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

(Exact name of registrant as specified in its charter)

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

1800 Gardner Expressway
Quincy, Illinois 62305
(Address of principal executive offices and Zip Code)

(217) 222-5400
(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 o      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 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: 51,921,903 shares of Common Stock, par value $0.01 per share, as of April 26, 2009.

 

 

		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			30
Item 3 Quantitative and Qualitative Disclosures About Market Risk			42
Item 4 Controls and Procedures			43
PART II OTHER INFORMATION
Item 1 Legal Proceedings			44
Item 1A Risk Factors			44
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 6 Exhibits			45
SIGNATURES			46
INDEX TO EXHIBITS			47
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

GARDNER DENVER, INC.

(Dollars in thousands, except per share amounts)

(Unaudited)

		Three Months Ended
		March 31,
		2009				2008
Revenues		$	462,480			$	495,670
Cost of sales			321,869				334,344
Gross profit			140,611				161,326
Selling and administrative expenses			94,583				86,619
Other operating expense (income), net			8,873				(1,241	)
Impairment of intangible assets			265,000				—
Operating (loss) income			(227,845	)			75,948
Interest expense			7,657				5,600
Other income, net			(188	)			(241	)
(Loss) income before income taxes			(235,314	)			70,589
Provision for income taxes			13,855				19,730
Net (loss) income		$	(249,169	)		$	50,859
Basic (loss) earnings per share		$	(4.81	)		$	0.96
Diluted (loss) earnings per share		$	(4.81	)		$	0.95

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

GARDNER DENVER, INC.

(Dollars in thousands, except per share amounts)

		March 31,				December 31,
		2009				2008
		(Unaudited)
Assets
Current assets:
Cash and equivalents		$	132,741			$	120,735
Accounts receivable (net of allowance of $11,434 at March 31, 2009 and $10,642 at December 31, 2008)			356,711				388,098
Inventories, net			270,499				284,825
Deferred income taxes			31,049				33,014
Other current assets			20,474				30,892
Total current assets			811,474				857,564
Property, plant and equipment (net of accumulated depreciation of $289,226 at March 31, 2009 and $283,676 at December 31, 2008)			291,497				305,012
Goodwill			535,695				804,648
Other intangibles, net			311,178				346,263
Other assets			22,072				26,638
Total assets		$	1,971,916			$	2,340,125
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt		$	37,143			$	36,968
Accounts payable			119,239				135,864
Accrued liabilities			215,357				224,550
Total current liabilities			371,739				397,382
Long-term debt, less current maturities			464,020				506,700
Postretirement benefits other than pensions			15,651				17,481
Deferred income taxes			84,094				91,218
Other liabilities			115,229				128,596
Total liabilities			1,050,733				1,141,377
Stockholders’ equity:
Common stock, $0.01 par value; 100,000,000 shares authorized; 51,905,388 and 51,785,125 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively			583				583
Capital in excess of par value			549,417				545,671
Retained earnings			461,896				711,065
Accumulated other comprehensive income			41,390				72,268
Treasury stock at cost; 6,424,820 and 6,469,971 shares at March 31, 2009 and December 31, 2008, respectively			(132,103	)			(130,839	)
Total stockholders’ equity			921,183				1,198,748
Total liabilities and stockholders’ equity		$	1,971,916			$	2,340,125

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

GARDNER DENVER, INC.

(Dollars in thousands)

(Unaudited)

		Three Months Ended
		March 31,
		2009				2008
Cash Flows From Operating Activities
Net (loss) income		$	(249,169	)		$	50,859
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization			16,668				14,920
Impairment of intangible assets			265,000				—
Unrealized foreign currency transaction gain, net			(211	)			(1,063	)
Net loss (gain) on asset dispositions			76				(191	)
Stock issued for employee benefit plans			1,233				1,402
Stock-based compensation expense			1,120				2,259
Excess tax benefits from stock-based compensation			(28	)			(428	)
Deferred income taxes			988				(2,521	)
Changes in assets and liabilities:
Receivables			22,088				(6,174	)
Inventories			7,007				325
Accounts payable and accrued liabilities			(18,053	)			10,904
Other assets and liabilities, net			8,982				(4,851	)
Net cash provided by operating activities			55,701				65,441
Cash Flows From Investing Activities
Capital expenditures			(8,954	)			(9,553	)
Disposals of property, plant and equipment			89				979
Other, net			22				—
Net cash used in investing activities			(8,843	)			(8,574	)
Cash Flows From Financing Activities
Principal payments on short-term borrowings			(18,397	)			(7,128	)
Proceeds from short-term borrowings			15,695				7,705
Principal payments on long-term debt			(61,520	)			(50,582	)
Proceeds from long-term debt			31,318				49,783
Proceeds from stock option exercises			165				1,115
Excess tax benefits from stock-based compensation			28				428
Purchase of treasury stock			(165	)			(44,511	)
Other			(759	)			(1,258	)
Net cash used in financing activities			(33,635	)			(44,448	)
Effect of exchange rate changes on cash and equivalents			(1,217	)			5,764
Net increase in cash and equivalents			12,006				18,183
Cash and equivalents, beginning of year			120,735				92,922
Cash and equivalents, end of period		$	132,741			$	111,105

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

GARDNER DENVER, INC.

(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 (referred to herein as “Gardner Denver” or the “Company”). In consolidation, all significant intercompany transactions and accounts have been eliminated.

     Certain prior year amounts have been reclassified to conform to the current year presentation (see below).

     The financial information presented as of any date other than December 31, 2008 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, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of such financial statements, have been included.

     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, 2008.

     The results of operations for the three-month period ended March 31, 2009 are not necessarily indicative of the results to be expected for the full year. The balance sheet at December 31, 2008 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, 2008.

