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Article by DailyStocks_admin    (03-15-12 02:09 AM)

Description

Gardner Denver. President & CEO BARRY PENNYPACKER bought 5000 shares on 3-09-2012 at $ 69.51

BUSINESS OVERVIEW

Executive Overview

Gardner Denver designs, manufactures and markets engineered industrial machinery and related parts and services. The Company is one of the world’s leading manufacturers of highly engineered compressors and vacuum products for industrial applications. Stationary air compressors are used to pressurize gas, including air, in excess of 50 pounds per square inch gauge (“PSIG”) and are used in manufacturing, process applications and materials handling, and to power air tools and equipment. Blowers and liquid ring pumps compress gas, including air, up to 50 PSIG and are often used in vacuum applications. Blowers are used primarily in pneumatic conveying, wastewater aeration and engineered vacuum systems. Liquid ring pumps are often sold as part of an engineered package and are used in process applications such as power generation, chemical processing and oil and gas refining. The Company also supplies pumps and compressors for original equipment manufacturer (“OEM”) applications such as medical equipment, vapor recovery, printing, packaging and laboratory equipment.

Additionally, the Company designs, manufactures, markets, and services a diverse group of pumps, water jetting systems and related aftermarket parts used in oil and natural gas well drilling, servicing and production and in industrial cleaning and maintenance. The Company also manufactures loading arms, swivel joints, couplers and valves used to load and unload ships, tank trucks and rail cars. The Company is one of the world’s leading manufacturers of reciprocating pumps used in oil and natural gas well drilling, servicing and production, and in loading arms used in the transfer of petrochemical products.

The Company’s divisional operations are combined into two major product groups: the Industrial Products Group and the Engineered Products Group. Approximately 42% of the Industrial Products Group revenue is generated through distribution, approximately 39% is sold directly to the end customer and the balance is for OEM products. By comparison, approximately 60% of Engineered Products Group revenue is sold directly to the end user, approximately 31% is used in OEM products and the balance is sold through distribution.

For the year ended December 31, 2011, the Company’s revenues were approximately $2.4 billion, of which 53% were derived from sales of Industrial Products and 47% were from sales of Engineered Products. Approximately 39% of the Company’s total revenues for the year ended December 31, 2011 were derived from sales to customers in the United States and approximately 61% were from sales to customers in various countries outside the United States. Of the total non-U.S. sales, 51% were to Europe, 28% to Asia, 5% to Canada, 5% to South America and 11% to other regions. See Note 20 “Segment Information” in the “Notes to Consolidated Financial Statements.”

The Gardner Denver Way

The Gardner Denver Way encompasses the Company’s values and strategies for growth, and defines how it delivers value to its key stakeholders — customers, shareholders and employees. The Gardner Denver Way starts with the Company’s customers, who are at the center of everything the Company does. It focuses the Company on building strong value-added relationships with its customers by listening to them, understanding their needs and quickly responding with creative products and services. When the Company’s shareholders understand the value-driven relationship the Company shares with its customers, they continue to invest the resources the Company needs in order to grow.

The commitment of the Company’s employees to the goals and vision of the Gardner Denver Way enables the Company to use those resources to create a stronger company. By empowering the Company’s employees, the Gardner Denver Way engages the creativity of all employees to develop innovative products and services that meet the needs of the Company’s customers, to quickly recognize opportunities and to capitalize on them. Innovation and velocity are the core of the Gardner Denver Way — driving the Company’s differentiation from its competitors.

Industrial Products Group Segment

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 markets and services complementary ancillary products. Industrial Products Group sales for the year ended December 31, 2011 were approximately $1.3 billion.

Compressors are used to increase the pressure of gas, including air, by mechanically decreasing its volume. The Company’s reciprocating compressors range from fractional to 1,500 horsepower and are sold under the Gardner Denver, Champion, Bottarini, CompAir, Mako, Reavell and Belliss & Morcom trademarks. The Company’s lubricated rotary screw compressors range from 5 to 680 horsepower and are sold under the Gardner Denver, Bottarini, Electra-Screw, Electra-Saver, Electra-Saver II, Enduro, RotorChamp, Tamrotor, CompAir and Tempest trademarks. The Company’s oil-free rotary screw compressors range from 5 to 150 horsepower and are sold under the Gardner Denver , CompAir and Dryclon trademarks. The Company’s oil-free centrifugal compressors range from 200 to 400 horsepower and are sold under the Quantima trademark. The Company also has a full range of portable compressors that are sold under the CompAir and Bottarini trademarks.

Blowers are used to produce a high volume of air at low pressure or vacuum. The Company’s positive displacement blowers range from 0 to 36 PSIG discharge pressure and 0 to 29.9 inches of mercury (in Hg) vacuum and capacity range of 0 to 17,000 cubic feet per minute (CFM) and are sold under the trademarks Sutorbilt, DuroFlow, CycloBlower, HeliFlow, Robuschi, TriFlow, Drum, Wittig and Elmo Rietschle. The Company’s multistage centrifugal blowers are sold under the trademarks Gardner Denver, Lamson and Hoffman and range from 0.5 to 25 PSIG discharge pressure and 0 to 18 inches Hg vacuum and capacity range of 100 to 40,000 CFM. The Company’s side channel blowers range from 0 to 15 PSIG discharge pressure and 20 inches Hg vacuum and capacity range of 0 to 1,500 CFM and are sold under the Elmo Rietschle, Airgen and TurboTron trademarks. The Company’s sliding vane compressors and vacuum pumps range from 0 to 150 PSIG discharge pressure and 29.9 inches Hg vacuum and capacity range of 0 to 3,000 CFM and are sold under the Gardner Denver, Hydrovane, Elmo Rietschle, Drum and Wittig trademarks. The Company’s engineered vacuum systems are used in industrial cleaning, hospitals, dental offices, general industrial applications and the chemical industry and are sold under the Gardner Denver , Invincible , and Elmo Rietschle trademarks. The Company’s engineered systems range from 0 to 32 PSIG discharge pressure and 29.9 inches Hg vacuum and capacity range of 50 to 3,000 CFM and are sold under the Elmo Rietschle trademark.

Almost all manufacturing plants and industrial facilities, as well as many service industries, use compressor and vacuum products. The largest customers for the Company’s compressor and vacuum products are durable and non-durable goods manufacturers; process industries (petroleum, primary metals, pharmaceutical, food and paper); OEMs; manufacturers of printing equipment, pneumatic conveying equipment, and dry and liquid bulk transports; wastewater treatment facilities; and automotive service centers and niche applications such as PET bottle blowing, breathing air equipment and compressed natural gas. Manufacturers of machinery and related equipment use stationary compressors for automated systems, controls, materials handling and special machinery requirements. The petroleum, primary metals, pharmaceutical, food and paper industries require compressed air and vacuum for processing, instrumentation, packaging and pneumatic conveying. The Company’s blowers are instrumental to local utilities for aeration in treating industrial and municipal waste. Blowers are also used in service industries, for example, residential carpet cleaning to vacuum moisture from carpets during the shampooing and cleaning process. Positive displacement blowers and vacuum pumps are used on trucks to vacuum leaves and debris from street sewers and to unload liquid and dry bulk materials such as cement, grain and plastic pellets. Additionally, blowers are used in packaging technologies, medical applications, printing and paper processing and numerous chemical processing applications.

The Industrial Products Group operates production facilities around the world including six plants in the U.S., four in the UK, three in Germany, two in Italy, and one each in China, Brazil and Finland. The most significant facilities include owned properties in Quincy, Illinois; Sedalia, Missouri; Peachtree City, Georgia; Princeton, Illinois; Bradford and Redditch, UK; Bad Neustadt and Schopfheim, Germany; and leased properties in Tampere, Finland; Simmern, Germany; Ipswich, UK; Qingpu China; and Parma, Italy.

The Company has six vehicle-fitting facilities in six countries within Europe. These fitting facilities offer customized vehicle installations of systems, which include compressors, blowers, exhausters, generators, hydraulics, power take-off units, gear boxes, axles, pumps and oil and fuel systems. Typical uses for such systems include the discharge of product from road tankers, tire removal, transfer of power from gear boxes to ancillary power units and provision of power for electrical and compressed air operated tools. Each facility can offer onsite repair and maintenance or support the customer in the field through their own service engineers and a network of service agents. In addition, the Company has two service and remanufacturing centers in the U.S. that can perform installation, repair and maintenance work on certain of the Company’s products and similar equipment.

