UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-13215

GARDNER DENVER, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		76-0419383 (I.R.S. Employer Identification No.)

1500 Liberty Ridge Drive, Suite 3000
Wayne, Pennsylvania 19087
(Address of principal executive offices and Zip Code)

(610) 249-2000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 52,280,052 shares of Common Stock, par value $0.01 per share, as of April 29, 2011.

 

 

GARDNER DENVER, INC.
Table of Contents

		Page
PART I — FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Statements of Operations			3
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Cash Flows			5
Notes to Condensed Consolidated Financial Statements			6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3 Quantitative and Qualitative Disclosures About Market Risk			40
Item 4 Controls and Procedures			42
PART II — OTHER INFORMATION
Item 1 Legal Proceedings			43
Item 1A Risk Factors			43
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 6 Exhibits			43
SIGNATURES			44
INDEX TO EXHIBITS			45
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

		Three Months Ended
		March 31,
		2011				2010
Revenues		$	531,853			$	422,164
Cost of sales			347,397				288,357
Gross profit			184,456				133,807
Selling and administrative expenses			96,021				87,694
Other operating expense (income), net			1,612				(1,351	)
Operating income			86,823				47,464
Interest expense			5,347				6,116
Other income, net			(962	)			(635	)
Income before income taxes			82,438				41,983
Provision for income taxes			22,539				9,730
Net income			59,899				32,253
Less: Net income attributable to noncontrolling interests			421				295
Net income attributable to Gardner Denver		$	59,478			$	31,958
Net earnings per share attributable to Gardner Denver common stockholders
Basic earnings per share		$	1.14			$	0.61
Diluted earnings per share		$	1.13			$	0.61
Cash dividends declared per common share		$	0.05			$	0.05

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)

		March 31,				December 31,
		2011				2010
Assets
Current assets:
Cash and cash equivalents		$	185,305			$	157,029
Accounts receivable (net of allowance of $11,654 at March 31, 2011 and $11,531 at December 31, 2010)			398,736				369,860
Inventories, net			295,586				241,485
Deferred income taxes			30,881				34,628
Other current assets			31,177				25,535
Total current assets			941,685				828,537
Property, plant and equipment (net of accumulated depreciation of $353,309 at March 31, 2011 and $338,010 at December 30, 2010)			287,883				286,563
Goodwill			586,156				571,796
Other intangibles, net			297,091				289,588
Other assets			51,338				50,614
Total assets		$	2,164,153			$	2,027,098
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt		$	37,622			$	37,228
Accounts payable			183,539				143,331
Accrued liabilities			193,974				179,041
Total current liabilities			415,135				359,600
Long-term debt, less current maturities			245,721				250,682
Postretirement benefits other than pensions			13,408				13,678
Deferred income taxes			64,375				62,157
Other liabilities			147,453				151,308
Total liabilities			886,092				837,425
Stockholders’ equity:
Common stock, $0.01 par value; 100,000,000 shares authorized; 52,240,515 and 52,181,335 shares outstanding at March 31, 2011 and December 31, 2010, respectively			596				595
Capital in excess of par value			599,362				591,988
Retained earnings			762,557				705,699
Accumulated other comprehensive income			92,177				61,425
Treasury stock at cost; 7,351,869 and 7,268,653 shares at March 31, 2011 and December 31, 2010, respectively			(188,729	)			(182,544	)
Total Gardner Denver stockholders’ equity			1,265,963				1,177,163
Noncontrolling interests			12,098				12,510
Total stockholders’ equity			1,278,061				1,189,673
Total liabilities and stockholders’ equity		$	2,164,153			$	2,027,098

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

		Three Months Ended
		March 31,
		2011				2010
Cash Flows From Operating Activities
Net income		$	59,899			$	32,253
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			14,921				15,629
Foreign currency transaction loss (gain), net			1,245				(1,001	)
Net loss (gain) on asset dispositions			716				(310	)
Stock issued for employee benefit plans			476				971
Stock-based compensation expense			2,334				1,857
Excess tax benefits from stock-based compensation			(1,513	)			(1,489	)
Deferred income taxes			149				3,247
Changes in assets and liabilities:
Receivables			(19,907	)			(14,798	)
Inventories			(47,055	)			(4,585	)
Accounts payable and accrued liabilities			47,671				(6,545	)
Other assets and liabilities, net			(11,091	)			1,459
Net cash provided by operating activities			47,845				26,688
Cash Flows From Investing Activities
Capital expenditures			(8,030	)			(4,759	)
Disposals of property, plant and equipment			492				187
Other, net			(21	)			—
Net cash used in investing activities			(7,559	)			(4,572	)
Cash Flows From Financing Activities
Principal payments on short-term borrowings			(6,595	)			(3,505	)
Proceeds from short-term borrowings			3,646				7,307
Principal payments on long-term debt			(6,578	)			(24,711	)
Proceeds from long-term debt			10				8,010
Proceeds from stock option exercises			3,037				7,339
Excess tax benefits from stock-based compensation			1,513				1,489
Purchase of treasury stock			(6,169	)			(8,841	)
Cash dividends paid			(2,622	)			(2,624	)
Other			(1,024	)			(1,001	)
Net cash used in financing activities			(14,782	)			(16,537	)
Effect of exchange rate changes on cash and cash equivalents			2,772				(2,492	)
Net increase in cash and cash equivalents			28,276				3,087
Cash and cash equivalents, beginning of year			157,029				109,736
Cash and cash equivalents, end of period		$	185,305			$	112,823

The accompanying notes are an integral part of these condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and amounts described in millions)
(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

     The accompanying condensed consolidated financial statements include the accounts of Gardner Denver, Inc. and its majority-owned subsidiaries (collectively referred to herein as “Gardner Denver” or the “Company”). Certain prior year balance sheet items have been reclassified to conform to the current year presentation. In consolidation, all significant intercompany transactions and accounts have been eliminated.