     Effective January 1, 2009, the Company reorganized its five former operating divisions into two major product groups: the Industrial Products Group and the Engineered Products Group. The Industrial Products Group includes the former Compressor and Blower Divisions, plus the multistage centrifugal blower operations formerly managed in the Engineered Products Division. The Engineered Products Group is comprised of the former Engineered Products (excluding the multistage centrifugal blower operations), Thomas Products and Fluid Transfer Divisions. These changes were designed to streamline operations, improve organizational efficiencies and create greater focus on customer needs. As a result of these organizational changes, the Company realigned its segment reporting structure with the newly formed product groups effective with the reporting period ended March 31, 2009. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”), segment financial information presented for prior years in these “Notes to Condensed Consolidated Financial Statements” and under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, has been recast to reflect this realignment. See Note 17 “Segment Information.”

New Accounting Standards

Recently Adopted Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands

disclosures about fair value measurements. SFAS No. 157 applies whenever other statements require or permit assets or liabilities to be measured at fair value. This statement was effective for the Company on January 1, 2008. In February 2008, the FASB released FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which delayed for one year the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Items in this classification include goodwill, asset retirement obligations, rationalization accruals, intangible assets with indefinite lives and certain other items. The adoption of the provisions of SFAS No. 157 with respect to the Company’s financial assets and liabilities and non-financial assets and liabilities did not have a significant effect on the Company’s consolidated statements of operations, balance sheets and statements of cash flows. See Note 12 “Hedging Activities and Fair Value Measurements” for the disclosures required by SFAS No. 157.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”), which establishes principles and requirements for how the acquirer of a business is to (i) recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (ii) recognize and measure the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determine what information to disclose to enable users of its financial statements to evaluate the nature and financial effects of the business combination. This statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. This replaces the guidance of SFAS No. 141, “Business Combinations,” which requires the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. In addition, costs incurred by the acquirer to effect the acquisition and restructuring costs that the acquirer expects to incur, but is not obligated to incur, are to be recognized separately from the acquisition. SFAS No. 141(R) applies to all transactions or other events in which an entity obtains control of one or more businesses. This statement requires an acquirer to recognize assets acquired and liabilities assumed arising from contractual contingencies as of the acquisition date, measured at their acquisition-date fair values. An acquirer is required to recognize assets or liabilities arising from all other contingencies as of the acquisition date, measured at their acquisition-date fair values, only if it is more likely than not that they meet the definition of an asset or a liability in FASB Concepts Statement No. 6, “Elements of Financial Statements.” This Statement requires the acquirer to recognize goodwill as of the acquisition date, measured as a residual, which generally will be the excess of the consideration transferred plus the fair value of any noncontrolling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. Contingent consideration should be recognized at the acquisition date, measured at its fair value at that date. SFAS No. 141(R) defines a bargain purchase as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree, and requires the acquirer to recognize that excess in earnings as attributable to the acquirer. This statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will apply the provisions of this statement prospectively to business combinations from January 1, 2009. The impact of SFAS No. 141(R) on the Company’s consolidated financial statements will depend on the nature, terms and size of acquisitions it consummates in the future.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS No. 160”). This statement establishes accounting and reporting standards that require (i) ownership interest in subsidiaries held by parties other than the parent be presented and identified in the equity section of the consolidated balance sheet, separate from the parent’s equity; (ii) the amount of consolidated net income attributable to the parent and to the noncontrolling interest be identified and presented on the face of the consolidated statement of operations; (iii) changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for consistently; (iv) when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value, and the resulting gain or loss be measured using the fair value of any noncontrolling equity investment rather than the carrying amount of that retained investment; and (v) disclosures be provided that clearly identify and distinguish between the interests of the parent and interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company adopted the standard on January 1, 2009. The adoption had no significant effect on the Company’s consolidated financial statements.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (SFAS No. 161”). SFAS No. 161 requires enhanced disclosures for derivative instruments and hedging activities, including (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Under SFAS No. 161, entities must disclose the fair value of

derivative instruments, their gains or losses and their location in the balance sheet in tabular format, and information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and strategies and objectives for using derivative instruments. The fair value amounts must be disaggregated by asset and liability values, by derivative instruments that are designated and qualify as hedging instruments and those that are not, and by each major type of derivative contract. The Company adopted SFAS No. 161 effective January 1, 2009. See Note 12 for the Company’s disclosures about its derivative instruments and hedging activities.

     In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS No. 142-3”) to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142”) and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R). FSP FAS No. 142-3 amends the factors to be considered when developing renewal or extension assumptions that are used to estimate an intangible asset’s useful life under SFAS No. 142. The guidance in FSP FAS No. 142-3 is to be applied prospectively to intangible assets acquired after December 31, 2008. In addition, FSP FAS No. 142-3 increases the disclosure requirements related to renewal or extension assumptions. The adoption of FSP FAS No. 142-3 had no effect on the Company’s consolidated financial statements.

     In October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (“FSP FAS No. 157-3”). FSP FAS No. 157-3 clarifies how SFAS No. 157 should be applied when valuing securities in markets that are not active by illustrating key considerations in determining fair value. It also reaffirms the notion of fair value as the exit price as of the measurement date. FSP FAS No. 157-3 was effective upon issuance, which included periods for which financial statements have not yet been issued. The adoption of FSP FAS No. 157-3 had no impact on the Company’s consolidated financial statements.

     In April 2009, the FASB issued FSP FAS No. 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP FAS No. 141(R)-1”). FSP FAS No. 141(R)-1 amends the provisions in Statement 141(R) for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. This FSP also amends the subsequent measurement and accounting guidance, and disclosure requirements in Statement 141(R). FSP FAS No. 141(R)-1 is effective for contingent assets or contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will apply the provisions of this statement prospectively to business combinations for which the acquisition date is on or after January 1, 2009 and can only assess the impact of the standard once an acquisition is consummated.

Recently Issued Accounting Pronouncements

     In December 2008, the FASB issued FSP FAS No. 132R-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS No. 132R-1”). FSP FAS No. 132R-1 provides additional guidance regarding disclosures about plan assets of defined benefit pension or other postretirement plans and is effective for financial statements issued for fiscal years ending after December 15, 2009. The Company is currently evaluating the disclosure impact of adopting this new guidance on its consolidated financial statements; however, its adoption will not have an impact on the determination of the Company’s financial results.

