UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 2, 2004
GARDNER DENVER, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 1-13215 76-0419383
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1800 GARDNER EXPRESSWAY, QUINCY, ILLINOIS 62301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (217) 222-5400
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
EXPLANATORY NOTE
On September 1, 2004, Gardner Denver, Inc. (the "Company") announced that it
had completed the acquisition of nash_elmo Holdings, LLC ("Nash Elmo"). This
Amendment No. 1 on Form 8-K/A amends the Company's Current Report of Form
8-K filed on September 2, 2004 to provide Nash Elmo historical financial
statements and pro forma financial information relating to the acquisition.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
See the Index to Financial Statements and Pro Forma Financial Information
(b) Pro forma financial information
See the Index to Financial Statements and Pro Forma Financial Information
(c) Exhibits
2.1 Agreement and Plan of Merger dated July 28, 2004 by and among
Gardner Denver, Inc., Neptune Holdings I, Inc., nash_elmo
Holdings LLC and Audax Vacuum Corp., filed as Exhibit 2.1 to
Gardner Denver's Form 8-K dated September 2, 2004, and
incorporated herein by reference.
2.2 Amendment to Agreement and Plan of Merger dated September 1,
2004 by and among Gardner Denver, Inc., Neptune Holdings I,
Inc., nash_elmo Holdings LLC and Audax Vacuum Corp, filed as
Exhibit 2.2 to Gardner Denver's Form 8-K dated September 2,
2004, and incorporated herein by reference.
2.3 Agreement and Plan of Merger dated July 28, 2004 by and among
Gardner Denver, Inc., Neptune Holdings II, Inc. and nash_elmo
Corp, filed as Exhibit 2.3 to Gardner Denver's Form 8-K dated
September 2, 2004, and incorporated herein by reference.
2.4 Amendment to Agreement and Plan of Merger dated July 28, 2004
by and among Gardner Denver, Inc., Neptune Holdings II, Inc.
and nash_elmo Corp, filed as Exhibit 2.4 to Gardner Denver's
Form 8-K dated September 2, 2004, and incorporated herein by
reference.
2.5 Escrow Agreement dated September 1, 2004 by and among Gardner
Denver, Inc., Wells Fargo Bank, National Association, as escrow
agent, and Audax Vacuum Corp, filed as Exhibit 2.5 to Gardner
Denver's Form 8-K dated September 2, 2004, and incorporated
herein by reference.
2.6 Form of Transmittal Letter and Agreement, filed as Exhibit 2.6
to Gardner Denver's Form 8-K dated September 2, 2004, and
incorporated herein by reference.
2
10.1 Amended and Restated Credit Agreement dated September 1, 2004
by and among Gardner Denver, Inc., J.P. Morgan Securities,
Inc., as lead arranger, and the other lenders named therein,
filed as Exhibit 10.1 to Gardner Denver's Form 8-K dated
September 2, 2004, and incorporated herein by reference.
23.1 Consent of KPMG LLP
99.1 Press Release dated September 1, 2004, filed as Exhibit 99.1
to Gardner Denver's Form 8-K dated September 2, 2004, and
incorporated herein by reference.
3
INDEX TO FINANCIAL STATEMENTS AND PRO FORMA
FINANCIAL INFORMATION
PAGE*
----
Independent Auditors' Report F-1
Nash Elmo Consolidated Statement of Operations for the year ended
December 31, 2003 F-2
Nash Elmo Consolidated Balance Sheet as of December 31, 2003 F-3
Nash Elmo Consolidated Statement of Members' Equity and Accumulated
Other Comprehensive Income for the year ended December 31, 2003 F-4
Nash Elmo Consolidated Statement of Cash Flows for the year ended
December 31, 2003 F-5
Notes to Nash Elmo Consolidated Financial Statements F-6
Discussion of Unaudited Pro Forma Consolidated Statements of Operations F-23
Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 2003 F-25
Notes to Unaudited Pro Forma Consolidated Statement of Operations for
the year ended December 31, 2003 F-26
Unaudited Pro Forma Consolidated Statement of Operations for the nine
months ended September 30, 2004 F-29
Notes to Uunaudited Pro Forma Consolidated Statement of Operations for
the nine months ended September 30, 2004 F-30
*Financial statements and pro forma financial information appear
following the signature page and exhibit index.
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GARDNER DENVER, INC.
Date: November 17, 2004 By: /s/ Daniel C. Rizzo, Jr.
---------------------------------------
Daniel C. Rizzo, Jr.
Vice President and Corporate Controller
(Chief Accounting Officer)
5
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger dated July 28, 2004 by and among
Gardner Denver, Inc., Neptune Holdings I, Inc., nash_elmo
Holdings LLC and Audax Vacuum Corp., filed as Exhibit 2.1 to
Gardner Denver's Form 8-K dated September 2, 2004, and
incorporated herein by reference.
2.2 Amendment to Agreement and Plan of Merger dated September 1, 2004
by and among Gardner Denver, Inc., Neptune Holdings I, Inc.,
nash_elmo Holdings LLC and Audax Vacuum Corp, filed as
Exhibit 2.2 to Gardner Denver's Form 8-K dated September 2, 2004,
and incorporated herein by reference.
2.3 Agreement and Plan of Merger dated July 28, 2004 by and among
Gardner Denver, Inc., Neptune Holdings II, Inc. and nash_elmo
Corp, filed as Exhibit 2.3 to Gardner Denver's Form 8-K dated
September 2, 2004, and incorporated herein by reference.
2.4 Amendment to Agreement and Plan of Merger dated July 28, 2004
by and among Gardner Denver, Inc., Neptune Holdings II, Inc.
and nash_elmo Corp, filed as Exhibit 2.4 to Gardner Denver's
Form 8-K dated September 2, 2004, and incorporated herein by
reference.
2.5 Escrow Agreement dated September 1, 2004 by and among Gardner
Denver, Inc., Wells Fargo Bank, National Association, as escrow
agent, and Audax Vacuum Corp, filed as Exhibit 2.5 to Gardner
Denver's Form 8-K dated September 2, 2004, and incorporated
herein by reference.
2.6 Form of Transmittal Letter and Agreement, filed as Exhibit 2.6
to Gardner Denver's Form 8-K dated September 2, 2004, and
incorporated herein by reference.
10.1 Amended and Restated Credit Agreement dated September 1, 2004
by and among Gardner Denver, Inc., J.P. Morgan Securities, Inc.,
as lead arranger, and the other lenders named therein, filed
as Exhibit 10.1 to Gardner Denver's Form 8-K dated September 2,
2004, and incorporated herein by reference.
23.1 Consent of KPMG LLP
99.1 Press Release dated September 1, 2004, filed as Exhibit 99.1
to Gardner Denver's Form 8-K dated September 2, 2004, and
incorporated herein by reference.
6
[KPMG letterhead]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
nash_elmo Holdings LLC:
We have audited the accompanying consolidated balance sheet of nash_elmo
Holdings LLC and subsidiaries as of December 31, 2003, and the related
consolidated statements of operations, members' equity and accumulated other
comprehensive income, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audit.
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
nash_elmo Holdings LLC and subsidiaries as of December 31, 2003 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.
