UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 62305
(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 $.01
per share, as of August 1, 2005: 25,816,445 shares.
================================================================================
PART I
FINANCIAL INFORMATION
GARDNER DENVER, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues $ 250,346 $ 161,297 $ 489,170 $ 315,725
Costs and Expenses:
Cost of sales 167,900 108,650 328,914 213,161
Depreciation and amortization 7,199 5,016 14,481 10,149
Selling and administrative 51,739 33,667 104,163 68,570
Interest expense 5,251 1,436 9,284 3,458
Other income, net (2,690) (12) (3,322) (2,088)
--------- --------- --------- ---------
Total costs and expenses 229,399 148,757 453,520 293,250
--------- --------- --------- ---------
Income before income taxes 20,947 12,540 35,650 22,475
Provision for income taxes 6,284 4,264 10,695 7,642
--------- --------- --------- ---------
Net income $ 14,663 $ 8,276 $ 24,955 $ 14,833
========= ========= ========= =========
Basic earnings per share $ 0.62 $ 0.42 $ 1.14 $ 0.82
========= ========= ========= =========
Diluted earnings per share $ 0.61 $ 0.41 $ 1.11 $ 0.80
========= ========= ========= =========
The accompanying notes are an integral part of this statement.
-2-
GARDNER DENVER, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
(UNAUDITED) DECEMBER 31,
JUNE 30, 2005 2004
------------- ------------
ASSETS
Current assets
Cash and equivalents $ 246,335 $ 64,601
Receivables, net 162,466 163,927
Inventories, net 137,939 138,386
Deferred income taxes 6,836 9,465
Other 11,003 9,143
----------- -----------
Total current assets 564,579 385,522
----------- -----------
Property, plant and equipment, net 145,546 148,819
Goodwill 370,090 374,159
Other intangibles, net 107,038 110,173
Other assets 15,730 9,936
----------- -----------
Total assets $ 1,202,983 $ 1,028,609
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings and current maturities
of long-term debt $ 22,758 32,949
Accounts payable and accrued liabilities 182,121 206,069
----------- -----------
Total current liabilities 204,879 239,018
----------- -----------
Long-term debt, less current maturities 274,028 280,256
Postretirement benefits other than pensions 30,092 30,503
Deferred income taxes 22,948 21,324
Other long-term liabilities 52,171 52,032
----------- -----------
Total liabilities 584,118 623,133
----------- -----------
Stockholders' equity
Common stock, $0.01 par value; 50,000
shares authorized; 25,799 shares issued
and outstanding at June 30, 2005 276 217
Capital in excess of par value 466,365 262,091
Treasury stock at cost, 1,760 shares at
June 30, 2005 (27,282) (26,447)
Retained earnings 164,385 139,430
Accumulated other comprehensive income 15,121 30,185
----------- -----------
Total stockholders' equity 618,865 405,476
----------- -----------
Total liabilities and stockholders' equity $ 1,202,983 $ 1,028,609
=========== ===========
The accompanying notes are an integral part of this statement.
-3-
GARDNER DENVER, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
SIX MONTHS ENDED
JUNE 30, 2005
----------------------
2005 2004
--------- ---------
Cash flows from operating activities:
Net income $ 24,955 $ 14,833
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 14,481 10,149
Foreign currency transaction loss (gain) 496 (1,320)
Net loss (gain) on asset dispositions 9 (69)
Stock issued for employee benefit plans 1,676 1,205
Deferred income taxes 1,449 (1,145)
Changes in assets and liabilities:
Receivables (4,023) (7,497)
Inventories (3,152) (8,614)
Accounts payable and accrued liabilities (16,135) (2,011)
Other assets and liabilities, net (916) (118)
--------- ---------
Net cash provided by operating activities 18,840 5,413
--------- ---------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (10,085) (82,119)
Capital expenditures (10,543) (8,771)
Divestiture of non-core businesses (2,231) -
Disposals of property, plant and equipment 291 209
Other - 57
--------- ---------
Net cash used in investing activities (22,568) (90,624)
--------- ---------
Cash flows from financing activities:
Principal payments on short-term debt (3,118) -
Proceeds from short-term debt 6,371 -
Principal payments on long-term debt (258,001) (135,779)
Proceeds from long-term debt 242,654 31,330
Proceeds from issuance of common stock 199,400 79,557
Proceeds from stock options 3,257 2,816
Purchase of treasury stock (835) (357)
Other (311) -
--------- ---------
Net cash provided by (used in) financing
activities 189,417 (22,433)
Effect of exchange rate changes on cash and
equivalents (3,955) 1,093
--------- ---------
Increase (decrease) in cash and equivalents 181,734 (106,551)
--------- ---------
Cash and equivalents, beginning of period 64,601 132,803
--------- ---------
Cash and equivalents, end of period $ 246,335 $ 26,252
========= =========
The accompanying notes are integral part of this statement.
-4-
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
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 intercompany 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 and six months ended June 30, 2005 are
not necessarily indicative of the results to be expected for the full year.
CASH EQUIVALENTS
As of June 30, 2005, cash proceeds of $125.0 million received from the issuance
in May 2005 of 8% Senior Subordinated Notes due in 2013 (the "Notes"), together
with $6.6 million to cover accrued interest on the Notes through the remainder
of 2005, were deposited on account to acquire the shares of Thomas Industries
Inc. ("Thomas"). These funds were restricted for such use until the acquisition
was consummated or for redemption of the Notes in the event that the Thomas
acquisition was not consummated by December 31, 2005. For further information on
the Notes and the Thomas acquisition, which was consummated on July 1, 2005, see
Note 7 and Note 14, respectively.