     In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS No. 115-2”). FSP FAS No. 115-2 provides guidance in determining whether impairments in debt securities are other than temporary, and modifies the presentation and disclosures surrounding such instruments.  This FSP is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009.  The Company plans to adopt the provisions of this Staff Position during the second quarter of 2009, but does not believe this guidance will have a significant impact on its consolidated financial statements.

     In April 2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS No. 157-4”). FSP FAS No. 157-4 provides additional guidance in determining whether the market for a financial asset is not active and a transaction is not distressed for fair value measurement purposes as defined in SFAS No. 157, “Fair Value Measurements.”  FSP FAS No. 157-4 is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009.  The

Company will apply the provisions of this statement prospectively beginning with the second quarter 2009, and does not expect its adoption to have a material effect on its consolidated financial statements.

     In April 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS No. 107-1 and APB 28-1”). This FSP amends FASB Statement No. 107, “Disclosures about Fair Values of Financial Instruments,” to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements.  APB 28-1 also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in all interim financial statements.  This standard is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009.  The Company plans to adopt FSP FAS No. 107-1 and APB 28-1 and provide the additional disclosure requirements beginning in second quarter 2009.

Note 2. Business Combinations

     On October 20, 2008, the Company acquired CompAir Holdings Ltd. (“CompAir”), a leading global manufacturer of compressed air and gas solutions. The acquisition of CompAir allows the Company to further broaden its geographic presence, diversify its end market segments served, and provides opportunities to reduce operating costs and achieve sales and marketing efficiencies. CompAir’s products are complementary to the Industrial Products Group’s product portfolio. The Company acquired all outstanding shares and share equivalents of CompAir for a total purchase price of $378.5 million, which consisted of $329.9 million in shareholder consideration, $39.8 million of CompAir external debt retired at closing and $8.8 million of transaction costs and other liabilities settled at closing. As part of the transaction the Company also assumed approximately $5.9 million in long-term debt. As of October 20, 2008, CompAir had $24.1 million in cash and equivalents. The net transaction value, including assumed debt (net of cash acquired) and direct acquisition costs, was approximately $360.3 million. There are no remaining material contingent payments or commitments related to this acquisition.

     The CompAir acquisition has been accounted for using the purchase method and, accordingly, its results are included in the Company’s consolidated financial statements from the date of acquisition. Under the purchase method, the purchase price is allocated based on the fair value of assets received and liabilities assumed as of the acquisition date.

     Under the purchase method of accounting, the assets and liabilities of CompAir were recorded at their estimated respective fair values as of October 20, 2008. The initial allocation of the purchase price was subsequently adjusted when certain preliminary valuation estimates were finalized. The following table summarizes the nature and amount of such adjustments recorded in 2009. The amounts presented in this table do not reflect the portion of the goodwill impairment charge recorded in the first quarter of 2009 that may be directly attributable to the CompAir acquisition. For purposes of the impairment testing performed during the first quarter of 2009 in accordance with SFAS 142, the net assets from the CompAir acquisition were included as a component of the reporting unit within the Industrial Products Group in which the impairment charge was recorded. Since goodwill impairment testing is performed at the reporting unit level, the amount directly attributable to the CompAir acquisition cannot be specifically identified. See also Note 5 “Goodwill and Other Intangible Assets” for a description of the impairment charge.

CompAir Holdings Limited
Purchase Price Allocation and Adjustments
March 31, 2009

Total purchase price allocated to amortizable intangible assets as of December 31, 2008		$	166,018
Purchase accounting adjustments recorded in 2009:
Fair value of trademarks			(3,243	)
Fair value of customer relationships			(13,231	)
Fair value of other amortizable intangible assets			(1,197	)
Total purchase price allocated to amortizable intangible assets as of March 31, 2009		$	148,347
Total purchase price allocated to goodwill as of December 31, 2008		$	155,466
Purchase accounting adjustments recorded in 2009:
Fair value of amortizable intangible assets			17,671
Termination benefits and other related liabilities			1,495
Income taxes, net			(4,793	)
Other, net			120
Total purchase price allocated to goodwill as of March 31, 2009		$	169,959

Note 3. Restructuring

     In 2008 and the first quarter of 2009, the Company finalized and announced certain restructuring plans designed to address (i) rationalization of the Company’s manufacturing footprint, (ii) the slowing global economy and the resulting deterioration in the Company’s end markets and (iii) the integration of CompAir into its existing operations. 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. In accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” and SFAS No. 112, “Employers’ Accounting for Postemployment Benefits – an amendment of FASB Statements No. 5 and 43,” a charge totaling $11.1 million (included in “Other operating expense, net”) was recorded in 2008, of which $8.5 million was associated with the Industrial Products Group and $2.6 million was associated with the Engineered Products Group. An additional charge totaling $7.9 million was recorded in the first quarter of 2009, of which $1.5 million was associated with the Industrial Products Group and $6.4 million was associated with the Engineered Products Group. Execution of these plans, including payment of employee severance benefits, is expected to be substantively completed during 2009.

     In connection with the acquisition of CompAir, the Company has been implementing plans identified at or prior to the acquisition date to close and consolidate certain former CompAir functions and facilities, primarily in North America and Europe. These plans included various voluntary and involuntary employee termination and relocation programs affecting both salaried and hourly employees and exit costs associated with the sale, lease termination or sublease of certain manufacturing and administrative facilities. The terminations, relocations and facility exits are expected to be substantively completed during 2009. A liability of $8.9 million was included in the allocation of the CompAir purchase price for the estimated cost of these actions at October 20, 2008 in accordance with EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” This liability was increased by $1.5 million in the first quarter of 2009 to reflect the finalization of certain of these plans. Any further adjustments, if required, will be recorded as adjustments to the allocation of the purchase price of CompAir.