     The financial information presented as of any date other than December 31, 2010 has been prepared from the books and records of the Company without audit. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial statements.

     The unaudited interim condensed consolidated financial statements should be read in conjunction with the complete consolidated financial statements and notes thereto included in Gardner Denver’s Annual Report on Form 10-K for the year ended December 31, 2010.

     The results of operations for the three-month period ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year. The balance sheet at December 31, 2010 has been derived from the audited financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements.

     Other than as specifically indicated in these “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q, the Company has not materially changed its significant accounting policies from those disclosed in its Form 10-K for the year ended December 31, 2010.

New Accounting Standards

Recently Adopted Accounting Pronouncements

     In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 updates the existing multiple-element revenue arrangements guidance currently included under FASB Accounting Standards

Codification (“ASC”) 605-25, Revenue Recognition, Multiple-Element Arrangements. The revised guidance primarily provides two significant changes: (i) eliminates the need for objective and reliable evidence of fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and (ii) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance expands the disclosure requirements for revenue recognition. ASU 2009-13 was effective for fiscal years beginning on or after June 15, 2010. Adoption of this guidance in the first quarter of 2011 did not have a material effect on the Company’s results of operations, financial position and cash flows.

     In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). This update requires the following new disclosures: (i) the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and a description of the reasons for the transfers; and (ii) a reconciliation for fair value measurements using significant unobservable inputs (Level 3), including separate information about purchases, sales, issuance, and settlements. The update also clarifies existing requirements about fair value measurement disclosures and disclosures about inputs and valuation techniques. The new disclosures and clarifications of existing disclosures were effective for interim and annual reporting periods beginning after December 15, 2009, except for the reconciliation of Level 3 activity, which was effective for the Company in the first quarter of 2011. See Note 11 “Hedging Activities and Fair Value Measurements” for the disclosures required by ASU 2010-06. Adoption of this guidance had no effect on the Company’s results of operations, financial position and cash flows.

Note 2. Restructuring

     In 2008, 2009 and 2010, the Company announced restructuring plans designed to address (i) rationalization of the Company’s manufacturing footprint, (ii) slowing global economic growth and the resulting deterioration in the Company’s end markets, (iii) integration of CompAir Holdings Limited (“CompAir”) into its existing operations and (iv) additional cost reductions and margin improvement initiatives. These plans included the closure and consolidation of manufacturing facilities in Europe and the U.S., and various voluntary and involuntary employee termination and relocation programs. Execution of these plans was substantively completed during 2010. The Company recorded additional charges during the three-month period of 2011 in connection with the continued rationalization of facilities and other cost reduction initiatives. Charges recorded in connection with these plans, in accordance with FASB ASC 420, Exit or Disposal Cost Obligations and FASB ASC 712, Compensation-Nonretirement Postemployment Benefits, are included in “Other operating expense (income), net” in the Condensed Consolidated Statements of Operations, and are summarized for the fiscal years ended December 31, 2009 and 2010 and the three-month period ended March 31, 2011 by reportable segment as follows:

		Industrial				Engineered Products
		Products Group				Group				Total
Fiscal year 2009		$	25,791			$	20,335			$	46,126
Fiscal year 2010			3,687				(1,491	)			2,196
Three months ended March 31, 2011			891				89				980
Total		$	30,369			$	18,933			$	49,302

     The following table summarizes the activity in the restructuring accrual accounts:

		Termination
		Benefits				Other				Total
Balance as of December 31, 2010		$	4,593			$	1,450			$	6,043
Charged to expense			384				596				980
Paid			(2,184	)			(809	)			(2,993	)
Other, net			474				29				503
Balance as of March 31, 2011		$	3,267			$	1,266			$	4,533

Note 3. Inventories

     Inventories as of March 31, 2011 and December 31, 2010 consisted of the following:

		March 31,				December 31,
		2011				2010
Raw materials, including parts and subassemblies		$	197,004			$	163,192
Work-in-process			55,490				38,419
Finished goods			59,148				54,898
			311,642				256,509
Excess of FIFO costs over LIFO costs			(16,056	)			(15,024	)
Inventories, net		$	295,586			$	241,485

Note 4. Goodwill and Other Intangible Assets

     The changes in the carrying amount of goodwill attributable to each business segment for the three-month period ended March 31, 2011, and the year ended December 31, 2010, are presented in the table below:

		Industrial				Engineered
		Products Group				Products Group				Total
Balance as of December 31, 2009		$	256,824			$	321,190			$	578,014
Acquisitions			—				5,202				5,202
Foreign currency translation			(6,740	)			(4,680	)			(11,420	)
Balance as of December 31, 2010			250,084				321,712				571,796
Foreign currency translation			6,613				7,747				14,360
Balance as of March 31, 2011		$	256,697			$	329,459			$	586,156

     The net goodwill balances as of March 31, 2011 and December 31, 2010 and 2009 reflect cumulative impairment charges of $252.5 million and zero for the Industrial Products and Engineered Products Groups, respectively.

