarter of 2004, the Company's former Pump
and Fluid Transfer (which consisted of the Syltone fluid transfer-related
activities) Divisions were combined into one division, Fluid Transfer. These
two divisions were previously aggregated into one reportable segment (Fluid
Transfer Products) primarily due to the same factors as noted above, and
thus, there has been no change to the Fluid Transfer Products segment.
- 15 -
RESULTS OF OPERATIONS.
PERFORMANCE IN THE QUARTER ENDED MARCH 31, 2005 COMPARED WITH
THE QUARTER ENDED MARCH 31, 2004
Revenues
Revenues increased $84.4 million (55%) to $238.8 million for the three
months ended March 31, 2005, compared to the same period of 2004. This
increase was primarily due to the Nash Elmo acquisition, which contributed
$62.4 million in revenues. Increased shipments of drilling and well
stimulation pumps, compressors and blowers, combined with changes in
currency exchange rates and price increases, also contributed to this
increase.
For the three months ended March 31, 2005 revenues for the Compressor and
Vacuum Products segment increased $69.7 million (57%) to $192.7 million,
compared to the same period of 2004. This increase was primarily due to the
acquisition of Nash Elmo. Higher volumes of compressor and blower shipments
in the U.S., Europe and China, changes in currency exchange rates and price
increases also contributed to this increase. Fluid Transfer Products segment
revenues increased $14.7 million (47%) to $46.1 million for the three months
ended March 31, 2005, compared to the same period of 2004, primarily due to
increased volume (approximately 43%) of drilling and well stimulation pumps,
water jetting systems and related aftermarket. Price increases and changes
in currency exchange rates also contributed to this increase.
Costs and Expenses
Gross margin (defined as revenues less cost of sales) for the three months
ended March 31, 2005 increased $27.9 million (56%) to $77.8 million compared
to the same period of 2004, primarily due to the increase in revenues. Gross
margin as a percentage of revenues (gross margin percentage) increased to
32.6% in the three-month period of 2005 from 32.3% in the same period of
2004 primarily due to the acquisition of Nash Elmo, as its gross margin
percentage was higher than the Company's previously existing businesses.
Increased volume and pricing in both segments and the related positive
impact of increased leverage of fixed and semi-fixed costs over a higher
revenue base also contributed to the increase. These positive factors were
partially offset by higher material costs due to surcharges on castings and
other components stemming from increases in scrap iron and other metal
prices.
Depreciation and amortization for the three months ended March 31, 2005
increased $2.1 million (42%) to $7.3 million, compared to the same period of
2004, primarily due to the Nash Elmo acquisition.
Selling and administrative expenses increased $17.5 million (50%) in the
three-month period of 2005 to $52.4 million, compared to the same period of
2004, primarily due to the acquisition of Nash Elmo (approximately $15.5
million). Higher compensation and fringe benefit costs, changes in currency
exchange rates and expenses associated with a new compressor packaging
facility in China also contributed to this increase.
The Compressor and Vacuum Products segment generated operating earnings
(defined as revenues, less cost of sales, depreciation and amortization, and
selling and administrative expenses) as a percentage of revenues of 7.0% in
the three-month period ended March 31, 2005, an increase from 6.7% for the
same period of 2004. This increase was primarily attributable to
- 16 -
the Nash Elmo acquisition. Operating earnings as a percentage of revenues
from Compressor and Vacuum Products segment businesses that existed prior to
the Nash Elmo acquisition were 6.2% for the three-month period ended March
31, 2005. The decline in operating earnings as a percentage of revenues
compared to the prior year for these businesses was primarily attributable
to the higher material and selling and administrative costs as noted above,
partially offset by the positive impact of increased leverage of the
segment's fixed and semi-fixed costs over a higher revenue base.
The Fluid Transfer Products segment generated operating earnings as a
percentage of revenues of 10.1% for the three-month period ended March 31,
2005, compared to 5.1% in the same period of 2004. This increase is
primarily due to the positive impact of increased leverage of the segment's
fixed and semi-fixed costs over a higher revenue base.
Interest expense increased $2.0 million (99%) to $4.0 million for the three
months ended March 31, 2005, compared to the same period of 2004, due to
higher average borrowings stemming from the Nash Elmo acquisition and higher
average rates. The average interest rate for the three-month period ended
March 31, 2005 was 5.1% compared to 4.4% in the comparable prior year
period.