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

		Termination
		Benefits				Other				Total
Balance as of December 31, 2008		$	13,634			$	2,365			$	15,999
Charged to expense			7,270				594				7,864
Acquisition purchase price allocation			1,481				14				1,495
Paid			(7,384	)			(394	)			(7,778	)
Other, net			(398	)			279				(119	)
Balance as of March 31, 2009		$	14,603			$	2,858			$	17,461

Note 4. Inventories

     Inventories as of March 31, 2009 and December 31, 2008 consisted of the following:

		March 31,				December 31,
		2009				2008
Raw materials, including parts and subassemblies		$	154,345			$	159,425
Work-in-process			41,532				47,060
Finished goods			89,910				90,951
			285,787				297,436
Excess of FIFO costs over LIFO costs			(15,288	)			(12,611	)
Inventories, net		$	270,499			$	284,825

Note 5. Goodwill and Other Intangible Assets

     In accordance with SFAS 142, the Company performs an impairment test of the carrying values of its goodwill and indefinite-lived intangibles assets on an annual basis and whenever events or changes in circumstances indicate that the carrying values may not be recoverable. The Company performed its annual impairment test during the third quarter of 2008 using balances as of June 30, 2008. During the fourth quarter of 2008, the Company experienced a significant slowdown in orders and lower projected near-term earnings levels compared to management’s expectations as of June 30, 2008 coupled with a considerable decline in the price of the Company’s common stock. As a result, the Company performed an interim impairment analysis as of December 31, 2008. Based on the results of these impairment tests, the Company concluded that no impairment of goodwill and indefinite-lived intangibles assets had occurred.

     During the first quarter of 2009, the Company concluded that sufficient indicators existed to require it to perform another interim impairment test as of March 31, 2009. The Company’s conclusion was based upon a combination of factors, including the continued significant decline in order rates for certain products, the uncertain outlook regarding when such order rates might return to levels and growth rates experienced in recent years, and the sustained decline in the price of the Company’s common stock and in the Company’s market capitalization below the Company’s carrying value at March 31, 2009. Accordingly, the Company performed the first step of its interim goodwill impairment test for each of its reporting units and determined that the carrying value of one of its reporting units within the Industrial Products Group exceeded its fair value, indicating that potential goodwill impairment existed. Having determined that the goodwill of this reporting unit was potentially impaired, the Company began performing the second step of the goodwill impairment analysis with the assistance of a third-party valuation firm. This analysis involves calculating the implied fair value of its goodwill by allocating the fair value of the reporting unit to all of its assets and liabilities other than goodwill (including both recognized and unrecognized intangible assets) and comparing the residual amount to the carrying value of goodwill. As of the date of the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, the Company determined that goodwill related to one of its reporting units within the Industrial Products Group was impaired. In accordance with SFAS No. 5, “Accounting for Contingencies,” the Company recorded a preliminary non-cash goodwill impairment charge of $265.0 million which represents the Company’s best estimate of the loss. After recognition of the charge, $228.3 million of goodwill remained with the Industrial Products Group. The Company recorded this charge based on a preliminary assessment and will continue to evaluate the valuations of tangible and intangible assets and the allocation of fair value to all of the particular reporting unit’s assets and liabilities other than goodwill. The

Company currently expects to finalize its goodwill impairment analysis during the quarter ended June 30, 2009. There could be a material adjustment to the estimated charge recorded in the first quarter of 2009 upon completion of the goodwill impairment analysis, or if the Company experiences further deterioration in the price of its common stock and orders or experiences other indicators of further impairment.

     In performing the annual and interim impairment tests, the Company determined the estimated fair value of each reporting unit utilizing an income approach model based on the present value of the estimated future cash flows of the reporting unit assuming a discount rate. This approach makes use of unobservable factors such as projected revenues and a discount rate applied to the estimated cash flows. The determination of the discount rate was based on a cost of equity model, which uses a risk-free rate, a stock-beta adjusted risk premium and a size premium, and aims to be reflective of the assumptions made by market participants. Additionally, the aggregate estimated fair value of the reporting units was compared to the Company’s market capitalization. In considering the Company’s market capitalization, an estimated premium to reflect the fair value on a control basis was applied.

     An impairment evaluation for indefinite-lived intangible assets, which consist of certain trademarks, was also conducted as part of the interim impairment test performed during the first quarter of 2009. The Company evaluated its indefinite-lived intangible assets for impairment by comparing the discounted estimates of future revenue projections to the carrying values and determined that there was no impairment. Significant judgments inherent in this analysis included assumptions regarding appropriate revenue growth rates, discount rates and royalty rates.

     The Company reviews long-lived assets, including its intangible assets subject to amortization, which consist primarily of customer relationships and intellectual property for the Company, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset group to the future undiscounted net cash flows expected to be generated by those assets. If such assets are considered to be impaired, the impairment charge recognized is the amount by which the carrying amounts of the assets exceeds the fair value of the assets. As a result of the impairment indicators described above, during the first quarter of 2009, the Company tested its long-lived assets for impairment and determined that there was no impairment.

     The changes in the carrying amount of goodwill attributable to each business segment for the three-month period ended March 31, 2009, and the year ended December 31, 2008, are presented in the table below. The adjustments to goodwill in 2009 are primarily related to the finalization of the valuation of certain CompAir intangible assets.

		Industrial				Engineered
		Products				Products				Total
Balance as of December 31, 2007		$	363,011			$	322,485			$	685,496
Acquisitions			157,533				—				157,533
Adjustments to goodwill			(3,851	)			3,559				(292	)
Foreign currency translation			(25,641	)			(12,448	)			(38,089	)
Balance as of December 31, 2008			491,052				313,596				804,648
Adjustments to goodwill			14,492				(1	)			14,491
Impairment of goodwill			(265,000	)			—				(265,000	)
Foreign currency translation			(12,261	)			(6,183	)			(18,444	)
Balance as of March 31, 2009		$	228,283			$	307,412			$	535,695

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

		March 31, 2009								December 31, 2008
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Amortized intangible assets:
Customer lists and relationships		$	113,105			$	(16,644	)		$	133,596			$	(17,654	)
Acquired technology			91,291				(38,527	)			91,713				(36,464	)
Trademarks			50,224				(4,011	)			57,332				(3,450	)
Other			4,497				(4,740	)			4,728				(2,883	)
Unamortized intangible assets:
Trademarks			115,983				—				119,345				—
Total other intangible assets		$	375,100			$	(63,922	)		$	406,714			$	(60,451	)

     Amortization of intangible assets for the three-month periods ended March 31, 2009 and 2008 was $5.1 million and $3.0 million, respectively. Amortization of intangible assets is anticipated to be approximately $21.9 million in 2009 and $19.8 million in 2010 through 2013 based upon exchange rates as of March 31, 2009 and intangible assets with finite useful lives included in the balance sheet as of March 31, 2009.