/s/ KPMG LLP
March 3, 2004
Stamford, Connecticut
F-1
nash_elmo HOLDINGS LLC
Consolidated Statement of Operations
Year ended December 31, 2003
(In thousands)
Net sales $212,449
Cost of sales 132,269
--------
Gross profit 80,180
--------
Operating expenses:
Selling 33,927
General and administrative 25,860
Engineering and research and development 4,751
Integration expense 4,956
--------
Total operating expenses 69,494
--------
Operating profit 10,686
--------
Other income (expense):
Interest expense (4,334)
Interest income 124
Foreign currency transaction gain 1,778
Management fees (864)
Other - net 370
--------
Total other income (expense) (2,926)
--------
Income before income taxes 7,760
Income tax expense 1,122
--------
Net earnings $ 6,638
========
See accompanying notes to consolidated financial statements.
F-2
nash_elmo HOLDINGS LLC
Consolidated Balance Sheet
December 31, 2003
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 15,694
Trade accounts receivable, less allowance
for doubtful accounts of $1,795 42,013
Inventories 42,452
Other current assets 3,808
Deferred income taxes 2,256
--------
Total current assets 106,223
Property, plant, and equipment, net 38,775
Goodwill 5,406
Other identifiable intangible assets 2,169
Pension asset 3,606
Deferred financing fees, net 1,040
Other assets 3,543
--------
Total assets $160,762
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolver and notes payable $ 20,335
Current portion of long-term debt 210
Accounts payable 17,742
Accrued expenses 19,640
Customer advances 7,152
Foreign income taxes payable 1,778
Deferred income taxes 1,335
--------
Total current liabilities 68,192
Long-term borrowings, less current portion:
Due to third parties 25,834
Due to The Nash Engineering Company 3,000
Accrued pension liability 7,360
Other long-term liabilities 896
Deferred income taxes 811
--------
Total liabilities 106,093
--------
Shareholders' equity:
Members' equity 42,809
Accumulated earnings 6,094
Accumulated other comprehensive income 5,766
--------
Total shareholders' equity 54,669
--------
Total liabilities and shareholders' equity $160,762
========
See accompanying notes to consolidated financial statements.
F-3
nash_elmo HOLDINGS LLC
Consolidated Statement of Members' Equity and
Accumulated Other Comprehensive Income
Year ended December 31, 2003
(In thousands)
ACCUMULATED
OTHER TOTAL
MEMBERS' ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
EQUITY EARNINGS (DEFICIT) INCOME EQUITY
-------- ------------------ ------------- -------------
$ 42,800 (440) 2,680 45,040
Balance at December 31, 2002
Net earnings -- 6,638 -- 6,638
Unrealized foreign currency
translation gain -- -- 3,086 3,086
------
Comprehensive income 9,724
Additional members' equity contribution 9 -- -- 9
Cash distributions -- (104) -- (104)
-------- ----- ----- ------
Balance at December 31, 2003 $ 42,809 6,094 5,766 54,669
======== ===== ===== ======
See accompanying notes to consolidated financial statements.
F-4
nash_elmo HOLDINGS LLC
Consolidated Statement of Cash Flows
Year ended December 31, 2003
(In thousands)
Cash flows from operating activities:
Net earnings $ 6,638
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Loss on the sale & retirement of property, plant, and equipment 251
Depreciation and amortization 8,567
Deferred income taxes 1,467
Change in assets and liabilities:
Trade accounts receivable (2,784)
Inventories (8,453)
Other assets (1,681)
Accounts payable and accrued expenses (5,827)
Foreign income taxes payable 33
Customer advances 2,772
Other long-term liabilities 1,598
-------
Net cash provided by operating activities 2,581
-------
Cash flows from investing activities:
Acquisition costs 317
Capital expenditures (17,257)
Proceeds from sale of property, plant, and equipment 2,354
-------
Net cash used by investing activities (14,586)
-------
Cash flows from financing activities:
Payments on borrowings (80,477)
Proceeds on borrowings 96,086
Additional members' equity contribution 9
Cash distributions paid (104)
-------
Net cash provided by financing activities 15,514
Effect of exchange rate changes on cash 1,248
-------
Net increase in cash and cash equivalents 4,757
Cash and cash equivalents at beginning of period 10,937
-------
Cash and cash equivalents at end of period $15,694
=======
See accompanying notes to consolidated financial statements.
F-5
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
(1) FORMATION OF THE COMPANY
On February 19, 2002, nash_elmo Holdings LLC (the Company) was formed
as a Delaware limited liability corporation. On May 7, 2002, the
Company formally commenced operations through contributions of
$27,500 in cash by nash_elmo Corporation, an Audax Group Company
(Audax), and the contribution of certain operating assets and
subsidiaries (Operating Assets) of The Nash Engineering Company
(TNEC) with an estimated fair value of $15,300. In exchange for these
contributions, Audax and TNEC received an equity ownership in the
Company as described in note 8. Simultaneously, the Company acquired
100% of the stock of elmo vacuum technology GmbH (elmo), a German
company previously owned by Siemens AG, for total consideration of
$27,500.
TNEC's Operating Assets were in the business of industrial vacuum
technology including the manufacturing and service of liquid ring
vacuum pumps and steam jets. These Operating Assets conduct business
primarily in the United States and include operations in South
America, Europe, and Asia, as well.
elmo was in the business of industrial vacuum technology including
the manufacturing of liquid ring vacuum pumps and compressors and
side channel blowers. elmo sold mainly in Europe but also had
operations and sales offices in Asia and the United States, as well.
The following table summarizes the estimated fair value of the assets
acquired and liabilities assigned to the operating assets of TNEC and
elmo in accordance with purchase method of accounting as of May 7,
2002:
Current assets $ 77,271
Property, plant, and equipment 17,839
Long term assets 10,639
Identifiable intangibles 5,857
Goodwill 6,610
--------
Total assets acquired 118,216
--------
Current liabilities 55,041
Long-term liabilities 20,375
--------
Total liabilities assumed 75,416
--------
Net assets acquired $ 42,800
========
F-6 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) DESCRIPTION OF BUSINESS
nash_elmo Holdings LLC and subsidiaries (the Company) is
engaged in the business of industrial vacuum technology
including the manufacture and service of liquid ring vacuum
pumps, side channel blowers and steam jets. The Company's
major markets are the pulp and paper, chemical, power and
other general industrial markets such as the food, textile,
mining, and electronics industries. Products are engineered
and manufactured to order based upon customer specifications
with some pumps, parts, accessories and subassemblies
manufactured for inventory.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of nash_elmo Holdings LLC and its subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(C) CASH EQUIVALENTS
The Company considers certificates of deposit and other highly
liquid instruments with a maturity of three months or less to
be cash equivalents. As of December 31, 2003 the Company had
$3,371 of letters of credit outstanding and guarantees
primarily for collateralization for customer progress payments
and warranty performance guarantees. The Company also has
$1,335 of letters of credit outstanding under the Revolving
Credit Agreement discussed in note 7.
(D) FOREIGN CURRENCY TRANSLATION
The financial statements of foreign subsidiaries are
translated in accordance with the requirements of Statement of
Financial Accounting Standards No. 52. Accordingly, all asset
and liability accounts of foreign subsidiaries have been
translated at current exchange rates at the balance sheet date
and related revenues and expenses at average rates of exchange
in effect during 2003. The resulting cumulative translation
gains and losses are reflected as a separate component of
members' equity. Currency transaction gains and losses are
recorded as other income (expense) in the consolidated
statement of operations.