Other income, net decreased $1.4 million to $0.6 million for the three
months ended March 31, 2005 compared to the same period of 2004. This
decrease was primarily due to a non-recurring $1.2 million foreign currency
transaction gain recorded in the prior year which related to the
appreciation of U.S. dollar borrowings that were converted to British pounds
prior to being used to consummate the Syltone acquisition.
Income before income taxes increased $4.8 million (48%) to $14.7 million for
the three months ended March 31, 2005 compared to the same period of 2004.
This increase is primarily due to the Nash Elmo acquisition, which
contributed approximately $2.8 million. Increased volume in both segments
and the related positive impact of increased leverage of fixed and
semi-fixed costs over a higher revenue base also contributed to the
increase. These positive factors were partially offset by higher interest
expense and the non-recurring foreign currency gain recorded in the prior
year.
The provision for income taxes increased by $1.0 million to $4.4 million for
the three-month period of 2005, compared to the prior year period, as a
result of the incremental income before taxes partially offset by a lower
effective tax rate. The Company's effective tax rate for the three months
ended March 31, 2005 decreased to 30% compared to 34% in the prior year
period, principally due to a higher proportion of earnings derived from
lower taxed non-U.S. jurisdictions and other tax planning initiatives.
Net income for the three months ended March 31, 2005 increased $3.7 million
(57%) to $10.3 million ($0.50 diluted earnings per share), compared to $6.6
million ($0.39 diluted earnings per share) in same period of 2004. This
increase was primarily attributable to the same factors that resulted in
increased income before taxes noted above, and a lower effective tax rate in
2005. The estimated incremental impact on diluted earnings per share from
the Nash Elmo acquisition was approximately $0.10 which was partially offset
by an $0.08 dilutive impact from the stock offering completed in March 2004.
- 17 -
Outlook
In general, demand for compressor and vacuum products correlates to the rate
of manufacturing capacity utilization and the rate of change of industrial
production because compressed air is often used as a fourth utility in the
manufacturing process. Over longer time periods, demand also follows the
global economic growth patterns indicated by the rates of change in the
Gross Domestic Product around the world. In the first quarter of 2005,
orders for compressor and vacuum products were $221.2 million, compared to
$139.7 million in the same period of 2004. Backlog for the Compressor and
Vacuum Products segment was $195.6 million as of March 31, 2005, compared to
$77.9 million as of March 31, 2004. The increase in orders and backlog
compared to the prior year was primarily due to the Nash Elmo acquisition,
which contributed $76.3 million and $96.5 million to orders and backlog,
respectively. Excluding this impact, the growth in orders and backlog
compared to the prior year for this segment was primarily due to modest
improvement in industrial demand in the U.S. and Eastern Europe, combined
with incremental market share gains in Europe and China and favorable
changes in currency exchange rates. The Company also experienced an increase
in demand for positive displacement blowers due to an improved
transportation market in the U.S.
Demand for fluid transfer products, which are petroleum related, has
historically corresponded to market conditions and expectations for oil and
natural gas prices. Orders for fluid transfer products were $75.4 million in
the first quarter of 2005, compared to $36.4 million in the same period of
2004. Backlog for this business segment was $81.3 million as of March 31,
2005, compared to $30.5 million as of March 31, 2004. The significant
increase in orders and backlog compared to the prior year was primarily due
to increased demand for well stimulation pumps, drilling pumps and petroleum
pump parts, as a result of continued high prices for oil and natural gas.
Future increases in demand for these products will likely be dependent upon
oil and natural gas prices and rig counts, which the Company cannot predict.
LIQUIDITY AND CAPITAL RESOURCES
Operating Working Capital
During the three months ended March 31, 2005, operating working capital
(defined as receivables plus inventories, less accounts payable and accrued
liabilities) increased $28.3 million to $124.6 million. This increase
primarily stems from lower accounts payable and accrued liabilities due to
timing of payments partially offset by changes in foreign currency exchange
rates.
Cash Flows
During the first three months of 2005, cash used in operations was $12.1
million, compared to cash provided of $3.5 million in the prior year period.
