Company Generates Annual Operating Cash Flow of $46 Million
QUINCY, Ill., Feb. 3 /PRNewswire-FirstCall/ -- Gardner Denver, Inc.
(NYSE: GDI) announced that revenues for the three months ended December 31,
2003 were $116.6 million, a 12% increase compared to the fourth quarter of the
previous year. Net income for the three-month period of 2003 was
$6.5 million, a 39% increase compared to the same period last year. Diluted
earnings per share (DEPS) in the three-month period of 2003 were $0.40, 38%
better than $0.29 in the previous year. Revenues for the twelve-month period
were $439.5 million, 5% more than the results of the previous year and DEPS
for the year were $1.27, 4% higher than $1.22 in 2002.
CEO's Comments Regarding Results
"As previously expected, the second half of 2003 was better than the first
half and I believe we are beginning to see a gradual improvement in the U.S.
industrial economy which will benefit demand for our compressed air products.
Manufacturing capacity utilization has been improving, but remains 5.5
percentage points below the key level of 80%. I am encouraged by the current
U.S. economic indicators, such as industrial production, and gratified that
the efforts we have made over the past year are resulting in noticeable
operational improvements. In 2003, demand for well stimulation pumps and pump
replacement parts increased significantly year-over-year. Although sales of
drilling pumps have still not increased appreciably, I believe that demand for
oil and natural gas products will continue to improve in 2004. We are
positioning drilling pump inventory to capitalize on this projected upturn to
minimize leadtime and capture incremental demand," stated Ross J. Centanni,
Chairman, President and CEO.
"I am pleased with the progress we have made in strengthening our balance
sheet. Our working capital as a percentage of revenues is the lowest it has
been since 1998, the peak of our previous operating cycle. Our receivables
are in excellent condition and inventory turnover improved to 4.9 times in the
fourth quarter, despite the previously mentioned increase in drilling pump
inventory to meet anticipated demand. Cash flow from operations was
approximately $46 million for the year, which enabled us to repay $30 million
in debt (excluding funds borrowed to acquire Syltone plc), fund a small
machine shop acquisition and invest $12 million in capital to improve our
operations. Our ability to generate strong operating cash flow in a period of
weak economic demand is a key strength for our Company. We believe that we are
well positioned to pursue our strategies for growth, including synergistic
acquisitions."
"We previously announced an aggressive profitability improvement program
to eliminate redundant manufacturing capacity, streamline operations and
reduce costs. This program includes closing three facilities to further
integrate previously completed acquisitions, narrowing the focus of the
marketing strategies of our German blower and U.K. compressor businesses,
establishing an assembly and packaging facility in China and implementing
manufacturing process and system improvements to reduce inventory. By the end
of 2003, all three facilities were closed and the marketing strategies of the
German and U.K. operations had been refocused. We reduced manpower through
layoffs and proactive early retirements and broke ground on our new facility
in China. We have also implemented approximately one-third of the planned
manufacturing process and system improvements to reduce inventory. I am
pleased with the progress that we have made to date and look forward to the
benefit of these efforts going forward."
Syltone Acquisition
In early January 2004, we completed the acquisition of Syltone for a
purchase price of approximately 61 million pounds sterling, including assumed
debt. Syltone is headquartered in Bradford, England, with manufacturing
facilities in England, Germany, France, Canada, Denmark and the U.S. The
company also operates fitting shops around the world, which assemble its
manufactured components and other parts onto commercial vehicles. The company
generated sales of 84.4 million pounds sterling (approximately $152.0 million
at a translation rate of $1.80/pounds sterling) and operating profit (pretax)
of 6.3 million pounds sterling (approximately $11.3 million at a rate of
$1.80/pounds sterling) for the twelve months ending September 30, 2003. These
pound sterling financial results were reported in accordance with accounting
principles generally accepted in the U.K.
Syltone's principal activity is the design, manufacture, sales and service
of specialty equipment for the international transportation and fluid transfer
industries. Their product portfolio includes compressors, blowers and
accessories for the commercial vehicle market, loading arms for rail, truck
and marine applications and other complementary products. The U.K. and North
America are Syltone's largest markets, representing approximately 25% and 19%
of sales, respectively, for the twelve months ended September 30, 2003. Other
key served markets are France (13%) and Germany (8%), with the rest of the
world providing approximately 35% of revenues.