Engineered Products Group Segment

The Company’s Engineered Products Group segment 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. This segment also designs, manufactures, markets and services other engineered products and components and equipment for the chemical, petroleum and food industries. Engineered Products Group sales for the year ended December 31, 2011 were approximately $1.1 billion.

Positive displacement reciprocating pumps are marketed under the Gardner Denver and OPI trademarks. Typical applications of Gardner Denver pumps in oil and natural gas production include oil transfer, water flooding, salt-water disposal, pipeline testing, ammine pumping for gas processing, re-pressurizing, enhanced oil recovery, hydraulic power and other liquid transfer applications. The Company’s production pumps range from 25 to 300 horsepower horizontally designed pumps. The Company markets one of the most complete product lines of well servicing pumps. Well servicing operations include general workover service, completions (bringing wells into production after drilling), and plugging and abandonment of wells. The Company’s well servicing products consist of high-pressure plunger pumps ranging from 165 to 400 horsepower. Gardner Denver also manufactures intermittent duty triplex and quintuplex plunger pumps ranging from 250 to 3,000 horsepower for well cementing and stimulation, including reservoir fracturing or acidizing. Duplex pumps, ranging from 16 to 100 horsepower, are produced for shallow drilling, which includes water well drilling, seismic drilling and mineral exploration. Triplex mud pumps for oil and natural gas drilling rigs range from 275 to 2,400 horsepower.

Liquid ring vacuum pumps, compressors and engineered systems, sold under the Nash trademark, are used in many different applications including gas removal, distillation, reacting, drying, lifting and handling, filters, priming and vapor recovery. These applications are found principally in the pulp and paper, industrial manufacturing, petrochemical, power, mining and oil and gas industries. Nash products range in capacity from approximately 10 CFM to over 20,000 CFM. These products are sold primarily through direct sales channels and agents. Gardner Denver operates five Nash service centers in North America, and one each in the Netherlands and Australia. The Oberdorfer line of fractional horsepower specialty bronze and high alloy pumps for the general industrial and marine markets was acquired as part of the Thomas acquisition. A small portion of Gardner Denver pumps are sold for use in industrial applications.

Through its Thomas operating division, the Company has a strong presence in medical markets and environmental markets such as sewage aeration and vapor recovery through the design of custom compressors and vacuum pumps for OEMs. Deep vacuum pumps are sold under the Welch and ILMVAC trademarks into the laboratory and life science markets. Other major markets for this division include the automotive, industrial and printing markets.

Gardner Denver water jetting pumps and systems are used in a variety of industries including petrochemical, refining, power generation, aerospace, construction and automotive, among others. The products are sold under the Partek, Liqua-Blaster and American Water Blaster trademarks, and are employed in applications such as industrial cleaning, coatings removal, concrete demolition, and surface preparation.

Gardner Denver’s other fluid transfer components and equipment include loading arms, swivel joints, storage tank equipment, dry-break couplers and tank truck systems used to load and unload ships, tank trucks and rail cars. These products are sold primarily under the Emco Wheaton, Todo and Perolo trademarks.

The Engineered Products Group operates twenty-two production facilities (including two remanufacturing facilities) around the world including twelve in the U.S., four in Germany, two in China and one each in the UK, Sweden, Brazil and Canada. The most significant facilities include owned properties in Tulsa, Oklahoma; Quincy, Illinois; Syracuse, New York; Ilmenau, Kirchhain and Memmingen, Germany; Boshan and Wuxi, China; Margate, UK; and Toreboda, Sweden, and leased properties in Houston, Texas; Monroe, Louisiana; Elizabeth, Pennsylvania; Nuremberg, Germany; and Oakville, Ontario.

Customers and Customer Service

Gardner Denver sells its products through independent distributors and sales representatives, and directly to OEMs, engineering firms and end-users. The Company has been able to establish strong customer relationships with numerous key OEMs and exclusive supply arrangements with many of its distributors. The Company uses a direct sales force to serve OEM and engineering firm accounts because these customers typically require higher levels of technical assistance, more coordinated shipment scheduling and more complex product service than customers of the Company’s less specialized products. As a significant portion of its products are marketed through independent distribution, the Company is committed to developing and supporting its distribution network of over 1,000 distributors and representatives. The Company has distribution centers that stock parts, accessories and small compressor and vacuum products in order to provide adequate and timely availability. The Company also leases sales office and warehouse space in various locations. Gardner Denver provides its distributors with sales and product literature, technical assistance and training programs, advertising and sales promotions, order-entry and tracking systems and an annual restocking program. Furthermore, the Company participates in major trade shows and has a direct marketing department to generate sales leads and support the distributors’ sales personnel. The Company does not have any customers that individually provide more than 5% of its consolidated revenues, and the loss of any individual customer would not materially affect its consolidated revenues. However, revenue is derived from certain key customers for the Company’s petroleum products and the loss or reduction of any significant long-term contracts with any of these customers could result in a material decrease in the Company’s future profitability and cash flows. Fluctuations in revenue are primarily driven by specific industry and market changes.

Gardner Denver’s distributors maintain an inventory of complete units and parts and provide aftermarket service to end-users. There are several hundred field service representatives for Gardner Denver products in the distributor network. The Company’s service personnel and product engineers provide the distributors’ service representatives with technical assistance and field training, particularly with respect to installation and repair of equipment. The Company also provides aftermarket support through its service and remanufacturing facilities in the U.S. and Germany. The service and vehicle fitting facilities provide preventative maintenance programs, repairs, refurbishment, upgrades and spare parts for many of the Company’s products.

The primary OEM accounts for Thomas products are handled directly from the manufacturing locations. Smaller accounts and replacement business are handled through a network of distributors. Outside of the U.S. and Germany, the Company’s subsidiaries are responsible for sales and service of Thomas products in the countries or regions they serve.

Competition

Competition in the Company’s markets is generally robust and is based on product quality, performance, price and availability. The relative importance of each of these factors varies depending on the specific type of product and application. Given the potential for equipment failures to cause expensive operational disruption, the Company’s customers generally view quality and reliability as critical factors in their equipment purchasing decision. The required frequency of maintenance is highly variable based on the type of equipment and application.

Although there are a few large manufacturers of compressor and vacuum products, the marketplace for these products remains highly fragmented due to the wide variety of product technologies, applications and selling channels. Gardner Denver’s principal competitors in sales of standard configurations of compressor and vacuum products which are included in the Industrial Products Group include Ingersoll-Rand, Sullair (owned by United Technologies Corporation), Atlas Copco, Quincy Compressor (owned by Atlas Copco), Kaeser Compressor, Roots, Busch, Becker, SiHi and GHH RAND (owned by Ingersoll-Rand). Manufacturers located in India, China and Taiwan are also becoming more significant competitors as the products produced in these regions improve in quality and reliability.

The market for engineered products such as those included in the Engineered Products Group is highly fragmented, although there are a few multinational manufacturers with broad product offerings that are significant. Because Gardner Denver is focused on pumps used in oil and natural gas production and well servicing and well drilling, it does not typically compete directly with the major full-line pump manufacturers. The Company’s principal competitors in sales of petroleum pump products include National Oilwell Varco and SPM Flow Control, Inc. (owned by The Weir Group PLC). The Company’s principal competitors in sales of water jetting systems include NLB Corp. and Hammelmann Maschinenfabrik GmbH (both owned by Interpump Group SpA), Jetstream (a division of Federal Signal) and WOMA Apparatebau GmbH. The Company’s principal competitors in sales of other engineered products and equipment are SiHi, OPW Engineered Systems, Civacon (owned by Dover Corporation), FMC Technologies, Schwelm Verladetechnik GmbH (SVT) and Gast (a division of IDEX).