(E) SUPPLEMENTAL CASH FLOW INFORMATION
Interest and taxes paid for the year ended December 31, 2003
was $2,365 and $779, respectively. During 2003, the Company
completed its purchase accounting, and as a result recorded
certain non cash adjustments impacting goodwill in the amount
of $5,282. These adjustments relate primarily to asset
valuations contemplated as part of the transaction discussed
in Note 1.
(F) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out method (LIFO) for the
domestic subsidiary, and for the remaining subsidiaries the
first-in, first-out method (FIFO) is used to determine cost.
Inventory costs include material, labor, and manufacturing
overhead.
F-7 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
(G) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost.
Depreciation expense, $6,344 for the year ended December 31,
2003, is calculated using the straight-line method over the
estimated useful lives of the assets, generally ranging from 3
to 30 years. Leasehold improvements are amortized over the
shorter of the lease or estimated useful life of the asset.
Repairs and maintenance of a routine nature are charged
against earnings, while those which improve or extend the
lives of existing assets are capitalized.
(H) GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
Goodwill represents the excess of costs over fair value of
assets of businesses acquired. The Company adopted the
provisions of FASB Statement No. 142, Goodwill and Other
Intangible Assets, as of May 7, 2002. Pursuant to Statement
142, goodwill and intangible assets acquired in a purchase
business combination and determined to have an indefinite
useful life are not amortized, but instead tested for
impairment at least annually in accordance with the provisions
of Statement 142. Statement 142 also requires that intangible
assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with FASB
Statement No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets. In 2003, the Company adjusted the goodwill
balance to reflect the completion of third party valuations,
certain restructuring, and asset dispositions contemplated as
part of the acquisition, resulting in a net adjustment of
$1,204 to the goodwill balance.
Other identifiable intangible assets includes favorable lease
arrangements with TNEC and Siemens AG of $3,140 and $1,891,
respectively, and technical know-how of $427. At December 31,
2003 and 2002, the other identifiable assets balance increased
by $172 and $337, respectively, due to the impact of changes
in foreign currency rates used to translate balances into U.S.
dollars. Also during 2003, the Company terminated its
favorable lease arrangement with Siemens AG, resulting in an
allocation of the remaining intangible asset assigned to this
lease arrangement of $1,976 to goodwill.
The weighted average useful life for the remaining favorable
lease arrangement and technical know-how balances at December
31, 2003 is 5 years. Amortization expense related to other
identifiable intangible assets was $1,074 and $748 for the
years ended December 31, 2003 and 2002, respectively.
Estimated annual amortization expense for the remaining three
years ended December 31, 2004 through 2006 is $834, $668, and
$667, respectively.
(I) IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement 144, long-lived assets, such as
property, plant, and equipment, and purchased intangibles
subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value
of the asset. Assets to be disposed of would be separately
presented in the balance sheet and reported at the lower of
the carrying amount or fair value less costs to sell, and are
no longer depreciated.
F-8 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
The assets and liabilities of a disposed group classified as
held for sale would be presented separately in the appropriate
asset and liability sections of the balance sheet.
Goodwill is tested annually for impairment, and is tested for
impairment more frequently if events and circumstances
indicate that the asset might be impaired. An impairment loss
is recognized to the extent that the carrying amount exceeds
the asset's fair value. This determination is made at the
reporting unit level and consists of two steps. First, the
Company determines the fair value of a reporting unit and
compares it to its carrying amount. Second, if the carrying
amount of a reporting unit exceeds its fair value, an
impairment loss is recognized for any excess of the carrying
amount of the reporting unit's goodwill over the implied fair
value of that goodwill. The implied fair value of goodwill is
determined by allocating the fair value of the reporting unit
in a manner similar to a purchase price allocation, in
accordance with FASB Statement No. 141, Business Combinations.
The residual fair value after this allocation is the implied
fair value of the reporting unit goodwill. At October 31,
2003, the Company performed its annual impairment test for
goodwill. The results of this analysis did not require the
Company to recognize an impairment loss.
(J) REVENUE RECOGNITION
The Company recognizes revenue when products are shipped and
the customer takes ownership and assumes risk of loss,
collection of the relevant receivable is probable, persuasive
evidence of an arrangement exists and the sales price is fixed
or determinable.
(K) 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.
(L) COMMITMENTS AND CONTINGENCIES
Liabilities for loss contingencies, including environmental
remediation costs not within the scope of FASB Statement No.
143, Accounting for Asset Retirement Obligations, arising from
claims, assessments, litigation, fines, and penalties and
other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment
and/or remediation can be reasonably estimated. Recoveries for
environmental remediation costs from third parties, which are
probable of realization, are separately recorded, and are not
offset against the related environmental liability, in
accordance with FASB Interpretation No. 39, Offsetting of
Amounts Related to Certain Contracts.
The Company accrues for losses associated with environmental
remediation obligations not within the scope of Statement 143
when such losses are probable and reasonably estimatable.
Accruals for estimated losses from environmental remediation
obligations generally are recognized no later than completion
of the remedial feasibility study. Such accruals are adjusted
as further information develops or circumstances change. Costs
of future expenditures for environmental remediation
obligations are not discounted to their present value.
Recoveries of
F-9 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
environmental remediation costs from other parties are recorded
as assets when their receipt is deemed probable.
(M) RESEARCH AND DEVELOPMENT
Expenses relating to the development of new products and
improvements of existing products, were $3,245 for the year
ended December 31, 2003 and were charged against earnings as
incurred.
(N) STOCK-BASED COMPENSATION
The Company accounts for stock-based transactions with
employees in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123). As permitted under SFAS
123, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of SFAS
123, the Company has elected to measure stock-based employee
compensation arrangements in accordance with the provisions of
APB No. 25, Accounting for Stock Issued to Employees (APB 25),
as amended by FASB Interpretation No. 44, Accounting for
Certain Transactions involving Stock Compensation for
Employees, and comply with the disclosure provisions of SFAS
123 and SFAS 148. Under APB 25, compensation cost is
recognized based on the difference, if any, on the date of
grant between the fair value of the Company's common stock and
the exercise price for options granted to employees.
Compensation expense is amortized over the vesting period of
the options, which is five years.
Under APB 25, because the exercise price of the Company's
employee stock options equals fair value of the underlying
common stock on the date of grant, compensation expense is
generally not recognized for its stock option grants to
employees.
The following table illustrates the effect on net earnings if
the Company had applied the fair value recognition provisions
of SFAS 123 and SFAS 148 to all stock-based employee
compensation awards.
2003
------
Net earnings, as reported $6,638
Deduct:
Total stock-based employee compensation determined
under fair value based accounting method for all
awards, net of tax (73)
------
Proforma net income $6,565
======
F-10 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
(O) INCOME TAXES
The Company and its domestic subsidiaries are limited
liability companies, taxable as a partnership for U.S. income
tax purposes and, as such, generally will pay no U.S. federal
or state income taxes. The Company's federal and state
distributable share of income, deductions and credits will be
allocated to the owners based on their percentage of
ownership. However, certain foreign affiliates' earnings are
taxable under their respective jurisdictions and record
related deferred income tax assets and liabilities. Deferred
income taxes reflect the impact of temporary differences
between assets and liabilities recognized for financial
reporting purposes and such amounts recognized for income tax
purposes. In accordance with SFAS 109, Accounting for Income
Taxes, these deferred taxes are measured by applying currently
enacted tax laws. Accordingly, certain of the Company's
subsidiaries have recorded deferred taxes in the consolidated
financial statements while deferred taxes associated with the
Company's U.S. operations are recorded directly by the
members.
