Exhibit 13
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FINANCIAL HISTORY
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(dollars in thousands, except per share amounts)
Year ended December 31,
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2002 2001 2000 1999 1998
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Income Statement Data:
Revenues $418,158 419,770 379,358 327,067 386,859
Costs and Expenses:
Cost of sales (excluding depreciation and amortization) 289,631 294,249 268,290 226,550 256,936
Depreciation and amortization 14,139 17,567 15,881 14,222 12,978
Selling and administrative expenses 79,400 69,678 59,784 53,080 52,986
Interest expense 6,365 6,796 7,669 5,934 4,849
Other income, net (204) (3,203) (2,160) (1,876) (784)
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389,331 385,087 349,464 297,910 326,965
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Income before income taxes 28,827 34,683 29,894 29,157 59,894
Provision for income taxes 9,225 12,659 11,210 11,109 23,089
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Net income $ 19,602 22,024 18,684 18,048 36,805
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Basic earnings per share $ 1.24 1.42 1.22 1.20 2.29
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Diluted earnings per share $ 1.22 1.40 1.21 1.18 2.22
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December 31,
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2002 2001 2000 1999 1998
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Balance Sheet Data:
Total assets $472,842 488,688 403,881 379,419 342,130
Long-term debt (excluding current maturities) 112,663 160,230 115,808 114,200 81,058
Other long-term obligations 58,935 45,153 48,682 53,001 55,128
Stockholders' equity 222,923 198,728 171,148 152,609 142,686
=================================================================================================================================
This Income Statement and Balance Sheet Data should be read in
conjunction with Management's Discussion and Analysis and the
Consolidated Financial Statements and notes thereto.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto.
Overview
The Company is organized based on the products and services it offers.
Under this organizational structure, the Company has three operating
divisions: Compressor, Blower and Pump. These divisions comprise two
reportable segments, Compressed Air Products and Pump Products. The
Compressor and Blower Divisions are aggregated into one reportable
segment (Compressed Air 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.
In the Compressed Air Products segment, the Company designs,
manufactures, markets and services the following products and related
aftermarket parts for industrial and commercial applications: rotary
screw, reciprocating, sliding vane and centrifugal air compressors; and
positive displacement and centrifugal blowers. The primary customers
and applications for Xxxxxxx Denver's compressed air products are
durable and non-durable goods manufacturers; process industries such as
petroleum, primary metals, pharmaceuticals, food and paper; original
equipment manufacturers; manufacturers of carpet cleaning equipment,
pneumatic conveying equipment and dry bulk trailers; wastewater
treatment facilities; automotive service centers; and niche applications
such as polyethylene terephthalate ("PET") bottle blowing, breathing air
equipment and compressed natural gas. Revenues of the Compressed Air
Products segment constituted approximately 84% of total revenues in
2002.
In the Pump Products segment, the Company designs, manufactures, markets
and services a diverse group of pumps, water jetting systems and related
aftermarket parts used in oil and natural gas production, well servicing
and drilling and industrial cleaning and maintenance. Typical
applications for pumps include oil transfer, saltwater disposal, ammine
pumping for gas processing, enhanced oil recovery, hydraulic power and
other liquid transfer applications. Applications for water jetting
systems include runway and shiphull cleaning, concrete demolition and
metal surface preparation. Revenues of the Pump Products segment
constituted approximately 16% of total revenues in 2002.
The Company sells its products through independent distributors, sales
representatives and directly to original equipment manufacturers,
engineering firms and end users.
In September 2001, the Company acquired Xxxxxxx Air and Filtration
Systems ("Xxxxxxx") and Hamworthy, Belliss & Xxxxxx ("Belliss &
Xxxxxx"). Xxxxxxx, previously headquartered in Syracuse, New York,
manufactures and distributes multistage centrifugal blowers and vacuum
systems, primarily for wastewater treatment and industrial applications.
The acquisition of Xxxxxxx expanded Xxxxxxx Denver's product offering
and distribution capabilities and enhanced its position as a leading
international supplier of centrifugal products to the air and gas
handling industry. During 2002, manufacturing of Xxxxxxx products was
transferred to the Company's existing centrifugal blower facility in
Peachtree City, Georgia. Belliss & Xxxxxx, headquartered in Gloucester,
England, manufactures and distributes reciprocating air compressors used
for a variety of niche applications, such as PET bottle blowing,
breathing air equipment and compressed natural gas. The acquisition of
Belliss & Xxxxxx broadened the Company's range of product offerings,
strengthened its distribution and service networks and increased its
participation in sales of products with applications that have the
potential to grow faster than the overall industrial economy.
The Company acquired CRS Power Flow, Inc. ("CRS") in July 2000 and
Jetting Systems & Accessories, Inc. ("JSA") in April 2000. CRS and JSA
were located in Houston, Texas, and both manufactured aftermarket
products for the water jetting industry. These two acquisitions
complemented the Company's product offering for the water jetting market
and further leveraged Xxxxxxx Denver's commitment to being a full-
service provider in the water jetting industry. During 2001, these
businesses were merged into Xxxxxxx Denver Water Jetting Systems and are
now operating at one consolidated facility in Houston, Texas.
In January 2000, the Company acquired Invincible Airflow Systems, Co.
("Invincible"). Invincible, located in Baltic, Ohio, manufactures
single and fabricated multistage centrifugal blowers and engineered
vacuum systems. The acquisition of Invincible extended Xxxxxxx Denver's
product offering for the industrial cleaning market and introduced the
Company's centrifugal blowers to new markets.
The Xxxxxxx, Belliss & Xxxxxx and Invincible acquisitions are included
in the Company's Compressed Air Products segment. The CRS and JSA
acquisitions are included in the Company's Pump Products segment.
The acquisitions completed in 2001 and 2000 provided growth
opportunities through synergistic product lines and domestic and
international market penetration.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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The following table sets forth percentage relationships to revenues of
certain income statement items for the years presented.
Year ended December 31,
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2002 2001 2000
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Revenues 100.0% 100.0 100.0
Costs and Expenses:
Cost of sales (excluding depreciation and amortization) 69.2 70.1 70.7
Depreciation and amortization 3.4 4.2 4.2
Selling and administrative expenses 19.0 16.6 15.8
Interest expense 1.5 1.6 2.0
Other income, net -- (0.8) (0.6)
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93.1 91.7 92.1
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Income before income taxes 6.9 8.3 7.9
Provision for income taxes 2.2 3.0 3.0
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Net income 4.7% 5.3 4.9
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Year ended December 31, 2002, compared with year ended December 31, 2001
Revenues
Revenues declined slightly to $418.2 million in 2002, compared to $419.8
million in 2001. Excluding incremental revenue from acquisitions
completed since August 2001, which added $54.1 million to revenues in
2002, revenues decreased $55.7 million as compared to 2001. Revenues
outside the United States, as a percentage of total revenues, increased
to 37% in 2002, compared to 30% in 2001. This increase is primarily due
to the Belliss & Xxxxxx acquisition, which strengthened the Company's
presence in Europe and Asia.
Revenues in the Compressed Air Products segment increased $42.0 million
in 2002 to $350.0 million, compared to $308.0 million in 2001, due to
acquisitions and favorable foreign currency exchange rates. Excluding
incremental revenue from acquisitions of $54.1 million and a favorable
foreign currency exchange rate impact of $4.5 million, revenues declined
$16.6 million (5%) due to softness in the U.S. and European industrial
markets, which weakened demand for compressors and blowers.
Revenues in the Pump Products segment declined $43.6 million (39%) to
$68.1 million in 2002, compared to $111.7 million in 2001. This decline
resulted from depressed demand for petroleum pump products, due to
reduced rig counts, which began negatively impacting order rates in the
second half of 2001.
Costs and Expenses
Gross margin (defined as revenues less cost of sales) in 2002 increased
$3.0 million (2%) to $128.5 million, from $125.5 million in 2001. Gross
margin as a percentage of revenues (gross margin percentage) increased
to 30.7% in 2002 from 29.9% in 2001, due to an overall favorable sales
mix change, the incremental impact of acquisitions, lower warranty
expense in the Compressed Air Products segment and ongoing cost
reduction projects, including acquisition integration efforts. In 2002,
gross margin was enhanced $0.4 million as a result of the liquidation of
LIFO inventory layers, compared to $0.5 million in 2001.
Depreciation and amortization decreased 20% to $14.1 million in 2002,
compared to $17.6 million in 2001. This decrease was due to the
adoption of the Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standards ("SFAS") No. 142, effective January 1,
2002, which eliminated goodwill amortization of $4.4 million. This
decrease was partially offset by the amortization of intangible assets
(other than goodwill) related to the 2001 acquisitions.
Selling and administrative expenses increased in 2002 by 14% to $79.4
million from $69.7 million in 2001 due to acquisitions and unfavorable
foreign currency exchange rates. Excluding acquisitions and foreign
currency exchange rate effects, selling and administrative expenses
decreased approximately 3% in 2002, due to cost reduction efforts,
including acquisition integration efforts, which were partially offset
by higher fringe benefit costs (medical, pension and other
postretirement benefits). As a percentage of revenues, selling and
administrative expenses were 19.0% in 2002, compared to 16.6% in 2001.
The increase in this ratio was attributable to the decline in revenues
excluding acquisitions. Acquisitions also contributed to this increase
as they currently have higher selling and administrative expenses as a
percentage of revenues than the Company's previously existing
operations.
Compressed Air Products' operating earnings (defined as revenues less
cost of sales, depreciation and amortization, and selling and
administrative expenses) increased $7.6 million (34%) to $29.8 million,
compared to $22.2 million in 2001. This increase was primarily
attributable to the incremental impact of acquisitions, the cessation of
goodwill amortization, reduced warranty expense and ongoing cost
reduction efforts. These positive factors were partially offset by the
negative impact of decreased leverage of the segment's fixed and semi-
fixed costs over a lower
14
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revenue base (excluding acquisitions) and higher fringe benefit costs.
As a percentage of revenues, operating earnings increased to 8.5% in
2002, compared to 7.2% (8.4% excluding goodwill amortization) in 2001,
as a result of the factors noted above.
Operating earnings for the Pump Products segment decreased $10.9 million
to $5.2 million in 2002, a 68% decrease from $16.1 million in 2001,
primarily due to the decrease in revenues. As a percentage of revenues,
operating earnings for this segment decreased to 7.6% in 2002, compared
to 14.4% (15.1% excluding goodwill amortization) in 2001. This decrease
was primarily attributable to the negative impact of decreased leverage
of the segment's fixed and semi-fixed costs over a lower revenue base.
The cessation of goodwill amortization partially offset this negative
factor.
Interest expense decreased $0.4 million (6%) to $6.4 million for 2002,
compared to $6.8 million in 2001, as lower average interest rates were
partially offset by higher average borrowings (due to businesses
acquired in 2001). The average interest rate for 2002 was 4.4%,
compared to 5.4% for 2001. See Note 9 to the Consolidated Financial
Statements for further information on the Company's borrowing
arrangements.
In 2001, other income, net included approximately $2.1 million from
litigation settlement proceeds and $0.5 million from interest income
related to finalization of an income tax settlement with the Internal
Revenue Service. Excluding the impact of these non-recurring items, the
majority of the decline in other income was due to foreign currency
transaction losses recorded in 2002, generated from U.S. dollar
denominated monetary assets of foreign subsidiaries.
Income
Income before income taxes decreased $5.9 million (17%) to $28.8 million
in 2002 from $34.7 million in 2001. This decrease was primarily the
result of decreased leverage of fixed costs over a lower revenue base
(excluding acquisitions) for both segments and the non-recurring gains
included in 2001 other income mentioned above. These factors were
partially offset by the cessation of goodwill amortization.