Research and Development

The Company’s products are best characterized as mature, with evolutionary technological advances. Technological trends in the Company’s products include development of oil-free and oil-less air compressors, increased product efficiency, reduction of noise levels, size and weight reduction for mobile applications, increased service-free life, and advanced control systems to upgrade the flexibility and precision of regulating pressure and capacity. The Company has also developed and introduced new technologies such as security and remote monitoring systems for transportation markets that are based on the latest wireless RFID (radio frequency identification) and data-transfer technologies.

The Company actively engages in a continuing research and development program. The Gardner Denver research and development centers are dedicated to various activities, including new product development, product performance improvement and new product applications.

Gardner Denver’s products are designed to satisfy the safety and performance standards set by various industry groups and testing laboratories. Care is exercised throughout the manufacturing and final testing process to ensure that products conform to industry, government and customer specifications.

During the years ended December 31, 2011, 2010, and 2009, the Company spent approximately $39.3 million, $35.9 million, and $36.0 million, respectively, on research activities relating to the development of new products and the improvement of existing products. All such expenditures were funded by the Company.

Manufacturing

In general, the Company’s manufacturing processes involve the precision machining of castings, forgings and bar stock material which are assembled into finished components. These components are sold as finished products or packaged with purchased components into complete systems. Gardner Denver operates thirty-nine manufacturing facilities (including remanufacturing facilities) that utilize a broad variety of processes. At the Company’s manufacturing locations, it maintains advanced manufacturing, quality assurance and testing equipment geared to the specific products that it manufactures, and uses extensive process automation in its manufacturing operations. The Company’s manufacturing facilities extensively employ the use of computer aided numerical control tools, and manufacturing techniques that concentrate the equipment necessary to produce similar products or components in one area of the plant (cell manufacturing). One operator using cell manufacturing can monitor and operate several machines, as well as assemble and test products made by such machines, thereby improving operating efficiency and product quality while reducing lead times and the amount of work-in-process and finished product inventories.

Gardner Denver has representatives on the American Petroleum Institute’s working committee and various groups of the European Committee for Standardization, and also has relationships with standard enforcement organizations such as Underwriters Laboratories, Det Norske Veritas and the Canadian Standard Association. The Company maintains ISO 9001-2000 certification on the quality systems at a majority of its manufacturing and design locations.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview and Description of Business

The Company designs, manufactures and markets engineered industrial machinery and related parts and services. The Company is one of the world’s leading manufacturers of highly engineered stationary air compressors and blowers for industrial applications. 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 and engineered vacuum systems. The Company also supplies pumps and compressors for OEM applications such as medical equipment, vapor recovery, printing, packaging and laboratory equipment. In addition, the Company designs, manufactures, markets, and services a diverse group of pumps, water jetting systems and related aftermarket parts used in well drilling, well servicing and production of oil and natural gas; industrial, commercial and transportation applications; and in industrial cleaning and maintenance. The Company also manufactures loading arms, swivel joints, couplers and valves used to load and unload ships, tank trucks and rail cars. The Company is one of the world’s leading manufacturers of reciprocating pumps used in oil and natural gas well drilling, servicing and production and in loading arms for the transfer of petrochemical products.

Since becoming an independent company in 1994, Gardner Denver has completed 24 acquisitions, growing its revenues from approximately $176 million in 1994 to approximately $2.4 billion in 2011. The Company has completed 3 significant acquisitions since 2005, namely Thomas, CompAir, and Robuschi.

In July 2010, the Company completed the acquisition of ILMVAC, a European provider of vacuum pumps, systems and accessories for research and development laboratories and industrial applications headquartered in Ilmenau, Germany. This acquisition was complementary to the Company’s Engineered Products Group product portfolio. The results of ILMVAC are included in the Company’s financial statements from the date of acquisition.

In December 2011, the Company completed the acquisition of Robuschi, a leading European-based producer of low pressure compressors and pumps and associated packages formerly headquartered in Parma, Italy. Robuschi provides a comprehensive range of vacuum pumps, positive displacement blowers and centrifugal pumps. These products are used in, among other areas, water and wastewater treatment, power generation, food applications and chemical processes. This acquisition was complementary to the Company’s Industrial Products Group product portfolio. The results of Robuschi are included in the Company’s financial statements from the date of acquisition.

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 compressors; and positive displacement, centrifugal and side channel blowers; primarily serving general industrial and OEM applications. This segment also 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. Revenues in the Industrial Products Group constituted 53% of total revenues in 2011.

In the Engineered Products Group, the Company designs, manufactures, markets and services a diverse group of products for industrial, commercial and OEM applications, engineered systems and general industry. Products include reciprocating pumps, liquid ring pumps, diaphragm vacuum pumps, water jetting systems and related aftermarket parts. These products are used in oil and natural gas well drilling, servicing and production; medical and laboratory; 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 fluid transfer components and equipment for the chemical, petroleum and food industries. The markets served are primarily in the U.S., Europe, Canada and Asia. Revenues in the Engineered Products Group constituted 47% of total revenues in 2011.

The Company sells its products through independent distributors and sales representatives, and directly to OEMs, engineering firms, packagers and end users.

Revenues

Revenues increased $475.8 million, or 25%, to $2,370.9 million in 2011, compared to $1,895.1 million in 2010. This increase was attributable to higher volume in both segments ($355.0 million, or 19%), net price increases ($40.3 million, or 2%), the acquisitions of Robuschi in the fourth quarter of 2011 and ILMVAC in the third quarter of 2010 ($13.0 million or 1%), and favorable changes in foreign currency exchange rates ($67.3 million, or 4%). Non-U.S. revenues represented 61% of total revenues in 2011 compared to 66% in 2010.

Revenues in the Industrial Products Group increased $156.2 million, or 14%, to $1,256.0 million in 2011, compared to $1,099.8 million in 2010. This increase reflects higher volume (8%), price increases (2%), favorable changes in foreign currency exchange rates ($43.5 million, or 4%) and the acquisition of Robuschi ($4.5 million). The volume increase was attributable to improvement in demand for OEM products and aftermarket parts and services on a global basis.

Revenues in the Engineered Products Group increased $319.6 million, or 40%, to $1,114.9 million in 2011, compared to $795.3 million in 2010. This increase reflects price increases (3%), higher volume (34%), the acquisition of ILMVAC ($8.5 million, or 1%), and favorable changes in foreign currency exchange rates ($23.8 million or 3%). The volume increase was primarily due to improved demand for petroleum pumps and engineered packages.

Gross Profit

Gross profit increased $181.5 million, or 29%, to $807.9 million in 2011, compared to $626.4 million in 2010, and as a percentage of revenues improved to 34.1% in 2011, compared to 33.1% in 2010. The increase in gross profit and gross profit as a percentage of revenues primarily reflects the volume improvements discussed above, cost reductions, the benefits of operational improvements and favorable product mix.

Selling and Administrative Expenses

Selling and administrative expenses increased $25.3 million, or 7%, to $394.8 million in 2011, compared to $369.5 million in 2010. This increase reflects higher variable compensation expense, commissions, corporate relocation expenses, the unfavorable effect of changes in foreign currency exchange rates ($13.2 million) and the acquisition of Robuschi ($1.8 million), partially offset by the benefits of cost reductions, including lower salaries and benefit expenses. As a percentage of revenues, selling and administrative expenses improved to 16.7% in 2011 compared to 19.5% in 2010 due to the leverage from higher revenues and cost reductions, partially offset by the cost increases discussed above.

Other Operating Expense, Net

Other operating expense, net, consists primarily of realized and unrealized foreign currency gains and losses, employee termination benefits, other restructuring costs, certain employee retirement costs and costs associated with acquisition due diligence. Other operating expense, net, of $12.4 million in 2011 included (i) net restructuring charges of $8.6 million, (ii) due diligence costs of $2.1 million primarily associated with the Robuschi acquisition and an abandoned transaction and (iii) net realized and unrealized foreign currency gains of $0.7 million. Other operating expense, net, of $4.5 million in 2010 included (i) net restructuring charges of $2.2 million, (ii) due diligence costs of $2.8 million primarily associated with an abandoned transaction and (iii) net realized and unrealized foreign currency gains of $2.0 million. See Note 19 “Supplemental Information” in the “Notes to Consolidated Financial Statements.”