This change was primarily due to the unfavorable change in operating working
capital as discussed above, partially offset by cash flow from operations
provided by the Nash Elmo acquisition ($3.1 million) and higher net income
from previously existing businesses. Net cash used in investing activities
was $8.2 million during the first quarter of 2005, primarily due to capital
expenditures and the divestiture of two small non-core operations that were
acquired with Syltone. The cash included with the operations divested
exceeded the proceeds from the sale by $2.2 million. During the first
quarter of 2005, the Company also acquired a small business, which develops,
manufactures and markets compressed air control system products. Net cash
provided by financing activities was $10.0
- 18 -
million during the first quarter of 2005 primarily due to net borrowings of
$7.9 million to fund the higher operating working capital needs. The cash
flows provided by operating and financing activities and used in investing
activities, combined with the effect of exchange rate changes, resulted in a
net cash decrease of $11.9 million during the first three months of 2005.
Capital Expenditures and Commitments
Capital projects designed to increase operating efficiency and flexibility,
expand production capacity and bring new products to market resulted in
expenditures of $5.2 million in the first three months 2005. This was $1.3
million higher than the level of capital expenditures in the comparable
period in 2004, primarily due to the timing of capital projects and spending
at Nash Elmo. Commitments for capital expenditures at March 31, 2005 were
approximately $8.0 million. Capital expenditures related to environmental
projects have not been significant in the past and are not expected to be
significant in the foreseeable future.
In October 1998, Gardner Denver's Board of Directors authorized the
repurchase of up to 1,600,000 shares of the Company's common stock to be
used for general corporate purposes. Approximately 200,000 shares remain
available for repurchase under this program. The Company has also
established a Stock Repurchase Program for its executive officers to provide
a means for them to sell Gardner Denver common stock and obtain sufficient
funds to meet income tax obligations which arise from the exercise or
vesting of incentive stock options, restricted stock or performance shares.
The Gardner Denver Board has authorized up to 400,000 shares for repurchase
under this program and of this amount approximately 200,000 shares remain
available for repurchase. As of March 31, 2005, a total of 1,572,542 shares
have been repurchased at a cost of $22.8 million under both repurchase
programs.
Liquidity
Pursuant to its previously filed shelf registration with the Securities and
Exchange Commission, the Company completed an offering of 5,000,000 shares
of its common stock for proceeds of approximately $176 million (net of
direct costs associated with the offering) on May 4, 2005. The Company has
also granted the underwriters an option to purchase up to 750,000 additional
shares of common stock within 30 days, to cover over-allotments. The Company
also completed an offering of $125.0 million of its 8% Senior Subordinated
Notes due in 2013 in a private placement on May 4, 2005 (the "Notes"). The
Company intends to use the proceeds from the shares and Notes, plus funds
available under an amended and restated senior secured bank facility, to
finance its pending acquisition of Thomas and to repay certain outstanding
indebtedness. The proceeds from the Notes will be placed in escrow until the
completion of the acquisition, which is subject to Thomas' shareholder
approval, regulatory approvals and other customary conditions. If the
closing of the Thomas does not occur by December 31, 2005, the Notes will be
redeemed.
The Notes have a fixed annual interest rate of 8% and are guaranteed by
certain of the Company's domestic subsidiaries. At any time prior to May 1,
2009, the Company may redeem all or part of the Notes issued under the
Indenture at a redemption price equal to 100% of the principal amount of the
Notes redeemed plus an applicable "make-whole" premium, and accrued and
unpaid interest and liquidated damages, if any. In addition, at any time
prior to May 1, 2008, the Company may, on one or more occasions, redeem up
to 35% of the aggregate principal amount of the Notes at a redemption price
of 108% of the principal amount, plus accrued and unpaid interest and
liquidated damages, if any, with the net cash proceeds of one or more equity
offerings, subject to certain conditions. On or after May 1, 2009, the
Company may redeem all or a part of the Notes at varying redemption prices,
plus accrued and unpaid interest and liquidated damages, if any. Upon a
change of control, as defined in the Indenture, the Company is required to
offer to purchase all of the Notes then outstanding for cash at 101% of the
principal amount thereof plus accrued and unpaid interest and liquidated
damages, if any. The Indenture contains events of default and affirmative,
negative and financial covenants customary for such financings, including,
among other things, limits on the incurrence of additional debt and
restricted payments.
On September 1, 2004, the Company entered into a $375.0 million amended and
restated credit agreement (the "Credit Agreement"). The Credit Agreement
provided the Company with access to senior secured credit facilities
including a $150.0 million five-year Term Loan and a $225.0 million
five-year Revolving Line of Credit (the "Credit Line"). Proceeds from the
Credit Agreement were used to fund the Nash Elmo acquisition and retire debt
outstanding under its previously existing Credit Line and Term Loan.