The provision for income taxes decreased by $3.5 million to $9.2 million
in 2002 compared to $12.7 million in 2001, as a result of lower income
before taxes and a lower overall effective tax rate. The Company's
effective tax rate was 32.0% in 2002, compared to 36.5% in 2001. This
decrease was primarily attributable to the cessation of non-deductible
goodwill amortization. A higher proportion of Extraterritorial Income
Exclusion (EIE) benefit from U.S. export sales relative to pretax income
and a higher proportion of income derived from lower taxed non-U.S.
jurisdictions also contributed to this decline.
Net income decreased $2.4 million (11%) to $19.6 million ($1.22 diluted
earnings per share) in 2002, compared to $22.0 million ($1.40 diluted
earnings per share) in 2001. In both 2002 and 2001, net income included
$0.3 million in after-tax LIFO income ($0.02 diluted earnings per
share). The decrease in net income was primarily attributable to the
same factors that resulted in decreased income before taxes noted above.
Outlook
In 2002, orders for compressed air products, including $54.0 million
from acquisitions, were $347.9 million, compared to $296.0 million in
2001. Order backlog for the Compressed Air Products segment was $58.7
million as of both December 31, 2002 and 2001. Excluding acquisitions,
the decrease in order activity in this segment are primarily the result
of softness in the U.S. and European industrial markets, as noted above.
Because air is often used as a fourth utility in the manufacturing
process, demand for compressed air products is generally correlated to
manufacturing capacity utilization rates and the rate of change of
industrial equipment production. These indicators have been relatively
weak in both 2002 and 2001. Over longer time periods, demand also
follows the economic growth patterns indicated by the rates of change in
the Gross Domestic Product, which slowed during the fourth quarter of
2002. As a result, orders for compressed air products are anticipated
to remain relatively flat with some modest improvement in the second
half of 2003.
Demand for pump products, which are primarily petroleum related, has
historically been related to market conditions and expectations for oil
and natural gas prices. Orders for pump products were $54.1 million in
2002, a decrease of $63.3 million (54%), compared to $117.4 million in
2001. Order backlog for the Pump Products segment was $6.6 million at
December 31, 2002 compared to $20.5 million as of December 31, 2001,
representing a 68% decrease. These decreases can primarily be
attributed to lower rig counts, which began negatively impacting order
rates in the second half of 2001. Future increases in demand for these
products will likely be dependent upon rig counts and oil and natural
gas prices, which the Company cannot predict.
The Company's largest supplier of iron castings, Xxxxxxxx Casting
Corporation ("Atchison") announced in August 2002 that it would downsize
its LaGrange, Missouri foundry ("LaGrange Foundry"), ceasing production
and focusing the facility on pattern repair, maintenance and storage.
Xxxxxxxx later decided to completely close this facility. As a result,
the Company began to implement its previously developed contingency plan
to secure alternative supply sources. The Company does not anticipate
that the downsizing of the LaGrange Foundry will materially impact its
long-term financial performance. However, there was a negative impact
(approximately $0.01 to $0.03 diluted earnings per share) on the
Company's financial performance in the fourth quarter of 2002, as
additional costs were incurred related to expediting castings from new
suppliers. The Company currently expects additional negative impact
(approximately $0.02 to $0.04 diluted earnings per share) in the first
quarter of 2003, as the Company's plan is carried out and alternative
iron casting supply sources are fully integrated into the Company's
supply and manufacturing processes. The most significant aspects of
this change should be completed by the end of the first quarter of 2003
and the Company expects to benefit going forward from reduced material
costs from alternate suppliers.
Based upon the current economic environment and activity levels in both
reporting segments, the Company anticipates that diluted earnings per
share will be approximately $1.10 to $1.30 in 2003. This projection
includes the negative impact of increasing expenses for postretirement
pension and medical benefits, which are expected to lower diluted
earnings per share in 2003 by approximately $0.15 to $0.18 per share
compared to 2002. This increase is primarily due to differences between
actual and expected returns on plan assets. The Company expects
material cost reductions and improvements to operations to offset this
negative factor.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Year ended December 31, 2001, compared with year ended December 31, 2000
Revenues
Revenues increased $40.4 million (11%) to $419.8 million in 2001,
compared to $379.4 million in 2000. Excluding incremental revenue from
acquisitions completed since June 2000, which added $29.5 million to
revenues in 2001, revenues increased $10.9 million as compared to 2000.
Revenues in the Compressed Air Products segment increased slightly to
$308.0 million in 2001, compared to $306.7 million in 2000. Excluding
incremental revenue from acquisitions, revenues decreased $24.9 million
(8%) due to a decline in the overall U.S. economy (exacerbated by the
impact of the attack on September 11, 2001) which weakened demand for
domestic rotary screw compressors and blowers. Unfavorable foreign
currency exchange rates also contributed to the revenue reduction.
These negative factors were partially offset by sales growth in European
markets.
Revenues in the Pump Products segment increased $39.1 million (54%) to
$111.7 million in 2001, compared to $72.7 million in 2000. This
increase resulted primarily from heightened demand for petroleum
products, due to the continued high level of oil and natural gas prices
from late 2000 through the first half of 2001. Incremental revenues
from acquisitions completed since June 2000 also accounted for
approximately $3.2 million of the revenue increase.
Costs and Expenses
Gross margin in 2001 increased $14.4 million (13%) to $125.5 million
from $111.1 million in 2000. This increase resulted primarily from the
higher revenue volume and partially from an increase in the gross margin
percentage. Gross margin percentage increased to 29.9% in 2001 from
29.3% in 2000, due to increased sales of higher margin drilling pumps
and improved performance at well stimulation and water jetting
production facilities, partially offset by unfavorable sales mix in the
Compressed Air Products segment. In 2001, gross margin was enhanced
$0.5 million as a result of the liquidation of LIFO inventory layers,
compared to $0.7 million in 2000.
Depreciation and amortization increased 11% to $17.6 million in 2001,
compared to $15.9 million in 2000. This increase was due to ongoing
capital expenditures and goodwill amortization associated with
acquisitions completed prior to June 30, 2001. Depreciation and
amortization expense, as a percentage of revenues, was 4.2% in both
years.
Selling and administrative expenses increased in 2001 by 17% to $69.7
million from $59.8 million for 2000. Excluding the impact of
acquisitions, selling and administrative expenses increased $3.6 million
(6%) from 2000 levels, primarily due to higher payroll and fringe
benefit related expenses. As a percentage of revenues, selling and
administrative expenses were 16.6% in 2001, compared to 15.8% in 2000.
The increase in this ratio was attributable to the factors mentioned
above, combined with the impact of acquisitions completed since June
2000, which in the aggregate have higher selling and administrative
expenses relative to revenues than the Company's previously existing
operations.
Compressed Air Products' operating earnings decreased $8.8 million (28%)
to $22.2 million, compared to $30.9 million in 2000. This decline was
primarily attributable to decreased leverage of the segment's fixed and
semi-fixed costs over a lower revenue base (excluding acquisitions)
combined with higher payroll and fringe benefit related expenses and an
unfavorable sales mix. As a percentage of revenues, operating earnings
declined to 7.2% in 2001, compared to 10.1% in 2000, as a result of the
factors noted above.
Operating earnings for the Pump Products segment increased $11.6 million
to $16.1 million in 2001, a 261% increase from $4.5 million in 2000,
primarily due to higher revenues. As a percentage of revenues,
operating earnings for this segment increased to 14.4% in 2001, compared
to 6.1% in 2000. This increase was primarily attributable to the
positive impact of increased leverage of the segment's fixed and semi-
fixed costs over a higher revenue base combined with improved
operational performance at well stimulation and water jetting production
facilities.
Interest expense decreased $0.9 million (11%) to $6.8 million for 2001,
compared to $7.7 million in 2000 due to lower average rates, partially
offset by slightly higher average borrowings in 2001. The average
interest rate for 2001 was 5.4%, compared to 6.3% for 2000. See Note 9
to the Consolidated Financial Statements for further information on the
Company's borrowing arrangements.
In 2001, other income, net included approximately $2.1 million from
litigation settlement proceeds and $0.5 million from interest income
related to finalization of an income tax settlement with the Internal
Revenue Service. Other income, net in 2000 included a $1.0 million gain
from litigation settlement proceeds, a $0.7 million gain from the sale
of the Company's idle facility in Syracuse, New York, and a $1.5 million
charge for expenses associated with an unconsummated acquisition.
Excluding the impact of these non-recurring gains, the majority of the
remaining decline in other income was due to lower foreign currency
transaction gains generated from U.S. dollar denominated cash and
receivable balances of foreign subsidiaries in 2001 compared to 2000.
Income
Income before income taxes increased $4.8 million (16%) to $34.7 million
in 2001 from $29.9 million in 2000. This improvement was due to
increased leverage of the Pump Products segment's fixed and semi-fixed
costs on higher revenue volume, the non-recurring gains included in
other income mentioned above, acquisitions and improved operational
performance at the well stimulation and water jetting production
facilities. These increases were partially offset by a decline in the
Compressed Air Products segment's operating earnings.
The provision for income taxes increased by $1.5 million to $12.7
million in 2001, compared to $11.2 million in 2000, as a result of
higher income before taxes, partially offset by a lower overall
effective tax rate. The Company's effective tax rate was 36.5% in 2001,
compared to 37.5% in 2000. The lower effective tax rate in 2001 was
primarily due to a higher proportion of income in countries with lower
statutory income tax rates, increased savings from the Company's foreign
sales corporation and the implementation of other tax strategies.
Net income increased $3.3 million (18%) to $22.0 million ($1.40 diluted
earnings per share) in 2001, compared to $18.7 million ($1.21 diluted
earnings per share) in 2000. In 2001, net income included $0.3 million
in
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after-tax LIFO income ($0.02 diluted earnings per share), compared with
$0.4 million ($0.03 diluted earnings per share) in 2000. Excluding the
after-tax benefit of LIFO income, net income increased primarily due to
the factors that resulted in the increased income before taxes noted
above. Net income from acquisitions completed since June 2000 was
approximately $0.8 million ($0.05 diluted earnings per share) in 2001.
Liquidity and Capital Resources
Operating Working Capital
During 2002, operating working capital (defined as receivables plus
inventories, less accounts payable and accrued liabilities) decreased
$13.2 million as reductions in inventory and receivables were partially
offset by lower accounts payable and accrued liabilities. These changes
were a result of the decreased activity levels in 2002 (excluding
acquisitions), as well as improved management of inventory and
collections of accounts receivable. Days sales outstanding improved to
65 days at December 31, 2002, compared to 69 days at December 31, 2001.
Cash Flows
During 2002, the Company generated cash flows from operations totaling
$52.5 million, an increase of $8.3 million (19%) compared to 2001. This
increase was primarily the result of a more favorable change in
operating working capital as discussed above, partially offset by lower
net income in 2002. During 2002, the Company made net payments of $47.4
million under its credit facilities. The cash flows provided by
operating activities and used in investing and financing activities,
combined with the effect of changes in foreign currency exchange rates,
resulted in a net cash decrease of $4.3 million during 2002.