Operating Income (Loss)

Operating income of $400.7 million in 2011 compares to operating income of $252.4 million in 2010. Operating income as a percentage of revenues was 16.9% in 2011 compared to 13.3% in 2010. These results reflect the specific items discussed above related to gross profit, selling and administrative expense, and other operating expense, net. Operating income in 2011 reflects charges totaling $13.6 million, or 0.6% of revenues, for profit improvement initiatives, acquisition due diligence costs and corporate relocation expenses partly offset by a foreign currency gain associated with the financing of the Robuschi acquisition. Operating income in 2010 reflects charges totaling $7.6 million, or 0.4% of revenues, for profit improvement initiatives, acquisition due diligence costs and corporate relocation expenses.

The Industrial Products Group generated segment operating income of $140.5 million and segment operating margin of 11.2% in 2011 compared to $93.1 million and 8.5%, respectively in 2010 (see Note 20 “Segment Information” in the “Notes to Consolidated Financial Statements” for a reconciliation of segment operating income (loss) to consolidated income (loss) before income taxes). Results in 2011, compared with 2010, were positively impacted by revenue growth and cost reductions, and reflect charges totaling $9.3 million, or 0.7% of segment revenues, for profit improvement initiatives, acquisition due diligence costs and corporate relocation expenses, partly offset by a foreign currency gain associated with the financing of the Robuschi acquisition. Results in 2010 reflect charges totaling $7.6 million, or 0.7% of segment revenues, for profit improvement initiatives, acquisition due diligence costs and corporate relocation expenses.

The Engineered Products Group generated segment operating income of $260.3 million and segment operating margin of 23.3% in 2011, compared to $159.3 million and 20.0%, respectively, in 2010 (see Note 20 “Segment Information” in the “Notes to Consolidated Financial Statements” for a reconciliation of segment operating income (loss) to consolidated income (loss) before income taxes). The improvement in segment operating income and segment operating margin was due primarily to revenue growth, pricing in the energy business, favorable product mix and the benefits of operational improvements and cost reductions, partially offset by corporate relocation expenses.

Interest Expense

Interest expense of $15.4 million in 2011 declined $8.0 million from $23.4 million in 2010. This decrease was attributable to lower average borrowings in 2011 resulting from net principal repayments of $87.6 million, excluding the impact of the incremental $200 million term loan borrowing on November 21, 2011 for the Robuschi acquisition, and a lower weighted average interest rate. The weighted average interest rate, including the amortization of debt issuance costs, decreased to 5.4% in 2011 compared to 7.2% in 2010, due primarily to the greater relative weight of the fixed interest rate on the Company’s 8% Senior Subordinated Notes in 2010, which were subsequently retired in May 2011.

Other Income, Net

Other income, net, consisting primarily of investment income and realized and unrealized gains and losses on investments, was $1.7 million in 2011 compared to $2.9 million in 2010. This change was due to lower year over year net investment gains associated with the assets of the Company’s deferred compensation plan, which were fully offset by a decrease in accrued compensation expense reflected in selling and administrative expenses.

Provision For Income Taxes

The provision for income taxes was $107.4 million and the effective tax rate was 27.8% in 2011, compared to a provision of $56.9 million and an effective tax rate of 24.5% in 2010. The increase in the provision reflects higher taxable income in 2011. The increase in the effective tax rate primarily reflects a higher proportion of taxable income in the U.S. in 2011, the impact of higher tax rates in China, and certain non-deductible expenses, offset by the reversal of certain non-US valuation allowances of $7.3 million and settlements and lapses of applicable statutes of limitations related to uncertain tax positions.

Net Income (Loss) Attributable to Gardner Denver

Net income attributable to Gardner Denver of $277.6 million and diluted earnings per share (“DEPS”) of $5.33 in 2011 compares to net income attributable to Gardner Denver of $173.0 million and diluted earnings per share of $3.28 in 2010. The improvement in net income and DEPS was the net result of the factors affecting operating income (loss), interest expense and the provision for income taxes discussed above. In 2011, charges for profit improvement initiatives, acquisition due diligence costs and corporate relocation expenses resulted in a net reduction in net income and DEPS of $9.4 million and $0.18, respectively. In 2010, charges for profit improvement initiatives, acquisition due diligence costs and corporate relocation expenses resulted in a net reduction in net income and DEPS of $5.8 million and $0.11, respectively.

Year Ended December 31, 2010, Compared with Year Ended December 31, 2009

Revenues

Revenues increased $117.0 million, or 7%, to $1,895.1 million in 2010, compared to $1,778.1 million in 2009. This increase was attributable to higher volume in both segments ($83.0 million, or 4%), net price increases ($32.0 million, or 2%) and the acquisition of ILMVAC in the third quarter of 2010 ($7.9 million, or 1%), partially offset by unfavorable changes in foreign currency exchange rates ($5.9 million). International revenues were 66% of total revenues in 2010 compared to 66% in 2009.

Revenues in the Industrial Products Group increased $76.9 million, or 8%, to $1,099.8 million in 2010, compared to $1,022.9 million in 2009. This increase reflects higher volume (7%) and price increases (1%), partially offset by unfavorable changes in foreign currency exchange rates. The volume increase was attributable to improvement in demand for OEM products and aftermarket parts and services on a global basis.

Revenues in the Engineered Products Group increased $40.0 million, or 5%, to $795.3 million in 2010, compared to $755.3 million in 2009. This increase reflects price increases (3%), higher volume (1%) and the acquisition of ILMVAC ($7.9 million, or 1%), partially offset by unfavorable changes in foreign currency exchange rates. The volume increase was due to improved demand for well servicing and industrial pumps and OEM products, partially offset by lower shipments of loading arms, drilling pumps and engineered packages.

Gross Profit

Gross profit increased $75.8 million, or 14%, to $626.4 million in 2010, compared to $550.6 million in 2009, and as a percentage of revenues improved to 33.1% in 2010, compared to 31.0% in 2009. The increase in gross profit and gross profit as a percentage of sales primarily reflects the volume improvements discussed above, cost reductions, the benefits of operational improvements and favorable product mix.

Selling and Administrative Expenses

Selling and administrative expenses increased $13.3 million, or 4%, to $369.5 million in 2010, compared to $356.2 million in 2009. This increase reflects higher variable compensation expense, corporate relocation expenses and the acquisition of ILMVAC ($2.1 million), partially offset by the benefits of cost reductions, including lower salaries and benefit expenses, and the favorable effect of changes in foreign currency exchange rates ($1.9 million). As a percentage of revenues, selling and administrative expenses improved to 19.5% in 2010 compared to 20.0% in 2009 due to the leverage from higher revenues and cost reductions, partially offset by the cost increases discussed above.

Other Operating Expense, Net

Other operating expense, net, consists primarily of realized and unrealized foreign currency gains and losses, employee termination benefits, other restructuring costs, certain employee retirement costs and costs associated with acquisition due diligence. Other operating expense, net, of $4.5 million in 2010 included (i) net restructuring charges of $2.2 million, (ii) due diligence costs of $2.8 million primarily associated with an abandoned transaction and (iii) net unrealized foreign currency gains of $2.0 million. Other operating expense, net, of $45.7 million in 2009 consisted primarily of restructuring charges of $46.1 million. See Note 19 “Supplemental Information” in the “Notes to Consolidated Financial Statements.”

Impairment Charges

In 2009, the Company recorded impairment charges of $252.5 million and $9.9 million to reduce the carrying value of goodwill and a trade name, respectively, in the Industrial Products Group. See Note 8 “Goodwill and Other Intangible Assets” in the “Notes to Consolidated Financial Statements.”

Operating Income (Loss)

Operating income of $252.4 million in 2010 compares to an operating loss of $113.7 million in 2009. Operating income as a percentage of revenues was 13.3% in 2010 compared to negative 6.4% in 2009. These results reflect the gross profit, selling and administrative expense, other operating expense, net, and impairment charges discussed above. Operating income in 2010 reflects charges totaling $7.6 million, or 0.4% of revenues, for profit improvement initiatives, acquisition due diligence costs and corporate relocation expenses. The operating loss in 2009 reflects the net goodwill and trade name impairment charges totaling $262.4 million and charges totaling $47.3 million primarily associated with profit improvement initiatives.