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 and six months ended June 30, 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 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:
-5-
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ ------------------
2005 2004 2005 2004
-------- ------- -------- --------
Net income, as reported $ 14,663 $ 8,276 $ 24,955 $ 14,833
Less: Total stock-based employee compensation
expense determined under fair value method, net
of related tax effects $ 430 $ 347 $ 779 $ 652
-------- ------- -------- --------
Pro forma net income $ 14,233 $ 7,929 $ 24,176 $ 14,181
======== ======= ======== ========
Basic earnings per share, as reported $ 0.62 $ 0.42 $ 1.14 $ 0.82
======== ======= ======== ========
Basic earnings per share, pro forma $ 0.60 $ 0.40 $ 1.10 $ 0.79
======== ======= ======== ========
Diluted earnings per share, as reported $ 0.61 $ 0.41 $ 1.11 $ 0.80
======== ======= ======== ========
Diluted earnings per share, pro forma $ 0.59 $ 0.39 $ 1.08 $ 0.77
======== ======= ======== ========
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.
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 (pound)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
((pound)46.3 million), new loan notes ((pound)5.2 million) and the assumption of
Syltone's existing bank debt, net of cash acquired ((pound)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.
-6-
On September 1, 2004, the Company acquired the outstanding ownership interests
of 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 contingent payments or additional 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
Trade names 28,000
--------
Total intangible assets $171,423
========
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 goodwill has been
allocated to the Compressor and Vacuum Products segment.
The following table summarizes the unaudited supplemental pro forma information
for the three and six months ended June 30, 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 UNAUDITED
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2004 JUNE 30, 2004
------------ -------------
Revenues $220,807 $426,051
======== ========
Net income $ 10,453 $ 15,123
======== ========
Diluted earnings per share $ 0.52 $ 0.82
======== ========
The pro forma net income for the six months ended June 30, 2004 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.
-7-
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.
In June 2005, the Company acquired the outstanding shares of Bottarini S.p.A.
("Bottarini"), a leading packager of industrial air compressors located near
Milan, Italy. The purchase price of $10.1 million, including assumed bank debt
(net of cash acquired) and direct acquisition costs, was paid in cash and the
assumption of Bottarini's outstanding debt ($1.2 million).
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
JUNE 30, DECEMBER 31,
2005 2004
--------- ------------
Raw materials, including parts and
subassemblies $ 60,271 $ 62,477
Work-in-process 25,735 23,405
Finished goods 58,306 57,321
--------- ---------
144,312 143,203
Excess of FIFO costs over LIFO costs (6,373) (4,817)
--------- ---------
Inventories, net $ 137,939 $ 138,386
========= =========
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill attributable to each business
segment for the six months ended June 30, 2005, are as follows:
COMPRESSOR & FLUID
VACUUM TRANSFER
PRODUCTS PRODUCTS TOTAL
------------ -------- ---------
Balance as of December 31, 2004 $ 336,075 $ 38,084 $ 374,159
Acquisitions 4,322 - 4,322
Foreign currency translation (7,575) (816) (8,391)
--------- -------- ---------
Balance as of June 30, 2005 $ 332,822 $ 37,268 $ 370,090
========= ======== =========
-8-
Other intangible assets at June 30, 2005 and December 31, 2004 consisted of the
following:
JUNE 30, 2005 DECEMBER 31, 2004
---------------------- ----------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
-------- ------------ -------- ------------
Amortized intangible assets:
Customer lists and relationships $ 54,081 $ (3,457) 53,855 (2,153)
Acquired technology 21,619 (12,272) 19,218 (9,732)
Other 11,430 (3,911) 11,352 (2,508)
Unamortized intangible assets:
Trademarks 39,548 - 40,141 -
-------- --------- ------- -------
Total other intangible assets $126,678 $ (19,640) 124,566 (14,393)
======== ========= ======= =======
Amortization of intangible assets for the three and six months ended June 30,
2005, was $1.8 million and $3.7 million, respectively. Amortization of
intangible assets is anticipated to be approximately $7.0 million per year for
2005 through 2009, based upon existing intangible assets with finite useful
lives as of June 30, 2005, excluding the impact from the acquisition of Thomas
(see Note 14).