Capital Expenditures and Commitments
Capital projects designed to increase operating efficiency and
flexibility, expand production capacity and increase product quality
resulted in expenditures of $13.6 million in 2002, compared to $11.5
million in 2001. This increase was primarily due to the timing of
capital projects. Commitments for capital expenditures at December 31,
2002 totaled $7.9 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, Xxxxxxx 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 Xxxxxxx Denver common stock and
obtain sufficient funds to meet alternative minimum tax obligations
which arise from the exercise of incentive stock options. The Xxxxxxx
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. During 2002, no shares were repurchased under
these repurchase programs. As of December 31, 2002, a total of
1,572,542 shares have been repurchased at a cost of $22.8 million under
both repurchase programs. In 2002, the Company also acquired 8,742
shares of its common stock, valued at $0.2 million, which were tendered
for the exercise of stock options.
Liquidity
On March 6, 2002, the Company amended and restated the Revolving Line of
Credit Agreement (the "Credit Line"), increasing the aggregate borrowing
capacity to $150 million and extending the maturity date to March 6,
2005. Subject to approval by lenders holding more than 75% of the debt,
the Company may request up to two, one-year extensions. The Credit Line
requires no principal payments during the term of the agreement and is
due upon final maturity. On December 31, 2002, the Credit Line had an
outstanding balance of $44.0 million, leaving $106.0 million available
for future use or for letters of credit.
The amended and restated agreement also provided for an additional $50
million Term Loan. Proceeds from the Term Loan were used to retire debt
outstanding under an Interim Credit Agreement. The five-year Term Loan
requires principal payments of $2.5 million in years one and two, and
$15 million in years three through five. Other terms and conditions of
the Term Loan are similar to those of the Credit Line.
The Company's borrowing arrangements are generally unsecured and permit
certain investments and dividend payments. There are no material
restrictions on the Company as a result of its credit arrangements,
other than customary covenants regarding certain earnings, liquidity and
capital ratios.
Management currently expects the Company's cash flows in 2003 to be
sufficient to fund its scheduled debt service and provide required
resources for working capital and capital investments.
Market Risk
The Company is exposed to market risk related to changes in interest
rates as well as European and other foreign currency exchange rates, and
selectively uses derivative financial instruments, including forwards
and swaps, to manage these risks. The Company does not hold derivatives
for trading purposes. The value of market-risk sensitive derivatives
and other financial instruments is subject to change as a result of
movements in market rates and prices. Sensitivity analysis is one
technique used to evaluate these impacts. Based on a hypothetical ten
percent change in interest rates or ten percent weakening in the U.S.
dollar across relevant foreign currencies, principally the euro and
pound sterling, the potential losses in future earnings, fair value and
cash flows are not material to the Company.
Contingencies
The Company is a party to various legal proceedings, lawsuits and
administrative actions, which are of an ordinary or routine nature. Due
to the bankruptcies of several asbestos manufacturers and other primary
defendants, the Company has begun to be named as a defendant in an
increasing number of asbestos personal injury lawsuits. In addition,
the Company has also been named as a defendant in a number of silicosis
personal injury lawsuits. Predecessors to the Company manufactured and
sold the products allegedly at issue in these asbestos and silicosis
lawsuits, namely: (a) asbestos-containing components supplied by third
parties; and (b) portable compressors that were used as components for
sandblasting equipment manufactured and sold by other parties. Since
its formation in 1993, the Company has not manufactured or sold
asbestos-containing products or portable compressors. Nonetheless,
these lawsuits represent potential contingent liabilities to the Company
as a result of its predecessors' historical sales of these products.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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The Company believes that these pending legal proceedings, lawsuits and
administrative actions will not, in the aggregate, have a material
adverse effect on its consolidated financial position, results of
operations or liquidity, based on: (1) the Company's anticipated
insurance and indemnification rights to address the risks of such
matters; (2) the limited risk of potential asbestos exposure from the
components described above, due to the complete enclosure of the
components within the subject products and the additional protective
non-asbestos binder which encapsulated the components; (3) the fact that
neither the Company, nor its predecessors, ever manufactured, marketed
or sold sandblasting equipment; (4) various other potential defenses
available to the Company with respect to such matters; and (5) the
Company's prior disposition of comparable matters.
The Company has also been identified as a potentially responsible party
with respect to various sites designated for cleanup under various state
and federal laws. The Company does not own any of these sites. The
Company does not believe that the future potential costs related to
these sites will have a material adverse effect on its consolidated
financial position, results of operations or liquidity.
New Accounting Standards
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires entities to record the fair
value of a liability associated with an asset retirement in the period
in which it is incurred. The Company will adopt this standard on
January 1, 2003 and management believes it will not have a material
impact on the Company's consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 provides for the rescission of
several previously issued accounting standards, new accounting guidance
for the accounting for certain lease modifications and various technical
corrections that are not substantive in nature to existing
pronouncements. SFAS No. 145 will be adopted by the Company beginning
January 1, 2003, except for the provisions relating to the amendment of
SFAS No. 13, which was adopted for transactions occurring subsequent to
May 15, 2002. Adoption of SFAS No. 145 will not have a material impact
on the Company's future consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 nullifies
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)," and
requires that a liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred rather than when a
company commits to such an activity. SFAS No. 146 also establishes that
fair value be the objective for initial measurement of the liability.
SFAS No. 146 will be adopted by the Company for exit or disposal
activities that are initiated after December 31, 2002. Adoption of SFAS
No. 146 is expected to impact the timing of recognition of costs
associated with future exit and disposal activities, to the extent they
occur.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," which addresses the
disclosure to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. The interpretation
also requires the recognition of a liability by a guarantor at the
inception of certain guarantees. The Company has adopted the disclosure
requirements of the Interpretation and will apply the recognition and
measurement provisions for all guarantees entered into or modified after
December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123." SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, the
statement amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and
the effect of the method used on reported results. The Company has
adopted SFAS No. 148 and included the required disclosures in Note 8 to
the Consolidated Financial Statements.
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 the 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
are described below. Management believes that the amounts recorded in
the Company's financial statements related to these areas are based on
their best judgments and estimates, although, actual results could
differ materially under different assumptions or conditions.
Inventories
Inventories, which consist of materials, labor and manufacturing
overhead, are carried at the lower of cost or market value. As of
December 31, 2002, approximately two-thirds of the Company's inventory
is accounted for on a first-in, first-out (FIFO) basis with the
remainder accounted for on a last-in, first-out (LIFO) basis.
Management regularly reviews inventory for obsolescence to determine
whether a write-down is necessary. Various factors are considered in
making this determination, including recent sales history and predicted
trends, industry market conditions and general economic conditions.
18
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Goodwill and Other Intangibles
The Company has adopted SFAS No. 142 "Goodwill and Other Intangible
Assets." Under the provisions of this standard, intangible assets
deemed to have indefinite lives and goodwill are not subject to
amortization. All other intangible assets are amortized over their
estimated useful lives. Goodwill and other intangible assets not
subject to amortization are tested for impairment annually, or more
frequently if events or changes in circumstances indicate that the asset
might be impaired. This testing requires comparison of carrying values
to fair values, and when appropriate, the carrying value of impaired
assets is reduced to fair value. During the second quarter of 2002, the
Company completed its transitional and annual impairment tests and
determined that no impairment existed. While management believes that
its estimates of fair value are reasonable, different assumptions
regarding such factors as product volumes, selling price changes, labor
and material costs changes, interest rates and productivity could affect
such evaluations.
Product Warranty
The Company's product warranty liability is calculated based primarily
upon historical warranty claims experience. Management also factors
into the product warranty accrual any specific warranty issues
identified during the period which are expected to impact future periods
and may not be consistent with historical claims experience. Product
warranty accruals are reviewed regularly by management and adjusted from
time to time when actual warranty claims experience differs from that
estimated.
Pension and Other Postretirement Benefits
Pension and other postretirement benefit obligations and expense (or
income) are dependent on assumptions used in calculating such amounts.
These assumptions include discount rate, rate of compensation increases,
expected return on plan assets and expected health care trend rates. In
accordance with accounting principles generally accepted in the United
States, actual results that differ from the assumptions are accumulated
and amortized over future periods. While management believes that the
assumptions are appropriate, differences in actual experience or changes
in assumptions may affect the Company's pension and other postretirement
benefit obligations and future expense (or income). Due to the
significant declines in the financial markets, the fair value of the
plan assets of the Company's funded defined benefit pension plans fell
short of their accumulated benefit obligation at December 31, 2002. As
a result, the Company recorded a non-cash charge to stockholders' equity
(accumulated other comprehensive loss) in the amount of $8.5 million
(after tax), in the fourth quarter of 2002. This non-cash reduction in
stockholder's equity did not impact the Company's compliance with its
existing debt covenants. This reduction could reverse in future periods
if a combination of factors, including interest rate increases, improved
investment results and contributions, cause the pension plans to return
to fully funded status. Pension and other postretirement benefit
expense is expected to increase by approximately $4 million in 2003,
primarily due to differences between actual and expected returns on plan
assets. However, if the equity markets continue recent trends, the
Company could also be required to record additional charges to
stockholders' equity in the future.
Cautionary Statements Regarding Forward-Looking Statements
All of the statements in this Annual Report to Stockholders, 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 in the Chairman's Letter,
the remainder of the narrative/non-financial portions of the Annual
Report and in Management's Discussion and Analysis, particularly 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 Xxxxxxx 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 due to the
LaGrange Foundry closure 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
benefit; (5) 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; (6) changes in domestic and/or
worldwide industrial production and industrial capacity utilization
rates, which affect demand for the Company's compressed air products;
(7) pricing of Xxxxxxx Denver products; (8) the degree to which the
Company is able to penetrate and maintain its presence in niche and
international markets; (9) the ability to attract and retain quality
management personnel; (10) market performance of pension plan assets and
changes in discount rates used for actuarial assumptions in pension and
other post retirement obligations and expense calculations; (11) the
continued successful implementation of cost reduction efforts; (12) the
continued ability to effectively manage and defend litigation matters
pending, or asserted in the future, against the Company; (13) the
successful implementation of the Company's strategic initiatives and
partnering relationships; (14) the acceptance of the Company's new
product offerings; and (15) 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.
19
----------------------------------------------------------------------------
REPORT OF MANAGEMENT
----------------------------------------------------------------------------
The Company's management is responsible for the integrity and accuracy
of the financial statements. Management believes that the financial
statements have been prepared in conformity with appropriate accounting
principles generally accepted in the United States. In preparing the
financial statements, management makes informed judgments and estimates,
where necessary, to reflect the expected effects of events and
transactions that have not been completed. The Company believes that
its disclosure controls and procedures ensure that material information
required to be disclosed is recorded, processed, summarized and
communicated to management and reported within the required time
periods.
In meeting its responsibility for the reliability of the financial
statements, management relies on a system of internal accounting
controls. This system is designed to provide reasonable assurance that
assets are safeguarded and transactions are executed in accordance with
management's authorization and recorded properly to permit the
preparation of financial statements in accordance with accounting
principles generally accepted in the United States. The design of this
system recognizes that errors or irregularities may occur and that
estimates and judgments are required to assess the relative cost and
expected benefits of the controls.
Management believes that the Company's accounting controls provide
reasonable assurance that errors or irregularities that could be material
to the financial statements are prevented or would be detected within a
timely period.
The Audit and Finance Committee of the Board of Directors (the
"Committee"), which is comprised solely of Directors who are not
employees of the Company, is responsible for overseeing the Company's
financial reporting process. The Committee meets with management and
internal audit periodically to review its activities and ensure that it
is properly discharging its responsibilities. The Committee also meets
periodically with the independent auditors, who are responsible to the
Committee and the Board of Directors, to discuss the quality and
acceptability of the Company's financial reporting and internal
controls, as well as non-audit-related services.
The independent auditors are engaged to express an opinion on the
Company's consolidated financial statements. Their opinion is based on
procedures, which they believe to be sufficient to provide a reasonable
basis that the financial statements are fairly presented in conformity
with accounting principles generally accepted in the United States.