The Credit Line matures on September 1, 2009. Loans under this facility may
be denominated in U.S. Dollars or several foreign currencies. On March 31,
2005, the Credit Line had an
- 19 -
outstanding principal balance of $129.3 million, leaving $95.7 million
available for letters of credit or for future use, subject to the terms of
the Credit Line.
The $150.0 million Term Loan has a final maturity of September 1, 2009. The
Term Loan requires quarterly principal payments totaling $7.5 million, $15.0
million, $22.5 million, $37.5 million and $67.5 million in years one through
five, respectively. On March 31, 2005, the Term Loan had an outstanding
principal balance of $146.3 million.
The Company's borrowing arrangements permit certain investments and dividend
payments and are generally unsecured with the exception of the Credit
Agreement, which requires the pledge of certain subsidiaries' stock. There
are no material restrictions on the Company as a result of its credit
agreements, other than customary covenants regarding certain earnings,
liquidity and capital ratios.
Management currently expects the Company's future cash flows to be
sufficient to fund its scheduled debt service and provide required resources
for working capital and capital investments for at least the next twelve
months.
CONTINGENCIES
The Company is a party to various legal proceedings, lawsuits and
administrative actions, which are of an ordinary or routine nature. In
addition, due to the bankruptcies of several asbestos manufacturers and
other primary defendants, the Company has been named as a defendant in an
increasing number of asbestos personal injury lawsuits. The Company has also
been named as a defendant in an increasing number of silicosis personal
injury lawsuits. The plaintiffs in these suits allege exposure to asbestos
or silica from multiple sources and typically the Company is one of
approximately 25 or more named defendants. In the Company's experience, the
vast majority of the plaintiffs are not impaired with a disease for which
the Company bears any responsibility.
Predecessors to the Company manufactured, distributed and sold products
allegedly at issue in the pending asbestos and silicosis litigation lawsuits
(the "Products"). The Company has potential responsibility for certain of
these Products, namely: (a) air compressors which used asbestos containing
components manufactured and supplied by third parties; and (b) portable air
compressors used in sandblasting operations as a component of sandblasting
equipment manufactured and sold by others. The sandblasting equipment is
alleged to have caused the silicosis disease plaintiffs claim in these
cases.
Neither the Company nor its predecessors ever mined, manufactured, mixed,
produced or distributed asbestos fiber. The asbestos-containing components
used in the Products were completely encapsulated in a protective
non-asbestos binder and enclosed within the subject Products. Furthermore,
the Company has never manufactured or distributed portable air compressors.
The Company has entered into a series of cost sharing agreements with
multiple insurance companies to secure coverage for asbestos and silicosis
lawsuits. The Company also believes some of the potential liabilities
regarding these lawsuits are covered by indemnity agreements with other
parties. The Company's uninsured settlement payments for past asbestos and
silicosis lawsuits have been immaterial.
- 20 -
The Company believes that the pending and future asbestos and silicosis
lawsuits will not, in the aggregate, have a material adverse effect on its
consolidated financial position, results of operations or liquidity, based
on: the Company's anticipated insurance and indemnification rights to
address the risks of such matters; the limited potential asbestos exposure
from the components described above; the Company's experience that the vast
majority of plaintiffs are not impaired with a disease attributable to
alleged exposure to asbestos or silica from or relating to the Products;
various potential defenses available to the Company with respect to such
matters; and the Company's prior disposition of comparable matters. However,
due to inherent uncertainties of litigation and because future developments
could cause a different outcome, there can be no assurance that the
resolution of pending or future lawsuits, whether by judgment, settlement or
dismissal, will not have a material adverse effect on its consolidated
financial position, results of operations or liquidity.
The Company has also been identified as a potentially responsible party with
respect to several sites designated for environmental cleanup under various
state and federal laws. The Company does not own any of these sites. The
Company does not believe that the future potential costs related to these
sites will have a material adverse effect on its consolidated financial
position, results of operations or liquidity.
NEW ACCOUNTING STANDARDS
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory
Costs - an amendment to ARB No. 43, Chapter 4." This statement amends
previous guidance and requires expensing for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
In addition, the statement requires that allocation of fixed production
overheads to inventory be based on the normal capacity of production
facilities. SFAS No. 151 is effective for inventory costs incurred during
annual periods beginning after June 15, 2005. The Company is currently
evaluating the impact of SFAS No. 151 on its future consolidated financial
statements.
