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Gardner Denver 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
e10vq
Table of Contents

 
 
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
For the quarterly period ended March 31, 2010
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
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.)
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: 52,410,389 shares of Common Stock, par value $0.01 per share, as of April 30, 2010.
 
 

 


 

GARDNER DENVER, INC.
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
GARDNER DENVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2010     2009  
Revenues
  $ 422,164     $ 462,480  
Cost of sales
    288,357       321,869  
 
           
Gross profit
    133,807       140,611  
Selling and administrative expenses
    87,694       94,583  
Other operating (income) expense, net
    (1,351 )     8,176  
Impairment charges
          265,000  
 
           
Operating income (loss)
    47,464       (227,148 )
Interest expense
    6,116       7,657  
Other income, net
    (635 )     (188 )
 
           
Income (loss) before income taxes
    41,983       (234,617 )
Provision for income taxes
    9,730       13,855  
 
           
Net income (loss)
    32,253       (248,472 )
Less: Net income attributable to noncontrolling interests
    295       697  
 
           
Net income (loss) attributable to Gardner Denver
  $ 31,958     $ (249,169 )
 
           
 
               
Net earnings (loss) per share attributable to Gardner Denver common stockholders
               
Basic earnings (loss) per share
  $ 0.61     $ (4.81 )
 
           
Diluted earnings (loss) per share
  $ 0.61     $ (4.81 )
 
           
 
               
Cash dividends declared per common share
  $ 0.05     $  
 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.

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GARDNER DENVER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
                 
    March 31,     December 31,  
    2010     2009  
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 112,823     $ 109,736  
Accounts receivable (net of allowance of $11,048 at March 31, 2010 and $10,690 at December 31, 2009)
    332,404       326,234  
Inventories, net
    223,088       226,453  
Deferred income taxes
    28,037       30,603  
Other current assets
    24,856       25,485  
 
           
Total current assets
    721,208       718,511  
 
           
Property, plant and equipment (net of accumulated depreciation of $317,380 at March 31, 2010 and $320,635 at December 31, 2009)
    286,001       306,235  
Goodwill
    563,698       578,014  
Other intangibles, net
    296,746       314,410  
Other assets
    26,139       21,878  
 
           
Total assets
  $ 1,893,792     $ 1,939,048  
 
           
 
               
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Short-term borrowings and current maturities of long-term debt
  $ 38,110     $ 33,581  
Accounts payable
    107,762       94,887  
Accrued liabilities
    165,944       195,062  
 
           
Total current liabilities
    311,816       323,530  
 
           
Long-term debt, less current maturities
    306,660       330,935  
Postretirement benefits other than pensions
    15,141       15,269  
Deferred income taxes
    65,553       67,799  
Other liabilities
    129,607       137,506  
 
           
Total liabilities
    828,777       875,039  
 
           
Stockholders’ equity:
               
Common stock, $0.01 par value; 100,000,000 shares authorized; 52,327,499 and 52,191,675 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively
    590       586  
Capital in excess of par value
    570,513       558,733  
Retained earnings
    572,598       543,272  
Accumulated other comprehensive income
    52,676       82,514  
Treasury stock at cost; 6,639,894 and 6,438,993 shares at March 31, 2010 and December 31, 2009, respectively
    (141,776 )     (132,935 )
 
           
Total Gardner Denver stockholders’ equity
    1,054,601       1,052,170  
Noncontrolling interests
    10,414       11,839  
 
           
Total stockholders’ equity
    1,065,015       1,064,009  
 
           
Total liabilities and stockholders’ equity
  $ 1,893,792     $ 1,939,048  
 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.

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GARDNER DENVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2010     2009  
Cash Flows From Operating Activities
               
Net income (loss)
  $ 32,253     $ (248,472 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation and amortization
    15,629       16,668  
Impairment charges
          265,000  
Unrealized foreign currency transaction gain, net
    (1,001 )     (211 )
Net (gain) loss on asset dispositions
    (310 )     76  
Stock issued for employee benefit plans
    971       1,233  
Stock-based compensation expense
    1,857       1,120  
Excess tax benefits from stock-based compensation
    (1,489 )     (28 )
Deferred income taxes
    3,247       988  
Changes in assets and liabilities:
               
Receivables
    (14,798 )     22,088  
Inventories
    (4,585 )     7,007  
Accounts payable and accrued liabilities
    (6,545 )     (18,053 )
Other assets and liabilities, net
    1,459       8,285  
 
           
Net cash provided by operating activities
    26,688       55,701  
 
           
 
               
Cash Flows From Investing Activities
               
Capital expenditures
    (4,759 )     (8,954 )
Disposals of property, plant and equipment
    187       89  
Other, net
          22  
 
           
Net cash used in investing activities
    (4,572 )     (8,843 )
 
           
 
               
Cash Flows From Financing Activities
               
Principal payments on short-term borrowings
    (3,505 )     (18,397 )
Proceeds from short-term borrowings
    7,307       15,695  
Principal payments on long-term debt
    (24,711 )     (61,520 )
Proceeds from long-term debt
    8,010       31,318  
Proceeds from stock option exercises
    7,339       165  
Excess tax benefits from stock-based compensation
    1,489       28  
Purchase of treasury stock
    (8,841 )     (165 )
Cash dividends paid
    (2,624 )      
Other
    (1,001 )     (759 )
 
           
Net cash used in financing activities
    (16,537 )     (33,635 )
 
           
 
               
Effect of exchange rate changes on cash and cash equivalents
    (2,492 )     (1,217 )
 
           
 
               
Net increase in cash and cash equivalents
    3,087       12,006  
Cash and cash equivalents, beginning of year
    109,736       120,735  
 
           
 
               
Cash and cash equivalents, end of period
  $ 112,823     $ 132,741  
 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.

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GARDNER DENVER, INC.
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”). In consolidation, all significant intercompany transactions and accounts have been eliminated.
     The Condensed Consolidated Statements of Operations and Cash Flows and all segment information for the three months ended March 31, 2009 reflect the adoption in 2009 of new reporting guidance for noncontrolling interests codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation.
     The financial information presented as of any date other than December 31, 2009 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, 2009.
     The results of operations for the three-month period ended March 31, 2010 are not necessarily indicative of the results to be expected for the full year. The balance sheet at December 31, 2009 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, 2009.

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New Accounting Standards
Recently Adopted Accounting Pronouncements
     In January 2010, the FASB issued Accounting Standards Update (“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 are effective for interim and annual reporting periods beginning after December 15, 2009, except for the reconciliation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010. See Note 11 “Hedging Activities and Fair Value Measurements” for the disclosures required by ASU 2010-06.
     In February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855) – Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-09”). ASU 2010-09, among other provisions, eliminates the requirement to disclose the date through which subsequent events have been evaluated, and was adopted by the Company in the first quarter of 2010.
Recently Issued Accounting Pronouncements
     In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605) - Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force (“ASU 2009-13”). It updates the existing multiple-element revenue arrangements guidance currently included under FASB 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 is effective for fiscal years beginning on or after June 15, 2010. The Company is currently assessing the impact of this new guidance on its consolidated financial statements and related disclosures.
Note 2. Restructuring
     In 2008 and 2009, the Company finalized and announced certain 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 and (iii) integration of CompAir Holdings Ltd. (“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 FASB ASC 420, Exit or Disposal Cost Obligations, and FASB ASC 712, Compensation — Nonretirement Postemployment Benefits, charges totaling $57.2 million (included in “Other operating expense, net”) were recorded in 2008 and 2009, of which $34.3 million was associated with the Industrial Products Group and $22.9

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million was associated with the Engineered Products Group. Additional charges totaling $1.4 million were recorded in the first quarter of 2010, of which $1.2 million was associated with the Industrial Products Group and $0.2 million was associated with the Engineered Products Group. Implementation of these plans was substantively completed during the first quarter of 2010. Payment of employee benefits is expected to be substantively completed in 2010.
     In 2009, the Company recorded charges totaling approximately $5.2 million in connection with the consolidation of certain U.S. operations, which it expects to be funded by a state grant. Additional related charges totaling approximately $4.9 million, also expected to be funded by a state grant, were recorded in the first quarter of 2010. The anticipated amount of the grant was recorded as a reduction in the associated charge and the establishment of a current receivable. If the Company does not maintain certain employment and payroll levels specified in the grant over a ten-year period, it will be obligated to return a portion of the grant funds to the state on a pro-rata basis. Any such amounts that may be returned to the state will be charged to operating income when identified. The Company currently expects to meet the required employment and payroll levels.
     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 were 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. This liability was increased by $2.1 million in 2009 to reflect the finalization of certain of these plans.
     The following table summarizes the activity in the restructuring accrual accounts:
                         
    Termination              
    Benefits     Other     Total  
Balance as of December 31, 2009
  $ 17,325     $ 3,655     $ 20,980  
Charged to expense
    186       1,168       1,354  
Paid
    (5,093 )     (1,799 )     (6,892 )
Other, net
    (728 )     94       (634 )
 
                 
Balance as of March 31, 2010
  $ 11,690     $ 3,118     $ 14,808  
 
                 

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Note 3. Inventories
     Inventories as of March 31, 2010 and December 31, 2009 consisted of the following:
                 
    March 31,     December 31,  
    2010     2009  
Raw materials, including parts and subassemblies
  $ 148,348     $ 150,085  
Work-in-process
    22,926       39,691  
Finished goods
    67,705       51,638  
 
           
 
    238,979       241,414  
Excess of FIFO costs over LIFO costs
    (15,891 )     (14,961 )
 
           
Inventories, net
  $ 223,088     $ 226,453  
 
           
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, 2010, and the year ended December 31, 2009, 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, 2008
                       
Goodwill
  $ 491,052     $ 313,596     $ 804,648  
Accumulated impairment
                 
 
                 
 
    491,052       313,596       804,648  
Adjustments to goodwill
    16,275       (2 )     16,273  
Impairment of goodwill
    (252,533 )           (252,533 )
Foreign currency translation
    2,030       7,596       9,626  
 
                 
Balance as of December 31, 2009
                       
Goodwill
    509,357       321,190       830,547  
Accumulated impairment
    (252,533 )           (252,533 )
 
                 
 
    256,824       321,190       578,014  
Foreign currency translation
    (7,840 )     (6,476 )     (14,316 )
 
                 
Balance as of March 31, 2010
                       
Goodwill
    501,517       314,714       816,231  
Accumulated impairment
    (252,533 )           (252,533 )
 
                 
 
  $ 248,984     $ 314,714     $ 563,698  
 
                 
     In the first quarter of 2009, the Company recorded a preliminary $265.0 million non-cash impairment charge to reduce the carrying amount of goodwill in its Industrial Products Group based on the results of an interim assessment of such goodwill. This assessment was conducted as a result of the continuing significant decline in order rates for certain products in the Industrial Products Group during the first quarter of 2009, 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 through March 31, 2009. The net goodwill impairment charge in 2009 of $252.5 million was finalized in the fourth quarter of 2009.