/s/ Xxxx X. Xxxxxxxx /s/ Xxxxxx X. Xxxx
Xxxx X. Xxxxxxxx Xxxxxx X. Xxxx
Chairman, President and Vice President, Finance and
Chief Executive Officer Chief Financial Officer
20
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REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------------------------------------------
To the Board of Directors and Stockholders of Xxxxxxx Denver, Inc.
We have audited the accompanying consolidated balance sheet of Xxxxxxx
Denver, Inc. (a Delaware corporation) and subsidiaries as of December
31, 2002, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended December 31,
2002. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. The
accompanying consolidated financial statements of Xxxxxxx Denver, Inc.
as of December 31, 2001 and for the years ended December 31, 2001 and
December 31, 2000, were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those
financial statements, before the addition of the transitional
disclosures detailed in Note 5, in their report dated February 6, 2002.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Xxxxxxx Denver, Inc. and subsidiaries as of December 31, 2002, and the
results of their operations and their cash flows for the year then
ended, in conformity with accounting principles generally accepted in
the United States of America.
As detailed in Note 5, the December 31, 2001 and 2000 consolidated
financial statements, which were audited by other auditors who have
ceased operations, include the addition of the transitional disclosures
required by Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," which was adopted by the Company
in the year ending December 31, 2002. In our opinion, the disclosures
for December 31, 2001 and 2000 in Note 5 are appropriate. However, we
were not engaged to audit, review, or apply any procedures to the
December 31, 2001 and 2000 consolidated financial statements of Xxxxxxx
Denver, Inc. and subsidiaries other than with respect to such
disclosures and, accordingly, we do not express an opinion or any other
form of assurance on the December 31, 2001 and 2000 consolidated
financial statements taken as a whole.
/s/ KPMG LLP
St. Louis, Missouri
February 3, 2003
----------------------------------------------------------------------------
This is a copy of a report previously issued by Xxxxxx Xxxxxxxx LLP,
which has ceased operations, and has not been reissued by Xxxxxx
Xxxxxxxx LLP.
To the Board of Directors and Stockholders of Xxxxxxx Denver, Inc.
We have audited the accompanying consolidated balance sheets of Xxxxxxx
Denver, Inc. (a Delaware corporation) and subsidiaries as of December
31, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2001. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Xxxxxxx Denver, Inc. and subsidiaries as of December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.
/s/ Xxxxxx Xxxxxxxx LLP
St. Louis, Missouri
February 6, 2002
(except with respect to the matter discussed in Note 9, as to which the
date is March 6, 2002)
21
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CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
Year ended December 31,
--------------------------------------
2002 2001 2000
---------------------------------------------------------------------------------------------------
Revenues $418,158 419,770 379,358
Costs and Expenses:
Cost of sales (excluding depreciation and amortization) 289,631 294,249 268,290
Depreciation and amortization 14,139 17,567 15,881
Selling and administrative expenses 79,400 69,678 59,784
Interest expense 6,365 6,796 7,669
Other income, net (204) (3,203) (2,160)
---------------------------------------------------------------------------------------------------
389,331 385,087 349,464
---------------------------------------------------------------------------------------------------
Income before income taxes 28,827 34,683 29,894
Provision for income taxes 9,225 12,659 11,210
---------------------------------------------------------------------------------------------------
Net income $ 19,602 22,024 18,684
===================================================================================================
Basic earnings per share $ 1.24 1.42 1.22
===================================================================================================
Diluted earnings per share $ 1.22 1.40 1.21
===================================================================================================
The accompanying notes are an integral part of these statements.
22
---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
December 31,
--------------------------
2002 2001
---------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 25,667 29,980
Receivables (net of allowances of $5,279 in 2002 and $5,229 in 2001) 75,151 85,538
Inventories, net 67,448 76,650
Deferred income taxes 5,902 4,956
Other current assets 4,268 4,011
---------------------------------------------------------------------------------------------------------------------------
Total current assets 178,436 201,135
---------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 76,162 74,097
Goodwill 201,761 183,145
Other intangibles, net 9,418 25,692
Deferred income taxes 3,611 2,093
Other assets 3,454 2,526
---------------------------------------------------------------------------------------------------------------------------
Total assets $472,842 488,688
===========================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 7,500 7,375
Accounts payable and accrued liabilities 70,821 77,202
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 78,321 84,577
---------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities 112,663 160,230
Postretirement benefits other than pensions 34,539 36,890
Other liabilities 24,396 8,263
---------------------------------------------------------------------------------------------------------------------------
Total liabilities 249,919 289,960
---------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $0.01 par value; 50,000,000 shares authorized; 15,942,138
and 15,690,607 shares outstanding in 2002 and 2001, respectively 177 174
Capital in excess of par value 171,047 166,262
Treasury stock at cost, 1,716,353 and 1,707,611 shares in 2002 and 2001, respectively (25,819) (25,602)
Retained earnings 81,664 62,062
Accumulated other comprehensive loss (4,146) (4,168)
---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 222,923 198,728
---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $472,842 488,688
===========================================================================================================================
The accompanying notes are an integral part of these statements.
23
-----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Accumulated
Capital In Other Total
Common Excess of Treasury Retained Comprehensive Stockholders' Comprehensive
Stock Par Value Stock Earnings Loss Equity Income
-----------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2000 $167 157,367 (23,541) 21,354 (2,738) 152,609
====================================================================================================================
Stock issued for benefit plans and options 3 2,976 2,979
Treasury stock (967) (967)
Net income 18,684 18,684 18,684
Foreign currency translation adjustments (2,157) (2,157) (2,157)
-----------------------------------------------------------------------------------------------------------------------------------
16,527
======
Balance December 31, 2000 $170 160,343 (24,508) 40,038 (4,895) 171,148
====================================================================================================================
Stock issued for benefit plans and options 4 5,919 5,923
Treasury stock (1,094) (1,094)
Net income 22,024 22,024 22,024
Foreign currency translation adjustments 727 727 727
-----------------------------------------------------------------------------------------------------------------------------------
22,751
======
Balance December 31, 2001 $174 166,262 (25,602) 62,062 (4,168) 198,728
====================================================================================================================
Stock issued for benefit plans and options 3 4,785 4,788
Treasury stock (217) (217)
Net income 19,602 19,602 19,602
Foreign currency translation adjustments 8,482 8,482 8,482
Additional minimum pension liability, net (8,460) (8,460) (8,460)
-----------------------------------------------------------------------------------------------------------------------------------
19,624
======
Balance December 31, 2002 $177 171,047 (25,819) 81,664 (4,146) 222,923
====================================================================================================================
The accompanying notes are an integral part of these statements.
24
-----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Year ended December 31,
-----------------------------------------
2002 2001 2000
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 19,602 22,024 18,684
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 14,139 17,567 15,881
Net (gain)/loss on asset dispositions (20) 46 (917)
LIFO liquidation income (394) (502) (683)
Stock issued for employee benefit plans 2,342 2,471 2,071
Deferred income taxes 2,455 615 1,772
Changes in assets and liabilities:
Receivables 13,321 6,105 (5,987)
Inventories 11,254 1,200 1,627
Accounts payable and accrued liabilities (9,313) (4,294) 3,164
Other assets and liabilities, net (905) (1,079) (4,976)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 52,481 44,153 30,636
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (13,641) (11,524) (13,549)
Disposals of property, plant and equipment 200 97 1,125
Foreign currency hedging transactions (5) (31) 3,416
Business acquisitions, net of cash acquired -- (82,907) (20,323)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (13,446) (94,365) (29,331)
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (109,442) (90,151) (59,342)
Proceeds from long-term debt 62,000 139,000 61,528
Proceeds from stock options 2,446 3,452 908
Purchase of treasury stock (217) (1,094) (967)
Other (754) (421) --
-----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (45,967) 50,786 2,127
-----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents 2,619 (833) (510)
-----------------------------------------------------------------------------------------------------------------------------------
(Decrease)/increase in cash and equivalents (4,313) (259) 2,922
Cash and equivalents, beginning of year 29,980 30,239 27,317
-----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of year $ 25,667 29,980 30,239
===================================================================================================================================
The accompanying notes are an integral part of these statements.
25
------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
Note 1: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements reflect the
operations of Xxxxxxx Denver, Inc. ("Xxxxxxx Denver" or the "Company")
and its subsidiaries. Certain prior year amounts have been reclassified
to conform with current year presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("GAAP") requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are
translated at the exchange rate in effect at the balance sheet date,
while revenues and expenses are translated at average rates prevailing
during the year. Translation adjustments are reported in accumulated
other comprehensive loss, a separate component of stockholders' equity.
Revenue Recognition
The vast majority of the Company's revenues are recognized when goods
are shipped and title passes to the customer and collection is
reasonably assured. Service revenue is recognized when the related
services are performed and earned.
Cash Equivalents
Cash equivalents are highly liquid investments (valued at cost, which
approximates fair value) acquired with an original maturity of three
months or less.
Inventories
Inventories, which consist of materials, labor and manufacturing
overhead, are carried at the lower of cost or market value. As of
December 31, 2002, approximately two-thirds of the Company's inventory
is accounted for on a first-in, first-out (FIFO) basis with the
remainder accounted for on a last-in, first-out (LIFO) basis.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is
provided using the straight-line method over the estimated useful lives
of the assets: buildings - 10 to 45 years; machinery and equipment - 10
to 12 years; office furniture and equipment - 3 to 10 years; and
tooling, dies, patterns, etc. - 3 to 7 years.
Goodwill and Other Intangibles
Effective July 1, 2001, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other
Intangible Assets" applicable to business combinations completed after
June 30, 2001. Effective January 1, 2002, additional provisions of SFAS
No. 142, relating to business combinations completed prior to July 1,
2001 became effective and were adopted by the Company. Under the
provisions of this standard, intangible assets deemed to have indefinite
lives and goodwill are not subject to amortization. All other
intangible assets are amortized over their estimated useful lives,
generally 5 to 15 years.
Goodwill and other intangible assets not subject to amortization are
tested for impairment annually, or more frequently if events or changes
in circumstances indicate that the asset might be impaired. This
testing requires comparison of carrying values to fair values, and when
appropriate, the carrying value of impaired assets is reduced to fair
value. During the second quarter of 2002, the Company completed its
transitional and annual impairment tests and determined that no
impairment existed.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future net undiscounted cash flows
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to dispose.
Product Warranty
The Company's product warranty liability is calculated based primarily
upon historical warranty claims experience. Management also factors
into the product warranty accrual any specific warranty issues
identified during the period which are expected to impact future periods
and may not be consistent with historical claims experience. Product
warranty accruals are reviewed regularly by management and adjusted from
time to time when actual warranty claims experience differs from that
estimated.
Pension and Other Postretirement Benefits
Pension and other postretirement benefit obligations and expense (or
income) are dependent on assumptions used in calculating such amounts.
These assumptions include discount rate, rate of compensation increases,
expected return on plan assets and expected healthcare trend rates. In
accordance with GAAP, actual results that differ from the assumptions
are accumulated and amortized over future periods.
Income Taxes
The Company has determined tax expense and other deferred tax
information based on the liability method. Deferred income taxes are
provided to reflect temporary differences between financial and tax
reporting.
26
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Research and Development
Costs for research and development are expensed as incurred and were
$2,398, $2,476 and $3,045 for the years ended December 31, 2002, 2001
and 2000, respectively.