     The $5.2 million increase in goodwill related to acquisitions in 2010 was associated with the valuation of ILMVAC GmbH (“ILMVAC”).

     The following table presents the gross carrying amount and accumulated amortization of identifiable intangible assets, other than goodwill, at the dates presented:

		March 31, 2011								December 31, 2010
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Amortized intangible assets:
Customer lists and relationships		$	124,377			$	(33,048	)		$	118,844			$	(29,973	)
Acquired technology			98,321				(56,641	)			94,689				(53,224	)
Trade names			57,547				(9,445	)			55,320				(8,621	)
Other			7,523				(3,667	)			7,344				(3,424	)
Unamortized intangible assets:
Trade names			112,124				—				108,633				—
Total other intangible assets		$	399,892			$	(102,801	)		$	384,830			$	(95,242	)

     Amortization of intangible assets for the three-month periods ended March 31, 2011 and 2010 was $4.3 million and $4.5 million, respectively. Amortization of intangible assets held as of March 31, 2011 is anticipated to be approximately $16.8 million annually in 2012 through 2015 based upon exchange rates as of March 31, 2011. The increase in the carrying amount of identifiable assets other than goodwill between December 31, 2010 and March 31, 2011 was due primarily to the effect of changes in foreign currency exchange rates.

Note 5. Accrued Liabilities

Accrued liabilities as of March 31, 2011 and December 31, 2010 consisted of the following:

		March 31,				December 31,
		2011				2010
Salaries, wages and related fringe benefits		$	49,716			$	50,540
Taxes			35,730				25,367
Advance payments on sales contracts			40,157				39,026
Product warranty			21,033				19,100
Other			47,338				45,008
Total accrued liabilities		$	193,974			$	179,041

     A reconciliation of the changes in the accrued product warranty liability for the three-month periods ended March 31, 2011 and 2010 is as follows:

		Three Months Ended
		March 31,
		2011				2010
Balance at beginning of period		$	19,100			$	19,312
Product warranty accruals			6,732				5,590
Settlements			(5,308	)			(6,201	)
Effect of foreign currency translation			509				(567	)
Balance at end of period		$	21,033			$	18,134

Note 6. Pension and Other Postretirement Benefits

     The following table summarizes the components of net periodic benefit cost for the Company’s defined benefit pension plans and other postretirement benefit plans recognized for the three-month periods ended March 31, 2011 and 2010:

		Three Months Ended March 31,
		Pension Benefits																Other Postretirement
		U.S. Plans								Non-U.S. Plans								Benefits
		2011				2010				2011				2010				2011				2010
Service cost		$	—			$	—			$	262			$	272			$	7			$	4
Interest cost			897				965				2,970				2,964				193				249
Expected return on plan assets			(1,054	)			(885	)			(2,757	)			(2,625	)			—				—
Recognition of:
Unrecognized prior service cost			—				—				9				6				(15	)			(25	)
Unrecognized net actuarial loss (gain)			308				359				219				256				(318	)			(325	)
Net periodic benefit cost (income)			151				439				703				873				(133	)			(97	)
FASB ASC 715-30 curtailment gain			—				—				—				(837	)			—				—
Total net periodic benefit cost (income)		$	151			$	439			$	703			$	36			$	(133	)		$	(97	)

Note 7. Debt

     The Company’s debt at March 31, 2011 and December 31, 2010 is summarized as follows:

		March 31,				December 31,
		2011				2010
Short-term debt		$	5,111			$	7,440
Long-term debt:
Credit Line, due 2013 (1)		$	—			$	—
Term Loan, denominated in U.S. dollars, due 2013 (2)			71,538				75,000
Term Loan, denominated in euros (“EUR”), due 2013 (3)			65,978				65,250
Senior Subordinated Notes at 8%, due 2013 (4)			125,000				125,000
Secured Mortgages (5)			7,762				7,322
Capitalized leases and other long-term debt			7,954				7,898
Total long-term debt, including current maturities			278,232				280,470
Current maturities of long-term debt			32,511				29,788
Total long-term debt, less current maturities		$	245,721			$	250,682

Note 8. Stock-Based Compensation

     The following table summarizes the total stock-based compensation expense included in the consolidated statements of operations and the realized excess tax benefits included in the consolidated statements of cash flows for the three-month periods ended March 31, 2011 and 2010:

		Three Months Ended
		March 31,
		2011				2010
Selling and administrative expenses		$	2,334			$	1,857
Total stock-based compensation expense included in operating expenses		$	2,334			$	1,857
Income before income taxes			(2,334	)			(1,857	)
Provision for income taxes			659				607
Net income		$	(1,675	)		$	(1,250	)
Net cash provided by operating activities		$	(1,513	)		$	(1,489	)
Net cash used in financing activities		$	1,513			$	1,489

Stock Option Awards

     A summary of the Company’s stock option activity for the three-month period ended March 31, 2011 is presented in the following table (underlying shares in thousands):

														Weighted-
						Outstanding								Average
						Weighted-				Aggregate				Remaining
						Average				Intrinsic				Contractual
		Shares				Exercise Price				Value				Life
Outstanding at December 31, 2010			863			$	32.69
Granted			166			$	75.79
Exercised			(102	)		$	29.92
Forfeited			—			$	—
Expired or canceled			—			$	—
Outstanding at March 31, 2011			927			$	40.64			$	34,675			4.8 years
Exercisable at March 31, 2011			493			$	31.37			$	23,013			3.7 years

     The aggregate intrinsic value was calculated as the difference between the exercise price of the underlying stock options and the quoted closing price of the Company’s common stock at March 31, 2011 multiplied by the number of in-the-money stock options. The weighted-average estimated grant-date fair value of employee stock options granted during the three-month period ended March 31, 2011 was $28.16.