(P) COMPREHENSIVE INCOME
SFAS 130 requires the Company to report in its financial
statements, in addition to its net income (loss),
comprehensive income (loss), which includes all changes in
equity during a period from nonowner sources including foreign
currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and
equity securities. The Company's only other comprehensive
income item is its foreign currency translation adjustment.
(Q) USE OF ESTIMATES
The preparation of the consolidated financial statements
requires management of the Company to make a number of
estimates and assumptions relating to the reported amount of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the period. Significant items subject to such estimates
and assumptions include the carrying amount of property,
plant, and equipment, intangibles and goodwill; valuation
allowances for receivables, inventories and deferred income
tax assets; and assets and obligations related to employee
benefits. Actual results could differ from those estimates.
(R) RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2003, FASB Statement No. 132 (revised), Employers'
Disclosures About Pensions and Other Postretirement Benefits,
was issued. Statement 132 (revised) prescribes employers'
disclosures about pension plans and other postretirement
benefit plans; it does not change the measurement or
recognition of those plans. The Statement retains and revises
the disclosure requirements contained in the original
Statement 132. It also requires additional disclosures about
the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other postretirement
benefit plans. The Statement is effective for all plans of
non-public entities and applies to fiscal years ending after
June 15, 2004.
F-11 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
(3) GEOGRAPHICAL OPERATIONS
The Company operates in three geographical regions which are the
Americas, Europe, and Asia Pacific. Nash Engineering Company of Canada,
Ltd. and nash_elmo Brasil Bombas Ltda., foreign subsidiaries, are
included in the operations of the Americas. The following is a summary
of net assets as of December 31, 2003 and operations of each region
for the year ended December 31, 2003.
AMERICAS EUROPE ASIA/PACIFIC ELIMINATIONS CONSOLIDATED
-------- ------ ------------ ------------ ------------
Net Assets at December 31, 2003:
Current assets $ 31,908 54,744 28,937 (9,366) 106,223
Property, plant, and
equipment (net) 9,661 22,442 6,672 -- 38,775
Other assets 3,262 46,463 1,022 (34,983) 15,764
-------- ------- ------ ------- -------
Total assets 44,831 123,649 36,631 (44,349) 160,762
Current liabilities 22,185 39,357 15,297 (8,647) 68,192
Other liabilities 6,411 32,014 369 (893) 37,901
-------- ------- ------ ------- -------
Net assets $ 16,235 52,278 20,965 (34,809) 54,669
======== ======= ====== ======= =======
Operations for the year ended
December 31, 2003
Sales-trade $ 69,195 107,492 35,762 -- 212,449
Sales-intercompany 9,617 10,016 1,947 (21,580) --
Operating profit (loss) 1,990 3,197 9,411 (3,912) 10,686
Other income (expense) (2,637) (1,237) (1,814) 2,762 (2,926)
-------- ------- ------ ------- -------
Earnings (loss) before
income taxes $ (647) 1,960 7,597 (1,150) 7,760
======== ======= ====== ======= =======
Other income (expense) of the regions include licensing fees charged
by nash_elmo Holdings LLC, nash_elmo Industries LLC and nash_elmo
Industries GmbH of $1,345, $190 and $565, respectively, in 2003 with
the related licensing fee income offset against nash_elmo Industries
LLC and nash_elmo Industries GmbH other income (expense).
F-12 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
(4) INVENTORIES
Inventories consist of the following:
2003
-------
Domestic subsidiary at FIFO:
Stock and raw materials $10,084
Work-in-process 1,368
-------
Total domestic inventories at FIFO 11,452
Reduction to LIFO value (471)
-------
Total inventories at LIFO value 10,981
-------
Remaining subsidiaries at FIFO:
Raw materials 14,618
Work-in-process 7,065
Finished goods 9,788
-------
31,471
-------
Total inventories $42,452
=======
It is not practicable to separate LIFO inventories into their
component parts (raw materials, work-in-process, and finished goods)
because of the use of the dollar-value LIFO method. If inventories
which are carried on the LIFO method were carried on the FIFO cost
method, total inventories would be $471 higher than reported as of
December 31, 2003.
(5) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following:
2003
-------
Land and buildings $17,357
Machinery and equipment 21,224
Furniture and fixtures 11,917
Construction-in-progress 709
-------
51,207
Less accumulated depreciation and amortization 12,432
-------
Property, plant, and equipment, net $38,775
=======
F-13 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
(6) ACCRUED EXPENSES
Accrued expenses consist of the following:
2003
-------
Accrued compensation $ 6,436
Accrued employee benefits 3,000
Accrued warranty 2,030
Accrued integration costs 1,066
Accrued restructuring 342
Other 6,766
-------
$19,640
=======
A reconciliation of the changes in the product warranty liability for
the year ended December 31, 2003 is as follows:
Balance as of December 31, 2002 $ 2,589
Product warranty accruals 766
Settlements (1,218)
Other (primarily foreign currency translation) (107)
-------
Balance as of December 31, 2003 $ 2,030
=======
F-14 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
(7) LONG-TERM DEBT
Long-term debt consists of the following:
2003
-------
Note payable to Siemens due July 31, 2007
at a rate of 10.58% per annum $10,000
Term loan A due April 30, 2007 plus interest at a rate of
6% per annum 1,085
Term loan C payable quarterly through April 30, 2007 plus
interest at prime (4.00% at December 31, 2003) 5,526
Twenty year mortgage payable semi-annual at an effective
interest rate of 4.65% to 5.38% 9,433
Note payable to The Nash Engineering Company (TNEC) 3,000
-------
Total long-term debt 29,044
Less current portion 210
-------
Long-term debt excluding current portion $28,834
=======
Principal payments due on long-term debt, including the capital
lease, during each of the next five years are:
2004 $ 210
2005 1,549
2006 1,954
2007 17,250
2008 574
Thereafter 7,507
The Company has a Revolving Credit Agreement (or Agreement) with a
financial institution. The Agreement expires April 30, 2007, at which
time all outstanding balances are due and payable. The Agreement is
secured by certain domestic assets of the Company, allows borrowings
of up to $27,400, less the amounts of outstanding letters of credit
issued and the related Term Loans A and C noted above. At December
31, 2003, the Company had borrowed $5,723 and $6,611 under the
Revolving Credit Agreement and the Term Loans respectively, and had
outstanding letters of credit of $1,335. Borrowings under the
Revolving Credit Agreement is limited by the "Borrowing Base." The
Borrowing Base, as defined in the Revolving Credit Agreement,
represents certain eligible receivables and inventory of $12,464 at
December 31, 2003. The Revolving Credit Agreement also contains loan
covenants requiring fixed charge coverage, maximum leverage and a
limit on capital expenditures. At December 31, 2003, the Company was
in compliance with all covenant requirements.
The Company also has a Revolving Credit Agreement with a bank in
Europe. The agreement expires May 31, 2005. The agreement is secured
by certain assets of the Company located in Germany and allows
borrowings up to $31,448 on the Revolving Credit Agreement, which
includes $15,750 on the
F-15 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
factoring agreement. The borrowing under the Revolving Credit Agreement
is limited by the "Borrowing Base." The Borrowing Base, as defined in
the Revolving Credit Agreement, represents certain eligible receivables
and inventory of $20,939 at December 31, 2003. At December 31, 2003
there was $13,766 of borrowings outstanding.