Note 6. Accrued Product Warranty

     A reconciliation of the changes in the accrued product warranty liability for the three-month periods ended March 31, 2009 and 2008 is as follows:

		Three Months Ended
		March 31,
		2009				2008
Balance at beginning of period		$	19,141			$	15,087
Product warranty accruals			4,774				4,301
Settlements			(4,887	)			(3,553	)
Effect of foreign currency translation			(394	)			449
Balance at end of period		$	18,634			$	16,284

Note 7. 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, 2009 and 2008:

		Three Months Ended March 31,
		Pension Benefits																Other
		U.S. Plans								Non-U.S. Plans								Postretirement Benefits
		2009				2008				2009				2008				2009				2008
Service cost		$	—			$	—			$	260			$	188			$	5			$	4
Interest cost			1,093				1,066				2,549				3,120				264				282
Expected return on plan assets			(913	)			(1,175	)			(2,078	)			(3,364	)			—				—
Recognition of:
Unrecognized prior-service cost			3				4				7				—				(50	)			(94	)
Unrecognized net actuarial loss (gain)			455				55				(17	)			(22	)			(325	)			(336	)
Net periodic benefit (income) cost		$	638			$	(50	)		$	721			$	(78	)		$	(106	)		$	(144	)

     The Company previously disclosed in its financial statements for the year ended December 31, 2008, that it expected to contribute approximately $8.6 million to its U.S. pension plans in fiscal 2009. As a result of recent changes to pension plan funding guidelines in the U.S. released by the Internal Revenue Service, the Company currently expects to contribute $1.7 million to its U.S. pension plans in fiscal 2009.

Note 8. Debt

     The Company’s debt at March 31, 2009 and December 31, 2008 is summarized as follows:

		March 31,				December 31,
		2009				2008
Short-term debt		$	8,633			$	11,786
Long-term debt:
Credit Line, due 2013 (1)		$	11,463			$	37,000
Term Loan, denominated in U.S. dollars, due 2013 (2)			175,500				177,750
Term Loan, denominated in euro (“EUR”), due 2013 (3)			154,990				165,284
Senior Subordinated Notes at 8%, due 2013			125,000				125,000
Secured Mortgages (4)			8,464				8,911
Variable Rate Industrial Revenue Bonds, due 2018 (5)			8,000				8,000
Capitalized leases and other long-term debt			9,113				9,937
Total long-term debt, including current maturities			492,530				531,882
Current maturities of long-term debt			28,510				25,182
Total long-term debt, less current maturities		$	464,020			$	506,700

Note 9. Stock-Based Compensation

     The Company accounts for its stock-based compensation in accordance with SFAS No. 123 (revised 2004), “Share-based Payment,” (“SFAS No. 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee directors based on their estimated fair values. The Company recognizes stock-based compensation expense for share-based payment awards over the requisite service period for vesting of the award or to an employee’s eligible retirement date, if earlier. 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, 2009 and 2008.

		Three Months Ended
		March 31,
		2009				2008
Selling and administrative expenses		$	1,120			$	2,259
Total stock-based compensation expense included in operating expenses		$	1,120			$	2,259
(Loss) income before income taxes			(1,120	)			(2,259	)
Provision for income taxes			346				643
Net (loss) income		$	(774	)		$	(1,616	)
Basic and diluted (loss) earnings per share		$	(0.01	)		$	(0.03	)
Net cash provided by operating activities		$	(28	)		$	(428	)
Net cash used in financing activities		$	28			$	428

Plan Descriptions

     Under the Company’s Amended and Restated Long-Term Incentive Plan (the “Incentive Plan”), designated employees and non-employee directors are eligible to receive awards in the form of restricted stock and restricted stock units (“restricted shares”), stock options, stock appreciation rights or performance shares, as determined by the Management Development and Compensation Committee of the Board of Directors (the “Compensation Committee”). Under the Incentive Plan, the grant price of a stock option is determined by the Compensation Committee, but must not be less than the market close price of the Company’s common stock on the date of grant. The Incentive Plan provides that the term of any stock option granted may not exceed ten years. There are no vesting provisions tied to performance conditions for any of the outstanding stock options and restricted shares. Vesting for all outstanding stock options and restricted shares is based solely on continued service as an employee or director of the Company and generally occurs upon retirement, death or cessation of service due to disability, if earlier.

Stock Option Awards

     Under the terms of existing awards, employee stock options become vested and exercisable ratably on each of the first three anniversaries of the date of grant. The options granted to employees in 2009 and 2008 expire seven years after the date of grant. The options granted to non-employee directors become exercisable on the first anniversary of the date of grant and expire five years after the date of grant.

     A summary of the Company’s stock option activity for the three-month period ended March 31, 2009 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, 2008			1,337			$	27.99
Granted			377			$	18.53
Exercised			(16	)		$	10.30
Forfeited or canceled			(67	)		$	31.08
Outstanding at March 31, 2009			1,631			$	25.85			$	3,587			4.4 years
Exercisable at March 31, 2009			1,031			$	26.10			$	2,377			3.3 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, 2009 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, 2009 was $6.89.

     The total pre-tax intrinsic values of stock options exercised during the three-month periods ended March 31, 2009 and 2008 were $0.1 million and $1.8 million, respectively. Pre-tax unrecognized compensation expense for stock options, net of estimated forfeitures, was $3.5 million as of March 31, 2009 and will be recognized as expense over a weighted-average period of 2.4 years.

Valuation Assumptions and Expense under SFAS No. 123(R)

     The fair value of each stock option grant under the 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,
		2009				2008
Assumptions:
Risk-free interest rate			1.7	%			2.6	%
Dividend yield			—				—
Volatility factor			42				30
Expected life (in years)			4.6				4.6

Restricted Share Awards

     In 2008, the Company began granting restricted stock units in lieu of restricted stock. Upon vesting, restricted stock units result in the issuance of the equivalent number of shares of the Company’s common stock. All restricted share awards cliff vest three years after the date of grant.