     The total pre-tax intrinsic values of stock options exercised during the three-month periods ended March 31, 2011 and 2010 were $4.5 million and $6.3 million, respectively. Pre-tax unrecognized stock-based compensation

expense for stock options, net of estimated forfeitures, was $5.8 million as of March 31, 2011 and will be recognized as expense over a weighted-average period of 2.4 years.

Valuation Assumptions

     The fair value of each stock option grant under the Company’s Amended and Restated Long-Term Incentive Plan was estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average assumptions used for the periods indicated are noted in the table below:

		Three Months Ended
		March 31,
		2011				2010
Assumptions:
Risk-free interest rate			2.0	%			2.3	%
Dividend yield			0.3	%			0.5	%
Volatility factor			44				43
Expected life (in years)			4.4				4.8

Restricted Share Awards

     A summary of the Company’s restricted share award activity for the three-month period ended March 31, 2011 is presented in the following table (underlying shares in thousands):

						Weighted-
						Average Grant-
						Date Fair Value
		Shares				(per share)
Nonvested at December 31, 2010			161			$	35.13
Granted			30			$	75.32
Vested			(34	)		$	35.88
Forfeited			—			$	—
Nonvested at March 31, 2011			157			$	42.73

     The restricted shares granted in the three-month period of 2011 were valued at the market close price of the Company’s common stock on the date of grant. Pre-tax unrecognized compensation expense for nonvested restricted share awards, net of estimated forfeitures, was $3.5 million as of March 31, 2011, which will be recognized as expense over a weighted-average period of 2.2 years. The total fair value of restricted share awards that vested during the three-month periods of 2011 and 2010 was $2.5 million and $0.2 million, respectively.

Note 9. Stockholders’ Equity and Earnings Per Share

     In November 2008, the Company’s Board of Directors authorized a share repurchase program to acquire up to 3.0 million shares of the Company’s outstanding common stock. During the three-month period ended March 31, 2011, the Company repurchased 72 thousand shares under this program at a total cost of $5.3 million.

     The following table details the calculation of basic and diluted earnings per common share for the three-month periods ended March 31, 2011 and 2010 (shares in thousands):

		Three Months Ended
		March 31,
		2011				2010
Net income attributable to Gardner Denver		$	59,478			$	31,958
Weighted average shares of common stock outstanding:
Basic			52,207				52,245
Effect of stock-based compensation awards			427				440
Diluted			52,634				52,685
Earnings Per Share:
Basic		$	1.14			$	0.61
Diluted		$	1.13			$	0.61

     For the three-month periods ended March 31, 2011 and 2010, respectively, anti-dilutive equity-based awards to purchase 82 thousand and 129 thousand weighted-average shares of common stock were outstanding. Antidilutive equity-based awards outstanding were not included in the computation of diluted earnings per common share.

Note 10. Accumulated Other Comprehensive Income (Loss)

     The Company’s other comprehensive income (loss) consists of (i) unrealized foreign currency net gains and losses on the translation of the assets and liabilities of its foreign operations, (ii) realized and unrealized foreign currency gains and losses on intercompany notes of a long-term nature and certain hedges of foreign subsidiaries, (iii) unrealized gains and losses on cash flow hedges (consisting of interest rate swaps), net of income taxes, and (iv) pension and other postretirement prior service cost and actuarial gains or losses, net of income taxes.

     The following table sets forth the changes in each component of accumulated other comprehensive income (loss):

										Unrealized
		Cumulative								Gains								Accumulated
		Currency				Foreign				(Losses) on				Pension and				Other
		Translation				Currency Gains				Cash Flow				Postretirement				Comprehensive
		Adjustment(1)				(Losses)				Hedges				Benefit Plans				Income
Balance at December 31, 2009		$	134,573			$	(21,319	)		$	(250	)		$	(30,490	)		$	82,514
Before tax (loss) income			(38,820	)			8,920				(706	)			287				(30,319	)
Income tax effect			—				297				268				(84	)			481
Other comprehensive (loss) income			(38,820	)			9,217				(438	)			203				(29,838	)
Balance at March 31, 2010		$	95,753			$	(12,102	)		$	(688	)		$	(30,287	)		$	52,676
Balance at December 31, 2010		$	69,282			$	19,095			$	(933	)		$	(26,019	)		$	61,425
Before tax income (loss)			31,245				3,524				404				(669	)			34,504
Income tax effect			—				(3,527	)			(154	)			(71	)			(3,752	)
Other comprehensive income (loss)			31,245				(3	)			250				(740	)			30,752
Balance at March 31, 2011		$	100,527			$	19,092			$	(683	)		$	(26,759	)		$	92,177