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     The following table presents the gross carrying amount and accumulated amortization of identifiable intangible assets, other than goodwill, at the dates presented:
                                 
    March 31, 2010     December 31, 2009  
    Gross             Gross        
    Carrying     Accumulated     Carrying     Accumulated  
    Amount     Amortization     Amount     Amortization  
Amortized intangible assets:
                               
Customer lists and relationships
  $ 116,091     $ (25,066 )   $ 121,990     $ (24,580 )
Acquired technology
    94,944       (48,966 )     98,163       (47,162 )
Trade names
    53,810       (6,987 )     56,245       (6,604 )
Other
    6,708       (2,505 )     7,555       (3,781 )
Unamortized intangible assets:
                               
Trade names
    108,717             112,584        
 
                       
Total other intangible assets
  $ 380,270     $ (83,524 )   $ 396,537     $ (82,127 )
 
                       
     Amortization of intangible assets for the three-month periods ended March 31, 2010 and 2009 was $4.5 million and $5.1 million, respectively. Amortization of intangible assets is anticipated to be approximately $19.0 million in 2011 through 2014 based upon exchange rates as of March 31, 2010 and intangible assets with finite useful lives included in the balance sheet as of March 31, 2010.
     Based upon a review of current economic conditions and internal projections for revenues and profitability, the Company determined that no facts or circumstances arose during the three-month period ended March 31, 2010 to warrant the performance of an interim impairment test and that there was no indication of impairment to its goodwill for any of the reporting units or indefinite-lived intangible assets as of March 31, 2010.
Note 5. Accrued Product Warranty
     A reconciliation of the changes in the accrued product warranty liability for the three-month periods ended March 31, 2010 and 2009 is as follows:
                 
    Three Months Ended March 31,  
    2010     2009  
Balance at beginning of period
  $ 19,312     $ 19,141  
Product warranty accruals
    5,590       4,774  
Settlements
    (6,201 )     (4,887 )
Effect of foreign currency translation
    (567 )     (394 )
 
           
Balance at end of period
  $ 18,134     $ 18,634  
 
           

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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, 2010 and 2009:
                                                 
    Three Months Ended March 31,  
    Pension Benefits     Other  
    U.S. Plans     Non-U.S. Plans     Postretirement Benefits  
    2010     2009     2010     2009     2010     2009  
Service cost
  $     $     $ 272     $ 260     $ 4     $ 5  
Interest cost
    965       1,093       2,964       2,549       249       264  
Expected return on plan assets
    (885 )     (913 )     (2,625 )     (2,078 )            
Recognition of:
                                               
Unrecognized prior-service cost
          3       6       7       (25 )     (50 )
Unrecognized net actuarial loss (gain)
    359       455       256       (17 )     (325 )     (325 )
 
                                   
Net periodic benefit cost (income)
    439       638       873       721       (97 )     (106 )
FASB ASC 715-30 curtailment gain
                (837 )                  
 
                                   
Total net periodic benefit cost (income)
  $ 439     $ 638     $ 36     $ 721     $ (97 )   $ (106 )
 
                                   
     In March of 2010, the Patient Protection and Affordable Care Act (HR 3590) and the Health Care Education and Affordability Reconciliation Act (HR 4872) (the “Acts”) became law in the United States. The Acts contain provisions which could impact the Company’s accounting for retiree medical benefits in future periods. However, the extent of that impact, if any, cannot be reliably determined until regulations are promulgated under the Acts and additional interpretations of the Acts become available. The Company’s accumulated benefit obligation for its U.S. post-retirement benefit plan was $15.6 million at December 31, 2009. The Company will continue to assess the accounting implications of the Acts as related regulations and interpretations of the Acts become available. In addition, the Company may consider plan amendments in future periods that may impact the accounting of its postretirement benefit plans.
     The Company previously disclosed in its financial statements for the year ended December 31, 2009, that it expects to contribute approximately $3.6 million to its non-U.S. pension plans in fiscal 2010. In the first quarter of 2010, the Company elected to make additional discretionary contributions to such plans and, as a result, contributions to its non-U.S. pension plans as of the date of this report are expected to be $5.8 million in fiscal 2010.

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Note 7. Debt
     The Company’s debt at March 31, 2010 and December 31, 2009 is summarized as follows:
                 
    March 31,     December 31,  
    2010     2009  
Short-term debt
  $ 9,163     $ 5,497  
 
           
 
               
Long-term debt:
               
Credit Line, due 2013 (1)
  $     $ 2,500  
Term Loan, denominated in U.S. dollars, due 2013 (2)
    109,946       113,000  
Term Loan, denominated in euro (“EUR”), due 2013 (3)
    83,761       100,310  
Senior Subordinated Notes at 8%, due 2013
    125,000       125,000  
Secured Mortgages (4)
    8,014       8,500  
Capitalized leases and other long-term debt
    8,886       9,709  
 
           
Total long-term debt, including current maturities
    335,607       359,019  
Current maturities of long-term debt
    28,947       28,084  
 
           
Total long-term debt, less current maturities
  $ 306,660     $ 330,935  
 
           
 
(1)   The loans under this facility may be denominated in U.S. Dollars (“USD”) or several foreign currencies. The interest rates under the facility are based on prime, federal funds and/or LIBOR for the applicable currency.
 
(2)   The interest rate for this loan varies with prime, federal funds and/or LIBOR. At March 31, 2010, this rate was 2.8% and averaged 2.8% for the three-month period ended March 31, 2010.
 
(3)   The interest rate for this loan varies with LIBOR. At March 31, 2010, this rate was 2.9% and averaged 3.0% for the three-month period ended March 31, 2010.
 
(4)   This amount consists of two fixed-rate commercial loans with an outstanding balance of €5,932 at March 31, 2010. The loans are secured by the Company’s facility in Bad Neustadt, Germany.
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, 2010 and 2009.

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    Three Months Ended March 31,  
    2010     2009  
Selling and administrative expenses
  $ 1,857     $ 1,120  
 
           
Total stock-based compensation expense included in operating expenses
  $ 1,857     $ 1,120  
 
               
Income (loss) before income taxes
    (1,857 )     (1,120 )
Provision for income taxes
    607       346  
 
           
Net income (loss)
  $ (1,250 )   $ (774 )
 
           
 
               
Net cash provided by operating activities
  $ (1,489 )   $ (28 )
Net cash used in financing activities
  $ 1,489     $ 28  
Stock Option Awards
     A summary of the Company’s stock option activity for the three-month period ended March 31, 2010 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, 2009
    1,381     $ 27.10                  
Granted
    259     $ 43.43                  
Exercised
    (314 )   $ 23.37                  
Forfeited
    (26 )   $ 23.20                  
Expired or canceled
    (6 )   $ 21.71                  
 
                             
Outstanding at March 31, 2010
    1,294     $ 31.38     $ 16,482     4.7 years
 
                               
Exercisable at March 31, 2010
    724     $ 30.55     $ 9,866     3.6 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, 2010 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, 2010 was $16.49.
     The total pre-tax intrinsic values of stock options exercised during the three-month periods ended March 31, 2010 and 2009 were $6.3 million and $0.1 million, respectively. Pre-tax unrecognized compensation expense for stock options, net of estimated forfeitures, was $4.8 million as of March 31, 2010 and will be recognized as expense over a weighted-average period of 2.4 years.

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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,  
    2010     2009  
Assumptions:
               
Risk-free interest rate
    2.3 %     1.7 %
Dividend yield
    0.5 %      
Volatility factor
    43       42  
Expected life (in years)
    4.8       4.6  
Restricted Share Awards
     A summary of the Company’s restricted share award activity for the three-month period ended March 31, 2010 is presented in the following table (underlying shares in thousands):
                 
            Weighted-  
            Average Grant-  
            Date Fair Value  
    Shares     (per share)  
Nonvested at December 31, 2009
    143     $ 29.92  
Granted
    42     $ 43.43  
Vested
    (6 )   $ 35.70  
Forfeited
        $  
 
             
Nonvested at March 31, 2010
    179     $ 32.90  
 
             
     The restricted shares granted in the three-month period of 2010 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 $2.9 million as of March 31, 2010, which will be recognized as expense over a weighted-average period of 2.0 years. The total fair value of restricted share awards that vested during the three-month periods of 2010 and 2009 was $0.2 million and $1.6 million, respectively.
Note 9. Stockholders’ Equity and Earnings (Loss) 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, 2010, the Company repurchased 195 thousand shares under this program at a total cost of $8.6 million.

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     The following table details the calculation of basic and diluted earnings (loss) per common share for the three-month periods ended March 31, 2010 and 2009 (shares in thousands):
                 
    Three Months Ended  
    March 31,  
    2010     2009  
Net income (loss) attributable to Gardner Denver
  $ 31,958     $ (249,169 )
Weighted average shares of common stock outstanding:
               
Basic
    52,245       51,765  
Effect of stock-based compensation awards (1)
    440        
 
           
Diluted
    52,685       51,765  
 
           
Earnings (Loss) Per Share:
               
Basic
  $ 0.61     $ (4.81 )
 
           
Diluted
  $ 0.61     $ (4.81 )
 
           
 
(1)   Share equivalents totaling 170, consisting of outstanding stock options and nonvested restricted share awards, were excluded from the computation of diluted loss per share in the three-month period ended March 31, 2009 because the net loss for the period caused all potentially dilutive shares to be anti-dilutive.
     For the three-month periods ended March 31, 2010 and 2009, respectively, anti-dilutive equity-based awards to purchase 129 thousand and 939 thousand weighted-average shares of common stock were outstanding. Antidilutive equity-based awards outstanding were not included in the computation of diluted earnings (loss) 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) unrealized gains and losses on hedges of net investments in foreign operations, (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.