Additionally, as part of the transaction discussed in note 1, the
Company has a Standby Credit Facility (Facility) with TNEC.
Borrowings under the Facility are due no later than December 31, 2007
with accrued interest payable at Prime plus 4%. At December 31, 2003,
the amount due to TNEC under the Facility was $3,000 plus $206 of
accrued interest. Accrued interest payable to TNEC is included in
accrued expenses.
The Company has entered into a mortgage with a bank in 2002, the
proceeds of which have been used to purchase land and the
construction of a manufacturing facility in Germany. The maximum
amount of the mortgage will be $9,963, currently there is $9,433
outstanding at December 31, 2003.
The Company's remaining borrowings of $846 relate to short-term loans
from banks located in China.
The Company has additional short-term lines of credit of $8,660, with
additional availability of $4,666 for borrowing at December 31, 2003.
(8) MEMBERS EQUITY
On May 7, 2002, nash_elmo Corporation and TNEC (collectively the
Members) entered into an Amended and Restated Liability Company
Agreement (the LLC Agreement), which governs the relative rights and
duties of the members. The ownership interests of the members in the
Company consist of Class A units. As of December 31, 2003, the
Company's Class A units were owned 64.25% by Audax and 35.75% by
TNEC.
In 2002, the Company adopted a stock option plan (the Plan) to which
certain officers and key employees of the Company were granted an
option to purchase Class O units in the Company at an exercise price
equal to $1 for the first half of options granted and at $2 for the
remaining options granted. The exercise price of the options of $1
was determined based on the fair value of the Class A units upon
closing. The plan authorizes grants of options to purchase up to
2,282,667 units. All options vest and become fully exercisable over a
five year period; 40% vest on May 7, 2004 and 20% for each year
thereafter until May 7, 2007. Additionally, all Class O units shall
immediately vest with respect to 100% of the unvested Class O units
immediately prior to a sale of the Company, if the employee is still
employed by the Company. These options are exercisable when the
option has vested and the grantee has paid the full price for the
Class O units. The options will expire after the earlier of the tenth
anniversary of the date of the agreement or the sale of the Company.
Additionally, if an option is not vested upon termination the option
will expire and be forfeited on such date and any part of any option
that is vested on the termination date shall also expire and be
forfeited to the extent that the option has not been exercised on the
sixty-fifth day following the termination date. All Class O units are
nonvoting.
Also in 2002, the Company entered into purchase agreements with
certain officers and employees of the Company whereby these officers
and employees of the Company have the right to purchase 2,472,889
Class P units. These units vest and become fully exercisable over a
five year period; 40% vest on May 7, 2004 and 20% for each year
thereafter until May 7, 2007. All Class P units are nonvoting.
Additionally, all Class P units shall immediately vest with respect
to 100% of the unvested Class P units
F-16 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
immediately prior to a sale of the Company, if the employee is still
employed by the Company. For purposes of distributions, a Class P unit
will not be entitled to distributions until the unit has vested in
accordance with the Class P unit agreement and the employee has
satisfied the Return Threshold, as defined. The Return Threshold,
as defined in the LLC agreement, is $1 for the first half of units
granted and $2 for the remaining units granted.
As a nonpublic entity, the Company utilized the minimum value method
to determine the fair value of the units on the date of grant. The
per share weighted average fair value of the Class O and Class P
units granted on March 31, 2003 was $0.63, estimated on the date of
grant using the minimum value method with the following assumptions:
risk-free interest rate of 3.0%; no assumed volatility; and expected
life of five years. The units granted in 2003 had exercise prices of
$1, and $2, which is more than the fair market value on the grant
date. As a result, the Company did not record compensation cost for
the options granted.
Stock option activity during the periods are as follows:
TOTAL NUMBER OF
SHARES CLASS P UNITS CLASS O UNITS
--------------- ------------- -------------
BALANCE AT DECEMBER 31, 2002 3,836,833 2,472,888 1,363,945
Granted 162,000 -- 162,000
Exercised -- -- --
Forfeited (72,000) -- (72,000)
Expired -- -- --
--------- --------- ---------
BALANCE AT DECEMBER 31, 2003 3,926,833 2,472,888 1,453,945
========= ========= =========
Distributions shall be made to the Class A unitholders, Class O
unitholders and Class P unitholders pro-rata among such holders based
on the total number of Class A units, Class O units, and Class P
units taken as a whole.
F-17 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
(9) INCOME TAXES
The components of income before taxes are as follows:
2003
------
Domestic $ (859)
Foreign 8,619
------
Income before taxes 7,760
======
The following table summarizes the difference between the U.S.
federal statutory rate and the Company's effective income tax rate
for financial statement purposes for the year ended December 31,
2003:
2003
------
U.S. federal statutory tax rate 35.0%
U.S. loss allocated to members 6.5
Benefit due to lower foreign taxes (27.0)
------
Effective tax rate 14.5%
======
The Company is a Limited Liability Company, taxable as a partnership
for U.S. tax purposes and, as such, income, deductions, and credits
are allocated to the members' based on their percentage of ownership.
However, certain foreign affiliates pay income taxes in their
respective tax jurisdictions. The Company had foreign income tax
expense of $1,122 in 2003. There were no significant reconciling
items between the foreign affiliates' local effective tax rate and
the local statutory tax rate, with the exception of valuation
allowances recorded against net operating losses in Canada,
Netherlands and Germany (discussed below). These amounts were
comprised of current income tax expense of $1,043 and deferred income
tax expense of $79 for the year ended December 31, 2003.
At December 31, 2003, the Company had net operating tax loss
carryforwards for Canadian, Netherlands and German income tax
purposes of $4,051, $1,235 and $4,141, respectively, which can be
carried forward seven years for Canada and indefinitely for
Netherlands and Germany. The Company has established a valuation
allowance in the amount of $1,714 related to the 2003 net operating
losses based upon our projections of future taxable income.
Subsequently recognized benefits related to the 2003 valuation
allowance, if any, of approximately $1,500 will be applied to reduce
goodwill.
F-18 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Management
believes it is more likely than not that the Company will realize the
benefits of these deductible differences, net of the existing valuation
allowances at December 31, 2003.
The components of the net deferred tax assets (liabilities) at
December 31, 2003 are as follows:
2003
-------
Inventories $ 558
Restructuring charges 80
Net operating loss carryforward 3,176
Other 156
-------
Total gross deferred tax assets 3,970
Valuation allowance (1,714)
-------
Net deferred tax assets 2,256
-------
Unrealized foreign exchange gain (1,364)
Other (782)
-------
Total gross deferred tax liabilities (2,146)
-------
Net deferred tax asset $ 110
=======
Deferred taxes are not recognized for temporary differences related
to investments in foreign subsidiaries that are essentially permanent
in duration. Determination of the amount of unrecognized deferred
taxes related to these investments is not practicable.
Neither the United States nor German income taxes have been provided
on the undistributed earnings of the consolidated foreign
subsidiaries of approximately $24,582 at December 31, 2003, as the
Company intends to permanently reinvest the majority of such
earnings.
(10) EMPLOYEE BENEFITS
The Company maintains a trusteed noncontributory defined contribution
pension plan which is fully funded covering all domestic employees
who have attained age 20-1/2, with 1-1/2 years of employment.
Contributions are made to the Plan based upon a percentage of annual
salary. Plans are also maintained for employees of certain foreign
subsidiaries. Pension expense related to these plan's aggregated
$1,292 in 2003.