NOTE 5. ACCRUED PRODUCT WARRANTY
The following is a roll forward of the Company's warranty accrual for the three
and six months ended June 30, 2005 and 2004.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2005 2004 2005 2004
-------- ------- -------- -------
Balance at beginning of period $ 10,732 $ 8,084 $ 10,671 $ 6,635
Product warranty accruals 1,726 1,879 3,911 3,732
Settlements (1,495) (2,230) (3,465) (4,032)
Other (acquisitions and foreign
currency translation) (102) 75 (256) 1,473
-------- ------- -------- -------
Balance at end of period $ 10,861 $ 7,808 $ 10,861 $ 7,808
======== ======= ======== =======
NOTE 6. PENSION AND OTHER POSTRETIREMENT BENEFITS
The following table provides the components of net periodic benefit expense
(income) for the Company's defined benefit pension plans and other
postretirement benefit plans for the three and six months ended June 30, 2005
and 2004:
-9-
THREE MONTHS ENDED JUNE 30,
------------------------------------------------------------
PENSION BENEFITS OTHER
----------------------------------- -----------------------
U.S. PLANS NON-U.S. PLANS POSTRETIREMENT BENEFITS
-------------- ----------------- -----------------------
2005 2004 2005 2004 2005 2004
----- ----- ------- ------- ----- -----
Service cost $ 603 $ 482 $ 1,026 $ 775 $ - $ 7
Interest cost 888 809 1,602 1,294 380 394
Expected return on plan assets (975) (901) (1,633) (1,271) - -
Amortization of transition liability - - - - - -
Amortization of prior-service cost (25) (17) - 5 (25) (249)
Amortization of net loss (gain) 110 61 39 64 (150) (8)
----- ----- ------- ------- ----- -----
Net periodic benefit expense $ 601 $ 434 $ 1,034 $ 867 $ 205 $ 144
===== ===== ======= ======= ===== =====
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------
PENSION BENEFITS OTHER
----------------------------------- -----------------------
U.S. PLANS NON-U.S. PLANS POSTRETIREMENT BENEFITS
---------------- ----------------- -----------------------
2005 2004 2005 2004 2005 2004
------- ------- ------- ------- ----- -----
Service cost $ 1,206 $ 1,056 $ 2,473 $ 1,566 $ - $ 7
Interest cost 1,776 1,662 3,940 2,604 760 819
Expected return on plan assets (1,950) (1,851) (4,034) (2,557) - -
Amortization of transition liability - - - - - -
Amortization of prior-service cost (50) (41) - 10 (50) (274)
Amortization of net loss (gain) 220 114 79 123 (300) (73)
------- ------- ------- ------- ----- -----
Net periodic benefit expense $ 1,202 $ 940 $ 2,458 $ 1,746 $ 410 $ 479
======= ======= ======= ======= ===== =====
NOTE 7. DEBT
During April 2005, the Company repaid the outstanding balance on its unsecured
senior note due in 2006 ($10 million). During May 2005, the Company repaid the
outstanding balance on its revolving lines of credit ($144.2 million) from
proceeds received from its offering of common stock (see Note 8). The Company
also received proceeds of $125.0 million from an offering of its Notes in May
2005 (see Note 1). The Company used the proceeds from the Notes plus funds
available under its senior secured credit facilities to finance its acquisition
of Thomas on July 1, 2005 (see Note 14).
NOTE 8. STOCKHOLDERS' EQUITY
During May 2005, the Company completed an offering of 5,658,000 million shares
of its common stock (including shares purchased by underwriters to cover
over-allotments) for net proceeds of approximately $199.4 million. A portion of
the proceeds was used to repay certain indebtedness (see Note 7). The remaining
proceeds were invested in short-term securities prior to being used to finance
the Company's acquisition of Thomas on July 1, 2005 (see Note 14).
-10-
NOTE 9. EARNINGS PER SHARE
The following table details the calculation of basic and diluted earnings per
share:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2005 2004 2005 2004
------- ------- ------- -------
Basic EPS:
Net income $14,663 $ 8,276 $24,955 $14,833
======= ======= ======= =======
Shares:
Weighted average number of
common shares outstanding 23,681 19,763 21,872 18,058
======= ======= ======= =======
Basic earnings per common share $ 0.62 $ 0.42 $ 1.14 $ 0.82
======= ======= ======= =======
Diluted EPS:
Net income $14,663 $ 8,276 $24,955 $14,833
======= ======= ======= =======
Shares:
Weighted average number of
common shares outstanding 23,681 19,763 21,872 18,058
Assuming conversion of dilutive
stock options issued and outstanding 541 378 561 389
------- ------- ------- -------
Weighted average number of common
shares outstanding, as adjusted 24,222 20,141 22,433 18,447
======= ======= ======= =======
Diluted earnings per common share $ 0.61 $ 0.41 $ 1.11 $ 0.80
======= ======= ======= =======
NOTE 10. COMPREHENSIVE INCOME
For the three months ended June 30, 2005 and 2004, comprehensive income was $3.0
million and $7.2 million, respectively. For the six months ended June 30, 2005
and 2004, comprehensive income was $9.9 million and $13.9 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 investment in a foreign subsidiary, fair market value
adjustments of interest rate swaps and additional minimum pensions liability
(net of income taxes).
NOTE 11. CASH FLOW INFORMATION
In the first six months of 2005 and 2004, the Company paid $7.8 million and $5.4
million, respectively, to the various taxing authorities for income taxes.
Interest paid for the first six months of 2005 and 2004, was $7.8 million and
$2.9 million, respectively.
NOTE 12. 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
-11-
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 used in sandblasting
applications.
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.