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     The following table sets forth the changes in each component of accumulated other comprehensive income (loss):
                                         
    Cumulative     Foreign     Unrealized             Accumulated  
    Currency     Currency     Losses on     Pension and     Other  
    Translation     Gains and     Cash Flow     Postretirement     Comprehensive  
    Adjustment(1)     (Losses)     Hedges     Benefit Plans     Income  
Balance at December 31, 2008
  $ 113,344     $ (22,982 )   $     $ (17,955 )   $ 72,407  
Before tax (loss) income
    (29,688 )     1,512             73       (28,103 )
Income tax effect
          (2,886 )           (28 )     (2,914 )
 
                             
Other comprehensive (loss) income
    (29,688 )     (1,374 )           45       (31,017 )
Currency translation (2)
                             
 
                             
Balance at March 31, 2009
  $ 83,656     $ (24,356 )   $     $ (17,910 )   $ 41,390  
 
                             
 
                                       
Balance at December 31, 2009
  $ 134,573     $ (21,319 )   $ (250 )   $ (30,490 )   $ 82,514  
Before tax (loss) income
    (38,820 )     8,920       (706 )     272       (30,334 )
Income tax effect
          297       268       (84 )     481  
 
                             
Other comprehensive (loss) income
    (38,820 )     9,217       (438 )     188       (29,853 )
Currency translation (2)
                      15       15  
 
                             
Balance at March 31, 2010
  $ 95,753     $ (12,102 )   $ (688 )   $ (30,287 )   $ 52,676  
 
                             
 
(1)   Income taxes are generally not provided for foreign currency translation adjustments, as such adjustments relate to permanent investments in international subsidiaries.
 
(2)   The Company uses the historical rate approach in determining the USD amounts of changes to accumulated other comprehensive income associated with non-U.S. pension benefit plans.
     The Company’s comprehensive income (loss) for the three-month periods ended March 31, 2010 and 2009 was as follows:
                 
    Three Months Ended  
    March 31,  
    2010     2009  
Net income (loss) attributable to Gardner Denver
  $ 31,958     $ (249,169 )
Other comprehensive loss
    (29,853 )     (31,017 )
 
           
Comprehensive income (loss) attributable to Gardner Denver
    2,105       (280,186 )
 
           
Net income attributable to noncontrolling interests
    295       697  
Other comprehensive (loss) income
    (723 )     188  
 
           
Comprehensive (loss) income attributable to noncontrolling interests
    (428 )     885  
 
           
Total comprehensive income (loss)
  $ 1,677     $ (279,301 )
 
           
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

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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 $344.8 million at March 31, 2010. 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. 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 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 (“OCI”), 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.

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     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:
                                 
    December 31, 2009  
                    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 assets   $ 132,320     $     $ 479  
 
                               
Derivatives not designated as hedging instruments under FASB ASC 815
                               
Foreign currency forwards
  Accrued liabilities   $ 3,049     $ 6     $ 128  
Foreign currency forwards
  Other current assets   $ 119,738     $ 1,603     $ 11  
                                 
    March 31, 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   $ 129,039     $     $ 1,182  
 
                               
Derivatives not designated as hedging instruments under FASB ASC 815
                               
Foreign currency forwards
  Accrued liabilities   $ 944     $ 9     $ 5  
Foreign currency forwards
  Other current assets   $ 113,265     $ 5,529     $ 1,312  
 
(1)   Notional amounts represent the gross contract amounts of the outstanding derivatives excluding the total notional amount of positions that have been effectively closed through offsetting positions. The net gains and net losses associated with positions that have been effectively closed through offsetting positions but not yet settled are included in the asset and liability derivatives fair value columns, respectively.
     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 period ended March 31, 2010 are as presented in the table below. There were no outstanding derivatives designated as cash flow hedges during the three-month period ended March 31, 2009.

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                    Amount of Gain or (Loss)  
    Amount of Gain or     Amount of Gain or     Recognized in Income on  
    (Loss)     (Loss) Reclassified     Derivatives  
    Recognized in OCI on     from Accumulated OCI     (Ineffective Portion and  
Derivatives Designated as   Derivatives     into Income     Amount Excluded from  
Cash Flow Hedges   (Effective Portion)     (Effective Portion)     Effectiveness Testing))  
    Three Months Ended March 31, 2010  
Interest rate swap contracts (1)
  $ (1,087 )   $ (381 )   $  
 
(1)   Losses on derivatives reclassified from accumulated other comprehensive income (“AOCI”) into income (effective portion) were included in the interest expense line on the face of the Condensed Consolidated Statements of Operations.
     At March 31, 2010, the Company is the fixed rate payor on five interest rate swap contracts that effectively fix the LIBOR-based index used to determine the interest rates charged on a total of $75.0 million and €40.0 million of the Company’s LIBOR-based variable rate borrowings. These contracts carry fixed rates ranging from 0.7% to 2.2% and have expiration dates ranging from 2010 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, 2010, the Company expects to reclassify losses of $1.1 million out of AOCI into earnings during the next 12 months. The Company’s LIBOR-based variable rate borrowings outstanding at March 31, 2010 were $109.9 million and €62.0 million.
     There were 37 foreign currency forward contracts outstanding as of March 31, 2010 with notional amounts ranging from $0.1 million to $9.8 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 (income) expense, net, line on the face of the Condensed Consolidated Statements of Operations. The Company recorded net gains of $3.2 million and $6.2 million during the three-month periods ended March 31, 2010 and 2009, respectively, relating to foreign currency forward contracts outstanding during all or part of each period . During the three-month periods ended March 31, 2010 and 2009, net foreign currency gains reported in other operating (income) expense, net, were $1.0 million and $0.2 million, respectively.
     As of March 31, 2010, the Company has designated a portion of its term loan denominated in EUR of approximately €14.0 million as a hedge of the Company’s 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 are recorded through other comprehensive income. During the three-month periods ended March 31, 2010 and 2009, the Company recorded gains of $1.0 million and $5.1 million, net of tax, respectively, through other comprehensive income. As of March 31, 2010, the net balance of such losses included in accumulated other comprehensive income was $4.4 million, net of tax.

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Fair Value Measurements
     The Company’s financial instruments consist primarily of cash equivalents, trade receivables, trade payables, deferred compensation 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 $125.6 million as of March 31, 2010 based upon non-binding market quotations that were corroborated by observable market data (Level 2). The estimated fair value is not indicative of the amount that the Company would have to pay to redeem these notes since they are infrequently traded and are not callable at this value.
     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, 2010:
                                 
    Level 1     Level 2     Level 3     Total  
     
Financial Assets
                               
Foreign currency forwards (1)
  $     $ 5,538     $     $ 5,538  
Trading securities held in deferred compensation plan (2)
    8,699                   8,699  
     
Total
  $ 8,699     $ 5,538     $     $ 14,237  
     
 
                               
Financial Liabilities
                               
Foreign currency forwards (1)
  $     $ 1,317     $     $ 1,317  
Interest rate swaps (3)
          1,182             1,182  
Phantom stock plan (4)
          3,154             3,154  
Deferred compensation plan (5)
    8,699                   8,699  
     
Total
  $ 8,699     $ 5,653     $     $ 14,352  
     
 
(1)   Based on internally-developed models that use as their basis readily observable market parameters such as current spot and forward rates, and the LIBOR index.
 
(2)   Based on the observable price of publicly traded mutual funds which, in accordance with FASB ASC 710, Compensation — General, are classified as “Trading” securities and accounted for using the mark-to-market method.
 
(3)   Measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curve as of March 31, 2010. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.
 
(4)   Based on the price of the Company’s common stock.
 
(5)   Based on the fair value of the investments in the deferred compensation plan.
Note 12. Income Taxes
     As of March 31, 2010, the total balance of unrecognized tax benefits was $5.4 million compared with $5.3 million of unrecognized tax benefits at December 31, 2009. The increase in the balance was primarily related to an increase in tax reserves associated with tax audits in Germany, net of a state settlement. The unrecognized tax benefits at March 31, 2010 included $5.4 million of uncertain tax positions that would affect the Company’s effective tax rate if recognized, of which $2.6 million would be offset by a reduction of a corresponding deferred

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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, 2010 included approximately $1.3 million of accrued interest and $0.3 million of 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 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 four states for which the statutes have been extended, beginning with the 2003 tax year for one state, the 2004 tax year for one state and the 2005 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, six subsidiaries are under audit for the tax years beginning with the 2003 tax year, two subsidiaries beginning with the 2004 tax year, six subsidiaries beginning with the 2005 tax year and one subsidiary beginning with the 2006 tax year. 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 various countries. To date, no material adjustments have been proposed as a result of these audits.
     The provision for income taxes was $9.7 million for the three-month period ended March 31, 2010, compared to $13.9 million for the three-month period ended March 31, 2009. The provision in the three-month period ended March 31, 2009 included an $8.6 million increase in the valuation allowance against deferred tax assets related to net operating losses recorded in connection with the acquisition of CompAir based on revised financial projections. The provision in the three-month period ended March 31, 2009 also included a $3.6 million credit for the reversal of an income tax reserve and the related interest associated with the completion of a foreign tax examination.

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Note 13. Supplemental Information
     The components of other operating (income) expense, net, and supplemental cash flow information are as follows:
                 
    Three Months Ended  
    March 31,  
    2010     2009  
Other Operating (Income) Expense, Net
               
Foreign currency gains, net
  $ (1,001 )   $ (211 )
Restructuring charges (1)
    1,354       7,864  
Other, net
    (1,704 )     523  
 
           
Total other operating (income) expense, net
  $ (1,351 )   $ 8,176  
 
           
 
               
Supplemental Cash Flow Information
               
Cash taxes paid
  $ 8,512     $ 8,852  
Interest paid
    3,435       4,721  
 
(1)   See Note 2 “Restructuring.”
Note 14. 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 silicosis 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 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 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,

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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. 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 15. 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.