Additionally, the Company has a defined benefit pension plan covering
certain foreign subsidiary employees. The benefits are based on years
of service and the employee's compensation in the highest five
consecutive fiscal years preceding retirement.
F-19 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
Financial data pertaining to the defined benefit plan as of December 31, 2003
follows:
Change in Benefit Obligation
Benefit obligation at beginning of year $ 5,495
Service cost 362
Interest cost 395
Actuarial loss 960
Currency translation adjustment 1,108
-------
Benefit obligation at end of year $ 8,320
=======
Change in Plan Assets
Fair value of assets at beginning of year $ 2,884
Actual return on plan assets 67
Employer contributions 84
Currency translation adjustment 571
-------
Fair value of assets at end of year $ 3,606
=======
Funded Status
Benefit obligation $(8,320)
Fair value of assets 3,606
Unrecognized net actuarial loss 960
-------
Net amount recognized $(3,754)
=======
Amount recognized in consolidated balance sheet
Pension asset $ 3,606
Accrued pension liability (7,360)
-------
Net amount recognized $(3,754)
=======
Components of Net Periodic Cost
Service cost $ 362
Interest cost 395
Expected return on assets (67)
Other 20
-------
Net amount recognized $ 710
=======
Weighted average assumptions as of December 31:
Discount rate 5.25%
Expected return on plan assets 2.00%
Rate of compensation increase 2.25%
F-20 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
The pension assets are maintained in the pension trust and limited to
fulfilling the Company's pension obligations.
(11) COMMITMENTS AND CONTINGENCIES
The Company is obligated under certain noncancelable operating leases
for equipment and office space at a number of locations, several of
which are owned by TNEC, an affiliated Company. Total operating lease
expense was $4,205 in 2003, including $277 which was paid to TNEC.
Future minimum lease payments under noncancelable operating leases at
December 31, 2003 are as follows:
TNEC OTHER TOTAL
---- ----- -----
Years:
2004 $277 4,017 4,294
2005 277 2,954 3,231
2006 277 2,751 3,028
2007 105 2,369 2,474
2008 -- 2,130 2,130
Thereafter -- 2,433 2,433
---- ------ ------
$936 16,654 17,590
==== ====== ======
The Company is party to certain financial guarantees, not reflected
on the balance sheet. These guarantees arose in the normal course of
business and relate to customer advance payments and performance
guarantees. Should the Company be unable to complete a customer
project, the Company would be obligated to reimburse such customer
for its advance payment. These guarantees expire at the completion of
the project. The Company also guarantees the performance of its
vacuum pumps to meet certain specifications related to the
performance of the vacuum pump, the expiration of these guarantees
vary based on the agreements. At December 31, 2003, the customer
advance guarantees total $177 and the guarantees related to
performance was $4,624. The Company currently believes the risk of
loss to be minimal.
During 2003, the Company entered into an agreement with an insurance
company for the issuance of surety bonds on behalf of the Company.
The agreement allows for up to $5,000 of surety bonds to be issued in
the aggregate. At December 31, 2003, the surety bonds outstanding
totaled $1,064.
Pursuant to the Audax Advisory Services Agreement and the TNEC
Advisory Services Agreement (Advisory Services Agreements), the
Company shall pay $500 to Audax and $250 to TNEC, plus out-of-pocket
expenses incurred by Audax, TNEC and / or its affiliates that are
incurred in rendering services under the Advisory Services
Agreements. As part of the Advisory Services Agreement, Audax and
TNEC will perform services as requested by the Company's board of
managers. The Advisory Services Agreement between the Company and
Audax is in effect for five years commencing on May 7, 2002 and shall
be extended for an additional year at the end of each year unless the
Company or Audax provides written notice to not extend the agreement
within ninety days prior to the end of such year. The Advisory
Services Agreement between TNEC and the Company is in effect for so
long as the Audax Advisory Services Agreement is in effect. Under the
Advisory Services Agreements, the Company paid Audax $500 and $25 and
TNEC $250 and $0 for advisory services and out-of-pocket expenses,
respectively, in 2003. Additionally, in 2003, the Company has paid
Audax $114 in exchange
F-21 (Continued)
nash_elmo HOLDINGS LLC
Notes to Consolidated Financial Statements
December 31, 2003
(In thousands)
for Audax providing the Company with a restructuring officer plus $31
of travel expenses. The travel expenses have been included in the
integration line item for the year ended December 31, 2003.
(12) RESTRUCTURING PLANS
In May 2002 the Company adopted a long-term restructuring and
integration plan in connection with the formation of the Company
which included, combining sales, general administration, and
engineering/research and development functions and closing of certain
manufacturing locations. As part of the plan, the Company plans on
reducing its worldwide headcount by 146 employees. During 2003 the
Company revised its restructuring and integration estimates. The
costs are comprised of the following:
LEASE AND
SEVERANCE OTHER PROPERTY
COSTS COSTS TOTAL
--------- -------------- -----
Balance at December 31, 2002 $2,336 377 2,713
Provisions/Adjustments (542) 43 (499)
Payments 1,629 243 1,872
------ ----- -----
Balance at December 31, 2003 $ 165 177 342
====== ===== =====
In accordance with the purchase method of accounting, the
restructuring accrual was considered as an acquisition cost in the
May 7, 2002 opening balance sheet.
Additionally, the Company has incurred additional integration costs
related to the combination of the business of TNEC and elmo. These
costs, among others, consist principally of employee relocation,
professional fees for establishing new legal entities, systems
rationalization and expenses incurred for new brand image. These
costs are included in the operating income of the Company.
F-22
DISCUSSION OF UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS
GENERAL DESCRIPTION
The following unaudited pro forma consolidated statements of operations
are based on the historical consolidated statement of operations of Gardner
Denver, Inc. ("Gardner Denver" or the "Company") and the historical
consolidated statement of operations of nash_elmo Holdings, LLC ("Nash
Elmo") and Syltone plc ("Syltone") adjusted to give effect to the Nash Elmo
and Syltone acquisitions and the financing for the Nash Elmo and Syltone
acquisitions as if each had occurred on January 1, 2003. The historical
statement of operations of Nash Elmo is included in this Form 8-K/A. The
historical consolidated statement of operations of Syltone and related pro
forma financial information were included in a previous Form 8-K/A filing
dated January 2, 2004 and filed on March 11, 2004.
NASH ELMO ACQUISITION FINANCING AND PURCHASE PRICE ALLOCATION
On September 1, 2004, the Company entered into a $375.0 million amended
and restated credit agreement (the "Credit Agreement"). The Credit Agreement
provided the Company with access to senior secured credit facilities
including a $150.0 million five-year Term Loan and a $225.0 million
five-year Revolving Line of Credit (the "Credit Line"). On September 1,
2004, the Company borrowed $280.0 million ($150.0 million under the Term
Loan and $130.0 million under the Credit Line) of which $50.3 million was
used to retire debt outstanding under its previously existing Term Loan
($41.3 million) and Credit Line ($9.0 million). Of the remaining proceeds,
$226.2 million ($117.5 million from the Credit Line and $108.7 million from
the Term Loan) was used or designated for use in conjunction with the
acquisition of Nash Elmo and related direct acquisition costs.