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 13. 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 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
-12-
segment (Fluid Transfer Products) primarily due to the same factors noted above,
and thus, there has been no change to the Fluid Transfer Products segment.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues
Compressor and Vacuum Products $ 200,944 $ 126,026 $ 393,670 $ 249,022
Fluid Transfer Products 49,402 35,271 95,500 66,703
--------- --------- --------- ---------
Total $ 250,346 $ 161,297 $ 489,170 $ 315,725
========= ========= ========= =========
Operating earnings:
Compressor and Vacuum Products $ 16,691 $ 10,629 $ 30,123 $ 18,903
Fluid Transfer Products 6,817 3,335 11,489 4,942
--------- --------- --------- ---------
Total 23,508 13,964 41,612 23,845
Interest expense 5,251 1,436 9,284 3,458
Other income, net (2,690) (12) (3,322) (2,088)
--------- --------- --------- ---------
Income before income taxes $ 20,947 $ 12,540 $ 35,650 $ 22,475
========= ========= ========= =========
NOTE 14. SUBSEQUENT EVENTS
Thomas Industries Inc. Acquisition
On July 1, 2005, the Company acquired Thomas, previously 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 of
$40.00 per share for all outstanding shares and share equivalents (approximately
$734.2 million) was paid in the form of cash and the assumption of $7.6 million
of long-term capitalized lease obligations. As of June 30, 2005, Thomas had
$265.3 million in cash and equivalents. The net transaction value, including
assumed debt and net of cash acquired, was approximately $476.5 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, manufactures, 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 products. 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 products, air centers
and centralized systems. These products are also distributed worldwide. The
manufacturing facility in China was constructed during late 2004 and began
production in 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
-13-
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
("GTG"), 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 (which constituted Thomas' entire business following the
sale of GTG in July 2004), net of corporate expenses, was $30 million. For the
six months ended June 30, 2005, Thomas' revenues and operating income were $221
million and $18 million, respectively.
Gardner Denver financed the acquisition through senior secured term and
revolving loan facilities under an amended and restated credit agreement (see
further discussion below), the Notes and its recently completed public offering
of 5,658,000 shares of common stock (see Note 7 and Note 8).
Amended and Restated Credit Agreement
On July 1, 2005, the Company's $605.0 million amended and restated credit
agreement (the "2005 Credit Agreement") became effective with the Thomas
acquisition. The 2005 Credit Agreement provided the Company with access to
senior secured credit facilities including a $380.0 million Term Loan and
restated the $225.0 million Revolving Line of Credit, in addition to superceding
the Company's previously existing credit agreement. Proceeds from the 2005
Credit Agreement were used to fund the Thomas acquisition and retire $144.4
million of debt outstanding under the previously existing Term Loan.
The Revolving Line of Credit matures on September 1, 2009. Loans under this
facility may be denominated in U.S. Dollars or several foreign currencies. The
new Term Loan has a final maturity of July 1, 2010. The Term Loan requires
quarterly principal payments totaling $19 million, $38 million, $57 million, $95
million and $171 million in years one through five, respectively.
The interest rates applicable to loans under the 2005 Credit Agreement are
variable and will be, at the Company's option, either the prime rate plus an
applicable margin or LIBOR plus an applicable margin. The applicable margin
percentages are adjustable quarterly, based upon financial ratio guidelines
defined in 2005 Credit Agreement.
The Company's obligations under the 2005 Credit Agreement are guaranteed by the
Company's existing and future domestic subsidiaries, and are secured by a pledge
of certain subsidiaries' capital stock. The Company is subject to customary
covenants regarding certain earnings, liquidity and capital ratios.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RECENT DEVELOPMENTS.
Thomas Industries Inc. Acquisition
On July 1, 2005, the Company acquired Thomas Industries Inc. ("Thomas"),
previously 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 of $40.00 per share for all outstanding shares and
share equivalents (approximately $734.2 million) was paid in the form of cash
and the assumption of $7.6 million of long-term capitalized lease obligations.
As of June 30, 2005, Thomas had $265.3 million in cash and equivalents. The net
transaction value, including assumed debt and net of cash, was approximately
$476.5 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, manufactures, 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 products. 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 products, air centers
and centralized systems. These products are also distributed worldwide. The
manufacturing facility in China was constructed during late 2004 and began
production in 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
("GTG"), 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 (which constituted Thomas' entire business following the
sale of GTG in July 2004), net of corporate expenses, was $30 million. For the
six months ended June 30, 2005, Thomas' revenues and operating income were $221
million and $18 million, respectively.
Gardner Denver financed the acquisition through senior secured term and
revolving loan facilities under an amended and restated credit agreement, the 8%
Senior Subordinated Notes, which were issued in May 2005 (the "Notes") and its
recently completed public offering of 5,658,000 shares of common stock (see
further discussion under Liquidity and Capital Resources).
-15-
Syltone, Nash Elmo and Bottarini 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 (pound)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
((pound)46.3 million), new loan notes ((pound)5.2 million) and the assumption of
Syltone's existing bank debt, net of cash acquired ((pound)11.5 million).
On September 1, 2004, the Company acquired nash_elmo Holdings, LLC ("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.
In June 2005, the Company acquired the outstanding shares of Bottarini S.p.A.
("Bottarini"), a leading packager of industrial air compressors located near
Milan, Italy. The purchase price of $10.1 million, including assumed bank debt
(net of cash acquired) and direct acquisition costs, was paid in cash and the
assumption of Bottarini's debt ($1.2 million).
Subsequent to the acquisitions of Syltone, Nash Elmo and Bottarini, 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 (which now includes Bottarini), Blower (which 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.
RESULTS OF OPERATIONS.
PERFORMANCE IN THE QUARTER ENDED JUNE 30, 2005 COMPARED WITH
THE QUARTER ENDED JUNE 30, 2004
Revenues
Revenues increased $89.0 million (55%) to $250.3 million for the three months
ended June 30, 2005, compared to the same period of 2004. This increase was
primarily due to the acquisition of Nash Elmo and Bottarini, which contributed
$66.9 million. Increased shipments of drilling and well stimulation pumps,
-16-
compressors and blowers, price increases and favorable changes in currency
exchange rates also contributed to the improved revenues.
