Revenues for the first six months of 2007 increased $85.7 million (11 percent) to $901.3 million, compared to $815.6 million in the same period of 2006. This increase resulted from organic growth and favorable changes in foreign currency exchange rates. Incremental volume and the related benefit of increased cost leverage over a higher revenue base, and favorable sales mix, resulted in improved cost of sales as a percentage of revenues, which decreased to 66.4 percent in the first six months of 2007, compared with 67.3 percent in the same period of 2006. Cost of sales in the six-month period of 2006 was negatively impacted by the previously mentioned non-recurring increase in depreciation expense of approximately $4.1 million associated with the finalization of the fair market value of Thomas Industries' property, plant, and equipment. Declines in productivity related to acquisition integration efforts partially offset these improvements (see Selected Financial Data Schedule).
As a percentage of revenues, selling and administrative expenses improved to 18.1 percent for the first six months of 2007, from 18.8 percent in the comparable period of 2006, as a result of cost control initiatives and leveraging revenue growth. Selling and administrative expenses increased $9.6 million for the six-month period ended June 30, 2007 to $163.2 million, primarily due to unfavorable changes in foreign currency exchange rates ($6.8 million) and the $2.4 million non-recurring reduction to amortization expense in the six-month period of 2006 mentioned previously. Higher compensation and benefit costs were largely offset by cost reductions realized through integration initiatives.
Interest expense decreased $6.2 million (31 percent) to $13.6 million in the six-month period of 2007, compared to the same period of 2006, due to lower average borrowings during the period.
Income taxes increased for the six months ended June 30, 2007, compared to the same period of the previous year, due to higher pretax income, partially offset by a lower effective tax rate for the six-month period of 2007 (30.9 percent) than in the same period of 2006 (33.0 percent).
Net income increased $24.1 million (38 percent) to $87.6 million for the six months ended June 30, 2007, compared to $63.5 million for the same period of 2006. Diluted earnings per share for the six-month period of 2007 were $1.63, 37 percent higher than the same period of previous year.
Cash provided by operating activities was approximately $54 million in the six-month period of 2007, compared to approximately $23 million in the same period of 2006. The increase in cash provided by operating activities primarily reflects higher net income. The Company experienced an increase in days sales outstanding for the second quarter of 2007, primarily due to changes in product mix. Shipment delays and supply chain inefficiencies continued to negatively impact inventory turnover, which declined to 4.7 times in the three-month period of 2007 from 4.9 times in the comparable period of 2006. The Company believes opportunities for inventory reduction exist through the expanded use of lean manufacturing techniques, supply chain improvements, improved manufacturing efficiency as integration initiatives are completed and consumption of inventory previously positioned to avoid disruptions during the recent manufacturing relocations.
The Company invested approximately $17.9 million in capital expenditures during the six-month period of 2007, compared to $16.1 million in the same period of 2006. For the full-year 2007, capital spending is expected to be approximately $45 million to $50 million. Depreciation and amortization expense was approximately $27.9 million for the six months ended June 30, 2007, compared to $26.5 million in the six-month period of 2006.
Total debt as of June 30, 2007 was $367.7 million, $39.5 million less than total debt as of December 31, 2006. As of June 30, 2007, debt to total capital was 27.4 percent, compared to 32.3 percent on December 31, 2006 and 42.0 percent on June 30, 2006.
Cautionary Statement Regarding Forward-Looking Statements
All of the statements in this release, other than historical facts, are forward-looking statements made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of 1995, including, without limitation, the statements made under the "CEO's Comments Regarding Results," "Outlook," "Second Quarter Results" and "Six Month Results" sections. As a general matter, forward-looking statements are those focused upon anticipated events or trends, expectations, and beliefs relating to matters that are not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. These uncertainties and factors could cause actual results to differ materially from those matters expressed in or implied by such forward-looking statements.