     The Company’s comprehensive income (loss) for the three-month periods ended March 31, 2011 and 2010 was as follows:

		Three Months Ended
		March 31,
		2011				2010
Net income attributable to Gardner Denver		$	59,478			$	31,958
Other comprehensive income (loss)			30,752				(29,838	)
Comprehensive income attributable to Gardner Denver			90,230				2,120
Net income attributable to noncontrolling interests			421				295
Other comprehensive income (loss)			192				(723	)
Comprehensive income (loss) attributable to noncontrolling interests			613				(428	)
Total comprehensive income		$	90,843			$	1,692

Note 11. Hedging Activities and Fair Value Measurements

Hedging Activities

     The Company is exposed to certain market risks during the normal course of its business arising from adverse changes in commodity prices, interest rates, and foreign currency exchange rates. The Company’s exposure to

these risks is managed through a combination of operating and financing activities. The Company selectively uses derivative financial instruments (“derivatives”), including foreign currency forward contracts and interest rate swaps, to manage the risks from fluctuations in foreign currency exchange rates and interest rates, respectively. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in commodity prices, interest rates, and foreign currency exchange rates can be volatile, and the Company’s risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Company’s financial results.

     The Company’s exposure to interest rate risk results primarily from its borrowings of $283.3 million at March 31, 2011. The Company manages its debt centrally, considering tax consequences and its overall financing strategies. The Company manages its exposure to interest rate risk by maintaining a mixture of fixed and variable rate debt and, from time to time, uses pay-fixed interest rate swaps as cash flow hedges of variable rate debt in order to adjust the relative proportions.

     A substantial portion of the Company’s operations is conducted by its subsidiaries outside of the U.S. in currencies other than the USD. Almost all of the Company’s non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. The USD, EUR, British pound sterling (“GBP”), and Chinese yuan (“CNY”) are the principal currencies in which the Company and its subsidiaries enter into transactions. The Company is exposed to the impacts of changes in foreign currency exchange rates on the translation of its non-U.S. subsidiaries’ assets, liabilities, and earnings into USD. The Company partially offsets these exposures by having certain of its non-U.S. subsidiaries act as the obligor on a portion of its borrowings and by denominating such borrowings, as well as a portion of the borrowings for which the Company is the obligor, in currencies other than the USD.

     The Company and its subsidiaries are also subject to the risk that arises when they, from time to time, enter into transactions in currencies other than their functional currency. To mitigate this risk, the Company and its subsidiaries typically settle intercompany trading balances monthly. The Company also selectively uses forward currency contracts to manage this risk. These contracts for the sale or purchase of European and other currencies generally mature within one year.

     In accordance with FASB ASC 815, Derivatives and Hedging (“FASB ASC 815”), the Company records its derivatives as assets or liabilities on the balance sheet at fair value. Changes in the fair value of derivatives are recognized either in net income or in other comprehensive income, depending on the designated purpose of the derivative. All cash flows associated with derivatives are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows. It is the Company’s policy not to speculate in derivative instruments.

     Fluctuations due to changes in foreign currency exchange rates in the value of non-USD borrowings that have been designated as hedges of the Company’s net investment in foreign operations are included in other comprehensive income.

     The following tables summarize the notional amounts, fair values and classification of the Company’s outstanding derivatives by risk category and instrument type within the Condensed Consolidated Balance Sheets:

		March 31, 2011
										Asset				Liability
						Notional				Derivatives				Derivatives
		Balance Sheet Location				Amount(1)				Fair Value(1)				Fair Value(1)
Derivatives designated as hedging instruments under FASB ASC 815
Interest rate swap contracts		Other liabilities				$	78,349			$	—			$	1,157
Derivatives not designated as hedging instruments under FASB ASC 815
Foreign currency forwards		Current liabilities				$	118,023			$	770			$	1,798

		December 30, 2010
										Asset				Liability
						Notional				Derivatives				Derivatives
		Balance Sheet Location				Amount(1)				Fair Value(1)				Fair Value(1)
Derivatives designated as hedging instruments under FASB ASC 815
Interest rate swap contracts		Other liabilities				$	76,742			$	—			$	1,560
Derivatives not designated as hedging instruments under FASB ASC 815
Foreign currency forwards		Accrued liabilities				$	113,871			$	709			$	1,884

     Gains and losses on derivatives designated as cash flow hedges in accordance with FASB ASC 815 included in the Condensed Consolidated Statement of Operations for the three-month periods ended March 31, 2011 and 2010, respectively, are as presented in the table below:

		Three Months Ended
		March 31,
Interest rate swap contracts(1)		2011				2010
Amount of gain or (loss) recognized in AOCI on derivatives (effective portion)		$	(282	)		$	(1,087	)
Amount of gain or (loss) reclassified from AOCI into income (effective portion)			122				(381	)
Amount of gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)			—				—

     At March 31, 2011, the Company is the fixed rate payor on three interest rate swap contracts that effectively fix the LIBOR-based index used to determine the interest rates charged on a total of $50.0 million and €20.0 million of the Company’s LIBOR-based variable rate borrowings. These contracts carry fixed rates ranging from 1.8% to 2.2% and have expiration dates ranging from 2012 to 2013. These swap agreements qualify as hedging instruments and have been designated as cash flow hedges of forecasted LIBOR-based interest payments. Based on LIBOR-based swap yield curves as of March 31, 2011, the Company expects to reclassify losses of $1.2 million out of AOCI into earnings during the next 12 months. The Company’s LIBOR-based variable rate borrowings outstanding at March 31, 2011 were $71.5 million and €46.5 million.