The aggregate purchase price of $224.5 million (net of $12.1 million
cash acquired and including $10.4 million of bank debt assumed and $2.9
million of direct acquisition costs) has been allocated primarily to
receivables ($35.7 million); inventory ($45.7 million); property, plant and
equipment ($34.5 million); intangible assets ($178.8 million); other assets
($7.2 million); accounts payable and accrued liabilities ($46.0 million);
net deferred income tax liabilities ($28.0 million) and other long-term
liabilities ($3.4 million), based on their estimated fair values at the date
of acquisition. This allocation reflects the Company's preliminary estimates
of the purchase price allocation and is subject to change upon completion of
appraisals in 2005. Further, other assets and liabilities may be identified
to which a portion of the purchase price could be allocated. The Company has
not yet performed a detailed analysis to identify and measure additional
adjustments that may be necessary to conform Nash Elmo's accounting policies
with the Company's accounting policies.
F-23
The following table summarizes the preliminary fair values of the intangible
assets acquired in the Nash Elmo acquisition:
Amortized intangible assets:
Customer lists and relationships $ 44.0
Other 12.2
Unamortized intangible assets:
Goodwill 94.6
Trademarks 28.0
------
Total intangible assets $178.8 million
======
The preliminary weighted average amortization period for customer lists and
relationships and other amortized intangible assets is 20 years and 5 years,
respectively.
PRO FORMA ADJUSTMENTS
The unaudited pro forma consolidated statements of operations reflect
pro forma adjustments that are described in the accompanying notes and are
based on available information and certain assumptions the Company believes
are reasonable but are subject to change. In the Company's opinion, all
adjustments that are necessary to fairly present the pro forma information
have been made. The unaudited pro forma consolidated statements of
operations do not purport to represent what the Company's results of
operations would actually have been if the Nash Elmo acquisition and the
financing for the Nash Elmo acquisition had occurred on such dates or to
project the Company's results of operations for any future date or period.
The unaudited pro forma consolidated statements of operations reflect
the Company's preliminary estimates of the allocation of the purchase price
for the Nash Elmo acquisition and are subject to change. The unaudited pro
forma consolidated statements of operations do not reflect any operating
efficiencies and cost savings that the Company may achieve with respect to
the combined entities nor any expense associated with achieving these
benefits.
NASH ELMO AND GARDNER DENVER HISTORICAL FINANCIAL STATEMENTS
The historical consolidated statement of operations of Nash Elmo in the
pro forma consolidated statement of operations is based on Nash Elmo's
consolidated financial statements. You should read the following unaudited
pro forma consolidated statements of operations in conjunction with the
Company's historical audited consolidated financial statements, the related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which were included in Gardner Denver's Form 10-K
for the year ended December 31, 2003 and incorporated herein by reference,
the Company's unaudited condensed financial statements, the related notes
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations," which were included in Gardner Denver's Form 10-Q for the
quarterly period ended September 30, 2004 and incorporated herein by
reference, and Nash Elmo's historical audited consolidated financial
statements and the related notes, included in this Form 8-K/A.
F-24
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
GARDNER GARDNER DENVER,
DENVER AND SYLTONE AND
SYLTONE PRO FORMA NASH ELMO
PRO FORMA (e) NASH ELMO ADJUSTMENTS PRO FORMA
--------------- --------------- --------------- ------------------
Revenues.................................... $ 570,079 $ 212,449 $ -- $ 782,528
Costs and expenses:
Cost of sales (excluding depreciation and
amortization)........................... 391,396 132,226 -- (a) 523,622
Depreciation and amortization............. 19,918 8,239 4,000 (b) 32,157
Selling and administrative expenses....... 120,659 61,944 -- 182,603
Interest expense.......................... 8,943 4,334 5,053 (c) 18,330
Other income, net......................... (3,110) (2,054) -- (5,164)
--------------- ---------------- --------------- -----------------
Income before income taxes.................. 32,273 7,760 (9,053) 30,980
Provision for income taxes.................. 10,537 1,122 (1,126) (d) 10,533
--------------- ---------------- --------------- -----------------
Net income.................................. $ 21,736 $ 6,638 $ (7,927) $ 20,447
=============== ================ =============== =================
Basic earnings per share.................... $ 1.35 $ 1.27
=============== =================
Diluted earnings per share.................. $ 1.33 $ 1.25
=============== =================
Basic weighted average number of shares
outstanding............................... 16,061 16,061
=============== =================
Diluted weighted average number of shares
outstanding............................... 16,312 16,312
=============== =================
See accompanying notes to unaudited pro forma consolidated statement of operations
F-25
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) The pro forma cost of sales does not reflect the impact of the one-time
adjustment related to the capitalization of the estimated profit in
inventory acquired with Syltone or Nash Elmo.
(b) Reflects the change in Nash Elmo's depreciation and amortization
expense due to the depreciation of the step-up in its property, plant
and equipment to fair value over estimated average useful lives ranging
from 3 to 25 years, and the amortization of the separately identifiable
intangible assets with finite lives at estimated fair values over
estimated useful lives ranging from 5 to 20 years. This adjustment is
based on our estimated allocation of the purchase price for the Nash
Elmo acquisition. We will base the final allocation on appraisals that
have not yet been completed.
(c) Reflects the following interest expense on the estimated incremental
borrowings necessary to finance the Nash Elmo acquisition (as discussed
above under "Nash Elmo Acquisition Financing and Purchase Price
Allocation"):
Interest on the incremental Credit Line borrowing ($117,480 at 3.75%)........... $ 4,406
Interest on the incremental Term Loan borrowing ($108,750 at 3.75%)............. 4,078
Incremental interest on our previously existing average borrowings (excluding
the Nash Elmo acquisition related borrowings) due to an increase in rates on
borrowings and commitments resulting from the increased leverage from the
Nash Elmo acquisition......................................................... 320
Net impact on amortization of debt issue costs related to the financing for the
Nash Elmo acquisition......................................................... 350
Elimination of historical interest expense on Nash Elmo's debt repaid in
conjunction with the Nash Elmo acquisition.................................... (4,101)
-----------
Total interest expense adjustment........................................... $ 5,053
===========
For purposes of determining the adjustment to interest expense in the
pro forma statement of operations, the applicable LIBOR rate plus a
margin of 200 basis points was used for the U.S. dollar denominated
borrowing under our Credit Line and Term Loan.
(d) Reflects the income tax effect of the pro forma adjustments at the
combined effective income tax rate for Gardner Denver and Nash Elmo of
34.0%.