For the three months ended June 30, 2005, revenues for the Compressor and Vacuum
Products segment increased $74.9 million (59%) to $200.9 million, compared to
the same period of 2004. This increase was primarily due to the acquisition of
Nash Elmo and Bottarini. Higher volumes of compressor and blower shipments in
the U.S., Europe and China, price increases and changes in currency exchange
rates also contributed to this increase. Fluid Transfer Products segment
revenues increased $14.1 million (40%) to $49.4 million for the three months
ended June 30, 2005 compared to the same period of 2004. This improvement was
primarily due to incremental volume (approximately 32%) of drilling and well
stimulation pumps, water jetting systems and related aftermarket parts. 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
June 30, 2005 increased $29.8 million (57%) to $82.4 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 32.9% in the
three-month period of 2005 from 32.6% in the same period of 2004 primarily due
to the acquisition of Nash Elmo, which had a higher gross margin percentage than
the Company's previously existing businesses. Favorable sales mix including a
higher proportion of drilling pump shipments and increased volume and pricing in
both segments 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,
combined with inefficiencies stemming from delays in material availability and
increasing levels of production.
Depreciation and amortization for the three months ended June 30, 2005 increased
$2.2 million (44%) to $7.2 million, compared to the same period of 2004,
primarily due to the Nash Elmo acquisition.
Selling and administrative expenses increased $18.0 million (54%) in the
three-month period of 2005 to $51.7 million, compared to the same period of
2004, primarily due to the acquisition of Nash Elmo and Bottarini (approximately
$16 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. As a percentage of revenues, selling
and administration expenses decreased slightly to 20.7% for the three-month
period of 2005 from 20.9% in the same period of 2004.
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 (operating margin) of 8.3%
in the three-month period ended June 30, 2005, slightly less than the operating
margin of the three-month period of the previous year. Operating margin from
Compressor and Vacuum Products segment businesses that existed prior to the Nash
Elmo was 6.7% and 8.4% for the three-month periods ended June 30, 2005 and 2004,
respectively. The decline in operating margin 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 margin of 13.8% for the
three-month period ended June 30, 2005, compared to 9.5% 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.
Improved productivity, benefits from capital investments, and favorable mix
associated with a higher proportion of drilling pump shipments also contributed
to the increase.
-17-
Acquisition-related financing and higher interest rates resulted in $3.8 million
of additional interest expense for the three months ended June 30, 2005,
compared to the same period of 2004. The weighted average interest rate for the
three-month period ended June 30, 2005 was 6.8% compared to 5.2% in the
comparable prior year period. This increased rate was primarily attributable to
increases in market rates on floating rate debt and the addition of the Notes to
partially finance the Thomas acquisition.
Other income, net increased $2.7 million for the three months ended June 30,
2005, compared to the same period of 2004. This increase was primarily due to
$1.6 million in litigation-related settlements received during the second
quarter of 2005, in addition to $0.7 million of interest income earned on the
proceeds from the Notes prior to their use to complete the Thomas acquisition.
Income before income taxes increased $8.4 million (67%) to $20.9 million for the
three months ended June 30, 2005, compared to the same period of 2004. This
increase is primarily due to the Nash Elmo acquisition, which contributed
approximately $5 million, and the increase in other income, net. 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.
The provision for income taxes increased by $2.0 million to $6.3 million for the
three-month period of 2005, compared to the prior year period, as a result of
the higher pretax income, partially offset by a lower effective tax rate. The
Company's effective tax rate for the three months ended June 30, 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 tax
planning initiatives.
Net income for the three months ended June 30, 2005 increased $6.4 million (77%)
to $14.7 million ($0.61 diluted earnings per share), compared to $8.3 million
($0.41 diluted earnings per share) in same period of 2004. This improvement
resulted primarily from the benefit of the Nash Elmo acquisition (approximately
$4 million), increased revenues and the related cost leverage,
litigation-related settlements and the lower effective tax rate. Diluted
earnings per share for the three-month period were reduced by $0.11 as a result
of the public offering of 5,658,000 shares of Gardner Denver's common stock and
the Notes issued to finance the Thomas acquisition. These acquisition-related
financings were completed in early May 2005.
PERFORMANCE IN THE SIX MONTHS ENDED JUNE 30, 2005 COMPARED WITH
THE SIX MONTHS ENDED JUNE 30, 2004
Revenues
Revenues increased $173.4 million (55%) to $489.2 million for the six months
ended June 30, 2005, compared to the same period of 2004. This increase was
primarily due to the Nash Elmo and Bottarini acquisitions, which contributed
$129.2 million in revenues. Increased shipments of drilling and well stimulation
pumps, replacement parts, compressors and blowers, combined with price increases
and favorable changes in currency exchange rates, also contributed to this
improvement.
For the six months ended June 30, 2005 revenues for the Compressor and Vacuum
Products segment increased $144.6 million (58%) to $393.7 million, compared to
the same period of 2004. This increase was primarily due to the acquisitions of
Nash Elmo and Bottarini. Higher volumes of compressor and blower shipments in
the U.S., Europe and China, price increases and changes in currency exchange
rates also contributed to this increase. Fluid Transfer Products segment
revenues increased $28.8 million (43%) to $95.5 million for the six months ended
June 30, 2005, compared to the same period of 2004, primarily due
-18-
to increased volume (approximately 39%) of drilling and well stimulation pumps,
water jetting systems and related aftermarket parts. Price increases and changes
in currency exchange rates also contributed to this increase.