Financial Instruments
Included in the 2000 consolidated statement of cash flows are the
proceeds received upon settlement of a foreign currency hedging
transaction. This foreign currency forward contract denominated in
Finnish Markka was used to hedge the foreign exchange translation risk
associated with the Company's investment in its Finnish subsidiary,
Xxxxxxx Denver Oy. The contract was marked to market and both
unrealized and realized gains were included as a component of
accumulated other comprehensive loss in stockholders' equity in 2000.
There were no off-balance sheet derivative financial instruments as of
December 31, 2002 or 2001.
Stock-Based Compensation
As allowed under 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 Xx.
00 ("XXX Xx. 00"), "Accounting for Stock Issued to Employees," and
related interpretations.
Comprehensive Income
Items impacting the Company's comprehensive income, but not included in
net income, consist of 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 and
additional minimum pension liability (net of income taxes). During the
fourth quarter of 2002, the Company recorded a charge to accumulated
other comprehensive loss of $8.5 million (net of income taxes) to record
additional minimum pension liability (See Note 7).
------------------------------------------------------------------------------
Note 2: Acquisitions
During 2001, the Company's Compressed Air Products segment completed two
acquisitions. Effective September 10, 2001, the Company acquired
certain assets and stock of Xxxxxxx Air and Filtration Systems
("Xxxxxxx"). Xxxxxxx, previously headquartered in Syracuse, New York,
manufactures and distributes multistage centrifugal blowers and vacuum
systems, primarily for wastewater treatment and industrial applications.
Effective September 1, 2001, the Company also acquired certain assets
and stock of the Hamworthy Belliss & Xxxxxx compressor business
("Belliss & Xxxxxx"). Belliss & Xxxxxx is headquartered in Gloucester,
England and manufactures and distributes lubricated and oil-free
reciprocating air compressors for a variety of applications. The
aggregate purchase price, net of cash acquired, was approximately $83
million for these acquisitions. There are no additional contingent
payments or commitments related to these acquisitions. The purchase
price of each acquisition has been allocated primarily to receivables;
inventory; property, plant and equipment; intangible assets (other than
goodwill); and accounts payable and accrued liabilities, based on their
respective fair values at the date of acquisition and resulted in
aggregate costs in excess of net assets acquired of approximately $58
million.
The following table summarizes supplemental pro forma information as if
the Xxxxxxx and Belliss & Xxxxxx acquisitions had been completed on
January 1, 2000:
Year ended December 31,
(Unaudited)
--------------------------
2001 2000
------------------------------------------------------------------------------
Revenues $481,285 477,923
Net income 23,618 22,878
Diluted earnings per share $ 1.50 1.48
==============================================================================
The unaudited pro forma information has been presented for comparative
purposes and does not purport to be indicative of the consolidated
results of operations had these transactions been completed as of the
assumed date.
During 2000, the Company completed three acquisitions. Effective July
1, 2000, the Company acquired 100% of the issued and outstanding stock
of CRS Power Flow, Inc. ("CRS"). On April 5, 2000, the Company acquired
100% of the issued and outstanding stock of Jetting Systems &
Accessories, Inc. ("JSA"). CRS and JSA are both located in Houston,
Texas. On January 1, 2000, the Company acquired substantially all of
the assets and assumed certain agreed upon liabilities of Invincible
Airflow Systems, Co., located in Baltic, Ohio. The aggregate purchase
price of these acquisitions was approximately $20 million. The purchase
price of each acquisition has been allocated primarily to receivables,
inventory and property, plant and equipment, based on their respective
fair values at the date of acquisition and resulted in aggregate costs
in excess of net assets acquired of approximately $15 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.
27
------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
Note 3: Inventories
December 31,
-------------------------
2002 2001
---------------------------------------------------------------------------------------------
Raw materials, including parts and subassemblies $33,400 33,156
Work-in-process 9,077 15,908
Finished goods 27,630 30,942
Perishable tooling and supplies 2,456 2,328
---------------------------------------------------------------------------------------------
72,563 82,334
Excess of FIFO costs over LIFO costs (5,115) (5,684)
---------------------------------------------------------------------------------------------
Inventories, net $67,448 76,650
=============================================================================================
During 2002, 2001 and 2000, reductions in inventory quantities (net of
acquisitions) resulted in liquidations of LIFO inventory layers carried
at lower costs prevailing in prior years. The effect was to increase
net income in 2002, 2001 and 2000 by $268, $319 and $427, respectively.
It is the Company's policy to record the earnings effect of LIFO
inventory liquidations in the quarter in which a decrease for the entire
year becomes certain. In each of the years 2000 through 2002, the LIFO
liquidation income was recorded in the fourth quarter.
------------------------------------------------------------------------------
Note 4: Property, Plant and Equipment
December 31,
---------------------------
2002 2001
---------------------------------------------------------------------------------------------
Property, plant and equipment:
Land and land improvements $ 8,189 6,871
Buildings 41,779 40,424
Machinery and equipment 107,366 102,193
Tooling, dies, patterns, etc. 12,759 10,640
Office furniture and equipment 13,143 10,977
Other 6,099 5,323
Construction in progress 4,758 4,199
---------------------------------------------------------------------------------------------
194,093 180,627
Accumulated depreciation (117,931) (106,530)
---------------------------------------------------------------------------------------------
Property, plant and equipment, net $ 76,162 74,097
=============================================================================================
------------------------------------------------------------------------------
Note 5: Goodwill and Other Intangible Assets
As discussed in Note 1, the Company adopted SFAS No. 142. This
statement required, among other things, the discontinuation of goodwill
amortization.
Net income and basic and diluted earnings per share for the year ended
December 31, 2001 and 2000, adjusted to exclude goodwill amortization,
are as follows:
December 31,
-------------------------
2001 2000
---------------------------------------------------------------------------------------------
Reported net income $22,024 18,684
Adjustments: goodwill amortization (net of income taxes) 3,760 3,626
---------------------------------------------------------------------------------------------
Adjusted net income $25,784 22,310
=============================================================================================
Basic earnings per share:
Reported $ 1.42 1.22
Adjusted $ 1.66 1.46
Diluted earnings per share:
Reported $ 1.40 1.21
Adjusted $ 1.63 1.44
=============================================================================================
28
------------------------------------------------------------------------------
------------------------------------------------------------------------------
The changes in the carrying amount of goodwill attributable to each
business segment for the years ended December 31, 2001 and 2002 are as
follows:
Compressed
Air Products Pump Products
---------------------------------------------------------------------------------------------
Balance as of January 1, 2001 $122,538 26,291
Goodwill resulting from businesses acquired in 2001 42,000 --
Foreign currency translation (3,304) --
Goodwill amortization (3,620) (760)
---------------------------------------------------------------------------------------------
Balance as of December 31, 2001 $157,614 25,531
Adjustment due to finalization of purchase price
allocations for businesses acquired in 2001 16,213 --
Foreign currency translation 2,403 --
---------------------------------------------------------------------------------------------
Balance as of December 31, 2002 $176,230 25,531
=============================================================================================
Other intangible assets at December 31, 2002 and 2001 consisted of the
following:
December 31, 2002 December 31, 2001
--------------------------------------------------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
---------------------------------------------------------------------------------------------------------------------------------
Amortized intangible assets:
Acquired technology $10,936 $(6,853) 9,015 (5,611)
Other 4,541 (2,163) 7,381 (1,088)
Unamortized intangible assets:
Trademarks 2,957 -- 11,850 --
Other -- -- 4,145 --
---------------------------------------------------------------------------------------------------------------------------------
Total other intangible assets $18,434 $(9,016) 32,391 (6,699)
=================================================================================================================================
The purchase price allocations for Xxxxxxx and Belliss & Xxxxxx were
finalized during the quarter ended September 30, 2002, upon receipt of
independent third party valuations of the acquired, separately
identifiable intangible assets (other than goodwill). Pursuant to the
valuations, the fair value of separately identifiable assets was reduced
from the Company's previous internal fair value estimate with a
corresponding increase in the purchase price allocated to goodwill. The
impact on amortization expense as a result of the finalization of the
purchase price allocations was insignificant.
Amortization of intangible assets was $2.3 million in 2002 and is
anticipated to be approximately $2.0 million per year for 2003 through
2007.
Note 6: Accounts Payable and Accrued Liabilities
December 31,
-------------------------
2002 2001
---------------------------------------------------------------------------------------------
Accounts payable - trade $35,385 36,997
Salaries, wages and related fringe benefits 7,361 6,833
Product warranty 7,060 7,578
Product liability, workers' compensation and other insurance 5,127 4,246
Other 15,888 21,548
---------------------------------------------------------------------------------------------
Total accounts payable and accrued liabilities $70,821 77,202
=============================================================================================
29
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
A reconciliation of the changes in the product warranty liability for
the year ended December 31, 2002 is as follows:
---------------------------------------------------------------------------
Balance as of December 31, 2001 $ 7,578
Product warranty accruals 5,281
Settlements (6,126)
Other (primarily foreign currency translation) 327
---------------------------------------------------------------------------
Balance as of December 31, 2002 $ 7,060
===========================================================================
Note 7: Pension and Other Postretirement Benefits
The Company sponsors retirement plans covering substantially all
employees. Benefits are provided to employees under defined benefit
pay-related and service-related plans, which are generally
noncontributory. Annual Company contributions to domestic retirement
plans equal or exceed the minimum funding requirements of the Employee
Retirement Income Security Act of 1974. Consistent with the practice in
Germany, the retirement plans covering the employees of the Company's
Xxxxxx operation in Germany are unfunded and the full amount of the
pension benefit obligation is included as an accrued benefit liability
on the Consolidated Balance Sheets.
With respect to the 2001 Xxxxxxx acquisition, the accumulated benefit
obligation and plan assets related to the defined benefit plans,
covering substantially all full-time employees, were transferred to the
Company pursuant to the purchase agreement. With regard to the 2001
Belliss & Xxxxxx acquisition, the majority of the employees are based in
the United Kingdom and are provided retirement benefits under a
contributory defined benefit pay and service related plan. Under the
Company's purchase agreement, these employees were allowed to continue
to participate in the seller's benefit plan for a period of up to one
year from the acquisition date. Within this one-year timeframe, the
Company established a similar retirement plan arrangement allowing
employees the option of transferring their accumulated benefit. The
purchase agreement also requires the transfer from the seller's plan of
plan assets in excess of the transferred accumulated benefit obligation.
As of December 31, 2002, the Company had not received this transfer.
However, an estimate of this receivable, as calculated by an independent
third party actuary, has been included in the reconciliation of fair
value of plan assets table presented below.
The Company also sponsors defined contribution plans. Benefits are
determined and funded annually based on terms of the plans or as
stipulated in a collective bargaining agreement. Certain of the
Company's full-time salaried and nonunion hourly employees are eligible
to participate in Company-sponsored defined contribution savings plans,
which are qualified plans under the requirements of Section 401(k) of
the Internal Revenue Code. The Company's matching contributions to the
savings plans are in the form of the Company's common stock.
The full-time salaried and hourly employees of the Company's operations
in Finland have pension benefits, which are guaranteed by the Finnish
government. Although the plans are similar to defined benefit plans,
the guarantee feature of the government causes the substance of the
plans to be defined contribution. Therefore, the discounted future
liability of these plans is not included in the liability for defined
benefit plans, but the expense for the Company's contribution is
included in the pension benefit cost for defined contribution plans.
Domestic salaried employees who retired prior to 1989, as well as
certain other employees who were near retirement and elected to receive
certain benefits, have retiree medical, prescription and life insurance
benefits. All other active salaried employees do not have
postretirement medical benefits. The hourly employees have separate
plans with varying benefit formulas. In all cases, however, currently
active hourly employees, except for certain employees who are near
retirement, will not receive healthcare benefits after retirement. All
of the Company's postretirement medical plans are unfunded.