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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 Statement of Operations
Three Months Ended March 31, 2009
                                         
                    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       9,403             8,176  
Impairment charges
                265,000             265,000  
 
                             
Operating income (loss)
    10,925       12,166       (250,725 )     486       (227,148 )
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       (258,673 )     486       (234,617 )
Provision for income taxes
    2,193       6,281       5,063       318       13,855  
 
                             
Net income (loss)
    4,991       10,105       (263,736 )     168       (248,472 )
Less: Net income attributable to noncontrolling interests
                697             697  
 
                             
Net income (loss) attributable to Gardner Denver
  $ 4,991     $ 10,105     $ (264,433 )   $ 168     $ (249,169 )
 
                             

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Condensed Consolidating Balance Sheet
March 31, 2010
                                         
                    Non-              
    Parent     Guarantor     Guarantor              
    Company     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Assets
                                       
Current assets:
                                       
Cash and cash equivalents
  $ 7,800     $ 4     $ 105,019     $     $ 112,823  
Accounts receivable, net
    47,098       46,829       238,477             332,404  
Inventories, net
    34,897       48,313       155,763       (15,885 )     223,088  
Deferred income taxes
    20,059             6,271       1,707       28,037  
Other current assets
    6,571       3,365       14,920             24,856  
 
                             
Total current assets
    116,425       98,511       520,450       (14,178 )     721,208  
 
                             
Intercompany (payable) receivable
    (75,392 )     61,583       13,809              
Investments in affiliates
    947,377       184,813       72,856       (1,205,046 )      
Property, plant and equipment, net
    53,353       43,409       189,239             286,001  
Goodwill
    76,680       190,010       297,008             563,698  
Other intangibles, net
    8,482       44,502       243,762             296,746  
Other assets
    25,738       471       9,241       (9,311 )     26,139  
 
                             
Total assets
  $ 1,152,663     $ 623,299     $ 1,346,365     $ (1,228,535 )   $ 1,893,792  
 
                             
 
                                       
Liabilities and Stockholders’ Equity
                                       
Current liabilities:
                                       
Short-term borrowings and current maturities of long-term debt
  $ 27,958     $     $ 10,152     $     $ 38,110  
Accounts payable and accrued liabilities
    49,103       47,182       180,289       (2,868 )     273,706  
 
                             
Total current liabilities
    77,061       47,182       190,441       (2,868 )     311,816  
 
                             
Long-term intercompany payable (receivable)
    164,232       (299,900 )     135,668              
Long-term debt, less current maturities
    291,804       75       14,781             306,660  
Deferred income taxes
          24,735       50,129       (9,311 )     65,553  
Other liabilities
    64,683       723       79,342             144,748  
 
                             
Total liabilities
    597,780       (227,185 )     470,361       (12,179 )     828,777  
 
                             
Stockholders’ equity:
                                       
Common stock
    590                         590  
Capital in excess of par value
    569,384       585,314       620,861       (1,205,046 )     570,513  
Retained earnings
    144,327       246,791       192,015       (10,535 )     572,598  
Accumulated other comprehensive (loss) income
    (17,642 )     18,379       52,714       (775 )     52,676  
Treasury stock, at cost
    (141,776 )                       (141,776 )
 
                             
Total Gardner Denver stockholders’ equity
    554,883       850,484       865,590       (1,216,356 )     1,054,601  
Noncontrolling interests
                10,414             10,414  
 
                             
Total stockholders’ equity
    554,883       850,484       876,004       (1,216,356 )     1,065,015  
 
                             
Total liabilities and stockholders’ equity
  $ 1,152,663     $ 623,299     $ 1,346,365     $ (1,228,535 )   $ 1,893,792  
 
                             

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Condensed Consolidating Balance Sheet
December 31, 2009
                                         
                    Non-              
    Parent     Guarantor     Guarantor              
    Company     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Assets
                                       
Current assets:
                                       
Cash and cash equivalents
  $ 3,404     $ 54     $ 106,278     $     $ 109,736  
Accounts receivable, net
    49,997       38,128       238,109             326,234  
Inventories, net
    29,907       56,049       155,874       (15,377 )     226,453  
Deferred income taxes
    22,440             7,043       1,120       30,603  
Other current assets
    4,824       5,826       14,835             25,485  
 
                             
Total current assets
    110,572       100,057       522,139       (14,257 )     718,511  
 
                             
Intercompany (payable) receivable
    (49,624 )     36,969       12,655              
Investments in affiliates
    949,584       203,516       72,856       (1,225,956 )      
Property, plant and equipment, net
    54,693       44,743       206,799             306,235  
Goodwill
    76,680       190,010       311,324             578,014  
Other intangibles, net
    8,890       44,724       260,796             314,410  
Other assets
    28,923       214       5,606       (12,865 )     21,878  
 
                             
Total assets
  $ 1,179,718     $ 620,233     $ 1,392,175     $ (1,253,078 )   $ 1,939,048  
 
                             
 
                                       
Liabilities and Stockholders’ Equity
                                       
Current liabilities:
                                       
Short-term borrowings and current maturities of long-term debt
  $ 27,630     $     $ 5,951     $     $ 33,581  
Accounts payable and accrued liabilities
    59,701       48,330       185,195       (3,277 )     289,949  
 
                             
Total current liabilities
    87,331       48,330       191,146       (3,277 )     323,530  
 
                             
Long-term intercompany payable (receivable)
    162,211       (304,515 )     142,304              
Long-term debt, less current maturities
    314,866       76       15,993             330,935  
Deferred income taxes
          24,995       55,669       (12,865 )     67,799  
Other liabilities
    65,817       707       86,251             152,775  
 
                             
Total liabilities
    630,225       (230,407 )     491,363       (16,142 )     875,039  
 
                             
Stockholders’ equity:
                                       
Common stock
    586                         586  
Capital in excess of par value
    557,626       587,521       639,542       (1,225,956 )     558,733  
Retained earnings
    149,619       236,004       167,746       (10,097 )     543,272  
Accumulated other comprehensive (loss) income
    (25,403 )     27,115       81,685       (883 )     82,514  
Treasury stock, at cost
    (132,935 )                       (132,935 )
 
                             
Total Gardner Denver stockholders’ equity
    549,493       850,640       888,973       (1,236,936 )     1,052,170  
Noncontrolling interests
                11,839             11,839  
 
                             
Total stockholders’ equity
    549,493       850,640       900,812       (1,236,936 )     1,064,009  
 
                             
Total liabilities and stockholders’ equity
  $ 1,179,718     $ 620,233     $ 1,392,175     $ (1,253,078 )   $ 1,939,048  
 
                             

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Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2010
                                         
                    Non-              
    Parent     Guarantor     Guarantor              
    Company     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
                                       
Net Cash Provided by (Used In) Operating Activities
  $ 21,612     $ (9,628 )   $ 14,704     $     $ 26,688  
 
                             
 
                                       
Cash Flows From Investing Activities
                                       
Capital expenditures
    (881 )     (614 )     (3,264 )           (4,759 )
Disposals of property, plant and equipment
    29       12       146             187  
Other
    170       (170 )                  
 
                             
Net cash used in investing activities
    (682 )     (772 )     (3,118 )           (4,572 )
 
                             
 
                                       
Cash Flows From Financing Activities
                                       
Net change in long-term intercompany receivables/payables
    3,082       10,350       (13,432 )            
Principal payments on short-term borrowings
    (633 )           (2,872 )           (3,505 )
Proceeds from short-term borrowings
                7,307             7,307  
Principal payments on long-term debt
    (24,362 )           (349 )           (24,711 )
Proceeds from long-term debt
    8,000             10             8,010  
Proceeds from stock option exercises
    7,339                         7,339  
Excess tax benefits from stock-based compensation
    1,463             26             1,489  
Purchase of treasury stock
    (8,841 )                       (8,841 )
Cash dividends paid
    (2,624 )                       (2,624 )
Other
                (1,001 )           (1,001 )
 
                             
Net cash (used in) provided by financing activities
    (16,576 )     10,350       (10,311 )           (16,537 )
 
                             
 
                                       
Effect of exchange rate changes on cash and cash equivalents
    42             (2,534 )           (2,492 )
 
                             
 
                                       
Net increase (decrease) in cash and cash equivalents
    4,396       (50 )     (1,259 )           3,087  
Cash and cash equivalents, beginning of year
    3,404       54       106,278             109,736  
 
                             
 
                                       
Cash and cash equivalents, end of period
  $ 7,800     $ 4     $ 105,019     $     $ 112,823  
 
                             

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Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2009
                                         
                    Non-              
    Parent     Guarantor     Guarantor              
    Company     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
                                       
Net Cash Provided By Operating Activities
  $ 29,898     $ 4,523     $ 21,280     $     $ 55,701  
 
                             
 
                                       
Cash Flows From Investing Activities
                                       
Capital expenditures
    (3,723 )     (2,188 )     (3,043 )           (8,954 )
Disposals of property, plant and equipment
    37       7       45             89  
Other, net
    22                         22  
 
                             
Net cash used in investing activities
    (3,664 )     (2,181 )     (2,998 )           (8,843 )
 
                             
 
                                       
Cash Flows From Financing Activities
                                       
Net change in long-term intercompany receivables/payables
    31,705       (1,796 )     (29,909 )            
Principal payments on short-term borrowings
    (732 )           (17,665 )           (18,397 )
Proceeds from short-term borrowings
          1       15,694             15,695  
Principal payments on long-term debt
    (61,237 )     (11 )     (272 )           (61,520 )
Proceeds from long-term debt
    20,000             11,318             31,318  
Proceeds from stock option exercises
    165                         165  
Excess tax benefits from stock-based compensation
    28                         28  
Purchase of treasury stock
    (165 )                       (165 )
Other
                (759 )           (759 )
 
                             
Net cash used in financing activities
    (10,236 )     (1,806 )     (21,593 )           (33,635 )
 
                             
 
                                       
Effect of exchange rate changes on cash and cash equivalents
    2,473       (120 )     (3,570 )           (1,217 )
 
                             
 
                                       
Net increase (decrease) in cash and cash equivalents
    18,471       416       (6,881 )           12,006  
Cash and cash equivalents, beginning of year
    2,126       807       117,802             120,735  
 
                             
 
                                       
Cash and cash equivalents, end of period
  $ 20,597     $ 1,223     $ 110,921     $     $ 132,741  
 
                             