Costs and Expenses
Gross margin for the six months ended June 30, 2005 increased $57.7 million
(56%) to $160.3 million, compared to the same period of 2004, primarily due to
the increase in revenues. Gross margin percentage of revenues increased to 32.8%
in the six-month period of 2005 from 32.5% in the same period of 2004 primarily
due to the acquisition of Nash Elmo, which had a higher gross margin percentage
than the Company's previously existing businesses, and due to increased volume
and price increases in both segments. 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,
combined with inefficiencies stemming from delays in material availability and
increasing levels of production.
Depreciation and amortization for the six months ended June 30, 2005 increased
$4.3 million (43%) to $14.5 million, compared to the same period of 2004,
primarily due to the Nash Elmo acquisition.
Selling and administrative expenses increased $35.6 million (52%) in the
six-month period of 2005 to $104.2 million, compared to the same period of 2004,
primarily due to the acquisitions of Nash Elmo and Bottarini (approximately $32
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. As a percentage of revenues, selling
and administrative expenses decreased slightly to 21.3% for the six-month period
of 2005 from 21.7% in the same period of 2004.
The Compressor and Vacuum Products segment generated operating margin of 7.7% in
the six-month period ended June 30, 2005, an increase from 7.6% for the same
period of 2004. This increase was primarily attributable to the Nash Elmo
acquisition. Operating margin from Compressor and Vacuum Products segment
businesses that existed prior to the Nash Elmo acquisition was 6.5% for the
six-month period ended June 30, 2005. The decline in operating margin 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 margin of 12.0% for the
six-month period ended June 30, 2005, compared to 7.4% 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.
Improved productivity, benefits from capital investments, and favorable mix
associated with a higher proportion of drilling pump shipments also contributed
to the increase.
Interest expense increased $5.8 million (168%) to $9.3 million for the six
months ended June 30, 2005, compared to the same period of 2004, due to higher
average borrowings stemming from acquisition-related financing and higher
average rates. The average interest rate for the six-month period ended June 30,
2005 was 6.0%, compared to 4.5% in the comparable prior year period. This
increased rate was primarily attributable to increases in market rates on
floating rate debt and the Notes issued to partially finance the Thomas
acquisition.
Other income, net increased $1.2 million to $3.3 million for the six months
ended June 30, 2005, compared to the same period of 2004. This increase was
primarily due to $1.6 million in litigation-related settlements received during
the second quarter of 2005 and $0.7 million of interest income earned on the
proceeds from the Notes, prior to their use to complete the Thomas acquisition.
This increase was partially offset by a non-
-19-
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 $13.2 million (59%) to $35.7 million for
the six months ended June 30, 2005, compared to the same period of 2004. This
increase is primarily due to the Nash Elmo acquisition, which contributed
approximately $8 million, and the increase in other income, net. 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 $3.1 million to $10.7 million for
the six-month period of 2005, compared to the prior year period, as a result of
incremental income before taxes partially offset by a lower effective tax rate.
The Company's effective tax rate for the six months ended June 30, 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 tax planning initiatives.
Net income for the six months ended June 30, 2005 increased $10.2 million (68%)
to $25.0 million ($1.11 diluted earnings per share), compared to $14.8 million
($0.80 diluted earnings per share) in same period of 2004. This increase was
primarily attributable to the Nash Elmo acquisition (approximately $6 million),
higher revenues and the related cost leverage, the litigation-related
settlements received in the second quarter and the lower effective tax rate.
Diluted earnings per share for the six-month period of 2005 were reduced by
$0.11 as a result of the May 2005 financing transactions completed in advance of
the Thomas acquisition and included approximately $0.12 of incremental dilution
from the March 2004 stock offering.
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 second quarter of 2005, orders for compressor
and vacuum products were $209.5 million, compared to $129.6 million in the same
period of 2004. Backlog for the Compressor and Vacuum Products segment was
$201.0 million as of June 30, 2005, compared to $81.5 million as of June 30,
2004. The increase in orders and backlog compared to the prior year was
primarily due to the Nash Elmo and Bottarini acquisitions, which collectively
contributed $66.5 million and $95.7 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
used in transportation applications in the U.S.
Demand for petroleum-related fluid transfer products has historically
corresponded to market conditions and expectations for oil and natural gas
prices. Orders for fluid transfer products were $64.2 million in the second
quarter of 2005, compared to $41.4 million in the same period of 2004. Backlog
for this business segment was $94.8 million as of June 30, 2005, compared to
$36.7 million as of June 30, 2004. The significant increase in orders and
backlog compared to the prior year was primarily due to increased demand for
drilling pumps, well stimulation 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.
-20-
LIQUIDITY AND CAPITAL RESOURCES
Operating Working Capital
During the six months ended June 30, 2005, operating working capital (defined as
receivables plus inventories, less accounts payable and accrued liabilities)
increased $22.0 million to $118.3 million. This increase primarily stems from
lower accounts payable and accrued liabilities (due to timing of payments) and
the Bottarini acquisition, partially offset by changes in foreign currency
exchange rates.
Cash Flows
During the first six months of 2005, cash provided by operations was $18.8
million, compared to $5.4 million in the prior year period. This increase was
primarily due to higher net income and depreciation and amortization levels.