Due to the significant declines in the financial markets, the fair value
of the plan assets of the Company's funded defined benefit pension plans
fell short of their accumulated benefit obligation at December 31, 2002.
As a result, the Company recorded a non-cash charge to stockholders'
equity (accumulated other comprehensive loss) in the amount of $8.5
million (net of income taxes), in the fourth quarter of 2002.
30
------------------------------------------------------------------------------
------------------------------------------------------------------------------
The following tables provide a reconciliation of the changes in both the
pension and other postretirement plans benefit obligations and fair
value of assets over the two-year period ended December 31, 2002, and a
statement of the funded status as of December 31, 2002 and 2001:
Pension Benefits
--------------------------------------------------
U.S. Plans Non-U.S. Plans Postretirement Benefits
-------------------------------------------------- -----------------------
2002 2001 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------------------
Reconciliation of benefit obligation
Obligation at January 1 $ 54,235 47,737 $ 3,147 2,964 $ 30,371 25,963
Service cost 2,188 1,989 1,301 83 17 23
Interest cost 3,629 3,520 1,331 181 1,939 2,083
Actuarial loss (gain) (214) 1,748 3,237 100 (1,154) 1,467
Employee contributions -- -- 372 -- -- --
Benefit payments (4,662) (3,949) (182) (8) (2,272) (2,355)
Acquisitions -- 3,191 15,270 -- (510) 490
Effect of foreign currency exchange rate changes -- -- 2,521 (174) -- --
---------------------------------------------------------------------------------------------------------------------------------
Obligation at December 31 $ 55,176 54,236 $26,997 3,146 $ 28,391 27,671
---------------------------------------------------------------------------------------------------------------------------------
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1 $ 50,198 50,874 $ -- --
Actual return on plan assets (5,527) (1,425) (893) --
Acquisitions -- 3,386 17,196 --
Employer contributions 529 1,312 92 8
Employee contributions 1 -- 372 --
Benefit payments (4,662) (3,949) (182) (8)
Effect of foreign currency exchange rate changes -- -- 1,773 --
---------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31 $ 40,539 50,198 $18,358 --
---------------------------------------------------------------------------------------------------------------------------------
Funded Status
Funded Status at December 31 $(14,639) (4,037) $(8,637) (3,147) $(28,391) (30,371)
Unrecognized transition liability 13 18 -- 4 -- --
Unrecognized prior-service cost (623) (709) -- -- (1,349) (2,555)
Unrecognized loss (gain) 11,314 1,814 6,766 103 (7,180) (6,842)
---------------------------------------------------------------------------------------------------------------------------------
Accrued benefit liability $ (3,935) (2,914) $(1,871) (3,040) $(36,920) (39,768)
=================================================================================================================================
The aggregate accumulated benefit obligation and fair value of plan
assets for pension plans with accumulated benefit obligations in excess
of plan assets at December 31, 2002 and 2001 are as follows:
December 31,
-------------------------------------------------------------
U.S. Plans Non-U.S. Plans
-------------------------------------------------------------
2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $54,907 52,135 $23,061 2,942
Fair value of plan assets $40,539 48,770 $18,358 --
=================================================================================================================================
31
------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
The following table provides the components of net periodic benefit
expense (income) for the plans for the years ended December 31, 2002,
2001 and 2000:
Pension Benefits
---------------------------------------------------------- Other
U.S. Plans Non-U.S. Plans Postretirement Benefits
---------------------------------------------------------- ---------------------------
2002 2001 2000 2002 2001 2000 2002 2001 2000
-----------------------------------------------------------------------------------------------------------------------------------
Service cost $ 2,188 1,989 1,734 $ 1,301 83 85 $ 17 23 13
Interest cost 3,629 3,520 3,504 1,331 181 167 1,939 2,083 1,894
Expected return on plan assets (4,180) (4,441) (4,480) (1,717) -- -- -- -- --
Amortization of transition liability 5 4 4 3 6 6 -- -- --
Amortization of prior-service cost (86) (86) (85) -- -- -- (1,206) (1,307) (1,279)
Amortization of net loss (gain) -- 2 (422) 3 -- -- (829) (1,030) (2,023)
-----------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit expense (income) 1,556 988 255 921 270 258 $ (79) (231) (1,395)
===========================
Defined contribution plans 2,576 2,816 2,345 1,281 872 885
----------------------------------------------------------------------------------------------------
Total retirement expense $ 4,132 3,804 2,600 $ 2,202 1,142 1,143
====================================================================================================
The following weighted average assumptions were used to determine the
benefit obligations and net periodic benefit expense (income) for
pension and other postretirement plans:
Pension and Other Postretirement Benefits
--------------------------------------------------------------------------
U.S. Plans Non-U.S. Plans
--------------------------------------------------------------------------
2002 2001 2000 2002 2001 2000
---------------------------------------------------------------------------------------------------------------------------------
Discount rate (1) 6.8% 7.3 7.8 5.6% 6.0 6.0
Rate of increase in compensation levels (2) 5.0% 5.0 5.0 3.3% 2.5 2.5
Expected long-term rate of return on assets (2) 9.0% 9.0 9.0 8.3% N/A N/A
=================================================================================================================================
(1) Net periodic benefit expense (income) is determined by the
previous year's discount rate
(2) Applies only to pension plans
For measurement purposes, the annual rate of increase in the per capita
cost of covered healthcare benefits assumed for 2002 was 7.9% for all
participants. The rates were assumed to decrease gradually each year
to a rate of 5.5% for 2006 and remain at that level thereafter.
Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the postretirement medical plans. A one-percentage
point change in assumed healthcare cost trend rates would have the
following effects:
One-Percentage Point
----------------------------
Increase Decrease
-----------------------------------------------------------------------------------------------------------------
Effect on total of service and interest cost components of
net periodic other postretirement benefit cost - increase (decrease) 8.3% (7.3%)
Effect on the postretirement benefit obligation - increase (decrease) 8.9% (7.9%)
=================================================================================================================
------------------------------------------------------------------------------
Note 8: Stock-Based Compensation Plans
Under the Company's Long-Term Incentive Plan (the "Incentive Plan"),
designated employees are eligible to receive awards in the form of
stock options, stock appreciation rights, restricted stock grants or
performance shares, as determined by the Management Development and
Compensation Committee of the Board of Directors. An aggregate of
3,500,000 shares of common stock has been authorized for issuance under
the Incentive Plan. Through December 31, 2002, the Company has granted
options on 3,078,809 shares. Under the Incentive Plan, the option
exercise price equals the fair market value of the common stock on the
date of grant. Under the terms of existing awards, one-third of
employee options granted become vested and exercisable on each of the
first three anniversaries of the date of grant. The options granted to
employees in 2000, 2001 and 2002 expire ten years after the date of the
grant.
32
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Pursuant to the Incentive Plan, each nonemployee director was granted an
option to purchase 4,500 shares of common stock on the day after the
2002 annual meeting of stockholders. These options were granted at the
fair market value of the common stock on the date of grant, become
exercisable on the first anniversary of the date of grant (or upon
retirement, death or cessation of service due to disability, if earlier)
and expire five years after the date of grant.
The Company also has an employee stock purchase plan (the "Stock
Purchase Plan"), a qualified plan under the requirements of Section 423
of the Internal Revenue Code, and has reserved 900,000 shares for
issuance. In November 1999, the Stock Purchase Plan was amended to
permit eligible employees to purchase shares at the lesser of 90% of the
fair market price of the common stock on either the offering date or the
exercise date. At that time, the Stock Purchase Plan was also amended
to require participants to have the purchase price of their options
withheld from their pay over a one-year period. The exercise date for
the 1999 offering was January 2, 2001, at which time employees elected
to purchase 118,136 shares at an offering price of $10.74 per share, 90%
of the fair market price on the offering date.
In November 2000, the Stock Purchase Plan was amended to permit eligible
employees to purchase shares at the lesser of 85% of the fair market
price of the common stock on either the offering date or the exercise
date. The exercise date for the 2000 offering was January 2, 2002, at
which time employees elected to purchase 68,323 shares at an offering
price of $15.36 per share, 85% of the fair market price on the offering date.
In November 2001, the Stock Purchase Plan was offered to eligible
employees under the same provisions as the 2000 offering. The exercise
date for the 2001 offering was January 2, 2003, at which time employees
elected to purchase 46,460 shares at an offering price of $17.08 per
share, 85% of the fair market price on the exercise date.
In November 2002, the Stock Purchase Plan was offered to eligible
employees under the same provisions as the 2001 offering. The exercise
date for the 2002 offering is January 2, 2004. As of December 31, 2002,
employees had enrolled to purchase 106,646 shares under the 2002
offering.
The Company accounts for both the Incentive Plan and the Stock Purchase
Plan using the intrinsic value methodology prescribed by APB No. 25.
SFAS No. 123 requires pro forma disclosure of the impact on earnings as
if the compensation costs for these plans had been determined consistent
with the fair value methodology of this Statement. The Company's net
income and earnings per share would have been reduced to the following
pro forma amounts under SFAS 123:
Year ended December 31,
-----------------------------------------
2002 2001 2000
------------------------------------------------------------------------------------------------------------------
Net income As reported $19,602 22,024 18,684
Pro forma 18,328 20,731 17,393
Basic earnings per share As reported $ 1.24 1.42 1.22
Pro forma 1.16 1.33 1.14
Diluted earnings per share As reported $ 1.22 1.40 1.21
Pro forma 1.14 1.31 1.12
==================================================================================================================
A summary of the status of the Company's Incentive Plan at December 31,
2002, 2001 and 2000, and changes during the years then ended, is
presented in the table and narrative below (underlying shares in
thousands):
2002 2001 2000
---------------------------------------------------------------------------------------------------------------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------------------------------------------------------------------------------
Options outstanding, beginning of year 1,106 $17.26 1,071 $16.60 1,072 $13.99
Granted 221 20.35 204 19.78 275 17.42
Exercised (85) 16.37 (145) 15.08 (225) 4.03
Forfeited (98) 21.45 (24) 23.75 (51) 20.72
----- ----- -----
Options outstanding, end of year 1,144 17.56 1,106 17.26 1,071 16.60
----- ----- -----
Options exercisable, end of year 776 16.54 690 16.93 621 16.09
=================================================================================================================================
33
------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
The following table summarizes information about fixed-price stock
options outstanding at December 31, 2002 (underlying shares in
thousands):
Options Outstanding Options Exercisable
-----------------------------------------------------------------------------------
Wtd. Avg.
Number Remaining Wtd. Avg. Number Wtd. Avg.
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/02 Life Price at 12/31/02 Price
---------------------------------------------------------------------------------------------------------------------------------
$ 5.00 - 10.00 203 3.4 years $ 8.74 203 $ 8.74
10.01 - 15.00 166 6.4 12.79 161 12.72
15.01 - 20.00 555 7.6 18.73 228 17.99
20.01 - 30.00 220 5.0 26.39 184 26.75
=================================================================================================================================
The fair value of each option granted under the Incentive Plan and
the Stock Purchase Plan is estimated on the date of grant using the
Black-Scholes option pricing model. The following weighted average
assumptions were used for grants in 2002, 2001 and 2000, respectively:
risk-free interest rates of 3.0%, 3.9% and 6.5%; expected volatility of
35%, 36% and 38%; and expected lives of 3.3, 3.5 and 3.3 years. The
valuations assume no dividends are paid. The weighted average fair
values of options granted in 2002, 2001 and 2000 were $5.84, $6.67 and
$6.34 respectively.