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Note 16. Segment Results
     The Company has determined its reportable segments in accordance with FASB ASC 280 Segment Reporting (“FASB ASC 280”) and evaluates the performance of its reportable segments based on, among other measures, operating income (loss), which is defined as income (loss) before interest expense, other income, net, and income taxes. Reportable segment operating income (loss) and segment operating margin (defined as segment operating income (loss) divided by segment revenues) are indicative of short-term operating performance and ongoing profitability. Management closely monitors the operating income and operating margin of each reportable segment to evaluate past performance and actions required to improve profitability.
     In the Industrial Products Group, the Company designs, manufactures, markets and services the following products and related aftermarket parts for industrial and commercial applications: rotary screw, reciprocating, and sliding vane air and gas compressors; positive displacement, centrifugal and side channel blowers; and vacuum pumps primarily serving manufacturing, transportation and general industry and selected original equipment manufacturer (“OEM”) and engineered system applications. The Company also designs, manufactures, markets and services complementary ancillary products. Stationary air compressors are used in manufacturing, process applications and materials handling, and to power air tools and equipment. Blowers are used primarily in pneumatic conveying, wastewater aeration, numerous applications in industrial manufacturing and engineered vacuum systems. The markets served are primarily in Europe, the U.S. and Asia.
     In the Engineered Products Group, the Company designs, manufactures, markets and services a diverse group of pumps, compressors, liquid ring vacuum pumps, water jetting and loading arm systems and related aftermarket parts. These products are used in well drilling, well servicing and production of oil and natural gas; industrial, commercial and transportation applications; and in industrial cleaning and maintenance. Liquid ring pumps are used in many different applications such as water removal, distilling, reacting, flare gas recovery, efficiency improvement, lifting and handling, and filtering, principally in the pulp and paper, industrial manufacturing, petrochemical and power industries. This segment also designs, manufactures, markets and services other engineered products and components and equipment for the chemical, petroleum and food industries. The markets served are primarily in the U.S., Europe, Canada and Asia.

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     The following table provides financial information by business segment for the three-month periods ended March 31, 2010 and 2009.
                 
    Three Months Ended  
    March 31,  
    2010     2009  
Industrial Products Group
               
Revenues
  $ 246,394     $ 253,873  
Operating income (loss)
    19,553       (261,390 )
Operating income (loss) as a percentage of revenues
    7.9 %   NM
 
               
Engineered Products Group
               
Revenues
  $ 175,770     $ 208,607  
Operating income
    27,911       34,242  
Operating income as a percentage of revenues
    15.9 %     16.4 %
 
               
Reconciliation of Segment Results to Consolidated Results
               
Total segment operating income (loss)
  $ 47,464     $ (227,148 )
Interest expense
    6,116       7,657  
Other income, net
    (635 )     (188 )
 
           
Consolidated income (loss) before income taxes
  $ 41,983     $ (234,617 )
 
           
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, including the financial statements, accompanying notes and management’s discussion and analysis of financial condition and results of operations, and the interim condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q.
Operating Segments
     In the Industrial Products Group, the Company designs, manufactures, markets and services the following products and related aftermarket parts for industrial and commercial applications: rotary screw, reciprocating, and sliding vane air and gas compressors; positive displacement, centrifugal and side channel blowers; and vacuum pumps primarily serving manufacturing, transportation and general industry and selected OEM and engineered system applications. The Company also designs, manufactures, markets and services complementary ancillary products. Stationary air compressors are used in manufacturing, process applications and materials handling, and to power air tools and equipment. Blowers are used primarily in pneumatic conveying, wastewater aeration, numerous applications in industrial manufacturing and engineered vacuum systems. The markets served are primarily in Europe, the U.S. and Asia.
     In the Engineered Products Group, the Company designs, manufactures, markets and services a diverse group of pumps, compressors, liquid ring vacuum pumps, water jetting and loading arm systems and related aftermarket parts. These products are used in well drilling, well servicing and production of oil and natural gas; industrial, commercial and transportation applications; and in industrial cleaning and maintenance. Liquid ring pumps are used in many different applications such as water removal, distilling, reacting, flare gas recovery, efficiency

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improvement, lifting and handling, and filtering, principally in the pulp and paper, industrial manufacturing, petrochemical and power industries. This segment also designs, manufactures, markets and services other engineered products and components and equipment for the chemical, petroleum and food industries. The markets served are primarily in the U.S., Europe, Canada and Asia.
     The Company has determined its reportable segments in accordance with FASB ASC 280 and evaluates the performance of its reportable segments based on, among other measures, operating income (loss), which is defined as income (loss) before interest expense, other income, net, and income taxes. Reportable segment operating income (loss) and segment operating margin (defined as segment operating income (loss) divided by segment revenues) are indicative of short-term operating performance and ongoing profitability. Management closely monitors the operating income and operating margin of each reportable segment to evaluate past performance and actions required to improve profitability. See Note 16 “Segment Results” in the “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q.
Non-GAAP Financial Measures
     To supplement the Company’s financial information presented in accordance with GAAP, management, from time to time, uses additional measures to clarify and enhance understanding of past performance and prospects for the future. These measures may exclude, for example, the impact of unique and infrequent items or items outside of management’s control (e.g. foreign currency exchange rates and impairment charges). Such measures are provided in addition to and should not be considered to be a substitute for, or superior to, the comparable measure under GAAP.
Results of Operations
Performance during the Quarter Ended March 31, 2010 Compared
with the Quarter Ended March 31, 2009
Revenues
     Revenues decreased $40.3 million, or 8.7%, to $422.2 million in the three months ended March 31, 2010, compared to $462.5 million in the comparable three-month period of 2009. This decrease was attributable to lower volume in both segments ($58.5 million, or 13%, in total) and net price decreases ($1.2 million), partially offset by favorable changes in foreign currency exchange rates ($19.4 million, or 4%).
     Revenues in the Industrial Products Group decreased $7.5 million, or 3%, to $246.4 million in the first quarter of 2010, compared to $253.9 million in the first quarter of 2009. This decrease reflects lower volume (9%), partially offset by favorable changes in foreign currency exchange rates (5%) and price increases (1%). The volume decline was attributable to the global economic slowdown and was realized across most product lines and geographic regions.
     Revenues in the Engineered Products Group decreased $32.8 million, or 16%, to $175.8 million in the first quarter of 2010, compared to $208.6 million in the first quarter of 2009. This decrease reflects lower volume (17%) and price reductions net of price increases (2%), partially offset by favorable changes in foreign currency

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exchange rates (3%). The decline in volume was attributable to the global economic slowdown and was realized across most product lines and geographic regions.
Gross Profit
     Gross profit decreased $6.8 million, or 5%, to $133.8 million in the three months ended March 31, 2010, compared to $140.6 million in the comparable period of 2009, and as a percentage of revenues was 31.7% in 2010, compared to 30.4% in 2009. The decrease in gross profit primarily reflects the volume reductions discussed above and unfavorable product mix, partially offset by favorable changes in foreign currency exchange rates. The improvement in gross profit as a percentage of revenues was due primarily to the benefits of operational improvements and cost reductions, partially offset by unfavorable product mix and the loss of volume leverage. The unfavorable product mix was primarily related to declining petroleum product volume, which provides a gross margin percentage above the Company average.
Selling and Administrative Expenses
     Selling and administrative expenses decreased $6.9 million, or 7.3%, to $87.7 million in the first quarter of 2010, compared to $94.6 million in the first quarter of 2009. This decrease reflects cost reductions, partially offset by the unfavorable effect of changes in foreign currency exchange rates ($4.6 million). As a percentage of revenues, selling and administrative expenses increased slightly to 20.8% in the first quarter of 2010 compared to 20.5% in the first quarter of 2009 primarily as a result of the reduced leverage resulting from lower revenues.
Other Operating (Income) Expense, Net
     Other operating income, net, was $1.4 million in the first quarter of 2010 compared to other operating expense, net, of $8.2 million in the first quarter of 2009. The year-over-year change was due primarily to lower restructuring charges and an increase in foreign currency gains in 2010 compared to 2009, as well as an insurance settlement received in the first quarter of 2010.
Impairment Charges
     In the first quarter of 2009, the Company recorded a preliminary $265.0 million non-cash impairment charge to reduce the carrying amount of goodwill in its Industrial Products Group based on the results of an interim assessment of such goodwill. This assessment was conducted as a result of the continuing significant decline in order rates for certain products in the Industrial Products Group during the first quarter of 2009, 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 through March 31, 2009. The net goodwill impairment charge in 2009 of $252.5 million was finalized in the fourth quarter of 2009.
Operating Income (Loss)
     Operating income of $47.5 million in the first quarter of 2010 compares to an operating loss of $227.2 million in the first quarter of 2009. These results reflect the gross profit, selling and administrative expense, other operating (income) expense, net, and impairment charge factors discussed above. Operating income as a