Improvements in days sales outstanding and inventory turnover also contributed
to the increase. Net cash used in investing activities was $22.6 million during
the first six months of 2005, primarily due to capital expenditures and the
Bottarini acquisition. Net cash provided by financing activities was $189.4
million during the first six months of 2005, primarily due to $199.4 million in
net proceeds related to the Company's issuance of 5.7 million shares of common
stock to partially fund the Thomas acquisition, partially offset by net debt
payments of $12.1 million. 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 increase of $181.7 million during
the first six 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 $10.5 million in the first six months of 2005. This was $1.8
million higher than the level of capital expenditures in the comparable period
in 2004, primarily due to the timing of capital projects and spending related to
the Nash Elmo operations. Commitments for capital expenditures at June 30, 2005
were approximately $14 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 June 30, 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 5,658,000 shares of
its common stock (including shares purchased by underwriters to cover
over-allotments) for proceeds of approximately $199.4 million (net of direct
costs associated with the offering) during May 2005. The Company also completed
an offering of $125.0 million of its Notes in a private placement on May 4,
2005. The Company used the proceeds from the shares and
-21-
Notes, plus funds available under an amended and restated senior secured bank
facility, to finance its acquisition of Thomas (consummated on July 1, 2005) and
to repay certain indebtedness.
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 incurring additional debt
and restricted payments.
On September 1, 2004, the Company entered into a $375.0 million amended and
restated credit agreement (the "2004 Credit Agreement"). The 2004 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 2004 Credit
Agreement were used to fund the Nash Elmo acquisition and retire debt
outstanding under its previously existing Credit Line and Term Loan.
On May 13, 2005, the Company entered into a $605.0 million amended and restated
credit agreement (the "2005 Credit Agreement"). Contingent on the completion of
the Thomas acquisition (consummated on July 1, 2005), the 2005 Credit Agreement
provided the Company with access to senior secured credit facilities including a
$380.0 million Term Loan and restated the $225.0 million Revolving Line of
Credit, in addition to superceding the 2004 Credit Agreement. Proceeds from the
2005 Credit Agreement were used to fund the Thomas acquisition and retire $144.4
million of debt outstanding under the previously existing Term Loan.
The Revolving Line of Credit matures on September 1, 2009. Loans under this
facility may be denominated in U.S. Dollars or several foreign currencies. On
June 30, 2005, the Revolving Line of Credit had no outstanding principal
balance, leaving $225.0 million available for letters of credit or for future
use, subject to the terms of the Revolving Line of Credit.
The new Term Loan has a final maturity of July 1, 2010. The Term Loan requires
quarterly principal payments totaling $19 million, $38 million, $57 million, $95
million and $171 million in years one through five, respectively.
The interest rates applicable to loans under the 2005 Credit Agreement are
variable and will be, at the Company's option, either the prime rate plus an
applicable margin or LIBOR plus an applicable margin. The applicable margin
percentages are adjustable at the end of each quarter, based upon financial
ratio guidelines defined in 2005 Credit Agreement.
The Company's obligations under the 2005 Credit Agreement are guaranteed by the
Company's existing and future domestic subsidiaries, and are secured by a pledge
of certain subsidiaries' capital stock. The Company is subject to customary
covenants regarding certain earnings, liquidity and capital ratios.
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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 used in sandblasting
applications.
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.
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.
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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.
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 5, 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 effectively
integrate the Thomas, Nash Elmo and Bottarini acquisitions and realize
anticipated cost savings, synergies and revenue enhancements; (2) the risk that
the Company may incur significant cash integration costs to achieve any such
cost savings; (3) the risks associated with incurring substantial additional
indebtedness to complete the Thomas acquisition, including reduced liquidity for
working capital and other purposes, increased vulnerability to general economic
conditions and floating interest rates, and reduced
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financial and operating flexibility due to increased covenant and other
restrictions in the Company's credit facilities and indentures; (4) the
Company's exposure to economic downturns and market cycles, particularly the
North American 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; (5) the risks associated with intense competition in the
Company's markets, particularly the pricing of the Company's products; (6) 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; (7) the Company's ability
to continue to identify and complete other strategic acquisitions and
effectively integrate such acquisitions to achieve desired financial benefits;
(8) 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, the British pound and the Chinese
yuan); (9) 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; (10) the risks associated
with environmental compliance costs and liabilities; (11) the ability to attract
and retain quality management personnel; (12) the ability to avoid employee work
stoppages and other labor difficulties; (13) the risks associated with defending
against potential intellectual property claims and enforcing intellectual
property rights; (14) market performance of pension plan assets and changes in
discount rates used for actuarial assumptions in pension and other
postretirement obligation and expense calculations; (15) the risk of possible
future charges if the Company determines that the value of goodwill or other
intangible assets has been impaired; and (16) 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 June 30, 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 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.
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PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
TOTAL NUMBER OF MAXIMUM NUMBER
SHARES PURCHASED AS OF SHARES THAT MAY
PART OF PUBLICLY YET BE PURCHASED
TOTAL NUMBER OF AVERAGE PRICE ANNOUNCED PLANS UNDER THE PLANS OR
PERIOD SHARES PURCHASED (1) PAID PER SHARE OR PROGRAMS (2) PROGRAMS
--------------- -------------------- -------------- ------------------- ------------------
April 1, 2005 -
April 30, 2005 -- -- -- 210,300
May 1, 2005 -
May 31, 2005 -- -- -- 210,300
June 1, 2005 -
June 30, 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
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was held
pursuant to notice on May 3, 2005. At the Annual Meeting, Donald G. Barger,
Raymond R. Hipp and David D. Petratis were elected to serve as directors for a
three-year term expiring in 2008. There were 17,926,453 affirmative votes cast
and 1,553,292 negative votes concerning Mr. Barger's election as a director,
18,835,271 affirmative votes cast and 644,474 negative votes concerning Mr.