     A summary of the Company’s restricted share award `activity for the three-month period ended March 31, 2009 is presented in the following table (underlying shares in thousands):

						Weighted-
						Average Grant-
						Date Fair Value
		Shares				(per share)
Nonvested at December 31, 2008			159			$	35.25
Granted			56			$	18.53
Vested			(69	)		$	32.33
Forfeited			—				—
Nonvested at March 31, 2009			146			$	30.21

     The restricted stock units granted in the first three months of 2009 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 $2.2 million as of March 31, 2009, which will be recognized as expense over a weighted-average period of 2.3 years. The total fair value of restricted share awards that vested during the three-month periods ended March 31, 2009 and 2008 was $1.6 million and $0.1 million, respectively.

Note 10. Stockholders’ Equity and (Loss) Earnings Per Share

     In November 2008, the Company’s Board of Directors authorized a new 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, 2009, no shares were repurchased under this program. All common stock acquired is held as treasury stock and available for general corporate purposes.

     The following table details the calculation of basic and diluted (loss) earnings per common share for the three-month periods ended March 31, 2009 and 2008 (shares in thousands):

		Three Months Ended
		March 31,
		2009				2008
Basic (Loss) Earnings Per Share:
Net (loss) income		$	(249,169	)		$	50,859
Shares:
Weighted average number of common shares outstanding			51,765				53,030
Basic (loss) earnings per common share		$	(4.81	)		$	0.96
Diluted (Loss) Earnings Per Share:
Net (loss) income		$	(249,169	)		$	50,859
Shares:
Weighted average number of common shares outstanding			51,765				53,030
Effect of dilutive outstanding equity-based awards (1)			—				719
Weighted average number of diluted common shares			51,765				53,749
Diluted (loss) earnings per common share		$	(4.81	)		$	0.95

     For the three-month periods ended March 31, 2009 and 2008, respectively, antidilutive equity-based awards to purchase 939 and 473 weighted-average shares of common stock were outstanding. Antidilutive equity-based awards outstanding were not included in the computation of diluted (loss) earnings per common share.

     The Company’s accumulated other comprehensive income (loss) consists of (i) unrealized net gains and losses on the translation of the assets and liabilities of its foreign operations; (ii) foreign currency gains and losses associated with the Company’s net investments in foreign operations and translation of intercompany transactions of a long-term investment nature; (iii) unrecognized gains and losses on cash flow hedges (consisting of interest rate swaps), net of income taxes; and (iv) unamortized pension and other postretirement benefit 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):

						Foreign				Unrealized								Accumulated
		Cumulative				Currency				Losses on				Pension and				Other
		Translation				Gains and				Cash Flow				Postretirement				Comprehensive
		Adjustment (1)				(Losses)				Hedges				Benefit Plans				Income
Balance at December 31, 2007		$	133,467			$	—			$	(110	)		$	(5,347	)		$	128,010
Before tax income (loss)			50,157				—				(1,110	)			(393	)			48,654
Income tax effect			—				—				422				147				569
Other comprehensive income (loss)			50,157				—				(688	)			(246	)			49,223
Currency translation (2)			—				—				—				1				1
Balance at March 31, 2008		$	183,624			$	—			$	(798	)		$	(5,592	)		$	177,234
Balance at December 31, 2008		$	99,633			$	(9,410	)		$	—			$	(17,955	)		$	72,268
Before tax (loss) income			(35,671	)			7,634				—				73				(27,964	)
Income tax effect			—				(2,886	)			—				(28	)			(2,914	)
Other comprehensive (loss) income			(35,671	)			4,748				—				45				(30,878	)
Currency translation (2)			—				—				—				—				—
Balance at March 31, 2009		$	63,962			$	(4,662	)		$	—			$	(17,910	)		$	41,390

     The Company’s comprehensive (loss) income for the three-month periods ended March 31, 2009 and 2008 was as follows:

		Three Months Ended
		March 31,
		2009				2008
Net (loss) income		$	(249,169	)		$	50,859
Other comprehensive (loss) income			(30,878	)			49,223
Comprehensive (loss) income		$	(280,047	)		$	100,082

Note 12. Hedging Activities and Fair Value Measurements

Hedging Activities

     The Company is exposed to certain market risks during the normal course of 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 interest rates and foreign currency exchange rates. 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.

     Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable. Because the notional amount of the derivative instruments only serves as a basis for calculating amounts receivable or payable, the risk of loss with any counterparty is limited to a fraction of the notional amount. The Company minimizes the credit risk related to derivatives by transacting only with multiple, high-quality counterparties that are major financial institutions with investment-grade credit ratings. The Company has not experienced any credit loss as a result of counterparty nonperformance in the past. The majority of the derivative contracts to which the Company is a party settle monthly or quarterly, or mature within one year. Because of these factors, the Company has minimal credit risk related to derivative contracts at March 31, 2009.

     The Company’s exposure to interest rate risk results primarily from its borrowings of $501.2 million at March 31, 2009. 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. There were no outstanding interest rate swaps as of March 31, 2009.

     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. Other than the USD, the 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 SFAS No. 133, the Company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. If a derivative is designated as a fair value hedge and is effective, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings in the same period. If a derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive earnings and are recognized in the statement of operations when the hedged item affects income. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. Derivatives that are not designated as hedges or do not qualify for hedge accounting treatment are marked to market through earnings. All cash flows associated with derivatives are classified as operating cash flows in the Condensed Consolidated Statement of Cash Flows.

     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 table summarizes 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, 2009
								Asset				Liability
				Notional				Derivatives				Derivatives
		Balance Sheet Location		Amount (1)				Fair Value (1)				Fair Value (1)
Derivatives designated as hedging instruments under SFAS No. 133
None		N/A		$	—			$	—			$	—
Derivatives not designated as hedging instruments under SFAS No. 133
Foreign currency forwards		Other Current Assets		$	205,253			$	9,114			$	8,545

     There were 45 foreign currency forward contracts outstanding as of March 31, 2009 with notional amounts ranging from $0.1 million to $7.7 million. During the three-month period ended March 31, 2009, the Company recorded net gains of $6.2 million relating to foreign currency forward contracts outstanding during all or part of the first quarter of 2009. This amount is included in the other operating expense (income), net line on the face of the Condensed Consolidated Statements of Operations.