The Industrial Products Group generated segment operating income of $93.1 million and segment operating margin of 8.5% in 2010 compared to a segment operating loss of $239.4 million and segment operating margin of negative 23.4% in 2009 (see Note 20 “Segment Information” in the “Notes to Consolidated Financial Statements” for a reconciliation of segment operating income (loss) to consolidated income (loss) before income taxes). Results in 2010, compared with 2009, were positively impacted by revenue growth and cost reductions, and reflect charges totaling $7.6 million, or 0.7% of revenues, for profit improvement initiatives, acquisition due diligence costs and corporate relocation expenses. Results in 2009 were negatively impacted by the impairment charges, lower gross profit as a result of the revenue decline and unfavorable product mix, and charges totaling $25.6 million in connection with profit improvement initiatives and other items.

The Engineered Products Group generated segment operating income of $159.3 million and segment operating margin of 20.0% in 2010, compared to $125.7 million and 16.6%, respectively, in 2009 (see Note 20 “Segment Information” in the “Notes to Consolidated Financial Statements” for a reconciliation of segment operating income (loss) to consolidated income (loss) before income taxes). The improvement in segment operating income and segment operating margin was due primarily to revenue growth, favorable product mix and the benefits of operational improvements and cost reductions, partially offset by corporate relocation expenses. Results in 2009 were negatively impacted by charges totaling $21.7 million, or 2.9% or revenues, in connection with profit improvement initiatives and other items.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

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 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.

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, which is defined as income before interest expense, other income, net, and income taxes. Reportable segment operating income and segment operating margin (defined as segment operating income 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 business segment to evaluate past performance and identify actions required to improve profitability. See Note 15 “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). 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 September 30, 2011 Compared

with the Quarter Ended September 30, 2010

Revenues

Revenues increased $121.3 million, or 25%, to $614.7 million in the three-month period ended September 30, 2011, compared to $493.4 million in the three-month period ended September 30, 2010. This increase was attributable to higher volume in both segments ($85.0 million, or 18%), favorable changes in foreign currency exchange rates ($25.7 million, or 5%) and price increases ($10.6 million, or 2%).

Revenues in the Industrial Products Group increased $39.6 million, or 14%, to $320.2 million in the third quarter of 2011, compared to $280.6 million in the third quarter of 2010. This increase reflects higher volume (6%), favorable changes in foreign currency exchange rates (6%) and price increases (2%). The volume increase was attributable to ongoing improvement in demand for OEM products, compressors, custom engineered packages and aftermarket parts and services on a global basis. Strong growth was experienced in all major geographic regions.

Revenues in the Engineered Products Group increased $81.7 million, or 38%, to $294.5 million in the third quarter of 2011, compared to $212.8 million in the third quarter of 2010. This increase reflects higher volume (31%), favorable changes in foreign currency exchange rates (4%) and price increases (3%). The volume increase reflected continued strong demand for drilling and well servicing pumps, liquid ring pumps, aftermarket products and related services, loading arms and growth in emerging markets.

Gross Profit

Gross profit increased $45.2 million, or 28%, to $205.5 million in the three-month period ended September 30, 2011, compared to $160.3 million in the three-month period ended September 30, 2010, and as a percentage of revenues was 33.4% in 2011, compared to 32.5% in 2010. The increase in gross profit primarily reflects the volume increases discussed above, favorable product mix, cost reductions and 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, cost reductions, volume leverage and favorable product mix.

Selling and Administrative Expenses

Selling and administrative expenses increased $3.1 million, or 3%, to $94.2 million in the third quarter of 2011, compared to $91.1 million in the third quarter of 2010. This increase reflects unfavorable changes in foreign currency exchange rates ($5.0 million), partially offset by cost reductions. As a percentage of revenues, selling and administrative expenses improved to 15.3% in the third quarter of 2011 compared to 18.5% in the third quarter of 2010, primarily as a result of cost reductions and leverage from higher revenues.

Other Operating Expense, Net

Other operating expense, net, was $4.7 million in the third quarter of 2011 and $1.3 million in the third quarter of 2010. Restructuring charges of $2.6 million in the third quarter of 2011 were primarily associated with facility consolidations in Europe. Other operating expenses recorded in the third quarter of 2011 also included acquisition due diligence costs totaling $1.4 million, primarily associated with the Company’s agreement to acquire Robuschi, which is expected to be completed in the fourth quarter of 2011. Net foreign currency losses of $1.8 million recorded in the third quarter of 2010 reflected the effect of the weakening of the USD against primarily the EUR and GBP on the Company’s financial instruments denominated in the EUR and GBP.

Operating Income

Operating income of $106.6 million in the third quarter of 2011 increased $38.6 million, or 57%, compared to $68.0 million in the third quarter of 2010. Operating income as a percentage of revenues in the third quarter of 2011 was 17.3% compared to 13.8% in the third quarter of 2010. This improvement was due primarily to incremental profitability on revenue growth, favorable product mix and the benefits of operational improvements previously implemented. Charges associated with profit improvement initiatives and other items totaled $4.9 million, or 0.8% of revenues, in 2011 and $0.1 million in 2010.

The Industrial Products Group generated segment operating income and segment operating margin of $38.6 million and 12.1%, respectively, in the third quarter of 2011, compared to $26.5 million and 9.4%, respectively, in the third quarter of 2010 (see Note 15 “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 to consolidated income before tax). The year over year improvement in operating income and operating margin was primarily attributable to incremental profit on revenue growth, favorable product mix and cost reductions. Charges associated with profit improvement initiatives and other items totaled $3.2 million, or 1.0% of revenues, in 2011. Credits associated with profit improvement initiatives and other items totaled $0.2 million in 2010.

The Engineered Products Group generated segment operating income and segment operating margin of $68.0 million and 23.1%, respectively, in the third quarter of 2011, compared to $41.5 million and 19.5%, respectively, in the third quarter of 2010 (see Note 15 “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 to consolidated income before tax). The year over year improvement in operating income and operating margin was primarily attributable to incremental profit on revenue growth, favorable product mix and cost reductions. Charges associated with profit improvement initiatives and other items totaled $1.7 million, or 0.5% of revenues, in 2011 and $0.3 million, or 0.2% of revenues, in 2010.

Interest Expense

Interest expense of $2.9 million in the third quarter of 2011 decreased $2.8 million from $5.7 million in the third quarter of 2010 due to lower average borrowings and a lower weighted average interest rate. The year over year reduction in borrowings was primarily due to the redemption in the second quarter of 2011 of all $125.0 million in aggregate principal of the Company’s outstanding 8% Senior Subordinated Notes due in 2013 (the “Senior Subordinated Notes”), partially offset by incremental borrowings associated with the acquisition of outstanding common stock under the Company’s share repurchase program during the third quarter of 2011. The weighted average interest rate, including the amortization of debt issuance costs, decreased to 5.3% in the third quarter of 2011 compared to 7.2% in the third quarter of 2010, also due primarily to the redemption of the Senior Subordinated Notes.

Provision for Income Taxes

The provision for income taxes was $29.5 million and the effective tax rate was 28.5% in the third quarter of 2011, compared to $16.6 million and 26.2%, respectively, in the third quarter of 2010. The year over year increase in the provision reflects higher taxable income, and the increase in the effective tax rate primarily reflects a higher proportion of taxable income in the U.S. in 2011 compared to 2010.

Net Income Attributable to Gardner Denver

Net income attributable to Gardner Denver of $73.6 million and diluted earnings per share (“DEPS”) of $1.42 in the third quarter of 2011 compares with net income attributable to Gardner Denver and DEPS of $46.6 million and $0.88, respectively, in the third quarter of 2010. This improvement reflects the net effect of the operating income, interest expense and income tax factors discussed above. Results in the third quarter of 2011 included charges for profit improvement initiatives and other items totaling $3.5 million after income taxes, or $0.06 on a diluted per share basis. Net charges for profit improvement initiatives and other items were not material in the third quarter of 2010. The Company’s repurchase of shares of its common stock, primarily during the third quarter of 2011, resulted in a $0.02 increase in DEPS in the third quarter.