------------------------------------------------------------------------------
Note 9: Long-term Debt and Other Borrowing Arrangements
December 31,
--------------------------
2002 2001
---------------------------------------------------------------------------------------------
Credit Line, due 2005(1) $ 44,000 84,000
Interim Credit Agreement, due 2002(2) -- 50,000
Term Loan, due 2007(3) 48,125 --
Unsecured Senior Note, due 2006(4) 20,000 25,000
Variable Rate Industrial Revenue Bonds, due 2018(5) 8,000 8,000
Other 38 605
---------------------------------------------------------------------------------------------
Long-term debt, including current maturities 120,163 167,605
Current maturities of long-term debt 7,500 7,375
---------------------------------------------------------------------------------------------
Long-term debt, less current maturities $112,663 160,230
=============================================================================================
(1) The facility was amended and restated on March 6, 2002. The loans
under the facility may be denominated in U.S. Dollars or several foreign
currencies. At December 31, 2002, the outstanding balance consisted of
one U.S. Dollar loan of $44,000. The interest rates under the facility
vary and are based on prime, federal funds and/or LIBOR for the
applicable currency, and the Company's debt to adjusted income ratio.
As of December 31, 2002, the rate for the U.S. Dollar loan was 2.6%, and
averaged 3.1% for the year ended December 31, 2002.
(2) On September 10, 2001, the Company entered into an Interim Credit
Agreement, which was paid in full in March 2002. The interest rate
varied with prime, federal funds and/or LIBOR and averaged 3.9% for the
year ended December 31, 2002.
(3) On March 6, 2002, the Company entered into a Term Loan, which was
used to retire debt outstanding under the Interim Credit Agreement.
This debt matures in 2007 and requires annual principal payments. The
interest rate varies with prime, federal funds and/or LIBOR. As of
December 31, 2002, this rate was 2.4% and averaged 3.0% for the year
ended December 31, 2002.
(4) On September 26, 1996, the Company entered into an Unsecured
Senior Note Agreement at a fixed interest rate of 7.3%. This debt
matures in 2006 and requires equal annual principal payments from 2000
to 2006.
(5) The interest rate varies with market rates for tax-exempt
industrial revenue bonds. As of December 31, 2002, this rate was 1.7%
and averaged 1.5% for the year ended December 31, 2002.
On January 20, 1998, the Company entered into a Revolving Line of Credit
Agreement with an aggregate $125,000 borrowing capacity (the "Credit
Line") and terminated a previous agreement. On March 6, 2002, the
Company amended and restated the Credit Line, increasing the aggregate
borrowing capacity to $150,000 and extending the maturity date to March
6, 2005. Subject to approval by lenders holding more than 75% of the
debt, the Company may request up to two, one-year extensions. The total
debt balance will be due upon final maturity. On December 31, 2002, the
Credit Line had an outstanding balance of $44,000, leaving $106,000
available for future use or to issue as letters of credit.
The amended and restated agreement also provided for an additional
$50,000 Term Loan. Proceeds from the Term Loan were used to retire debt
outstanding under the Interim Credit Agreement. The five-year Term Loan
requires principal payments of $2,500 in years one and two, and $15,000
in years three through five. Other terms and conditions of the Term
Loan are similar to those of the Credit Line. The long-term
classification and maturities of the Credit Line and the Interim Credit
Agreement in 2001 reflect the completion of the refinancing.
34
------------------------------------------------------------------------------
------------------------------------------------------------------------------
In September 1996, the Company obtained fixed rate financing by entering
into an unsecured senior note agreement for $35,000. This note has a
ten-year final, seven-year average maturity with principal payments that
began in 2000. The Credit Line, Term Loan and Unsecured Senior Note are
unsecured and permit certain investments and dividend payments. There
are no material restrictions on the Company as a result of these
agreements, other than customary covenants regarding certain earnings,
liquidity and capital ratios.
On April 23, 1998, the Fayette County Development Authority issued
$9,500 in industrial revenue bonds, on behalf of the Company, to finance
the cost of constructing and equipping a new manufacturing facility in
Peachtree City, Georgia. On July 2, 2001, the Company prepaid $1,500 of
principal from unused funds. The remaining principal for these
industrial revenue bonds is to be repaid in full on March 1, 2018.
These industrial revenue bonds are secured by an $8.1 million letter of
credit.
On September 10, 2001, the Company borrowed $50,000 under an Interim
Credit Agreement, most of which was used to complete the Xxxxxxx
acquisition. The Interim Credit Agreement expired and was paid in full
in March 2002.
Maturities of long-term debt for the five years subsequent to December
31, 2002 and thereafter, are $7,500, $16,913, $64,000, $20,000, $3,750
and $8,000, respectively.
Cash paid for interest in 2002, 2001 and 2000 was $6,263, $6,900 and
$8,483, respectively.
The rentals for all operating leases were $3,357, $2,981, and $2,453 in
2002, 2001 and 2000, respectively. Future minimum rental payments for
operating leases for the five years subsequent to December 31, 2002 and
thereafter are $3,135, $2,677, $1,411, $1,381, $655 and $735,
respectively.
------------------------------------------------------------------------------
Note 10: Stockholders' Equity and Earnings Per Share
At December 31, 2002 and 2001, 50,000,000 shares of $0.01 par value
common stock and 10,000,000 shares of $ 0.01 par value preferred stock
were authorized. Shares of common stock outstanding at December 31,
2002 and 2001, were 15,942,138 and 15,690,607, respectively. No shares
of preferred stock were issued or outstanding at December 31, 2002 or
2001. The shares of preferred stock, which may be issued without
further stockholder approval (except as may be required by applicable
law or stock exchange rules), may be issued in one or more series, with
the number of shares of each series and the rights, preferences and
limitations of each series to be determined by the Board of Directors.
The Company has a Stockholder's Rights Plan, under which each share of
Xxxxxxx Denver's outstanding common stock has an associated preferred
share purchase right. The rights are exercisable only under certain
circumstances and allow holders of such rights to purchase common stock
of Xxxxxxx Denver or an acquiring company at a discounted price, which
generally would be 50% of the respective stock's current fair market
value.
The following table details the calculation of basic and diluted
earnings per share:
Year ended December 31,
---------------------------------------------------------------------------------------------------
2002 2001 2000
-----------------------------------------------------------------------------------------------------------------------------------
Net Wtd. Avg. Amt. Per Net Wtd. Avg. Amt. Per Net Wtd. Avg. Amt. Per
Income Shares Share Income Shares Share Income Shares Share
-----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income available to
common stockholders $19,602 15,854,239 $1.24 22,024 15,552,543 1.42 18,684 15,300,222 1.22
----- ---- ----
Diluted earnings per share:
Effect of dilutive securities:
Stock options granted
and outstanding -- 187,356 -- 230,582 -- 189,188
-----------------------------------------------------------------------------------------------------------------------------------
Income available to
common stockholders
and assumed conversions $19,602 16,041,595 $1.22 22,024 15,783,125 1.40 18,684 15,489,410 1.21
===================================================================================================================================
35
------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
Note 11: Income Taxes
The following table details the components of the provision for income
taxes. A portion of these income taxes will be payable within one year
and are therefore classified as current, while the remaining balance is
deferred.
Year ended December 31,
------------------------------------------
2002 2001 2000
---------------------------------------------------------------------------------------------------------------
Income taxes
Current:
U.S. federal $4,944 9,708 7,130
U.S. state and local 542 1,109 815
Non-U.S. 1,229 1,149 1,192
---------------------------------------------------------------------------------------------------------------
Current 6,715 11,966 9,137
---------------------------------------------------------------------------------------------------------------
Deferred:
U.S. federal 2,253 622 1,860
U.S. state and local 257 71 213
---------------------------------------------------------------------------------------------------------------
Deferred 2,510 693 2,073
---------------------------------------------------------------------------------------------------------------
Provision for income taxes $9,225 12,659 11,210
===============================================================================================================
The following table reconciles the statutory U.S. federal corporate
income tax rate to the Company's effective tax rate (as a percentage of
the Company's income before income taxes):
Year ended December 31,
--------------------------------------------
2002 2001 2000
---------------------------------------------------------------------------------------------------------------
U.S. federal income tax rate 35.0% 35.0 35.0
Changes in the tax rate resulting from:
State and local income taxes 2.5 3.1 3.4
Nondeductible goodwill -- 3.5 4.2
Export benefit (2.8) (2.3) (3.0)
Other, net (2.7) (2.8) (2.1)
---------------------------------------------------------------------------------------------------------------
Effective income tax rate 32.0% 36.5 37.5
===============================================================================================================
December 31,
--------------------------------------------
2002 2001
---------------------------------------------------------------------------------------------------------------
Components of deferred tax balances:
Deferred tax assets:
Reserves and accruals $ 15,722 11,608
Postretirement benefits other than pensions 14,394 15,502
Other 1,156 1,824
---------------------------------------------------------------------------------------------------------------
Total deferred tax assets 31,272 28,934
---------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
LIFO inventory (3,051) (3,502)
Plant and equipment (6,318) (5,577)
Intangibles (4,530) (3,951)
Other (7,860) (8,855)
---------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (21,759) (21,885)
---------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 9,513 7,049
===============================================================================================================
36
------------------------------------------------------------------------------
------------------------------------------------------------------------------
For U.S. income tax purposes, the Foreign Sales Corporation (FSC) has
been replaced by the Extraterritorial Income Exclusion (EIE) on the
Company's U.S. export sales for 2002 and beyond. Consistent with the
FSC, the EIE will lower the effective tax rate on income from U.S.
export sales.
Income before income taxes of non-U.S. operations for 2002, 2001 and
2000 was $6,611, $5,963 and $6,179, respectively.
U.S. deferred income taxes are not provided on certain undistributed
earnings of non-U.S. subsidiaries (approximately $20 million at December
31, 2002) because the Company intends to reinvest such earnings
indefinitely.
Cash paid for income taxes in 2002, 2001 and 2000 were $6,512, $13,814
and $9,189, respectively.
------------------------------------------------------------------------------
Note 12: Off-Balance Sheet Risk, Concentrations of Credit Risk and Fair
Value of Financial Instruments
Off-Balance Sheet Risk and Concentrations of Credit Risk
There were no off-balance sheet derivative financial instruments as of
December 31, 2002 and 2001.
Concentrations of credit risk with respect to trade receivables are
limited due to the wide variety of customers and industries to which the
Company's products are sold, as well as their dispersion across many
different geographic areas. As a result, the Company does not consider
itself to have any significant concentrations of credit risk as of
December 31, 2002.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
equivalents, trade receivables, trade payables and debt instruments.
The book values of these instruments are not materially different from
their respective fair values.
------------------------------------------------------------------------------
Note 13: Contingencies
The Company is a party to various legal proceedings, lawsuits and
administrative actions, which are of an ordinary or routine nature. Due
to the bankruptcies of several asbestos manufacturers and other primary
defendants, the Company has begun to be named as a defendant in an
increasing number of asbestos personal injury lawsuits. In addition,
the Company has also been named as a defendant in a number of silicosis
personal injury lawsuits. Predecessors to the Company manufactured
and sold the products allegedly at issue in these asbestos and silicosis
lawsuits, namely: (a) asbestos-containing components supplied by third
parties; and (b) portable compressors that were used as components for
sandblasting equipment manufactured and sold by other parties. Since
its formation in 1993, the Company has not manufactured or sold
asbestos-containing products or portable compressors. Nonetheless,
these lawsuits represent potential contingent liabilities to the Company
as a result of its predecessors' historical sales of these products.