     As of March 31, 2009, the Company has designated its term loan denominated in EUR of approximately €117.0 million as a hedge of the Company’s net investment in European subsidiaries with EUR functional currencies. Accordingly, changes in the fair value of this debt due to changes in the USD to EUR exchange rate are recorded through other comprehensive income. During the three-month period ended March 31, 2009, the Company recorded gains of $5.1 million, net of tax, through other comprehensive income. As of March 31, 2009, the net balance of such gains included in accumulated other comprehensive income was $1.8 million, net of tax.

Fair Value Measurements

     A financial instrument is defined as a cash equivalent, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from another party. The Company’s financial instruments consist primarily of cash and equivalents, trade receivables, trade payables, deferred compensation obligations and debt instruments. The book values of these instruments are a reasonable estimate of their respective fair values.

     Effective January 1, 2008, the Company adopted SFAS No. 157 with respect to its financial assets and liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under SFAS No. 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market

participants on the measurement date. Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

Level 1		Quoted prices in active markets for identical assets or liabilities as of the reporting date.
Level 2		Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities as of the reporting date.
Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

     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, 2009:

		Level 1				Level 2				Level 3				Total
Financial Assets
Foreign currency forwards (1)		$	—			$	569			$	—			$	569
Trading securities held in deferred compensation plan (2)			5,860				—				—				5,860
Total		$	5,860			$	569			$	—			$	6,429
Financial Liabilities
Interest rate swaps (1)		$	—			$	—			$	—			$	—
Phantom stock plan (3)			—				1,274				—				1,274
Deferred compensation plan (4)			5,860				—				—				5,860
Total		$	5,860			$	1,274			$	—			$	7,134

     As discussed in Note 5 “Goodwill and Other Intangible Assets” and in accordance with the provisions of SFAS No. 142, the Company recorded a preliminary goodwill impairment charge of $265.0 million in the quarter ended March 31, 2009. This preliminary charge was calculated as the amount by which the carrying value of goodwill exceeded its implied fair value. The implied fair value of the goodwill was determined using Level 3 inputs of the fair value hierarchy.

     As of March 31, 2009, the total balance of unrecognized tax benefits was $5.1 million compared with $7.8 million at December 31, 2008. The decrease in the balance primarily related to the favorable settlement of tax audits in various foreign jurisdictions and changes in foreign currency exchange rates. Included in the unrecognized tax benefits at March 31, 2009 is $5.1 million of uncertain tax positions that would affect the Company’s effective tax rate if recognized, of which $1.0 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, 2009 include approximately $1.0 million of accrued interest and no penalties.

     The Company’s U.S. federal income tax returns for the tax years 2005 to 2007 are under examination by the Internal Revenue Service. As of the date of this report, the examination is in its initial stages. The statutes of limitations for the U.S. state tax returns are open beginning with the 2005 tax year, except for three states for which the statute has been extended beginning with the 2003 tax year for one state and the 2004 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 with 2001 being the oldest tax year still open, except as noted below. The Company’s significant operations outside the U.S. are located in China, the United Kingdom and Germany. In China and the United Kingdom, tax years prior to 2005 are closed. In Germany, generally, the tax years 2003 and beyond remain subject to examination with the statute of limitations for the 2003 tax year expiring during 2009. In addition, audits are being conducted in various countries for years ranging from 2003 through 2005. To date, no material adjustments have been proposed as a result of these audits.

     The provision for income taxes was $13.9 million for the three-month period ended March 31, 2009. The provision in the first quarter of 2009 includes $8.6 million associated with the write-off of deferred tax assets related to net operating losses recorded in connection with the acquisition of CompAir. This write-off was based on revisions to projections associated with the goodwill impairment charge. The goodwill for which the impairment charge was taken was not amortizable for tax purposes and, accordingly, deferred tax liabilities were not recorded when the goodwill was established and a corresponding tax benefit did not arise upon impairment of the goodwill. The provision in the first quarter of 2009 also includes the reversal of an income tax reserve related to a prior acquisition and related interest totaling $3.6 million associated with the completion of a foreign tax examination.

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

		Three Months Ended
		March 31,
		2009				2008
Other Operating Expense (Income), Net
Foreign currency gains, net		$	(211	)		$	(1,823	)
Restructuring charges (1)			7,864				—
Other, net			1,220				582
Total other operating expense (income), net		$	8,873			$	(1,241	)
Supplemental Cash Flow Information
Cash taxes paid		$	8,852			$	7,113
Interest paid			4,721				2,761

Note 15. Contingencies

     The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature. 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 were enclosed within the subject Products.

     The Company has entered into a series of cost-sharing agreements with multiple insurance companies to secure coverage for asbestos and silica lawsuits. The Company also believes some of the potential liabilities regarding these lawsuits are covered by indemnity agreements with other parties. The Company’s uninsured settlement payments for past asbestos and silica lawsuits have not been material.

     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 components 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, could cause a different outcome, there can be no assurance that the resolution of pending or future lawsuits will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

     The Company has been identified as a potentially responsible party (“PRP”) with respect to several sites designated for cleanup under 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. The Company is also negotiating a settlement through a voluntary clean up program with other potentially responsible parties and the relevant governmental agencies on a fourth site. 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 upon consideration of 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 16. Guarantor Subsidiaries

     The Company’s obligations under its 8% Senior Subordinated Notes due 2013 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 Senior Subordinated 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.