The following uncertainties and factors, among others, could affect future performance and cause actual results to differ materially from those expressed in or implied by forward-looking statements: (1) the Company's exposure to economic downturns and market cycles, particularly the level of oil and natural gas prices and oil and natural gas drilling production, which affect demand for Company's petroleum products, and industrial production and manufacturing capacity utilization rates, which affect demand for the Company's compressor and vacuum products; (2) the risks of large or rapid increases in raw material costs or substantial decreases in their availability, and the Company's dependence on particular suppliers, particularly iron casting and other metal suppliers; (3) the risks associated with intense competition in the Company's markets, particularly the pricing of the Company's products; (4) the ability to effectively integrate acquisitions, including product and manufacturing rationalization initiatives, and realize anticipated cost savings, synergies and revenue enhancements; (5) the ability to attract and retain quality executive management and other key personnel; (6) the ability to continue to identify and complete other strategic acquisitions and effectively integrate such acquisitions to achieve desired financial benefits; (7) economic, political and other risks associated with the Company's international sales and operations, including changes in currency exchange rates (primarily between the U.S. dollar, the Euro, the British pound and the Chinese yuan); (8) the risks associated with potential product liability and warranty claims due to the nature of the Company's products; (9) the risks associated with environmental compliance costs and liabilities; (10) the risks associated with pending asbestos and silicosis personal injury lawsuits; (11) risks associated with the Company's indebtedness and changes in the availability or costs of new financing to support the Company's operations and future investments; (12) the risks associated with enforcing the Company's intellectual property rights and defending against potential intellectual property claims; (13) the ability to avoid employee work stoppages and other labor difficulties; (14) changes in discount rates used for actuarial assumptions in pension and other postretirement obligation and expense calculations and market performance of pension plan assets; and (15) the risk of possible future charges if the Company determines that the value of goodwill and other intangible assets, representing a significant portion of its total assets, is impaired. The Company does not undertake, and hereby disclaims, any duty to update these forward-looking statements, although its situation and circumstances may change in the future.
Comparisons of the financial results for the three and six-month periods ended June 30, 2007 and 2006 follow.
Gardner Denver will broadcast a conference call to discuss second quarter earnings on Thursday, July 26, 2007 at 9:30 a.m. Eastern time through a live webcast. This free webcast will be available in listen-only mode and can be accessed, for up to ninety days following the call, through the Investor Relations page on the Gardner Denver website (.gardnerdenver点com) or through Thomson StreetEvents at .earnings点com.
Gardner Denver, Inc., with 2006 revenues of $1.7 billion, is a leading worldwide manufacturer of reciprocating, rotary and vane compressors, liquid ring pumps and blowers for various industrial and transportation applications, pumps used in the petroleum and industrial markets, and other fluid transfer equipment serving chemical, petroleum, and food industries. Gardner Denver's news releases are available by visiting the Investor Relations page on the Company's website (.gardnerdenver点com).
GARDNER DENVER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts and percentages)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
% %
2007 2006 Change 2007 2006 Change
Revenues $459,869 $416,312 10 $901,287 $815,606 11
Costs and expenses:
Cost of sales (1) 306,037 281,989 9 598,528 548,599 9
Selling and
administrative
expenses (1) 82,324 75,297 9 163,153 153,565 6
Interest expense 6,858 9,580 (28) 13,595 19,812 (31)
Other income, net (236) (453) (48) (789) (1,140) (31)
Total costs
and expenses 394,983 366,413 8 774,487 720,836 7
Income before
income taxes 64,886 49,899 30 126,800 94,770 34
Provision for
income taxes 20,115 16,915 19 39,213 31,274 25
Net income $ 44,771 $ 32,984 36 $ 87,587 $ 63,496 38
Basic earnings
per share $ 0.84 $ 0.63 33 $ 1.65 $ 1.22 35
Diluted earnings
per share $ 0.83 $ 0.62 34 $ 1.63 $ 1.19 37
Basic weighted
average number
of shares
outstanding 53,147 52,388 52,951 52,249
Diluted weighted
average number
of shares
outstanding 54,043 53,579 53,890 53,420
Shares outstanding
as of June 30 53,456 52,490
(1) Current and prior year results reflect the inclusion of depreciation
and amortization expense in cost of sales and selling and
administrative expenses.
GARDNER DENVER, INC.
CONDENSED BALANCE SHEET ITEMS
(in thousands, except percentages)
(Unaudited)
%
6/30/2007 3/31/2007 Change 12/31/2006
Cash and equivalents $71,483 $75,916 (6) $62,331
Accounts receivable, net 301,809 281,862 7 261,115
Inventories, net 258,750 245,176 6 225,067
Total current assets 666,531 636,664 5 579,718
Total assets 1,832,623 1,801,824 2 1,750,231
Short-term borrowings and
current maturities of
long-term debt 26,639 27,595 (3) 23,789
Accounts payable and accrued
liabilities (1) 290,601 310,873 (7) 293,178
Total current liabilities (1) 317,240 338,468 (6) 316,967
Long-term debt, less current
maturities 341,091 363,006 (6) 383,459
Total liabilities 857,772 896,558 (4) 897,701
Total stockholders' equity $974,851 $905,266 8 $852,530
(1) In connection with the adoption of FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of
FASB Statement No. 109" effective January 1, 2007, the liability
established for unrecognized income tax benefits relative to matters
not expected to be resolved within twelve months at June 30, 2007 has
been classified as a non-current liability. The balance sheet at
December 31, 2006 was reclassified to conform to the current
presentation and, accordingly, approximately $9.4 million of the
liability for unrecognized tax benefits at December 31, 2006 was
reclassified from current liabilities to non-current liabilities.