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percentage of revenues in the first quarter of 2010 was 11.2% and reflects charges totaling $1.0 million, or 0.3% of revenues, associated with profit improvement initiatives and other items. The operating loss recorded in the first quarter of 2009 reflects the $265.0 million preliminary goodwill impairment charge and charges totaling $8.1 million associated with profit improvement initiatives (consisting primarily of employee termination costs) and other items.
     The Industrial Products Group generated segment operating income and segment operating margin of $19.6 million and 7.9%, respectively, in the first quarter of 2010, compared to a segment operating loss of $261.4 million in the first quarter of 2009 (see Note 16 “Segment Results” in the “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q for a reconciliation of segment operating income (loss) to consolidated income (loss) before income taxes). Results in the first quarter of 2010 reflect charges totaling $0.9 million, or 0.4% of segment revenues, associated with profit improvement initiatives and other items. Segment operating income and segment operating margin were also negatively impacted by the decline in sales volume and favorably impacted by cost reductions completed during the previous twelve months. Results in the first quarter of 2009 reflect the preliminary goodwill impairment charge of $265.0 million and charges totaling $1.6 million associated with profit improvement initiatives and other items.
     The Engineered Products Group generated segment operating income and segment operating margin of $27.9 million and 15.9%, respectively, in the first quarter of 2010, compared to $34.2 million and 16.4%, respectively, in the same period of 2009 (see Note 16 “Segment Results” in the “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q for a reconciliation of segment operating income (loss) to consolidated income (loss) before income taxes). This decline in year-over-year performance was due primarily to lower revenue and the resulting loss of volume leverage of fixed and semi-fixed costs as production levels declined and the unfavorable product mix discussed above, partially offset by the benefits of operational improvements and cost reductions. Results in the first quarters of 2010 and 2009 were negatively impacted by charges totaling $0.1 million (0.1% of segment revenues) and $6.5 million (3.1% of segment revenues), respectively, in connection with profit improvement initiatives and other non-recurring items.
Interest Expense
     Interest expense of $6.1 million in the first quarter of 2010 decreased $1.6 million from $7.7 million in the first quarter of 2009 due primarily to lower average borrowings in the first quarter of 2010 compared to the first quarter of 2009, partially offset by the effect in 2010 of the pay-fixed interest rate swaps that the Company executed in the second quarter of 2009. The weighted average interest rate, including the amortization of debt issuance costs, increased to 6.9% in the first quarter of 2010 compared to 5.9% in the first quarter of 2009 due to the effect of the aforementioned pay-fixed interest rate swaps and the greater relative weight of the fixed interest rate on the Company’s 8% Senior Subordinated Notes.
Provision for Income Taxes
     The provision for income taxes was $9.7 million and $13.9 million in the first quarter of 2010 and first quarter of 2009, respectively. The provision in the first quarter of 2009 included an $8.6 million increase in the valuation allowance against deferred tax assets related to net operating losses recorded in connection with the acquisition of CompAir based on revised financial projections. The provision in the first quarter of 2009 also included a $3.6

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million credit for the reversal of an income tax reserve and the related interest associated with the completion of a foreign tax examination.
Net Income (Loss) Attributable to Gardner Denver
     Consolidated net income of $32.0 million and diluted earnings per share of $0.61 attributable to Gardner Denver in the first quarter of 2010 compares with a net loss and diluted loss per share of $249.2 million and $4.81, respectively, in the first quarter of 2009. Results in 2010 include charges for profit improvement initiatives and other items totaling $0.8 million after income taxes, or $0.01 on a diluted per share basis. The net loss in the first quarter of 2009 reflects the preliminary goodwill impairment charge of $265.0 million ($5.10 per diluted share), charges for profit improvement initiatives and other items totaling $5.7 million after income taxes ($0.12 per diluted share) and the income tax items discussed above totaling $5.1 million ($0.10 per diluted share). These items reduced first quarter 2009 net income by $275.8 million, or $5.32 per diluted share.
Outlook
     In general, the Company believes that demand for products in its Industrial Products Group tends to correlate with the rate of total industrial capacity utilization and the rate of change of industrial production because compressed air is often used as a fourth utility in the manufacturing process. Capacity utilization rates above 80% have historically indicated a good demand environment for industrial equipment such as compressor and vacuum products. Over longer time periods, the Company believes that demand also tends to follow economic growth patterns indicated by the rates of change in the gross domestic product around the world. The significant contraction in manufacturing capacity utilization in the U.S. and Europe, which began in 2008, has resulted in lower demand for capital equipment, such as compressor packages, and for aftermarket services as existing equipment remained idle. The Company believes there have been recent improvements in global capacity utilization rates, which indicate a slightly more positive environment for aftermarket services for industrial equipment, but that the improvements have not been sufficient to warrant significant capital investments by manufacturing companies in the U.S. and Europe.
     In the first quarter of 2010, orders in the Industrial Products Group increased $33.1 million, or 14%, to $277.8 million, compared to $244.7 million in the first quarter of 2009. This increase reflected increased demand on a global basis ($17.8 million, or 8%) and the favorable effect of changes in foreign currency exchange rates ($15.3 million, or 6%). Compared to the first quarter of 2009, orders in the first quarter of 2010 in the Industrial Products Group improved in most geographic regions, with the greatest recovery on a percentage basis occurring for OEM products and in the U.S. Order backlog for the Industrial Products Group increased 9% to $210.5 million as of March 31, 2010 from $193.2 million at December 31, 2009 due primarily to orders exceeding shipments during the first quarter of 2010 ($23.3 million, or 12%), partially offset by the unfavorable effect of changes in foreign currency exchange rates ($6.0 million, or 3%). Order backlog for the Industrial Products Group declined 14% to $210.5 million as of March 31, 2010, compared to $245.3 million as of March 31, 2009, primarily due to shipments exceeding orders in 2009, partially offset by favorable changes in foreign currency exchange rates. As a result of the Company’s expectations for a slow economic recovery, it anticipates demand for Industrial Products to continue to gradually improve, but continues to remain cautious in its outlook given the reliance on incoming orders to achieve revenue growth.

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     Orders in the Engineered Products Group increased 40% to $207.5 million in the first quarter of 2010, compared to $148.4 million in the first quarter of 2009, due to increased demand across most product lines and geographic regions ($52.9 million, or 36%) and the favorable effect of changes in foreign currency exchange rates ($6.2 million, or 4%). Order backlog for the Engineered Products Group increased 14% to $229.3 million as of March 31, 2010 from $202.0 million at December 31, 2009 due primarily to orders exceeding shipments during the first quarter of 2010 ($31.6 million, or 16%), partially offset by the unfavorable effect of changes in foreign currency exchange rates ($4.3 million, or 2%). Order backlog for the Engineered Products Group declined 12% to $229.3 million at March 31, 2010, compared to $259.6 million at March 31, 2009, primarily as a result of shipments exceeding orders in 2009, partially offset by the favorable effect of changes in foreign currency exchange rates. Orders for products in the Company’s Engineered Products Group have historically corresponded to demand for petrochemical products and been influenced by prices for oil and natural gas, and rig count, among other factors, which the Company cannot predict. Revenues for Engineered Products depend more on existing backlog levels than revenues for Industrial Products. Many of these products are used in process applications, such as oil and gas refining and chemical processing, which are industries that typically experience increased demand very late in economic cycles. At present, orders for products used in these applications are primarily for aftermarket parts and services. Furthermore, the Company is uncertain how long orders for drilling pumps will be negatively impacted by a lack of rig production and refurbishment in North America and whether reduced prices for natural gas will ultimately affect demand for well servicing pumps and related aftermarket parts and services. The Company’s current outlook assumes that demand for drilling pumps will not improve significantly in 2010, but that slightly higher investments will be made in well servicing equipment, consistent with on-going development of shale formations.
     Order backlog consists of orders believed to be firm for which a customer purchase order has been received or communicated. However, since orders may be rescheduled or canceled, order backlog is not necessarily indicative of future sales levels.
Liquidity and Capital Resources
Operating Working Capital
     During the three-month period ended March 31, 2010, net working capital (defined as total current assets less total current liabilities) increased to $409.4 million from $395.0 million at December 31, 2009. Operating working capital (defined as accounts receivable plus inventories, less accounts payable and accrued liabilities) increased $19.1 million to $281.8 million from $262.7 million at December 31, 2009 due to reduced accrued liabilities ($29.1 million) and higher accounts receivable ($6.2 million), partially offset by higher accounts payable ($12.9 million) and lower inventory ($3.3 million). The decrease in accrued liabilities was due primarily to the effect of changes in foreign currency exchange rates and cash payments in the first quarter of 2010 for employee termination benefits and incentive compensation. The increase in accounts receivable was due primarily to the timing of shipments within the first quarter, partially offset by the effect of changes in foreign currency exchange rates. Days sales in receivables increased to 71 at March 31, 2010 from 67 at December 31, 2009 due primarily to the timing of shipments within the first quarter, and were essentially unchanged from 70 days at March 31, 2009. The decrease in inventory reflects the effect of changes in foreign currency exchange rates, partially offset by growth attributable to sequential increases in both orders and backlog between the first quarter of 2010 and the fourth quarter of 2009 reflecting increased demand for petroleum and OEM products.

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Inventory turns declined slightly to 5.2 in the first quarter of 2010 from 5.4 in the fourth quarter of 2009, and improved from 4.8 in the first quarter of 2009.
Cash Flows
     Cash provided by operating activities of $26.7 million in the three-month period of 2010 decreased $29.0 million from $55.7 million in the comparable period of 2009. This change was primarily due to increases in accounts receivable and inventories (excluding the effect of changes in foreign currency exchange rates) in the first quarter of 2010 compared with decreases in the first quarter of 2009, partially offset by higher earnings (excluding non-cash charges for the impairment of intangible assets, depreciation and amortization and unrealized foreign currency transaction gains) and a smaller decrease in accounts payable and accrued liabilities (excluding the effect of changes in foreign currency exchange rates) in 2010 compared to 2009. Cash used for operating working capital of $25.9 million in the three-month period of 2010 compares to cash generated of $11.0 million in the three-month period of 2009. Cash used by accounts receivable of $14.8 million in the three-month period of 2010 compares with cash generated of $22.1 million in the three-month period of 2009. Cash used by accounts receivable in the first quarter of 2010 primarily reflects to the timing of shipments within the quarter. In the three-month period of 2009, collections of accounts receivable exceeded additions due to significantly lower sequential revenues in the first quarter. Cash used by inventories of $4.6 million in the three-month period of 2010 compares with cash generated of $7.0 million in the three-month period of 2009. Cash used by inventories in the first quarter of 2010 reflects growth due to sequential increases in both orders and backlog between the first quarter of 2010 and the fourth quarter of 2009 attributable to increased demand for petroleum and OEM products. Cash outflows from accounts payable and accrued liabilities of $6.5 million in the three-month period of 2010 compares to $18.1 million in the three-month period of 2009. The year over year change primarily reflects lower payments under the Company’s incentive compensation plans.
     Net cash used in investing activities of $4.6 million and $8.8 million in the three-month periods of 2010 and 2009, respectively, consisted primarily of capital expenditures on assets intended to increase operating efficiency and flexibility, support acquisition integration initiatives and bring new products to market. The Company currently expects capital expenditures to total approximately $35 to $40 million for the full year 2010. As a result of the Company’s application of lean principles, non-capital or less capital-intensive solutions are often utilized in process improvement initiatives and capital replacement. Capital expenditures related to environmental projects have not been significant in the past and are not expected to be significant in the foreseeable future.
     Net cash used in financing activities of $16.5 million in the three-month period of 2010 compares with $33.6 million used in the three-month period of 2009. Cash provided by operating activities was used for net repayments of short-term and long-term borrowings totaling $12.9 million in the three-month period of 2010 and $32.9 million in the three-month period of 2009. Lower debt repayments in the three-month period of 2010 compared with the three-month period of 2009 were partly attributable to the Company’s repurchase of shares of its common stock totaling $8.8 million, including shares exchanged or surrendered in connection with its stock option plans of $0.2 million, and the payment of cash dividends on its common stock of $2.6 million.