Performance during the Nine Months Ended September 30, 2011 Compared

with the Nine Months Ended September 30, 2010

Revenues

Revenues increased $392.1 million, or 29%, to $1,757.2 million in the nine-month period ended September 30, 2011, compared to $1,365.1 million in the nine-month period ended September 30, 2010. This increase was attributable to higher volume in both segments ($284.8 million, or 21%), favorable changes in foreign currency exchange rates ($68.4 million, or 5%) price increases ($30.4 million, or 2%), and the acquisition of ILMVAC in the third quarter of 2010 ($8.5 million, or 1%).

Revenues in the Industrial Products Group increased $138.5 million, or 17%, to $934.2 million in the nine-month period of 2011, compared to $795.7 million in the nine-month period of 2010. This increase reflects higher volume (9%), favorable changes in foreign currency exchange rates (6%) and price increases (2%). The volume increase was attributable to ongoing improvement in demand for OEM products, compressors, custom engineered packages and aftermarket parts and services on a global basis. Strong growth was experienced in all major geographic regions.

Revenues in the Engineered Products Group increased $253.5 million, or 45%, to $823.0 million in the nine-month period of 2011, compared to $569.5 million in the nine-month period of 2010. This increase reflects higher volume (37%), favorable changes in foreign currency exchange rates (4%), price increases (3%) and the acquisition of ILMVAC (1%). The volume increase reflected continued strong demand for drilling and well servicing pumps, liquid ring pumps, medical OEM products, aftermarket products and related services, loading arms and growth in emerging markets.

Gross Profit

Gross profit increased $154.5 million, or 35%, to $600.2 million in the nine-month period ended September 30, 2011, compared to $445.7 million in the nine-month period ended September 30, 2010, and as a percentage of revenues was 34.2% in 2011, compared to 32.7% in 2010. The increase in gross profit primarily reflects the volume increases discussed above, favorable product mix, cost reductions and 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, cost reductions, volume leverage and favorable product mix.

Selling and Administrative Expenses

Selling and administrative expenses increased $24.7 million, or 9%, to $295.2 million in the nine-month period ended September 30, 2011, compared to $270.5 million in the nine-month period ended September 30, 2010. This increase reflects unfavorable changes in foreign currency exchange rates ($13.4 million), higher compensation and benefit expenses and the acquisition of ILMVAC ($1.9 million), partially offset by cost reductions. As a percentage of revenues, selling and administrative expenses improved to 16.8% in the nine-month period of 2011 compared to 19.8% in the nine-month period of 2010, primarily as a result of cost reductions and leverage from higher revenues.

Other Operating Expense, Net

Other operating expense, net, was $12.4 million in the nine-month period ended September 30, 2011 and $3.2 million in the nine-month period ended September 30, 2010. Restructuring charges of $6.6 million incurred in the nine-month period of 2011 were primarily associated with facility consolidations in Europe and compare with charges of $2.3 million recorded in the nine-month period of 2010. Net foreign currency losses of $2.6 million recorded in the nine-month period of 2011 reflected the effect of the weakening of the USD against primarily the EUR and GBP on the Company’s financial instruments denominated in the EUR and GBP during the first six months of the year. Net foreign currency losses of $1.1 million recorded in the nine-month period of 2010 reflected the effect of the weakening of the USD against those currencies during the third quarter of 2010, partially offset by the strengthening of the USD against those currencies during the first quarter. Other operating expenses recorded in the nine-month period of 2011 included acquisition due diligence costs totaling $1.6 million, primarily associated with the Company’s agreement to acquire Robuschi, which is expected to be completed in the fourth quarter of 2011. Results in 2010 reflected an insurance settlement received in the first quarter.

Operating Income

Operating income of $292.6 million in the nine-month period ended September 30, 2011 increased $120.5 million, or 70%, compared to $172.1 million in the nine-month period ended September 30, 2010. Operating income as a percentage of revenues in the nine-month period of 2011 was 16.6% compared to 12.6% in the nine-month period of 2010. This improvement was due primarily to incremental profitability on revenue growth, favorable product mix and the benefits of operational improvements previously implemented. Charges associated with profit improvement initiatives and other items totaled $11.8 million, or 0.7% of revenues, in 2011 and $2.9 million, or 0.2% of revenues, in 2010.

The Industrial Products Group generated segment operating income and segment operating margin of $103.7 million and 11.1%, respectively, in the nine-month period of 2011, compared to $66.2 million and 8.3%, respectively, in the nine-month period of 2010 (see Note 15 “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 to consolidated income before tax). The year over year improvement in operating income and operating margin was primarily attributable to incremental profit on revenue growth, favorable product mix and cost reductions. Charges associated with profit improvement initiatives and other items totaled $8.8 million, or 0.9% of revenues, in 2011 and $3.7 million, or 0.5% of revenues, in 2010.

The Engineered Products Group generated segment operating income and segment operating margin of $188.8 million and 22.9%, respectively, in the nine-month period of 2011, compared to $105.9 million and 18.6%, respectively, in the nine-month period of 2010 (see Note 15 “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 to consolidated income before tax). The year over year improvement in operating income and operating margin was primarily attributable to incremental profit on revenue growth, favorable product mix and cost reductions. Charges associated with profit improvement initiatives and other items totaled $3.0 million, or 0.4% of revenues, in 2011 and a credit of $0.8 million, or 0.1% of revenues, in 2010.

Interest Expense

Interest expense of $12.2 million in the nine-month period ended September 30, 2011 decreased $5.6 million from $17.8 million in the nine-month period ended September 30, 2010 due to lower average borrowings and a lower weighted average interest rate. The year over year reduction in borrowings was primarily due to the redemption in the second quarter of 2011 of the Senior Subordinated Notes as discussed above, partially offset by incremental borrowings associated with the acquisition of outstanding common stock under the Company’s share repurchase program, primarily during the third quarter of 2011. The weighted average interest rate, including the amortization of debt issuance costs, decreased to 6.3% in the nine-month period of 2011 compared to 7.1% in the nine-month period of 2010, also due primarily to the redemption of the Senior Subordinated Notes in the second quarter of 2011.

Provision for Income Taxes

The provision for income taxes was $79.3 million and the effective tax rate was 28.2% in the nine-month period ended September 30, 2011, compared to $38.9 million and 25.0%, respectively, in the nine-month period ended September 30, 2010. The year over year increase in the provision reflects higher taxable income, and the increase in the effective tax rate primarily reflects a higher proportion of taxable income in the U.S. in 2011 compared to 2010.

CONF CALL

Barry L. Pennypacker

Welcome to Gardner Denver’s fourth quarter 2011 earnings conference call. I’m joined this morning by Michael Larsen, Gardner Denver’s Vice President and Chief Financial Officer. Before we begin with our remarks Mike will have a few comments regarding our forward-looking statements.

Michael M. Larsen

Let me remind you that any statements made by Gardner Denver during the call today other than historical facts are forward-looking statements made in reliance upon the Safe Harbor of the Private Securities Litigation Reform Act of 1995. As a general matter, forward-looking statements are those focused upon anticipated events or trends and assumptions, expectations and beliefs relating to matters that are not historical in nature.

Such forward-looking statements are subject to uncertainties and factors relating to Gardner Denver’s operations and business environment, all of which are difficult to predict and many of which are beyond the control of the company. These uncertainties and factors could cause actual results to differ materially from those matters expressed in or implied by such forward-looking statements.

Please refer to Gardner Denver’s fourth quarter 2011 earnings press release issued on February 9, 2012 for further information regarding potential uncertainties and factors that could cause actual results to differ from anticipated results. Gardner Denver does not undertake or plan to update these forward-looking statements even though the company’s situation may change. Therefore, you should not rely on these forward-looking statements a representing the company’s or its managements’ view as of any date subsequent to today.

As a reminder, this call is being broadcast in listen only mode through a live webcast. This free webcast will be available for replay up to 90 days following the call through the investor relations page on the Gardner Denver website at www.GardnerDenver.com or the Thompson Street website at www.Earnings.com. Now, I’d like to turn the meeting back over to Barry.

Barry L. Pennypacker

Gardner Denver had a solid fourth quarter to cap off another outstanding year. We established quarterly records for diluted earnings per share in the fourth quarter and annual records for revenue, operating income, net income, diluted earnings per share, and cash flow from operations.