     There were 48 foreign currency forward contracts outstanding as of March 31, 2011 with notional amounts ranging from $0.1 million to $9.7 million. The Company has not designated any forward contracts as hedging instruments. The majority of these contracts are used to hedge the change in fair value of recognized foreign currency denominated assets or liabilities caused by changes in foreign currency exchange rates. The changes in the fair value of these contracts generally offset the changes in the fair value of a corresponding amount of the hedged items, both of which are included in the other operating expense (income), net, line on the face of the Condensed Consolidated Statements of Operations. The Company recorded net losses of $0.4 million and net gains of $3.2 million during the three-month periods ended March 31, 2011 and 2010, respectively, relating to foreign currency forward contracts outstanding during all or part of each period. Total net foreign currency gains or losses reported in other operating expense were losses of $1.2 million and gains of $1.0 million for the three-month periods ended March 31, 2011 and 2010, respectively.

     As of March 31, 2010, the Company had designated approximately €14.0 million of its term loan denominated in EUR as a hedge of its net investment in subsidiaries with EUR functional currencies. Accordingly, changes in the fair value of this debt due to changes in the USD to EUR exchange rate have been recorded through other comprehensive income. The portion of the EUR term loan designated as a net investment hedge as of March 31, 2011 and December 31, 2010 was €0. During the three-month periods ended March 31, 2011 and 2010, the Company recorded gains of zero and $1.0 million, net of tax, respectively, through other comprehensive income. As of March 31, 2011 and December 31, 2010, the net balances of such gains and losses included in accumulated other comprehensive income were losses of $5.1 million, net of tax.

Fair Value Measurements

     The Company’s financial instruments consist primarily of cash equivalents, trade receivables, trade payables, deferred compensation assets and obligations, derivatives and debt instruments. The book values of these instruments, other than the Senior Subordinated Notes, are a reasonable estimate of their respective fair values.

     The Senior Subordinated Notes outstanding are carried at cost. Their estimated fair value was approximately $125.9 million as of March 31, 2011 based upon non-binding market quotations that were corroborated by observable market data (Level 2). See Note 17 “Subsequent Events.”

     The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2011:

		Level 1				Level 2				Level 3				Total
Financial Assets
Foreign currency forwards (1)		$	—			$	770			$	—			$	770
Trading securities held in deferred compensation plan (2)			8,722				—				—				8,722
Total		$	8,722			$	770			$	—			$	9,492
Financial Liabilities
Foreign currency forwards (1)		$	—			$	1,798			$	—			$	1,798
Interest rate swaps (3)			—				1,157				—				1,157
Phantom stock plan (4)			—				5,515				—				5,515
Deferred compensation plan (5)			8,722				—				—				8,722
Total		$	8,722			$	8,470			$	—			$	17,192

Note 12. Income Taxes

     As of March 31, 2011, the total balance of unrecognized tax benefits was $3.9 million compared with $4.5 million at December 31, 2010. The decrease in the balance was primarily due to a settlement of the 2003, 2004, and most of the tax items in the 2005 tax audits in Germany, and the reversal of a German and United Kingdom reserve due to the statute expiring. The unrecognized tax benefits at March 31, 2011 include $4.9 million of

uncertain tax positions that would affect the Company’s effective tax rate if recognized, of which $2.0 million would be offset by a reduction of a corresponding deferred tax asset. The Company does not expect any significant changes to its unrecognized tax benefits within the next twelve months.

     The Company’s accounting policy with respect to interest expense on underpayments of income tax and related penalties is to recognize such interest expense and penalties as part of the provision for income taxes. The Company’s income tax liabilities at March 31, 2011 include approximately $0.7 million of accrued interest and $0.3 million of penalties.

     The Company’s U.S. federal income tax returns for the tax years 2008 and 2009 are under examination by the Internal Revenue Service. The examination was initiated during the quarter ending September 30, 2010. As of the date of this report, the examination has not identified any material changes. The statutes of limitations for the U.S. state tax returns are open beginning with the 2006 tax year, except for three states for which the statutes have been extended, beginning with the 2003 tax year for one state and the 2006 tax year for two states.

     The Company is subject to income tax in approximately 30 jurisdictions outside the U.S. The statute of limitations varies by jurisdiction. The Company’s significant operations outside the U.S. are located in China, the United Kingdom and Germany. In Germany, the Company is finalizing the remaining tax audit for the 2005 tax year. Tax years 2006 and beyond remain subject to potential examination. As of the date of this report, the examinations have not identified any material changes. In China and the United Kingdom, tax years prior to 2006 are closed. In addition, audits are being conducted in other various countries. To date, no material adjustments have been proposed as a result of these audits.

     The provision for income taxes was $22.5 million and the effective tax rate was 27.3% in the first quarter of 2011, compared to $9.7 million and 23.2%, respectively, in the first quarter of 2010. The year over year increase in the effective tax rate reflects a higher proportion of taxable income in the U.S. in 2011 compared to 2010.