F-26
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(e) On January 2, 2004, the Company effectively completed its acquisition
of Syltone, through its wholly-owned subsidiary GD First (UK) plc. The
following unaudited pro forma statement of operations for the year
ended December 31, 2003 was included as Amendment No. 1 on Form 8-K/A
filed on March 11, 2004, to provide Syltone historical financial
statements and pro forma financial information relating to the Syltone
acquisition:
GARDNER
DENVER
GARDNER PRO FORMA AND SYLTONE
DENVER SYLTONE ADJUSTMENTS PRO FORMA
-------------- -------------- -------------- --------------
Revenues................................... $ 439,530 $ 130,549 $ -- $ 570,079
Costs and expenses:
Cost of sales (excluding
depreciation and amortization)......... 307,753 83,643 -- 391,396
Depreciation and amortization............ 14,566 3,494 1,858 (a) 19,918
Selling and administrative expenses...... 85,326 35,333 -- (b) 120,659
Interest expense......................... 4,748 1,546 2,649 (c) 8,943
Other (income) expense, net.............. (3,221) 111 -- (3,110)
-------------- -------------- -------------- --------------
409,172 124,127 4,507 537,806
-------------- -------------- -------------- --------------
Income before income taxes................. 30,358 6,422 (4,507) 32,273
Provision for income taxes................. 9,715 2,294 (1,472) (d) 10,537
-------------- -------------- -------------- --------------
Net income................................. $ 20,643 $ 4,128 $ (3,035) $ 21,736
============== ============== ============== ==============
Basic earnings per share................... $ 1.29 $ 1.35
============== ==============
Diluted earnings per share................. $ 1.27 $ 1.33
============== ==============
Basic weighted average number of
shares outstanding....................... 16,061 16,061
============== ==============
Diluted weighted average number of
shares outstanding....................... 16,312 16,312
============== ==============
(a) Reflects the change in Syltone's depreciation and
amortization expense due to the depreciation of the step-up
in its property, plant and equipment to fair value over
estimated average useful lives ranging from 3 to 25 years,
and the amortization of the separately identifiable
intangible assets with finite lives at estimated fair values
over estimated useful lives ranging from 1 to 20 years. This
adjustment is based on our estimated allocation of the
purchase price for the Syltone acquisition. We will base the
final allocation on appraisals that have not yet been
completed.
(b) The Syltone historical statement of operations includes
(pound)614 ($984) of compensation expense (pretax) related to
Syltone stock options treated as variable options under U.S.
GAAP. All of the outstanding Syltone stock options were
settled in conjunction with the Syltone acquisition. As a
result, there will be no recurring compensation expense
related to such variable Syltone stock options subsequent to
the Syltone acquisition. Notwithstanding this fact, the
compensation expense related to such variable stock options
has not been eliminated in the pro forma consolidated
statement of operations for the twelve months ended December
31, 2003.
F-27
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(c) Reflects the following interest expense on the estimated
incremental borrowings necessary to finance the Syltone
acquisition:
Interest on the incremental Credit Line borrowing ($62,219 at 2.72%)................. $ 1,695
Interest on the Loan Notes ((pound)5,168 at 3.27%)................................... 276
Incremental interest on our previously existing average borrowings (excluding
the Syltone acquisition related borrowings) due to an increase in rates on
borrowings and commitments resulting from the increased leverage from the
Syltone acquisition................................................................ 554
Amortization of debt issue costs related to the Syltone acquisition.................. 176
Elimination of historical interest expense on Syltone's U.S. dollar
denominated debt repaid in conjunction with the Syltone acquisition................ (208)
Elimination of historical interest expense on the actual Credit Line borrowing
from Nov. 10 to Dec. 31, 2003 related to the Syltone acquisition................... (354)
Elimination of the interest income earned by us on the (pound)62,416 on deposit at
UBS from Nov. 10, 2003 through Dec. 31, 2003 ...................................... 510
-----------
Total interest expense adjustment................................................ $ 2,649
===========
For purposes of determining the adjustment to interest
expense in the pro forma statement of operations, the
applicable LIBOR rate plus a margin of 145 basis points was
used for the U.S. dollar denominated borrowing under our
Credit Line. For the British pound denominated Loan Notes,
the applicable LIBOR rate less 50 basis points was used
(which is the credit spread applicable under the terms of the
Loan Notes).
The Syltone historical statement of operations includes
(pound)205 ($328) of additional interest expense (pretax)
related to interest rate swap agreements that did not meet
the criteria for hedge accounting under U.S. GAAP related to
accounting for derivatives. Effective with the Syltone
acquisition, and as part of the financing of the Acquisition,
two of the three existing interest rate swaps were settled.
The required documentation related to the remaining interest
rate swap was modified as of the effective date of the
Syltone acquisition and it is anticipated that it will fully
qualify for hedge accounting under U.S. GAAP from the
effective date of the acquisition. Notwithstanding this fact,
the interest expense related to the interest rate swaps has
not been eliminated in the pro forma consolidated statement
of operations for the twelve months ended December 31, 2003.
(d) Reflects the income tax effect of the pro forma adjustments
at the combined effective income tax rate for Gardner Denver
and Syltone of 32.7%.
F-28
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
GARDNER PRO FORMA
DENVER NASH ELMO ADJUSTMENTS PRO FORMA
-------------- -------------- -------------- --------------
Revenues.................................... $ 498,341 $ 156,317 $ -- $ 654,658
Costs and expenses:
Cost of sales (excluding depreciation and
amortization)........................... 336,457 97,066 (1,862) (a) 431,661
Depreciation and amortization............. 16,074 4,817 2,667 (b) 23,558
Selling and administrative expenses....... 106,031 40,952 -- 146,983
Interest expense.......................... 5,949 3,160 2,918 (c) 12,027
Other income, net......................... (1,756) (63) -- (1,819)
-------------- -------------- -------------- --------------
Income before income taxes.................. 35,586 10,385 (3,723) 42,248
Provision for income taxes.................. 12,099 3,028 (763) (d) 14,364
-------------- -------------- -------------- --------------
Net income.................................. $ 23,487 $ 7,357 $ (2,960) $ 27,884
============== ============== ============== ==============
Basic earnings per share.................... $ 1.26 $ 1.50
============== ==============
Diluted earnings per share.................. $ 1.23 $ 1.47
============== ==============
Basic weighted average number of shares
outstanding............................... 18,645 18,645
============== ==============
Diluted weighted average number of shares
outstanding............................... 19,032 19,032
============== ==============
See accompanying notes to unaudited pro forma consolidated statement of operations
F-29
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
(a) Reflects the one-time adjustment on cost of sales included in Gardner
Denver's 2004 financial results due to the capitalization of the
estimated manufacturing profit in inventory acquired with Syltone
($1,237) and Nash Elmo ($625).
(b) Reflects the change in Nash Elmo's depreciation and amortization
expense due to the depreciation of the step-up in its property, plant
and equipment to fair value over estimated average useful lives ranging
from 3 to 25 years, and the amortization of the separately identifiable
intangible assets with finite lives at estimated fair values over
estimated useful lives ranging from 5 to 20 years. This adjustment is
based on our estimated allocation of the purchase price for the Nash
Elmo acquisition. We will base the final allocation on appraisals that
have not yet been completed.
(c) Reflects the following interest expense on the estimated incremental
borrowings necessary to finance the Nash Elmo acquisition (as discussed
above under "Nash Elmo Acquisition Financing and Purchase Price
Allocation"):
Interest on the incremental Credit Line borrowing ($117,480 at 3.75%)........... $ 2,937
Interest on the incremental Term Loan borrowing ($108,750 at 3.75%)............. 2,719
Incremental interest on our previously existing average borrowings (excluding
the Nash Elmo acquisition related borrowings) due to an increase in rates on
borrowings and commitments resulting from the increased leverage from the
Nash Elmo acquisition......................................................... 213
Net impact on amortization of debt issue costs related to the financing for the
Nash Elmo acquisition......................................................... (117)
Elimination of historical interest expense on Nash Elmo's debt repaid in
conjunction with the Nash Elmo acquisition.................................... (2,834)
-------------
Total interest expense adjustment........................................... $ 2,918
=============
For purposes of determining the adjustment to interest expense in the
pro forma statement of operations, the applicable LIBOR rate plus a
margin of 200 basis points was used for the U.S. dollar denominated
borrowing under our Credit Line and Term Loan.
(d) Reflects the income tax effect of the pro forma adjustments at the
combined effective income tax rate for Gardner Denver and Nash Elmo of
34.0%.
F-30