The Company believes that these pending legal proceedings, lawsuits and
administrative actions will not, in the aggregate, have a material
adverse effect on its consolidated financial position, results of
operations or liquidity, based on: (1) the Company's anticipated
insurance and indemnification rights to address the risks of such
matters; (2) the limited risk of potential asbestos exposure from the
components described above, due to the complete enclosure of the
components within the subject products and the additional protective
non-asbestos binder which encapsulated the components; (3) the fact that
neither the Company, nor its predecessors, ever manufactured, marketed
or sold sandblasting equipment; (4) various other potential defenses
available to the Company with respect to such matters; and (5) the
Company's prior disposition of comparable matters.
The Company has also been identified as a potentially responsible party
with respect to various sites designated for 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.
37
------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
Note 14: Quarterly Financial Information (Unaudited)
2002 Quarter Ended
------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,(3)
------------------------------------------------------------------------------------------------------------------
Revenues $106,609 104,854 102,791 103,904
Gross margin (1) 32,007 33,565 32,530 30,425
Net income 4,578 5,524 4,829 4,671
Basic earnings per share $ 0.29 0.35 0.30 0.29
Diluted earnings per share $ 0.29 0.34 0.30 0.29
==================================================================================================================
2001 Quarter Ended
------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,(3)
------------------------------------------------------------------------------------------------------------------
Revenues $100,896 104,554 103,426 110,894
Gross margin (1) 29,442 31,247 30,882 33,950
Net income (2) 4,799 6,444 5,552 5,229
Basic earnings per share $ 0.31 0.41 0.36 0.33
Diluted earnings per share $ 0.31 0.41 0.35 0.33
==================================================================================================================
(1) Gross margin equals revenues less cost of sales.
(2) Includes gains of $466, $439 and $385 in quarters ended March 31,
June 30 and Sept. 30, respectively, for litigation settlement proceeds.
Includes $337 gain from interest income on a tax settlement in quarter
ended June 30.
(3) Includes an increase in net income in 2002 and 2001 of $268 and
$319, respectively, related to LIFO inventory liquidations.
------------------------------------------------------------------------------
Note 15: Segment Information
The Company is organized based on the products and services it offers.
Under this organizational structure, the Company has three operating
divisions: Compressor, Blower and Pump. These divisions comprise two
reportable segments, Compressed Air Products and Pump Products. The
Compressor and Blower Divisions are aggregated into one reportable
segment (Compressed Air 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.
In the Compressed Air Products segment, the Company designs,
manufactures, markets and services the following products and related
aftermarket parts for industrial and commercial applications: rotary
screw, reciprocating, sliding vane and centrifugal air compressors; and
positive displacement and centrifugal blowers. The markets served are
primarily in the United States, but a growing portion of revenue is from
exports and expanding European operations.
The Pump Products segment designs, manufactures, markets and services a
diverse group of pumps, water jetting systems and related aftermarket
products used in oil and natural gas production, well servicing and
drilling and industrial cleaning and maintenance.
The accounting policies of the segments are the same as those described
in Note 1. The Company evaluates the performance of its segments based
on income before interest expense, other income, net and income taxes.
Certain assets attributable to corporate activity are not allocated to
the segments. Unallocated assets primarily consist of cash and
equivalents and deferred tax assets. Intersegment sales and transfers
are not significant.
38
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
Revenues Operating Earnings(1) Identifiable Assets
--------------------------------------------------------------------------------------------
Year ended December 31, Year ended December 31, December 31,
--------------------------------------------------------------------------------------------
2002 2001 2000 2002 2001 2000 2002 2001
---------------------------------------------------------------------------------------------------------------------------------
Compressed Air Products $350,036 308,028 306,679 $29,795 22,176 30,938 $369,420 368,775
Pump Products 68,122 111,742 72,679 5,193 16,100 4,465 68,240 82,884
--------------------------------------------------------------------------------------------
Total $418,158 419,770 379,358 34,988 38,276 35,403 437,660 451,659
================================
Interest expense (6,365) (6,796) (7,669)
Other income, net 204 3,203 2,160
-------------------------------
Income before income taxes $28,827 34,683 29,894
===============================
General corporate 35,182 37,029
--------------------
Total assets $472,842 488,688
=================================================================================================================================
(1) As a result of adopting SFAS 142, periodic goodwill amortization
ceased effective January 1, 2002 (See Notes 1 and 5). For comparability
purposes, operating earnings by segment for the year ended December 31,
2001 and 2000 excluding goodwill amortization were as follows:
Year ended December 31,
-------------------------
2001 2000
---------------------------------------------------------------------
Compressed Air Products $25,796 34,609
Pump Products 16,860 5,018
---------------------------------------------------------------------
Total $42,656 39,627
=====================================================================
Year ended December 31,
--------------------------------------------
2002 2001 2000
---------------------------------------------------------------------------------------------------------------------------------
Income from reductions of inventory quantities resulting in liquidations
of LIFO inventory layers, included in operating earnings above:
Compressed Air Products $ 161 459 610
Pump Products 233 43 73
---------------------------------------------------------------------------------------------------------------------------------
Total $ 394 502 683
=================================================================================================================================
Depreciation and amortization, included in operating earnings above:
Compressed Air Products $ 11,517 14,281 13,478
Pump Products 2,622 3,286 2,403
---------------------------------------------------------------------------------------------------------------------------------
Total $ 14,139 17,567 15,881
=================================================================================================================================
Capital expenditures:
Compressed Air Products $ 9,856 8,856 11,141
Pump Products 3,785 2,668 2,408
---------------------------------------------------------------------------------------------------------------------------------
Total $ 13,641 11,524 13,549
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Xxxxxxxx xxxxxxx xxx Xxxxxx Xxxxxx were
comprised of sales to unaffiliated companies in:
Europe $ 85,735 65,511 53,877
Asia 25,999 14,048 13,745
Canada 18,597 24,315 21,838
Latin America 17,773 18,186 13,214
Other 5,518 5,844 4,554
---------------------------------------------------------------------------------------------------------------------------------
Total $153,622 127,904 107,228
=================================================================================================================================
December 31,
--------------------------
2002 2001
---------------------------------------------------------------------------------------------------------------
Net long-lived assets by geographic area are as follows:
United States $253,275 254,271
Europe 32,658 27,219
Other 1,408 1,444
---------------------------------------------------------------------------------------------------------------
Total $287,341 282,934
===============================================================================================================
39
------------------------------------------------------------------------------
STOCKHOLDER INFORMATION
------------------------------------------------------------------------------
Stock Information
Xxxxxxx Denver's common stock has traded on the New York Stock Exchange
since August 14, 1997, under the ticker symbol GDI. Prior to this date,
the Company's common stock traded on the Nasdaq National Market tier of
the Nasdaq Stock Market under the symbol GDMI.
The quarterly high and low sales prices for the Company's common stock
for the two most recent years, as reported by the New York Stock
Exchange, are as follows:
2002 Quarter Ended
---------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
---------------------------------------------------------------------------------------------------------------
High 25.25 28.00 21.00 21.39
Low 19.55 18.34 15.00 14.34
===============================================================================================================
2001 Quarter Ended
---------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
---------------------------------------------------------------------------------------------------------------
High 21.20 20.99 24.00 22.93
Low 17.00 17.65 19.65 20.00
===============================================================================================================
As of March 3, 2003, there were approximately 8,240 holders of record of
Xxxxxxx Denver's common stock.
Dividends
Xxxxxxx Denver has not paid a cash dividend since its spin-off from
Xxxxxx Industries, Inc. in April 1994. The cash flow generated by the
Company is currently utilized for debt service and capital accumulation
and reinvestment.
Transfer Agent and Registrar
National City Bank
Corporate Trust Operations
X.X. Xxx 00000
Xxxxxxxxx, XX 00000-0000
(000) 000-0000
(000) 000-0000 (facsimile)
e-mail address: xxxxxxxxxxx.xxxxxxxxx@xxxxxxxxxxxx.xxx
News Releases and SEC Filings
Xxxxxxx Denver's news releases, including the quarterly earnings
releases, and Securities and Exchange Commission filings, are available
by visiting the investor relations area of our website at
xxx.xxxxxxxxxxxxx.xxx.
Quarterly Conference Call Webcasts
Xxxxxxx Denver anticipates issuing earnings press releases on April 23,
July 23 and October 22, 2003. Associated conference calls will be held
on the following mornings. You may access a webcast of these calls
through the investor relations area of our website at
xxx.xxxxxxxxxxxxx.xxx. Replays of the calls will be available for
approximately two weeks.
Form 10-K
A copy of the annual report on Form 10-K filed with the Securities and
Exchange Commission is available, without charge, upon written request
to the Corporate Secretary at the Company's address indicated below.
Annual Meeting
The 2003 Annual Meeting of Stockholders will be held on May 6 at the
Quincy Country Club, 0000 Xxxxx Xxxxxx, Xxxxxx, XX, starting at
1:30 p.m.
Corporate Offices
Xxxxxxx Denver, Inc.
0000 Xxxxxxx Xxxxxxxxxx
Xxxxxx, XX 00000
(000) 000-0000
e-mail address: xxxx@xxxxxxxxxxxxx.xxx
website address: xxx.xxxxxxxxxxxxx.xxx
40
------------------------------------------------------------------------------
BOARD OF DIRECTORS AND CORPORATE OFFICERS
------------------------------------------------------------------------------
Board of Directors
Xxxx X. Xxxxxxxx
Chairman, President and Chief Executive Officer
Xxxxxxx Denver, Inc.
Xxxxxx X. Xxxxxx, Xx.
Senior Vice President and Chief Financial Officer
Yellow Corporation
Xxxxx X. Xxxxxx
President and Chief Executive Officer (retired)
IDEX Corporation
Xxxxxxx X. Xxxx
Chairman, President and Chief Executive Officer (retired)
Alternative Resources Corporation
Xxxxxx X. XxXxxxx
President (retired)
United Sugars Corporation
Xxxxx X. Xxxxxxxxxx
Senior Vice President, General Counsel and Secretary
Xxxxxx Industries, Inc.
Xxxxxxx X. Xxxxxxxx
Group President and Executive Office Member
Caterpillar Inc.
Lead Non-Employee Director
Xxxxx X. Xxxxxx
Board Committees
Audit and Finance
Xxxxxx X. Xxxxxx, Xx., Chairperson
Xxxxx X. Xxxxxx
Xxxxxxx X. Xxxx
Management Development and Compensation
Xxxxxxx X. Xxxxxxxx, Chairperson
Xxxxxx X. XxXxxxx
Xxxxx X. Xxxxxxxxxx
Nominating and Corporate Governance
Xxxxx X. Xxxxxxxxxx, Chairperson
Xxxxxx X. XxXxxxx
Xxxxxxx X. Xxxxxxxx
Corporate Officers
Xxxx X. Xxxxxxxx
Chairman, President and Chief Executive Officer
Xxxxxxx X. Xxxxxx
Vice President and General Manager,
Blower Division
Xxxxx X. Xxxxxxx
Vice President, Strategic Planning and Operations Support
Xxxxxx X. Xxxxxxxx
Vice President, Human Resources
Xxxxx X. Xxxxxxxx
Vice President, General Counsel and Secretary
Xxxxxx X. Xxxxx, Xx.
Vice President and Corporate Controller
Xxxxxx X. Xxxx
Vice President, Finance and Chief Financial Officer
Xxxxxxx X. Xxxxxxxx
Treasurer
J. Xxxxxx Xxxxx
Vice President and General Manager,
Compressor Division
Xxxxxxx X. Xxxxxx
Vice President and General Manager,
Pump Division
41