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Share Repurchase Program
     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, of which approximately 2.8 million shares remain available for repurchase as of March 31, 2010.
Liquidity
     The Company’s debt to total capital ratio (defined as total debt divided by the sum of total debt plus total stockholders’ equity) was 24.5% as of March 31, 2010 compared to 25.5% as of December 31, 2009. This decrease primarily reflects the $19.7 million net decrease in borrowings as discussed above.
     The Company’s primary cash requirements include working capital, capital expenditures, funding of employee termination and other restructuring costs, principal and interest payments on indebtedness, cash dividends on its common stock, selective acquisitions and any stock repurchases. The Company’s primary sources of funds are its ongoing net cash flows from operating activities and availability under its Revolving Line of Credit (as defined below). At March 31, 2010, the Company had cash and cash equivalents of $112.8 million, of which $3.0 million was pledged to financial institutions as collateral to support the issuance of standby letters of credit and similar instruments. The Company also had $295.3 million of unused availability under its Revolving Line of Credit at March 31, 2010. Based on the Company’s financial position at March 31, 2010 and its pro-forma results of operations for the twelve months then ended, the unused availability under its Revolving Line of Credit would not have been limited by the financial ratio covenants in the 2008 Credit Agreement (as further described below).
     On September 19, 2008, the Company entered into the 2008 Credit Agreement consisting of (i) a $310.0 million Revolving Line of Credit (the “Revolving Line of Credit”), (ii) a $180.0 million term loan (“U.S. Dollar Term Loan”) and (iii) a €120.0 million term loan (“Euro Term Loan”). In addition, the 2008 Credit Agreement provides for a possible increase in the revolving credit facility of up to $200.0 million.
     The interest rates per annum applicable to loans under the 2008 Credit Agreement are, at the Company’s option, either a base rate plus an applicable margin percentage or a Eurocurrency rate plus an applicable margin. The base rate is the greater of (i) the prime rate or (ii) one-half of 1% over the weighted average of rates on overnight federal funds as published by the Federal Reserve Bank of New York. The Eurocurrency rate is LIBOR.
     The initial applicable margin percentage over LIBOR under the 2008 Credit Agreement was 2.5% with respect to the term loans and 2.1% with respect to loans under the Revolving Line of Credit, and the initial applicable margin percentage over the base rate was 1.25%. After the Company’s delivery of its financial statements and compliance certificate for each fiscal quarter, the applicable margin percentages are subject to adjustments based upon the ratio of the Company’s consolidated total debt to consolidated adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (each as defined in the 2008 Credit Agreement) being within certain defined ranges. The initial margins described above continued to be in effect through March 31, 2010.
     The obligations under the 2008 Credit Agreement are guaranteed by the Company’s existing and future domestic subsidiaries. The obligations under the 2008 Credit Agreement are also secured by a pledge of the capital stock of each of the Company’s existing and future material domestic subsidiaries, as well as 65% of the capital stock of each of the Company’s existing and future first-tier material foreign subsidiaries.

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     The 2008 Credit Agreement includes customary covenants. Subject to certain exceptions, these covenants restrict or limit the ability of the Company and its subsidiaries to, among other things: incur liens; engage in mergers, consolidations and sales of assets; incur additional indebtedness; pay dividends and redeem stock; make investments (including loans and advances); enter into transactions with affiliates, make capital expenditures and incur rental obligations. In addition, the 2008 Credit Agreement requires the Company to maintain compliance with certain financial ratios on a quarterly basis, including a maximum total leverage ratio test and a minimum interest coverage ratio test. As of March 31, 2010, the Company was in compliance with each of the financial ratio covenants under the 2008 Credit Agreement.
     The 2008 Credit Agreement contains customary events of default, including upon a change of control. If an event of default occurs, the lenders under the 2008 Credit Agreement will be entitled to take various actions, including the acceleration of amounts due under the 2008 Credit Agreement.
     The U.S. Dollar and Euro Term Loans have a final maturity of October 15, 2013. The U.S. Dollar Term Loan requires quarterly principal payments aggregating approximately $10.7 million, $19.8 million, $33.6 million and $45.8 million in fiscal years 2010 through 2013, respectively. The Euro Term Loan requires quarterly principal payments aggregating approximately €6.0 million, €11.2 million, €19.0 million and €25.8 million in fiscal years 2010 through 2013, respectively.
     The Revolving Line of Credit also matures on October 15, 2013. Loans under this facility may be denominated in USD or several foreign currencies and may be borrowed by the Company or two of its foreign subsidiaries as outlined in the 2008 Credit Agreement.
     The Company issued $125.0 million of 8% Senior Subordinated Notes (the “Notes”) in 2005. The Notes have a fixed annual interest rate of 8% and are guaranteed by certain of the Company’s domestic subsidiaries (the “Guarantors”). The Company may redeem all or a part of the Notes issued under the Indenture among the Company, the Guarantors and The Bank of New York Trust Company, N.A. (the “Indenture”) at varying redemption prices, plus accrued and unpaid interest. The Company may also repurchase Notes from time to time in open market purchases or privately negotiated transactions. Upon a change of control, as defined in the Indenture, the Company is required to offer to purchase all of the Notes then outstanding at 101% of the principal amount thereof plus accrued and unpaid interest. The Indenture contains events of default and affirmative, negative and financial covenants customary for such financings, including, among other things, limits on incurring additional debt and restricted payments.
     Management currently expects that the Company’s cash on hand and future cash flows from operating activities will be sufficient to fund its working capital, capital expenditures, funding of employee termination and other restructuring costs, scheduled principal and interest payments on indebtedness, cash dividends on its common stock and any stock repurchases for at least the next twelve months. The Company continues to consider acquisition opportunities, but the size and timing of any future acquisitions and the related potential capital requirements cannot be predicted. In the event that suitable businesses are available for acquisition upon acceptable terms, the Company may obtain all or a portion of the necessary financing through the incurrence of additional long-term borrowings.

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Contractual Obligations and Commitments
     The following table and accompanying disclosures summarize the Company’s significant contractual obligations at March 31, 2010 and the effect such obligations are expected to have on its liquidity and cash flow in future periods.
                                         
            Payments Due by Period  
(Dollars in millions)           Balance                     After  
Contractual Cash Obligations   Total     of 2010     2011 - 2012     2013 - 2014     2014  
  | | | | |
Debt
  $ 336.1     $ 28.7     $ 97.7     $ 206.5     $ 3.2  
Estimated interest payments (1)
    72.1       17.3       35.2       11.1       8.5  
Capital leases
    8.7       1.0       1.4       0.6       5.7  
Operating leases
    95.3       19.9       36.0       17.0       22.4  
Purchase obligations (2)
    146.6       141.8       4.8              
 
Total
  $ 658.8     $ 208.7     $ 175.1     $ 235.2     $ 39.8  
 
 
(1)   Estimated interest payments for long-term debt were calculated as follows: for fixed-rate debt and term debt, interest was calculated based on applicable rates and payment dates; for variable-rate debt and/or non-term debt, interest rates and payment dates were estimated based on management’s determination of the most likely scenarios for each relevant debt instrument.
 
(2)   Purchase obligations consist primarily of agreements to purchase inventory or services made in the normal course of business to meet operational requirements. The purchase obligation amounts do not represent the entire anticipated purchases in the future, but represent only those items for which the Company is contractually obligated as of March 31, 2010. For this reason, these amounts will not provide a complete and reliable indicator of the Company’s expected future cash outflows.
     The above table does not include the Company’s total pension and other postretirement benefit liabilities and net deferred income tax liabilities recognized on the consolidated balance sheet as of March 31, 2010 because such liabilities, due to their nature, do not represent expected liquidity needs. There have not been material changes to such liabilities or the Company’s minimum pension funding obligations other than as disclosed in Note 6 “Pension and Other Postretirement Benefits” and Note 12 “Income Taxes” in the “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q. Also please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
     In the normal course of business, the Company or its subsidiaries may sometimes be required to provide surety bonds, standby letters of credit or similar instruments to guarantee its performance of contractual or legal obligations. As of March 31, 2010, the Company had $60.1 million in such instruments outstanding and had pledged $3.0 million of cash to the issuing financial institutions as collateral for such instruments.
Contingencies
     Refer to Note 14 “Contingencies” in the “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for a description of various legal proceedings, lawsuits and administrative actions.