In December 2004, the FASB issued a revision to SFAS No. 123, "Accounting
for Stock-Based Compensation," SFAS No. 123-R, "Share-Based Payment." SFAS
No. 123-R focuses primarily on transactions in which an entity exchanges its
equity instruments for employee services and generally establishes standards
for the accounting for transactions in which an entity obtains goods or
services in share-based payment transactions. As allowed by the Securities
Exchange Commission, the Company will adopt SFAS No. 123-R in the first
quarter of 2006 and is currently evaluating its effect on the Company's
financial condition, results of operations and cash flows.
- 21 -
CRITICAL ACCOUNTING POLICIES
Management has evaluated the accounting policies used in the preparation of
the Company's financial statements and related notes and believes those
policies to be reasonable and appropriate. Certain of these accounting
policies require the application of significant judgment by management in
selecting appropriate assumptions for calculating financial estimates. By
their 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 Company's
2004 Annual Report on Form 10-K, filed on March 15, 2005, in the Critical
Accounting Policies section of Management's Discussion and Analysis and in
Note 1 to the Consolidated Financial Statements.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
All of the statements in this Management's Discussion and Analysis, other
than historical facts, are forward-looking statements made in reliance upon
the safe harbor of the Private Securities Litigation Reform Act of 1995,
including, without limitation, statements made under the caption "Outlook."
As a general matter, forward-looking statements are those focused upon
anticipated events or trends and expectations and beliefs relating to
matters that are not historical in nature. Such forward-looking statements
are subject to uncertainties and factors relating to the Company's
operations and business environment, all of which are difficult to predict
and many of which are beyond the control of the Company. These uncertainties
and factors could cause actual results to differ materially from those
matters expressed in or implied by such forward-looking statements.
The following uncertainties and factors, among others, could affect future
performance and cause actual results to differ materially from those
expressed in or implied by forward-looking statements: (1) the ability to
complete the Thomas Industries acquisition, including, without limitation,
the ability to satisfy various conditions, such as the receipt of
governmental and third party consents; (2) the ability of, and the speed
with which, the Company is able to integrate the Thomas Industries
acquisition and realize anticipated cost savings, synergies and revenue
enhancements; (3) the risk that the Company may incur significant cash
integration costs to achieve any such cost savings; (4) the risks associated
with incurring substantial additional indebtedness in completing the Thomas
Industries acquisition, including reduced liquidity for working capital and
other purposes, increased vulnerability to general economic conditions and
floating interest rates, and reduced financial and operating flexibility due
to increased covenant and other restrictions in the Company's credit
facilities and indentures; (5) the Company's exposure to economic downturns
and market cyclicality, particularly the domestic and/or worldwide level of
oil and natural gas prices and oil and gas drilling and production, which
affect demand for the Company's petroleum products, and domestic and/or
worldwide industrial production and industrial capacity utilization rates,
which affect demand for the Company's compressor and vacuum products; (6)
the risks associated with intense competition in the Company's markets,
particularly the pricing of the Company's products; (7) the risks of large
or rapid increases in raw material costs or substantial decreases in their
availability, and the Company's dependence on particular suppliers,
particularly iron casting and other metal suppliers; (8) the Company's
ability to continue to identify and complete other strategic acquisitions
and effectively integrate such acquisitions to achieve desired financial
benefits; (9) economic, political and other risks associated with the
Company's international sales and operations, including changes in currency
exchange rates (primarily between the U.S. dollar, the euro and the British
- 22 -
pound); (10) the risks associated with pending asbestos and silicosis
personal injury lawsuits, as well as other potential product liability and
warranty claims due to the nature of the Company's products; (11) the risks
associated with environmental compliance costs and liabilities; (12) the
ability to attract and retain quality management personnel; (13) the ability
to avoid employee work stoppages and other labor difficulties; (14) the
risks associated with defending against potential intellectual property
claims and enforcing intellectual property rights; (15) market performance
of pension plan assets and changes in discount rates used for actuarial
assumptions in pension and other postretirement obligation and expense
calculations; (16) the risk of possible future charges if the Company
determines that the value of goodwill or other intangible assets has been
impaired; and (17) changes in laws and regulations, including accounting
standards, tax requirements and interpretations or guidance related to the
American Jobs Creation Act of 2004.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Company's exposure to market risk
between December 31, 2004 and March 31, 2005.