Hipp's election as a director and 19,013,194 affirmative votes cast and 466,551
negative votes concerning Mr. Petratis' election as a director. The terms of
directors Ross J. Centanni (Chairman), Frank J. Hansen, Thomas M. McKenna, Diane
K. Schumacher and Richard L. Thompson continued past the Annual Meeting.
Stockholders also elected to approve the Company's Executive Annual Bonus Plan.
There were 17,206,134 affirmative votes cast, 1,851,437 votes against and
421,357 abstaining votes or non-votes concerning the Company's Executive Annual
Bonus Plan.
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ITEM 6. EXHIBITS
(a) List of Exhibits:
4.1 Form of Indenture by and among Gardner Denver, Inc., the guarantors
and The Bank of New York Trust Company, N.A., as trustee, filed as
Exhibit 4.1 to Gardner Denver, Inc.'s Current Report on Form 8-K,
dated May 4, 2005, and incorporated herein by reference.
10.1 Third Amended and Restated Credit Agreement dated as of May 13, 2005
among Gardner Denver, Inc. (the "Borrower"), the financial
institutions from time to time party thereto (the "Lenders"),
JPMorgan Chase Bank, N.A., successor by merger to Bank One, NA, as a
Lender, an LC Issuer, the Swing Line Lender and as agent for itself
and the other Lenders, Wachovia Bank, National Association, as a
Lender and as Syndication Agent for the Revolving Loan Facility,
Harris Trust and Savings Bank, National City Bank of the Midwest and
KeyBank National Association, as Lenders and as Co-Documentation
Agents for the Revolving Credit Facility, and Bear Stearns Corporate
Lending Inc., as a Lender and as Syndication Agent for the Term Loan
Facility, filed as Exhibit 10.1 to Gardner Denver, Inc.'s Current
Report on Form 8-K, dated May 16, 2005, and incorporated herein by
reference.
10.2 Form of Escrow and Security Agreement by and between Gardner Denver,
Inc. and The Bank of New York Trust Company, N.A., as trustee and
escrow agent, filed as Exhibit 10.1 to Gardner Denver, Inc.'s
Current Report on Form 8-K, dated May 4, 2005, and incorporated
herein by reference.
10.3 Form of Registration Rights Agreement by and among Gardner Denver,
Inc., the guarantors and the initial purchasers named therein, filed
as Exhibit 10.2 to Gardner Denver, Inc.'s Current Report on Form
8-K, dated May 4, 2005, and incorporated herein by reference.
10.4 Gardner Denver, Inc. Executive Annual Bonus Plan, as amended
effective January 1, 2006.
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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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GARDNER DENVER, INC.
Date: August 9, 2005 By: /s/Ross J. Centanni
----------------------------------
Ross J. Centanni
Chairman, President & CEO
Date: August 9, 2005 By: /s/Helen W. Cornell
------------------------------------
Helen W. Cornell
Vice President, Finance & CFO
Date: August 9, 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
4.1 Form of Indenture by and among Gardner Denver, Inc., the guarantors
and The Bank of New York Trust Company, N.A., as trustee, filed as
Exhibit 4.1 to Gardner Denver, Inc.'s Current Report on Form 8-K,
dated May 4, 2005, and incorporated herein by reference.
10.1 Third Amended and Restated Credit Agreement dated as of May 13, 2005
among Gardner Denver, Inc. (the "Borrower"), the financial
institutions from time to time party thereto (the "Lenders"),
JPMorgan Chase Bank, N.A., successor by merger to Bank One, NA, as a
Lender, an LC Issuer, the Swing Line Lender and as agent for itself
and the other Lenders, Wachovia Bank, National Association, as a
Lender and as Syndication Agent for the Revolving Loan Facility,
Harris Trust and Savings Bank, National City Bank of the Midwest and
KeyBank National Association, as Lenders and as Co-Documentation
Agents for the Revolving Credit Facility, and Bear Stearns Corporate
Lending Inc., as a Lender and as Syndication Agent for the Term Loan
Facility, filed as Exhibit 10.1 to Gardner Denver, Inc.'s Current
Report on Form 8-K, dated May 16, 2005, and incorporated herein by
reference.
10.2 Form of Escrow and Security Agreement by and between Gardner Denver,
Inc. and The Bank of New York Trust Company, N.A., as trustee and
escrow agent, filed as Exhibit 10.1 to Gardner Denver, Inc.'s Current
Report on Form 8-K, dated May 4, 2005, and incorporated herein by
reference.
10.3 Form of Registration Rights Agreement by and among Gardner Denver,
Inc., the guarantors and the initial purchasers named therein, filed
as Exhibit 10.2 to Gardner Denver, Inc.'s Current Report on Form 8-K,
dated May 4, 2005, and incorporated herein by reference.
10.4 Gardner Denver, Inc. Executive Annual Bonus Plan, as amended and to
be effective January 1, 2006.
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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