For the full revenues were up 25%. Operating margins at 16.9% were up 360 basis points and diluted earnings per share for the year ended at $5.33 up 63%. On an adjusted basis, diluted earnings per share were $5.51, up 63% from $3.39 in 2010. Our orders for the fourth quarter were $598 million, up 15% versus prior year, up 13% organically and our book-to-build was close to one as revenues of $614 million were up 16%, 15% organically.

Sequentially from third quarter to fourth quarter, our orders declined 5%. Down 3% organically as we saw moderate declines in IPG, down 6% driven primarily by Europe, and EPG which was down 4%. In EPG Nash well servicing were up sequentially but not enough to offset the non-repeat of some larger orders in Emco Wheaton and moderate declines in Thomas.

We are closely watching our orders as always. We are not panicked by moderating growth rates but rest assured we are prepared. Importantly we’re off to a strong start in January with orders up approximately 10% year-over-year and quarter-over-quarter.

Backlog at year end was $670 million up 21% versus prior year. Our backlog positions us well as we head into 2012 and provides good visibility through the first half of the year. There is however some uncertainty as it relates to the later part of the year which I will discuss in more detail shortly.

Operating income for the fourth quarter was $108 million, a 35% increase over last year as operating margins improved 240 basis points to 17.6%. Net income was $77 million, up 36% over last year’s fourth quarter and diluted earnings per share increased 41% to $1.52 and a $1.54 on an adjusted basis.

In addition, our cash flow from operating activities totaled $300 million for the year and $88 million in the fourth quarter. Well ahead of net income and in 2011 our strong balance sheet enabled us to purchase $131 million of our outstanding shares, acquire Robuschi for approximately $200 million on December 15th and invest $56 million in capital equipment focused on increasing capacity and reducing costs on the shop floor.

Now, I’d like to give you a little more color on the performance of our two operating segments. Focusing on engineer products for the total year, revenues reached $1.1 billion up 40% and adjusted operating margins in EPG reached 23.7% for the year up 370 basis points year-over-year.

Our engineered products group continued to experience strong growth in the fourth quarter with orders up 27% and $289 million and revenues up 29% to $292 million driven by continued growth in our energy business and encouraging momentum in our later cycle business such as Nash. In EPG the backlog typically gives you a good sense of where the business is going and our backlog at quarter end is $416 million, up 22% year-over-year.

In the fourth quarter operating margins in EPG reached an all time high of 24.9% on an adjusted basis. Incremental profit on revenue growth, favorable product mix, cost reductions, and pricing in our well servicing equipment and after market fluid ends all contributed. I will tell you that the fourth quarter EPG margins did have better than expected flow through on a few larger projects which we can’t expect to repeat going forward.

Revenues in our petroleum and industrial pump business were in excess of 60% year-over-year and orders in our pressure pumping business were up more than 40% in the quarter. Despite the decline in natural gas prices we have seen no signs of slow down in our energy business, no indication of double booking of orders and no cancellations.

But with natural gas completely decoupled from crude oil prices and trading at 10 years low, let me talk about natural gas prices and what it could mean to our well servicing business. Approximately one third of the North American rigs are gas or a combination of gas and liquids and it is estimated that there are currently 300 to 350 rigs that are drilling for dry gas only. At current natural gas and crude oil levels these dry gas only rigs are likely to continue the trend of converting to liquids that obviously are very profitable at current crude oil prices.

In fact, this is a trend we have seen for a while now. If you look at the last three months, rig count has stayed relatively stable while gas only rigs have declined offset by an increase in the number of liquids focused rigs. Therefore, we don’t believe that declining gas rigs necessarily means that total rig count will decline provided the ongoing drop in gas activity is offset by increasing activity in liquid rig spaces.

In addition, we believe that any potential reductions in activity will be temporary only due to the growing international demand for natural gas and the limited spare oil capacity as noted by our largest customers. While it is likely that the overall market demand for new pressure pumps is going to moderate in 2012 it is also likely that the demand for aftermarket services in fluid ends will increase as a result of the installed base that was put into service in 2011. And, I might add, those suppliers who can deliver with accuracy and reliability may find little affect.

Our recent investments in the aftermarket for well servicing in the Marcellus Shale and in Forth Worth Texas will enable us to take full advantage of the aftermarket opportunity and our projects are progressing well according to plan. We remain confident that we’ve made the right investment decisions and we believe that the trends in the unconventional gas exploration will continue to drive growth for our pressure pumps and associated aftermarket goods and services and we intend to take full advantage of this opportunity going forward.

Now, turning our attention to industrial products group, for the total year revenues reached $1.25 billion up 14% and operating margins in IPG reached 11.9% for the year up 270 basis points year-over-year. We continue to progress on our 14x14 journey supported by the principles of the Gardner Denver way. As expected, demand for our shorter cycle business in industrial products is moderating from high levels.

Fourth quarter orders were up 4% year-over-year, 3% organically and declined sequentially by about 6%. Obviously, comparisons are getting tougher and the cautionary tone from our customers that we discussed previously has turned into lower order rates especially in Europe. Keep in mind that in the fourth quarter traditionally, over the last 10 years, we’ve seen some seasonality affect within IPG.

Since there is uncertainty as to the macro environment in Europe, let me give you a little more color on our presence in Europe. If you look at 2011, our sales in Europe represented about 31% of our total global sales and our European sales were up 12% last year. The largest country in terms of sales was Germany which represented about 10% of our total sales followed by the UK at 5% and France at 3%.

While other European markets have slowed in terms of growth, Germany continues to perform well. Our industrial business in China which was down year-over-year in the third quarter came back nicely in the fourth quarter as both orders and revenue grew at double digit. On margin expansion we took a step backwards relatively to a very strong third quarter as IPG margins came in at 11.6% down from third quarter but in line with second quarter and up 150 basis points from the fourth quarter 2010. The sequential decline in margins was primarily driven by Europe.

Now, at Gardner Denver we know how to expand margins by reducing costs and that’s exactly what we’re focused on as growth rates appear to be moderating from high levels in IPG. Now, as I go through an update on our five strategic objectives let me start with arguably the most important one, margin expansion, and tell you what we’re doing to grow earnings in a slower growth environment.

We’ve recently spent a substantial amount of time with our team in Europe focused on developing the plans to consolidate our high cost footprint and the movement of production into much lower cost sites. We currently have 10 facilities in the industrial products group alone: three in the UK; three in Germany; three in Italy; and one in Finland. Simply too many to remain competitive in a moderating demand environment. We will begin to address this issue in 2012 and have it mostly complete by the end of 2013.

Our plans are still in the works and therefore our 2012 guidance excludes any European restructuring but you should expect to see restructuring charges as we finalize our plans and aim for a two year or better payback on these programs as we have demonstrated in the past. This European restructuring program will be incremental to 14x14 and therefore will enable us to take margins beyond 14% in IPG.

On organic growth we made great strides in 2011 as the business added almost $400 million of organic revenues year-over-year on relatively flat headcount I might add. A significant portion of that growth came from our investments and focus on emerging markets. Today, 26% of our sales are from emerging markets outside of North America and Europe and these sales grew at a rate of 27% year-over-year.

While it’s probably fair to say that growth rates are slowing in some of the emerging countries, Gardener Denver’s presence and market share is still relatively small and as we continue to expand in places like India we’re confident that we can continue to grow the business at attractive rates.

Regarding aftermarket expansion, we continue to make progress towards our goal of having over 40% of our total business coming from the aftermarket. In 2011 aftermarket as a percentage of revenue grew to 32% from 31% in 2010. While a 100 basis point improvement year-over-year may not sound like significant progress, consider that overall revenue grew by 25%. We expect that our aftermarket sales will continue to increase at a good pace in 2012 especially as demand for fluid ends and our well servicing business continues to grow.

By the way, if the trend continues to favor more drilling for liquids versus gases, we would continue to benefit from an aftermarket perspective as drilling for liquids tends to involve higher fracing intensity which in turn creates more demand for Gardner Denver replacement parts and services. And, as I have reiterated in the past three calls, as we continue to shift the percentage of revenue to the aftermarket we are going to see less orders in the backlog as we bring capacity on stream and our deliver cycles are shortened as customers do not have to get in the queue as they had in the past.