Note 13. Supplemental Information

     The components of other operating expense (income), net, and supplemental cash flow information are as follows:

		Three Months Ended
		March 31,
		2011				2010
Other Operating Expense (Income), Net
Foreign currency losses (gains), net		$	1,245			$	(1,001	)
Restructuring charges, net (1)			980				1,354
Other, net			(613	)			(1,704	)
Total other operating expense (income), net		$	1,612			$	(1,351	)
Supplemental Cash Flow Information
Cash taxes paid		$	13,979			$	8,512
Interest paid			2,009				3,435

Note 14. Contingencies

     The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of its size and sector. In addition, due to the bankruptcies of several asbestos manufacturers and other primary defendants, among other things, the Company has been named as a defendant in a number of asbestos personal injury lawsuits. The Company has also been named as a defendant in a number of silica personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources and typically the Company is one of approximately 25 or more named defendants. In the Company’s experience to date, the substantial majority of the plaintiffs have not suffered an injury for which the Company bears responsibility.

     Predecessors to the Company sometimes manufactured, distributed and/or sold products allegedly at issue in the pending asbestos and silica litigation lawsuits (the “Products”). However, neither the Company nor its predecessors ever mined, manufactured, mixed, produced or distributed asbestos fiber or silica sand, the materials that allegedly caused the injury underlying the lawsuits. Moreover, the asbestos-containing components of the Products, if any, were enclosed within the subject Products.

     The Company has entered into a series of agreements with certain of its or its predecessors’ legacy insurers and certain potential indemnitors to secure insurance coverage and/or reimbursement for the costs associated with the asbestos and silica lawsuits filed against the Company. The Company has also pursued litigation against certain insurers or indemnitors where necessary. The latest of these actions, Gardner Denver, Inc. v. Certain Underwriters at Lloyd’s, London, et al., was filed on July 9, 2010, in the Eighth Judicial District, Adams County, Illinois, as case number 10-L-48 (the “Adams County Case”). In the lawsuit, the Company seeks, among other things, to require certain excess insurer defendants to honor their insurance policy obligations to the Company, including payment in whole or in part of the costs associated with the asbestos lawsuits filed against the Company.

     The Company believes that the pending and future asbestos and silica lawsuits are not likely to, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: the Company’s anticipated insurance and indemnification rights to address the risks of such matters; the limited potential asbestos exposure from the Products described above; the Company’s experience that the vast majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica from or relating to the Products or for which the Company otherwise bears responsibility; various potential defenses available to the Company with respect to such matters; and the Company’s prior disposition of comparable matters. However, due to inherent uncertainties of litigation and because future developments, including, without limitation, potential insolvencies of insurance companies or other defendants, an adverse determination in the Adams County Case, or other inability to collect from the Company’s historical insurers or indemnitors could cause a different outcome. While the outcome of legal proceedings is inherently uncertain, based on presently known facts, experience, and circumstances, the Company believes that the amounts accrued on its balance sheet are adequate and that the liabilities arising from the asbestos and silica personal injury lawsuits will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. In the event of unexpected future developments, it is possible that the ultimate resolution of these matters may be material to the Company’s consolidated financial position, results of operations or liquidity. However, at this time, based on presently available information, the Company views this possibility as remote.

     The Company has been identified as a potentially responsible party (“PRP”) with respect to several sites designated for cleanup under U.S. federal “Superfund” or similar state laws that impose liability for cleanup of certain waste sites and for related natural resource damages. Persons potentially liable for such costs and damages generally include the site owner or operator and persons that disposed or arranged for the disposal of hazardous substances found at those sites. Although these laws impose joint and several liability, in application, the PRPs typically allocate the investigation and cleanup costs based upon the volume of waste contributed by each PRP. Based on currently available information, the Company was only a small contributor to these waste sites, and the Company has, or is attempting to negotiate, de minimis settlements for their cleanup. The cleanup of the remaining sites is substantially complete and the Company’s future obligations entail a share of the sites’ ongoing operating and maintenance expense.

     The Company is also addressing three on-site cleanups for which it is the primary responsible party. Two of these cleanup sites are in the operation and maintenance stage and the third is in the implementation stage. Based on currently available information, the Company does not anticipate that any of these sites will result in material additional costs beyond those already accrued on its balance sheet.

     The Company has an accrued liability on its balance sheet to the extent costs are known or can be reasonably estimated for its remaining financial obligations for these matters. Based on currently available information, the Company does not anticipate any material adverse effect on its results of operations, financial condition, liquidity or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations, or cleanup costs relating to the sites discussed above.

Note 15. Guarantor Subsidiaries

     The Company’s obligations under its 8% Senior Subordinated Notes due 2013 (the “Notes”) are jointly and severally, fully and unconditionally guaranteed by certain wholly-owned domestic subsidiaries of the Company (the “Guarantor Subsidiaries”). The Company’s subsidiaries that do not guarantee the Notes are referred to as the “Non-Guarantor Subsidiaries.” The guarantor condensed consolidating financial data below presents the statements of operations, balance sheets and statements of cash flows data (i) for Gardner Denver, Inc. (the “Parent Company”), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis (which is derived from Gardner Denver’s historical reported financial information); (ii) for the Parent Company alone (accounting for its Guarantor Subsidiaries and Non-Guarantor Subsidiaries on a cost basis under which the investments are recorded by each entity owning a portion of another entity at historical cost); (iii) for the Guarantor Subsidiaries alone; and (iv) for the Non-Guarantor Subsidiaries alone.