										Non-
		Parent				Guarantor				Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Revenues		$	93,234			$	110,291			$	332,983			$	(74,028	)		$	462,480
Cost of sales			67,142				80,287				248,954				(74,514	)			321,869
Gross profit			26,092				30,004				84,029				486				140,611
Selling and administrative expenses			21,464				12,768				60,351				—				94,583
Other operating (income) expense, net			(6,297	)			5,070				10,100				—				8,873
Impairment of intangible assets			—				—				265,000				—				265,000
Operating income (loss)			10,925				12,166				(251,422	)			486				(227,845	)
Interest expense (income)			3,677				(4,215	)			8,195				—				7,657
Other expense (income), net			64				(5	)			(247	)			—				(188	)
Income (loss) before income taxes			7,184				16,386				(259,370	)			486				(235,314	)
Provision for income taxes			2,193				6,281				5,063				318				13,855
Net income (loss)		$	4,991			$	10,105			$	(264,433	)		$	168			$	(249,169	)

										Non-
		Parent				Guarantor				Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Revenues		$	95,899			$	134,222			$	338,254			$	(72,705	)		$	495,670
Cost of sales			65,722				93,217				244,715				(69,310	)			334,344
Gross profit			30,177				41,005				93,539				(3,395	)			161,326
Selling and administrative expenses			23,572				13,596				49,451				—				86,619
Other operating (income) expense, net			(37	)			(4,327	)			3,119				4				(1,241	)
Operating income			6,642				31,736				40,969				(3,399	)			75,948
Interest expense (income)			5,979				(2,943	)			2,564				—				5,600
Other expense (income), net			47				(1	)			(287	)			—				(241	)
Income before income taxes			616				34,680				38,692				(3,399	)			70,589
Provision for income taxes			168				13,006				7,221				(665	)			19,730
Net income		$	448			$	21,674			$	31,471			$	(2,734	)		$	50,859

										Non-
		Parent				Guarantor				Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Current assets:
Cash and equivalents		$	20,597			$	1,223			$	110,921			$	—			$	132,741
Accounts receivable, net			53,587				58,275				244,849				—				356,711
Inventories, net			38,173				58,498				194,313				(20,485	)			270,499
Deferred income taxes			19,074				—				7,440				4,535				31,049
Other current assets			3,593				4,165				12,716				—				20,474
Total current assets			135,024				122,161				570,239				(15,950	)			811,474
Intercompany (payable) receivable			(384,574	)			385,285				(711	)			—				—
Investments in affiliates			893,423				198,653				87,347				(1,179,394	)			29
Property, plant and equipment, net			55,660				48,876				186,961				—				291,497
Goodwill			124,045				200,824				210,826				—				535,695
Other intangibles, net			9,569				45,692				255,917				—				311,178
Other assets			28,187				374				5,015				(11,533	)			22,043
Total assets		$	861,334			$	1,001,865			$	1,315,594			$	(1,206,877	)		$	1,971,916
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt		$	26,638			$	43			$	10,462			$	—			$	37,143
Accounts payable and accrued liabilities			52,731				51,661				231,607				(1,403	)			334,596
Total current liabilities			79,369				51,704				242,069				(1,403	)			371,739
Long-term intercompany (receivable) payable			(303,737	)			(85,829	)			389,566				—				—
Long-term debt, less current maturities			438,068				108				25,844				—				464,020
Deferred income taxes			—				26,737				68,890				(11,533	)			84,094
Other liabilities			56,639				1,087				73,154				—				130,880
Total liabilities			270,339				(6,193	)			799,523				(12,936	)			1,050,733
Stockholders’ equity:
Common stock			583				—				—				—				583
Capital in excess of par value			548,320				769,120				411,371				(1,179,394	)			549,417
Retained earnings			185,128				223,344				68,339				(14,915	)			461,896
Accumulated other comprehensive (loss) income			(10,933	)			15,594				36,361				368				41,390
Treasury stock, at cost			(132,103	)			—				—				—				(132,103	)
Total stockholders’ equity			590,995				1,008,058				516,071				(1,193,941	)			921,183
Total liabilities and stockholders’ equity		$	861,334			$	1,001,865			$	1,315,594			$	(1,206,877	)		$	1,971,916

										Non-
		Parent				Guarantor				Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Current assets:
Cash and equivalents		$	2,126			$	807			$	117,802			$	—			$	120,735
Accounts receivable, net			67,813				57,247				263,038				—				388,098
Inventories, net			37,641				58,493				210,203				(21,512	)			284,825
Deferred income taxes			25,864				—				5,168				1,982				33,014
Other current assets			12,032				4,604				14,256				—				30,892
Total current assets			145,476				121,151				610,467				(19,530	)			857,564
Intercompany (payable) receivable			(369,870	)			368,024				1,846				—				—
Investments in affiliates			886,150				198,653				104,024				(1,188,798	)			29
Property, plant and equipment, net			57,286				48,787				198,939				—				305,012
Goodwill			124,045				200,490				480,113				—				804,648
Other intangibles, net			6,911				45,959				293,393				—				346,263
Other assets			30,718				359				5,325				(9,793	)			26,609
Total assets		$	880,716			$	983,423			$	1,694,107			$	(1,218,121	)		$	2,340,125
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt		$	23,659			$	42			$	13,267			$	—			$	36,968
Accounts payable and accrued liabilities			64,147				46,296				254,401				(4,430	)			360,414
Total current liabilities			87,806				46,338				267,668				(4,430	)			397,382
Long-term intercompany (receivable) payable			(338,041	)			(107,540	)			445,581				—				—
Long-term debt, less current maturities			491,323				119				15,258				—				506,700
Deferred income taxes			—				28,639				72,372				(9,793	)			91,218
Other liabilities			68,302				1,093				76,682				—				146,077
Total liabilities			309,390				(31,351	)			877,561				(14,223	)			1,141,377
Stockholders’ equity:
Common stock			583				—				—				—				583
Capital in excess of par value			544,575				778,472				411,422				(1,188,798	)			545,671
Retained earnings			180,137				213,239				332,772				(15,083	)			711,065
Accumulated other comprehensive (loss) income			(23,130	)			23,063				72,352				(17	)			72,268
Treasury stock, at cost			(130,839	)			—				—				—				(130,839	)
Total stockholders’ equity			571,326				1,014,774				816,546				(1,203,898	)			1,198,748
Total liabilities and stockholders’ equity		$	880,716			$	983,423			$	1,694,107			$	(1,218,121	)		$	2,340,125