Approximately 70% of Syltone's revenues are generated through
transportation-related activities. These activities include the design and
manufacture of equipment for handling dry bulk or liquid product on commercial
vehicles; the provision of on-board power; and the design and manufacture of
access platforms, axles and gearboxes for commercial and military
applications, and power take-offs. The remainder of Syltone's revenues result
from the design and manufacture of equipment for loading and offloading
liquids from ships, railcars and road vehicles, as well as dry-break
couplings. Often the loading arms for road vehicles will be used to fill
commercial vehicles fitted with products manufactured and assembled by
Syltone. Additionally, there are some products manufactured by Syltone, such
as valves, which are used in both transportation and fluid transfer
applications.
"We believe the combination of Syltone and Gardner Denver creates a
leading global provider of solutions for customers in the transportation and
bulk product handling industries. Syltone's strong brand names and product
breadth enhances our ability to serve these industries around the world. This
acquisition expands our presence internationally and provides us with
complementary new products and channels," stated Centanni. "Syltone's
installation and aftermarket capabilities are expected to improve Gardner
Denver's ability to provide loading/unloading solutions for the bulk
transportation industry and strengthen our distribution and service networks.
The complementary nature of this acquisition is also expected to create
manufacturing, marketing and purchasing leverage."
In November 2003, Gardner Denver borrowed approximately $92 million and
committed approximately $12 million of its cash to demonstrate an ability to
finance and complete the acquisition of Syltone, which was a publicly traded
U.K. company. These borrowed funds were invested in short-term instruments
and resulted in unusually large cash and debt balances as of December 31,
2003.
Outlook
Looking forward, Mr. Centanni stated, "We believe that the demand outlook
for 2004 is slightly better for industrial products than we experienced in
2003 and we expect a gradual improvement in revenue volume throughout the year
as a result of a slowly recovering U.S. industrial economy. Our packaging
operation in China, which will be operational by the end of the third quarter
of 2004, should facilitate further material cost reductions as we access
lower-cost suppliers of castings and package components. We continue to
expand and strengthen our distribution channels in the U.S., Europe and Asia,
and invest in new product development."
"The Syltone acquisition will help us realize synergies and further
operational improvements. Our working capital requirements, as a percentage
of revenues, should continue to decline and our inventory reduction program is
expected to yield further inventory turnover improvements in 2004."
"We expect improved demand for well servicing pumps and replacement parts
in 2004. We believe that our investment in drilling pump inventory will help
secure orders requiring shorter lead times and expedite our responsiveness to
increased demand. If natural gas prices remain elevated, supported by an
economic recovery, demand for well servicing and drilling should further
increase demand for petroleum pumps in 2004."
"Based upon the current economic environment, the benefit of the Syltone
acquisition and the profitability improvement projects noted earlier, the
Company currently expects DEPS to be approximately $0.26 to $0.33 for the
first quarter of 2004. This estimate assumes $0.00 to $0.03 in incremental
earnings from the acquisition of Syltone and an overall effective tax rate of
34% in 2004. DEPS is expected to be approximately $1.45 to $1.65 for the
year, depending on the increase in revenue volume, which is within the range
of our previous guidance after adjusting for the addition of Syltone and the
higher effective tax rate. We currently anticipate that Syltone will generate
$0.13 to $0.19 in incremental DEPS for 2004. This estimate is net of an
anticipated non-recurring, non-cash reduction to earnings of $0.03 to $0.07,
as a result of the application of acquisition-related accounting principles
generally accepted in the U.S. (primarily the adjustment of inventory to fair
value)."
Fourth Quarter Results
Revenues for the three-month period increased $12.7 million (12%) to
$116.6 million, compared to the same period of 2002, due to increased volume
and favorable changes in foreign currency exchange rates ($4.8 million or 5%).
Compared to the same period of 2002, Compressed Air Products revenues
increased $11.1 million (13%) to $97.8 million due to increased shipments of
rotary screw compressors and blowers and favorable changes in foreign currency
exchange rates of $4.8 million. Pump Products revenues for the three-month
period increased $1.6 million (10%) compared to the same period of 2002,
primarily as a result of increased demand for well stimulation pumps and
petroleum pump parts, partially offset by lower shipments of drilling pumps.
The aggregate financial impact of the profitability improvement program
discussed previously reduced DEPS in the fourth quarter of 2003 by
approximately $0.12. The majority of the fourth quarter expenses were for
severance and fringe benefits costs associated with the reduction in manpower
and therefore primarily impacted cost of sales ($2.1 million) and selling and
administrative expenses ($0.6 million). Some additional expenses related to
these projects are expected to be incurred in 2004, but the benefits realized
should offset the incremental costs. The net impact on DEPS in 2004 is
currently expected to be a net reduction of $0.01 in the first quarter, offset
by a $0.01 net improvement in the fourth quarter results. By 2005, these
projects should generate ongoing annual improvements in DEPS of approximately
$0.09 to $0.11.