GARDNER DENVER, INC.
BUSINESS SEGMENT RESULTS
(in thousands, except percentages)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
% %
2007 2006 Change 2007 2006 Change
Compressor and Vacuum
Products
Revenues $354,394 $325,402 9 $693,251 $643,835 8
Operating earnings 41,350 33,751 23 80,312 69,559 15
% of revenues 11.7% 10.4% 11.6% 10.8%
Orders 358,091 344,260 4 725,569 677,957 7
Backlog 393,487 342,866 15 393,487 342,866 15
Fluid Transfer
Products
Revenues 105,475 90,910 16 208,036 171,771 21
Operating earnings 30,158 25,275 19 59,294 43,883 35
% of revenues 28.6% 27.8% 28.5% 25.5%
Orders 125,075 110,437 13 199,657 198,531 1
Backlog 178,839 193,140 (7) 178,839 193,140 (7)
Reconciliation of
Segment Results
to Consolidated
Results
Compressor and Vacuum
Products operating
earnings $41,350 $33,751 $80,312 $69,559
Fluid Transfer
Products operating
earnings 30,158 25,275 59,294 43,883
Total segment
operating earnings 71,508 59,026 139,606 113,442
% of revenues 15.5% 14.2% 15.5% 13.9%
Interest expense 6,858 9,580 13,595 19,812
Other income, net (236) (453) (789) (1,140)
Income before income
taxes $64,886 $49,899 $126,800 $94,770
% of revenues 14.1% 12.0% 14.1% 11.6%
The Company has determined its reportable segments in accordance with
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company evaluates
the performance of its reportable segments based on income before interest
expense, other income, net, and income taxes. Reportable segment
operating earnings (defined as revenues less cost of sales and selling and
administrative expenses) and segment operating margin (defined as segment
operating earnings divided by revenues) are indicative of short-term
operating performance and ongoing profitability. Management closely
monitors the operating earnings of its reportable segments to evaluate
past performance, management performance and compensation, and actions
required to improve profitability.
Three Months Ended Six Months Ended
June 30, June 30,
% %
$ Millions Change $ Millions Change
Compressor and Vacuum Products
2006 Revenues 325.4 643.8
Effect of currency exchange rates 13.6 4 29.7 5
Organic growth 15.4 5 19.8 3
2007 Revenues 354.4 9 693.3 8
2006 Orders 344.3 678.0
Effect of currency exchange rates 14.0 4 32.0 5
Organic growth (0.2) - 15.6 2
2007 Orders 358.1 4 725.6 7
Backlog as of 06/30/06 342.9
Effect of currency exchange rates 15.1 4
Organic growth 35.5 11
Backlog as of 06/30/07 393.5 15
Fluid Transfer Products
2006 Revenues 90.9 171.8
Effect of currency exchange rates 1.5 2 3.4 2
Organic growth 13.0 14 32.8 19
2007 Revenues 105.4 16 208.0 21
2006 Orders 110.4 198.5
Effect of currency exchange rates 4.2 4 6.5 3
Organic growth 10.5 9 (5.3) (2)
2007 Orders 125.1 13 199.7 1
Backlog as of 06/30/06 193.1
Effect of currency exchange rates 3.7 2
Organic growth (18.0) (9)
Backlog as of 06/30/07 178.8 (7)
Consolidated Revenues
2006 416.3 815.6
Effect of currency exchange rates 15.1 4 33.1 4
Organic growth 28.4 6 52.6 7
2007 459.8 10 901.3 11
(1) Segment operating earnings (defined as revenues less cost of sales and
selling and administrative expenses), and segment operating margin
(defined as segment operating earnings divided by segment revenues)
are indicative of short-term operational performance and ongoing
profitability. For a reconciliation of segment operating earnings to
consolidated income before income taxes, see "Business Segment
Results."
Denver, Inc.
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