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New Accounting Standards
     Refer to Note 1 “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for a description of new accounting pronouncements, including the expected impact on the Company’s Condensed Consolidated Financial Statements and related disclosures.
Critical Accounting Policies and Estimates
     Management has evaluated the accounting policies used in the preparation of the Company’s condensed financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the Company’s 2009 Annual Report on Form 10-K, filed on February 26, 2010, in the Critical Accounting Policies and Estimates section of Management’s Discussion and Analysis and in Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements.” There were no significant changes to the Company’s critical accounting polices during the quarter ended March 31, 2010.
Cautionary Statement Regarding Forward-Looking Statements
     All of the statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” other than historical facts, are forward-looking statements, including, without limitation, the statements made under the caption “Outlook.” As a general matter, forward-looking statements are those focused upon anticipated events or trends, expectations, and beliefs relating to matters that are not historical in nature. The words “could,” “anticipate,” “preliminary,” “expect,” “believe,” “estimate,” “intend,” “plan,” “will,” “foresee,” “project,” “forecast,” or the negative thereof or variations thereon, and similar expressions identify forward-looking statements.
     The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for these forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that forward-looking statements are subject to known and unknown risks, uncertainties and other factors relating to the Company’s operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. These known and unknown risks, uncertainties and other factors could cause actual results to differ materially from those matters expressed in, anticipated by or implied by such forward-looking statements.
     These risks, uncertainties and other factors include, but are not limited to: (1) the Company’s exposure to the risks associated with weak global economic growth, which may negatively impact its revenues, liquidity, suppliers and customers; (2) exposure to economic downturns and market cycles, particularly the level of oil and natural gas prices and oil and natural gas drilling production, which affect demand for the Company’s petroleum products, and industrial production and manufacturing capacity utilization rates, which affect demand for the

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Company’s industrial products; (3) the risks associated with intense competition in the Company’s market segments, particularly the pricing of the Company’s products; (4) the risks that the Company will not realize the expected financial and other benefits from the acquisition of CompAir and restructuring actions; (5) the risks of large or rapid increases in raw material costs or substantial decreases in their availability, and the Company’s dependence on particular suppliers, particularly iron casting and other metal suppliers; (6) economic, political and other risks associated with the Company’s international sales and operations, including changes in currency exchange rates (primarily between the USD, the EUR, the GBP and the CNY); (7) the risk of non-compliance with U.S. and foreign laws and regulations applicable to the Company’s international operations, including the U.S. Foreign Corrupt Practices Act and other similar laws; (8) the risks associated with the potential loss of key customers for petroleum products and the potential resulting negative impact on the Company’s profitability and cash flows; (9) the risks associated with potential product liability and warranty claims due to the nature of the Company’s products; (10) the risk of possible future charges if the Company determines that the value of goodwill and other intangible assets, representing a significant portion of the Company’s total assets, are impaired; (11) the ability to attract and retain quality executive management and other key personnel; (12) risks associated with the Company’s indebtedness and changes in the availability or costs of new financing to support the Company’s operations and future investments; (13) the ability to continue to identify and complete strategic acquisitions and effectively integrate such acquired companies to achieve desired financial benefits; (14) changes in discount rates used for actuarial assumptions in pension and other postretirement obligation and expense calculations and market performance of pension plan assets; (15) the risks associated with environmental compliance costs and liabilities, including the compliance costs and liabilities of future climate change regulations; (16) the risk that communication or information systems failure may disrupt the Company’s business and result in financial loss and liability to its customers; (17) the risks associated with pending asbestos and silica personal injury lawsuits; (18) the risks associated with enforcing the Company’s intellectual property rights and defending against potential intellectual property claims; and (19) the ability to avoid employee work stoppages and other labor difficulties. The foregoing factors should not be construed as exhaustive and should be read together with important information regarding risks and factors that may affect the Company’s future performance set forth under Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
     These statements reflect the current views and assumptions of management with respect to future events. The Company does not undertake, and hereby disclaims, any duty to update these forward-looking statements, even though its situation and circumstances may change in the future. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. The inclusion of any statement in this report does not constitute an admission by the Company or any other person that the events or circumstances described in such statement are material.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
     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 derivatives, including foreign currency forward contracts and interest rate swaps, to manage the risks from fluctuations in foreign currency exchange rates and interest rates. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in commodity prices, interest rates, and foreign

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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.
     Notional transaction amounts and fair values for the Company’s outstanding derivatives, by risk category and instrument type, as of March 31, 2010, are summarized in Note 11 “Hedging Activities and Fair Value Measurements” in the “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q.
Commodity Price Risk
     The Company is a purchaser of certain commodities, principally aluminum. In addition, the Company is a purchaser of components and parts containing various commodities, including cast iron, aluminum, copper, and steel. The Company generally buys these commodities and components based upon market prices that are established with the vendor as part of the purchase process. The Company does not use commodity derivatives to hedge commodity prices.
     The Company has long-term contracts with some of its suppliers of key components. However, to the extent that commodity prices increase and the Company does not have firm pricing from its suppliers, or its suppliers are not able to honor such prices, then the Company may experience margin declines to the extent it is not able to increase selling prices of its products.
Interest Rate Risk
     The Company’s exposure to interest rate risk results primarily from its borrowings of $344.8 million at March 31, 2010. 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 of fixed and variable rate debt. The interest rates on approximately 76% of the Company’s borrowings were effectively fixed as of March 31, 2010. If the relevant LIBOR-based interest rates for all of the Company’s borrowings had been 100 basis points higher than actual in the three-month period of 2010, the Company’s interest expense would have increased by $0.2 million.
Exchange Rate Risk
     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, GBP, and CNY are the principal currencies in which the Company and its subsidiaries transact.
     The Company is exposed to the impacts of changes in foreign currency exchange rates on the translation of its non-U.S. subsidiaries’ net assets 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. Of the Company’s total net assets of $1,065.0 million at March 31, 2010, approximately $876.0 million was denominated in currencies other than the USD. Borrowings by the Company’s non-U.S. subsidiaries

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at March 31, 2010 totaled $24.9 million, and the Company’s consolidated borrowings denominated in currencies other than the USD totaled $108.7 million. 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 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. At March 31, 2010, the notional amount of open forward currency contracts was $114.2 million and their aggregate fair value was an asset of $4.2 million.
     To illustrate the impact of foreign currency exchange rates on the Company’s financial results, the Company’s operating income for the three-month period of 2010 would have decreased by approximately $3.4 million if the USD had been 10 percent more valuable than actual relative to other currencies. This calculation assumes that all currencies change in the same direction and proportion to the USD and that there are no indirect effects of the change in the value of the USD such as changes in non-USD sales volumes or prices.
Item 4. Controls and Procedures
     The Company’s management carried out an evaluation (as required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), with the participation of the President and Chief Executive Officer and the Executive Vice President, Finance and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon this evaluation, the President and Chief Executive Officer and Executive Vice President, Finance and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q, such that the information relating to the Company and its consolidated subsidiaries required to be disclosed by the Company in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
     In addition, the Company’s management carried out an evaluation, as required by Rule 13a-15(d) of the Exchange Act, with the participation of the President and Chief Executive Officer and the Executive Vice President, Finance and Chief Financial Officer, of changes in the Company’s internal control over financial reporting. Based on this evaluation, the President and Chief Executive Officer and the Executive Vice President, Finance and Chief Financial Officer concluded that there were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2010 that have materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
     The Company is a party to various legal proceedings and administrative actions. The information regarding these proceedings and actions is included under Note 14 “Contingencies” to the Company’s Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors
     For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see (i) the risk factors discussion provided under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and (ii) the “Cautionary Statement Regarding Forward-Looking Statements” included in Part I, Item 2 of this Quarterly Report on Form 10-Q, which are incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     Repurchases of equity securities during the three months ended March 31, 2010 are listed in the following table.
                                 
                    Total Number of     Maximum Number  
                    Shares Purchased     of Shares that May  
    Total Number             as Part of Publicly     Yet Be Purchased  
    of Shares     Average Price     Announced Plans     Under the Plans or  
Period   Purchased(1)     Paid per Share(2)     or Programs(3)     Programs(3)  
January 1, 2010 — January 31, 2010
          n/a             3,000,000  
February 1, 2010 — February 28, 2010
    3,784       43.36             3,000,000  
March 1, 2010 — March 31, 2010
    197,129       44.01       195,000       2,805,000  
 
                       
Total
    200,913       44.00       195,000       2,805,000  
 
                       
 
(1)   Includes shares exchanged or surrendered in connection with the exercise of options under Gardner Denver’s Amended and Restated Long-Term Incentive Plan.
 
(2)   Excludes commissions.
 
(3)   In November 2008, the Board of Directors authorized the Company to acquire up to 3.0 million shares of its common stock. As of March 31, 2010, 195,000 shares had been repurchased under this repurchase program.
Item 6. Exhibits
     See the list of exhibits in the Index to Exhibits to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  GARDNER DENVER, INC.
(Registrant)
 
 
Date: May 6, 2010  By:   /s/ Barry L. Pennypacker    
    Barry L. Pennypacker   
    President and Chief Executive Officer   
 
     
Date: May 6, 2010  By:   /s/ Helen W. Cornell    
    Helen W. Cornell   
    Executive Vice President, Finance and Chief Financial Officer   
 
     
Date: May 6, 2010  By:   /s/ David J. Antoniuk    
    David J. Antoniuk   
    Vice President and Corporate Controller (Principal Accounting Officer)   

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GARDNER DENVER, INC.
INDEX TO EXHIBITS
     
Exhibit    
No.   Description
3.1
  Certificate of Incorporation of Gardner Denver, Inc., as amended on May 3, 2006, filed as Exhibit 3.1 to Gardner Denver, Inc.’s Current Report on Form 8-K, filed May 3, 2006, and incorporated herein by reference.
 
   
3.2
  Amended and Restated Bylaws of Gardner Denver, Inc., filed as Exhibit 3.2 to Gardner Denver, Inc.’s Current Report on Form 8-K, filed August 4, 2008, and incorporated herein by reference.
 
   
4.1
  Amended and Restated Rights Agreement, dated as of January 17, 2005, between Gardner Denver, Inc. and National City Bank as Rights Agent, filed as Exhibit 4.1 to Gardner Denver, Inc.’s Current Report on Form 8-K, filed January 21, 2005, and incorporated herein by reference.
 
   
4.2
  Amendment No. 1 to the Amended and Restated Rights Agreement, dated as of October 29, 2009, between Gardner Denver, Inc. and Wells Fargo Bank, National Association as Rights Agent, filed as Exhibit 4.2 to Gardner Denver, Inc.’s Current Report on Form 8-K, filed October 29, 2009, and incorporated herein by reference.
 
   
4.3
  Form of Indenture by and among Gardner Denver, Inc., the Guarantors and The Bank of New York Trust Company, N.A., as trustee, filed as Exhibit 4.1 to Gardner Denver, Inc.’s Current Report on Form 8-K, filed May 4, 2005, and incorporated herein by reference.
 
   
10.1*
  Form of Gardner Denver, Inc. Restricted Stock Units Agreement, filed as Exhibit 10.1 to Gardner Denver, Inc.’s Current Report on Form 8-K, filed February 24, 2010, and incorporated herein by reference.
 
   
10.2*
  Form of Gardner Denver, Inc. Nonemployee Director Restricted Stock Units Agreement, filed as Exhibit 10.2 to Gardner Denver, Inc.’s Current Report on Form 8-K, filed February 24, 2010, and incorporated herein by reference.
 
   
31.1**
  Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2**
  Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1***
  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
32.2***
  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
*
  Management contract or compensatory plan or arrangement.
 
   
**
  Filed herewith.
 
   
***
  This exhibit is furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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