Turning to innovation; the teams continue to make great strides on product development based on the voice of the customer. We talked quite a bit about or fracing business this far and we made good progress on delivering innovation in fluid end technology while keeping up with the demands of the business from an orders and execution perspective.

The team at Tulsa has developed a new exotic material fluid end that is significantly better in terms of reliability and longevity. In fact, we have been able to attract new business recently from a handful of new customers who also prefer the new design and ease of maintenance that these fluid ends provide. Look forward to more innovations in this segment of our business and in particular our new Falcon product line where lower stress equals longer life.

In some of our other businesses we made great progress in redesigning existing product lines and taking cost out of our business in order to compete in the marketplace. Last quarter we talked about the Dragon series of compressors that was introduced in the China market as a lower cost alternative to replace US and European made products. The Emco Wheaton team has taken a similar approach in developing a lower cost loading arm which will open up new markets for us, particularly in emerging markets.

On the acquisition front we have a track record of buying good companies and making them accretive in year one from an earnings perspective. Robuschi will be no exception. Last month we had our first [inaudible] event in Robuschi and I introduced the management team to the Gardner Denver way.

Mr. Ugo Remitti, Operations Director for the Parma operation is already convinced that the Gardner Denver way will free up a significant amount of space as well as precious working capital in the operation. We expect that Robuschi will add $0.15 of diluted earnings per share in 2012 excluding acquisition related cost of approximately $0.10 that will record in the first quarter of 2012. Robuschi will be accretive in year one but the real affect will come to the bottom line in 2013.

I am convinced that our secret sauce in regards to acquisitions is to not only buy superior companies with superior brands but buy ones with great management teams. Paolo Urbanis and his team of executives know how to grow a business in difficult times and now with the Gardner Denver way principles guiding their efforts I look forward to expectations well beyond what we originally had imagined.

Finally, the acquisition environment remains active and we would expect to close a number of deals in 2012. I would point out that multiples remain high which can be a challenge for a disciplined buyer like us.

Turning to our outlook for 2012, we obviously see the same macroeconomic activities as everyone else especially, in Europe. There are some positive signs in the US as evidenced by recent improvements in industrial production and capacity utilization. Emerging markets should continue to grow, potentially at a more moderate pace than in 2011.

As discussed earlier, we expect rig count for 2012 to be flat with the fourth quarter of 2011. This equates to a mid single digit increase in rigs and horizontal rigs should grow faster than that. We do not expect international pressure pumping to be a major growth river in 2012 although, some of our customers are making good progress in places like Poland and Argentina.

Our January orders are off to a good start up approximately [inaudible] a year on organic basis and our current backlog, strong portfolio of businesses, and continued progress on margin expansion position us well for 2012 as we remain committed to achieving 14x14 in IPG and 50 basis points of improvement in EPG on no volume growth driven by restructuring, productivity, and low cost sourcing.

In terms of 2012 guidance, we anticipate that the adjusted diluted earnings per share for the year will be approximately $6.00 to $6.20 up 9% to 13% over prior year. This excludes $0.15 of restructuring and other items. We estimate that our first quarter of 2012 adjusted earnings per share will be in the range of $1.30 to $1.40 up 13% to 22% over the first quarter of 2011 which excludes $0.10 of restructuring and other items.

In summary, our business has had a strong year as we set records for essentially all key financial metrics and made progress on our five point strategy support by the principles of the Gardner Denver way. We expect top and bottom line growth to continue at a more moderate pace in 2012 as certain end market dynamics remain favorable, especially in our higher margin energy business and late cycle businesses, and as we continue to execute on our profit improvement initiatives.

With the disciplined execution of our five point strategy, the diversity of our businesses, our higher margin aftermarket growth, the continued margin expansion through the implementation of the Gardner Denver way, and accretive M&A, complimented by a very dedicated group of nearly 6,700 employees worldwide we are in a great position to continue to deliver superior results in an uncertain macro environment.

With that, I’ll turn the call over to Michael for some more details on the financials.

Michael M. Larsen

As Barry said, we had a solid fourth quarter and an excellent 2011. Let me give you some additional detail in a couple of areas. We continue to make good progress on SG&A. For 2011 SG&A as a percentage of sales was 16.2% down more than 250 basis points from prior year as we maintained good cost controls and essentially flat headcount with strong top line growth.

For the year, SG&A was up 7% on revenues up 25%. In the fourth quarter the foreign exchange impact to earnings was negligible on a year-over-year basis and in line with our October guidance. Our guidance for 2012 assumes current exchange rates which creates about three percentage points of revenue headwind and $0.15 of earnings per share headwinds year-over-year. The year average $1.40 in 2011 and currently trades closer to $1.30 so for the first quarter of 2012 we expect to see about $0.05 of fx headwind compared to the fourth quarter of 2011.

Our effective tax rate was slightly better than our expectations at 27% for the fourth quarter and in line with guidance at 28% for the full year. For 2012 we estimate that our tax rate will be in the 29% range as we expect that our US earnings will continue to grow faster than our overseas earnings putting pressure on the rate.

We did not repurchase sales in the fourth quarter given the large buy back we completed in the third quarter and the closing of the Robuschi acquisition in December. We remain committed to buying back shares opportunistically and as of today, approximately 1.6 million shares remain under the authorization from our board of directors.

On the balance sheet, working capital defined as the net of inventory receivables payable to accrued liabilities was 14% of sales in the fourth quarter which was flat to the fourth quarter of last year. Working capital performance, especially inventory, is a top priority for 2012. As of year end we had approximately $155 million of cash on hand and total debt was $404 million, up $116 million from 2010 year end resulting in a net debt to capital ratio of 24% up from 20% at the end of 2010 which still gives us plenty of flexibility in terms of capital deployment.

Depreciation and amortization was $15 million for the quarter and $60 million for the full year. 2012 depreciation and amortization is expected to be approximately $66 million including Robuschi.

Operating cash flow was $88 million in the fourth quarter up 80% from the fourth quarter last year and for the year we generated $300 million cash flow up 48% from 2011 and 108% of net income. Free cash flow was 88% of net income as we invested $56 million in capital equipment and we’re planning for capital expenditures of $55 to $60 million in 2012 again, including Robuschi.

We had two adjustments to operating income in the fourth quarter related to the Robuschi acquisition. These items are also described in the press release on page nine. First, as a result of the timing of the Robuschi financing and a foreign exchange hedge we put in place, we realized a $3.4 million fx gain and secondly; the amortization of the fair market value adjustments to backlog and inventory coming out of purchase accounting led to an expense of $1.6 million in the fourth quarter.

Both of these items have been excluded in our fourth quarter adjusted EPS results. The expense associated with the Robuschi fair market value adjustments will be approximately $7 million or $0.10 in the first quarter of 2012 which is again, excluded from our adjusted earnings per share guidance of $1.30 to $1.40.

In summary, we had an excellent 2011 as we established new records for the key financial metrics and in 2012 will remain totally focused on delivering cash and earnings growth. With that, I’ll turn it back over to Barry.

Barry L. Pennypacker

Now before we take questions, I want to share with you a story about a great win that actually happened very recently here at Gardner Denver. Gardner Denver has been pursuing the Pep Boys account for several years. The company has extremely high expectations for its supply channel partners. Choices are made only after considerable evaluation and demonstrated performance.

Merton Porter, Gardner’s National Account Sales Manager convinced the property management team at Pep Boys to give us a shot. Our Gardner Denver managed care service group was given 40 to 50 stores as a test program for evaluation by property management. The test period was approximately three months.

The service phase in compressed air systems are mission critical for Pep Boys and there is no allowance for down time. In that period Gardner Denver’s performance was impressive to Pep Boys property management and we were advised in January that GDI would become the steward of an additional 500 stores. We are confident that Pep Boys made a wise choice in selection of Gardner Denver as a supply chain partner for compressed air systems and stand ready to serve its every need. I would like to thank Merton and the entire team for this gratifying win.

This concludes our prepared remarks and with that I’d like to turn it back to the operator to entertain some questions.

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