Operating earnings as a percentage of revenues for the Compressed Air
Products segment were 6.6% for the three-month period of 2003, compared to
7.2% in the same period of 2002. The expenses associated with the previously
mentioned profitability improvement projects reduced the 2003 results for this
segment by 2.7 percentage points. Higher compensation and post-retirement
expenses also negatively impacted results in 2003. These negative factors
were partially offset by lower medical costs and the positive impact of
increased leverage of the segment's fixed and semi-fixed costs over a higher
revenue base. Pump Products operating earnings as a percentage of revenues
decreased to 5.9% for the three-month period ended December 31, 2003, compared
to 9.6% in the comparable period of 2002. The profitability improvement
projects reduced results for this segment by 0.9 percentage points. The
remaining decrease in operating earnings as a percentage of revenues was
attributable to higher compensation and post-retirement expenses and a lower
proportion of drilling pump sales resulting in unfavorable mix.
Due to the strengthening of the pound sterling against the U.S. dollar in
the latter half of the fourth quarter, foreign currency transaction gains
related to a portion of the funds borrowed to complete the Syltone acquisition
increased pretax income by $3.2 million ($0.13 DEPS) for the three-month
period ended December 31, 2003. An additional foreign currency gain of
$1.2 million ($0.05 DEPS) will be recognized on these funds in the first
quarter of 2004, as a result of further strengthening of the pound sterling in
January, prior to finalizing the acquisition and the related permanent debt
structure.
Net income was $6.5 million for the three-month period ended December 31,
2003, compared to $4.7 million in the same period of 2002. The 2003 results
reflect an effective tax rate of 32%, compared to 24.7% in the fourth quarter
of 2002. The unusually low income tax rate in the previous year resulted from
a cumulative adjustment to lower the full-year effective rate to 32% for 2002.
DEPS was $0.40 for the fourth quarter of 2003, compared to $0.29 in the
previous year. The 38% improvement in DEPS compared to the previous year is
attributable to the foreign currency transaction gain noted earlier, volume
increases, lower medical costs and operational improvements. These factors
were partially offset by the impact of expenses associated with implementing
the profitability improvement projects, discussed previously, and higher
compensation and post-retirement expenses.
Full Year Results
For the year, revenues increased $21.4 million (5%) to $439.5 million
compared to 2002, primarily due to favorable changes in foreign currency
exchange rates. Compressed Air Products revenues increased $19.0 million (5%)
compared to 2002. Favorable changes in foreign currency exchange rates
increased Compressed Air Products revenues by $17.3 million. Pump Products
revenues for the year increased $2.4 million (4%) compared to 2002, as a
result of increased shipments of well stimulation pumps and petroleum pump
replacement parts, partially offset by lower drilling pump shipments. In 2002,
Pump Products revenues were primarily supported by drilling pump backlog
carried over from 2001 orders.
Net income was $20.6 million ($1.27 DEPS) for the twelve-month period of
2003, compared to $19.6 million ($1.22) in 2002. Favorable changes in exchange
rates increased net income by approximately $0.8 million ($0.05 DEPS) in 2003,
compared to the previous year. The improvement in net income and DEPS reflect
the fourth quarter foreign currency transaction gain, favorable changes in
exchange rates, increased revenue volume in the second half of 2003, cost
reductions, operational improvements and lower medical and interest expenses.
These benefits were partially offset by expenses associated with implementing
the profitability improvement projects, higher compensation and post-
retirement expenses, costs associated with a disruption within our casting
supply chain and unfavorable sales mix due to the reduction of drilling pump
sales.
Cautionary Statement Regarding Forward-Looking Statements
All of the statements in this release, 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, the statements under the "CEO's Comments Regarding Results" and
"Outlook" sections. 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 Gardner
Denver'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 maintain and
to enter into key purchasing, supply and outsourcing relationships; (2) the
ability to effectively manage the transition of iron casting supply to
alternate sources and the skill, commitment and availability of such alternate
sources; (3) the ability to identify, negotiate and complete future
acquisitions; (4) the speed with which the Company is able to integrate
acquisitions and realize the related financial benefits; (5) the successful
implementation of other strategic initiatives, including, without limitation,
restructuring plans, inventory reduction programs and other cost reduction
efforts; (6) 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; (7) changes in domestic and/or worldwide industrial
production and industrial capacity utilization rates, which affect demand for
the Company's compressed air products; (8) pricing of Gardner Denver products;
(9) the degree to which the Company is able to penetrate niche and
international markets; (10) the ability to attract and retain quality
management personnel; (11) market performance of pension plan assets and
changes in discount rates used for actuarial assumptions in pension and other
post-employment obligation and expense calculations; (12) the continued
ability to effectively manage and defend litigation matters pending, or
asserted in the future, against the Company; (13) the development and
acceptance of the Company's new product offerings; and (14) the continued
successful implementation and utilization of the Company's electronic
services. 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.