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15 of the Exchange Act, the Company has carried out
an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period
covered by this report. This evaluation was carried out under the
supervision and with the participation of the Company's management,
including the Chairman, President and Chief Executive Officer and the Vice
President, Finance and Chief Financial Officer. Based upon that evaluation,
the Chairman, President and Chief Executive Officer and Vice President,
Finance and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective to provide reasonable assurance that
information required to be disclosed in the Company's periodic SEC reports
is recorded, processed, summarized, and reported as and when required. In
addition, they concluded that there were no changes in the Company's
internal control over financial reporting that occurred during the period
covered by this report that have materially affected, or that are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
In designing and evaluating the disclosure controls and procedures, the
Company's management recognized that any controls and procedures, no matter
how well designed, can provide only reasonable assurances of achieving the
desired control objectives and management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
- 23 -
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF
SHARES PURCHASED AS MAXIMUM NUMBER OF
PART OF PUBLICLY SHARES THAT MAY YET
TOTAL NUMBER OF AVERAGE PRICE ANNOUNCED PLANS OR BE PURCHASED UNDER
PERIOD SHARES PURCHASED (1) PAID PER SHARE PROGRAMS (2) THE PLANS OR PROGRAMS
- ----------------------------------------------------------------------------------------------------------------------
January 1, 2005 -
January 31, 2005 -- -- -- 210,300
- ----------------------------------------------------------------------------------------------------------------------
February 1, 2005 -
February 28, 2005 -- -- -- 210,300
- ----------------------------------------------------------------------------------------------------------------------
March 1, 2005 -
March 31, 2005 -- -- -- 210,300
--- ---
- ----------------------------------------------------------------------------------------------------------------------
Total -- -- -- 210,300
=== ===
- ----------------------------------------------------------------------------------------------------------------------
(1) The shares purchased do not include shares acquired by the Company in connection with the exercise of stock
options via a stock swap.
(2) In October 1998, Gardner Denver's Board of Directors authorized the repurchase of up to 1,600,000 shares of the
Company's common stock to be used for general corporate purposes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS
(a) List of Exhibits:
2.1 Agreement and Plan of Merger, dated March 8, 2005, among
Gardner Denver, Inc., PT Acquisition Corporation and
Thomas Industries Inc., filed as Exhibit 2.1 to Gardner
Denver, Inc.'s Current Report on Form 8-K, dated March 8,
2005, and incorporated herein by reference.
4.1 Amended and Restated Rights Agreement, dated January 17,
2005, between Gardner Denver, Inc. and National City Bank,
filed as Exhibit 4.1 to Gardner Denver, Inc.'s Current
Report on Form 8-K, dated January 21, 2005, and
incorporated herein by reference.
12 Calculation of Ratio of Earnings to Fixed Charges.
31.1 Certification of Principal Executive Officer Pursuant to
Rule 13a-15(e) or 15d-15(e) of the Exchange Act, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
- 24 -
31.2 Certification of Principal Financial Officer Pursuant to
Rule 13a-15(e) or 15d-15(e) of the Exchange Act, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
- 25 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GARDNER DENVER, INC.
Date: May 10, 2005 By: /s/Ross J. Centanni
----------------------------------
Ross J. Centanni
Chairman, President & CEO
Date: May 10, 2005 By: /s/Helen W. Cornell
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Helen W. Cornell
Vice President, Finance & CFO
Date: May 10, 2005 By: /s/Daniel C. Rizzo, Jr.
--------------------------------
Daniel C. Rizzo, Jr.
Vice President and Corporate
Controller (Chief Accounting
Officer)
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GARDNER DENVER, INC.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
2.1 Agreement and Plan of Merger, dated March 8, 2005, among Gardner
Denver, Inc., PT Acquisition Corporation and Thomas Industries
Inc., filed as Exhibit 2.1 to Gardner Denver, Inc.'s Current
Report on Form 8-K, dated March 8, 2005, and incorporated herein
by reference.
4.1 Amended and Restated Rights Agreement, dated January 17, 2005,
between Gardner Denver, Inc. and National City Bank, filed as
Exhibit 4.1 to Gardner Denver, Inc.'s Current Report on Form 8-K,
dated January 21, 2005, and incorporated herein by reference.
12 Calculation of Ratio of Earnings to Fixed Charges.
31.1 Certification of Principal Executive Officer Pursuant to Rule
13a-15(e) or 15d-15(e) of the Exchange Act, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer Pursuant to Rule
13a-15(e) or 15d-15(e) of the Exchange Act, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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