     On March 23, 2011, the Company announced that it had issued a notice to redeem all $125.0 million in aggregate principal amount outstanding of the Notes. The Notes were redeemed on May 2, 2011 for a total of $125.0 million, consisting of the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the date of redemption. See Note 17 “Subsequent Events.”

Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2011

										Non-
		Parent				Guarantor				Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Revenues		$	111,991			$	127,131			$	389,580			$	(96,849	)		$	531,853
Cost of sales			75,806				87,365				279,153				(94,927	)			347,397
Gross profit			36,185				39,766				110,427				(1,922	)			184,456
Selling and administrative expenses			23,980				10,407				61,634				—				96,021
Other operating expense (income), net			4,052				(5,511	)			3,071				—				1,612
Operating income			8,153				34,870				45,722				(1,922	)			86,823
Interest expense (income)			5,637				(3,767	)			3,477				—				5,347
Other income, net			(290	)			(2	)			(670	)			—				(962	)
Income before income taxes			2,806				38,639				42,915				(1,922	)			82,438
Provision for income taxes			1,116				14,760				7,392				(729	)			22,539
Net income			1,690				23,879				35,523				(1,193	)			59,899
Less: Net income attributable to noncontrolling interests			—				—				421				—				421
Net income attributable to Gardner Denver		$	1,690			$	23,879			$	35,102			$	(1,193	)		$	59,478

Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2010

										Non-
		Parent				Guarantor				Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Revenues		$	74,452			$	98,070			$	328,343			$	(78,701	)		$	422,164
Cost of sales			54,804				73,446				238,147				(78,040	)			288,357
Gross profit			19,648				24,624				90,196				(661	)			133,807
Selling and administrative expenses			19,749				10,014				57,931				—				87,694
Other operating (income) expense, net			(2,328	)			2,225				(1,248	)			—				(1,351	)
Operating income			2,227				12,385				33,513				(661	)			47,464
Interest expense (income)			5,880				(3,770	)			4,006				—				6,116
Other income, net			(405	)			(4	)			(226	)			—				(635	)
(Loss) income before income taxes			(3,248	)			16,159				29,733				(661	)			41,983
Provision for income taxes			(744	)			5,527				5,169				(222	)			9,730
Net (loss) income			(2,504	)			10,632				24,564				(439	)			32,253
Less: Net income attributable to noncontrolling interests			—				—				295				—				295
Net (loss) income attributable to Gardner Denver		$	(2,504	)		$	10,632			$	24,269			$	(439	)		$	31,958

Condensed Consolidating Balance Sheet
March 31, 2011

										Non-
		Parent				Guarantor				Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents		$	64,603			$	—			$	120,702			$	—			$	185,305
Accounts receivable, net			64,072				70,208				264,456				—				398,736
Inventories, net			37,886				73,760				202,427				(18,487	)			295,586
Deferred income taxes			20,287				—				6,568				4,026				30,881
Other current assets			3,054				3,891				24,232				—				31,177
Total current assets			189,902				147,859				618,385				(14,461	)			941,685
Intercompany receivable (payable)			13,371				(3,971	)			(9,400	)			—				—
Investments in affiliates			830,658				186,313				41,297				(1,058,268	)			—
Property, plant and equipment, net			51,525				47,586				188,772				—				287,883
Goodwill			76,680				190,722				318,754				—				586,156
Other intangibles, net			8,056				43,143				245,892				—				297,091
Other assets			49,903				340				6,447				(5,352	)			51,338
Total assets		$	1,220,095			$	611,992			$	1,410,147			$	(1,078,081	)		$	2,164,153
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt		$	31,964			$	—			$	5,658			$	—			$	37,622
Accounts payable and accrued liabilities			94,035				85,452				199,296				(1,270	)			377,513
Total current liabilities			125,999				85,452				204,954				(1,270	)			415,135
Long-term intercompany payable (receivable)			260,941				(322,642	)			61,701				—				—
Long-term debt, less current maturities			231,464				75				14,182				—				245,721
Deferred income taxes			—				23,819				45,908				(5,352	)			64,375
Other liabilities			83,431				789				76,641				—				160,861
Total liabilities			701,835				(212,507	)			403,386				(6,622	)			886,092
Stockholders’ equity:
Common stock			596				—				—				—				596
Capital in excess of par value			598,117				500,824				558,689				(1,058,268	)			599,362
Retained earnings			133,129				298,217				343,070				(11,859	)			762,557
Accumulated other comprehensive (loss) income			(24,853	)			25,458				92,904				(1,332	)			92,177
Treasury stock, at cost			(188,729	)			—				—				—				(188,729	)
Total Gardner Denver stockholders’ equity			518,260				824,499				994,663				(1,071,459	)			1,265,963
Noncontrolling interests			—				—				12,098				—				12,098
Total stockholders’ equity			518,260				824,499				1,006,761				(1,071,459	)			1,278,061
Total liabilities and stockholders’ equity		$	1,220,095			$	611,992			$	1,410,147			$	(1,078,081	)		$	2,164,153