Comparisons of the financial results for the three and twelve-month
periods ended December 31, 2003 and 2002 follow.
Gardner Denver will broadcast, through a live webcast, its conference call
to discuss fourth quarter earnings on Wednesday, February 4, 2004 at 9:30 a.m.
Eastern. This free webcast will be available in listen-only mode and can be
accessed, for up to ninety days following the call, through the Investor
Relations page on the Gardner Denver website ( http://www.gardnerdenver.com ) or on
CCBN's website ( http://www.fulldisclosure.com ).
Gardner Denver, with 2003 revenues of $440 million, is a leading
manufacturer of reciprocating, rotary and vane compressors and blowers for
various industrial applications and pumps used in the petroleum and industrial
markets. Gardner Denver's news releases are available by visiting the Investor
Relations page on the Company's website ( http://www.gardnerdenver.com ).
GARDNER DENVER, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts and percentages)
Three Months Ended Year Ended
December 31, December 31,
% %
2003 2002 Change 2003 2002 Change
Revenues $ 116,590 $ 103,904 12 $ 439,530 $ 418,158 5
Costs and
Expenses:
Cost of sales 82,630 73,479 12 307,753 289,631 6
Depreciation
and
amortization 3,513 3,280 7 14,566 14,139 3
Selling and
administrative 22,905 19,223 19 85,326 79,400 7
Interest expense 1,337 1,387 (4) 4,748 6,365 (25)
Other (income)
expense, net (3,354) 331 N/M (3,221) (204) N/M
Income before income
taxes 9,559 6,204 54 30,358 28,827 5
Provision for income
taxes 3,059 1,533 100 9,715 9,225 5
Net income $6,500 $4,671 39 $20,643 $19,602 5
Basic earnings
per share $0.40 $0.29 38 $1.29 $1.24 4
Diluted earnings
per share $0.40 $0.29 38 $1.27 $1.22 4
Basic weighted
average number of
shares outstanding 16,104 15,917 16,061 15,854
Diluted weighted
average number of
shares outstanding 16,434 16,032 16,312 16,042
Shares outstanding
as of 12/31 16,117 15,942
GARDNER DENVER, INC.
BUSINESS SEGMENT RESULTS
(in thousands, except percentages)
Three Months Ended Year Ended
December 31, December 31,
% %
2003 2002 Change 2003 2002 Change
Compressed Air
Products
Revenues $97,840 $86,789 13 $369,023 $350,036 5
Operating
earnings 6,428 6,280 2 27,792 29,795 (7)
% of Revenues 6.6% 7.2% 7.5% 8.5%
Orders 87,544 87,976 -- 352,677 347,902 1
Backlog 48,742 58,695 (17) 48,742 58,695 (17)
Pump Products
Revenues 18,750 17,115 10 70,507 68,122 4
Operating
earnings 1,114 1,642 (32) 4,093 5,193 (21)
% of Revenues 5.9% 9.6% 5.8% 7.6%
Orders 19,557 13,395 46 72,943 54,117 35
Backlog 9,651 6,649 45 9,651 6,649 45
CONDENSED BALANCE SHEET ITEMS
(in thousands, except percentages)
%
12/31/03 09/30/03 Change 12/31/02
Cash and
equivalents $132,803 $24,623 439 $25,667
Receivables, net 81,345 78,257 4 74,490
Inventories, net 64,327 70,351 (9) 67,448
Current assets 287,809 182,536 58 177,775
Total assets 589,733 475,956 24 472,181
Short-term debt
and cur.
maturities 16,875 13,750 23 7,500
Current
liabilities 100,956 79,497 27 77,660
Long-term debt,
ex. cur.
maturities 165,756 88,514 87 112,663
Total
liabilities 323,828 229,329 41 249,258
Total
stockholders'
equity 265,905 246,627 8 222,923
SOURCE Gardner Denver, Inc.
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Related links:
http://www.gardnerdenver.com
Company News On-Call:
http://www.prnewswire.com/comp/303875.html
CONTACT:
Helen W. Cornell, Vice President, Strategic
Planning and Operations Support of Gardner Denver, Inc.,
+1-217-228-8209
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