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 September 30, 2006

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

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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o      Non-accelerated filer 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: 52,506,354 shares of Common Stock, par value $0.01 per share, as of October 29, 2006.

 

 

GARDNER DENVER, INC.
Table of Contents

		Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Statements of Operations			3
Consolidated Balance Sheets			4
Consolidated Statements of Cash Flows			5
Notes to Consolidated Financial Statements			6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3 Quantitative and Qualitative Disclosures About Market Risk			42
Item 4 Controls and Procedures			43
PART II OTHER INFORMATION
Item 1 Legal Proceedings			44
Item 1A Risk Factors			44
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 6 Exhibits			45
SIGNATURES			46
EXHIBIT INDEX			47
Statement Re: Computation of Ratio of Earnings to Fixed Charges
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

GARDNER DENVER, INC.

(Dollars in thousands, except per share amounts)

(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Revenues		$	414,028			$	356,095			$	1,229,634			$	845,265
Costs and expenses:
Cost of sales (excluding depreciation and amortization)			271,549				240,535				800,438				569,449
Depreciation and amortization			13,000				11,335				39,527				25,816
Selling and administrative expenses			73,783				71,082				220,531				175,245
Interest expense			8,762				10,358				28,574				19,642
Other income, net			(1,015	)			(1,016	)			(2,155	)			(4,338	)
Total costs and expenses			366,079				332,294				1,086,915				785,814
Income before income taxes			47,949				23,801				142,719				59,451
Provision for income taxes			15,832				7,140				47,106				17,835
Net income		$	32,117			$	16,661			$	95,613			$	41,616
Basic earnings per share		$	0.61			$	0.32			$	1.83			$	0.90
Diluted earnings per share		$	0.60			$	0.32			$	1.79			$	0.88

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

GARDNER DENVER, INC.

(Dollars in thousands, except per share amounts)

		September 30,				December 31,
		2006				2005
		(unaudited)
Assets
Current assets:
Cash and equivalents		$	86,024			$	110,906
Accounts receivable (net of allowances of $10,333 at September 30, 2006 and $9,605 at December 31, 2005)			271,677				229,467
Inventories, net			228,555				207,326
Deferred income taxes			27,270				25,754
Other current assets			16,544				12,814
Total current assets			630,070				586,267
Property, plant and equipment, net			266,533				282,591
Goodwill			679,042				620,244
Other intangibles, net			197,511				203,516
Other assets			21,775				22,442
Total assets		$	1,794,931			$	1,715,060
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt		$	32,034			$	26,081
Accounts payable			102,733				103,028
Accrued liabilities			198,252				184,735
Total current liabilities			333,019				313,844
Long-term debt, less current maturities			459,197				542,641
Postretirement benefits other than pensions			31,863				31,387
Deferred income taxes			83,551				86,171
Other liabilities			89,648				82,728
Total liabilities			997,278				1,056,771
Stockholders’ equity:
Common stock, $0.01 par value; 100,000,000 shares authorized; 52,501,169 and 51,998,704 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively			562				278
Capital in excess of par value			487,131				472,825
Retained earnings			301,994				206,381
Accumulated other comprehensive income			39,608				8,124
Treasury stock at cost, 3,733,095 and 3,618,052 shares at September 30, 2006 and December 31, 2005, respectively			(31,642	)			(29,319	)
Total stockholders’ equity			797,653				658,289
Total liabilities and stockholders’ equity		$	1,794,931			$	1,715,060

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

GARDNER DENVER, INC.

(Dollars in thousands)

(Unaudited)

		Nine Months Ended
		September 30,
		2006				2005
Cash Flows From Operating Activities
Net income		$	95,613			$	41,616
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			39,527				25,816
Unrealized foreign currency transaction loss (gain), net			354				(108	)
Net loss on asset dispositions			51				146
Stock issued for employee benefit plans			2,767				2,496
Excess tax benefits from stock-based compensation			(2,925	)			—
Deferred income taxes			(4,787	)			(1,874	)
Changes in assets and liabilities:
Receivables			(32,639	)			(7,638	)
Inventories			(16,581	)			(4,316	)
Accounts payable and accrued liabilities			(2,212	)			(8,609	)
Other assets and liabilities, net			7,572				5,298
Net cash provided by operating activities			86,740				52,827
Cash Flows From Investing Activities
Net cash paid in business combinations			(20,057	)			(480,421	)
Capital expenditures			(26,277	)			(22,650	)
Disposals of property, plant and equipment			11,436				536
Other, net			—				(2,148	)
Net cash used in investing activities			(34,898	)			(504,683	)
Cash Flows From Financing Activities
Principal payments on short-term borrowings			(7,997	)			(23,380	)
Proceeds from short-term borrowings			8,293				16,663
Principal payments on long-term debt			(210,376	)			(467,328	)
Proceeds from long-term debt			120,922				786,150
Proceeds from issuance of common stock			—				199,318
Proceeds from stock options			4,593				5,498
Excess tax benefits from stock-based compensation			2,925				—
Purchase of treasury stock			(1,222	)			(2,810	)
Debt issuance costs			(540	)			(7,789	)
Other			(158	)			—
Net cash (used in) provided by financing activities			(83,560	)			506,322
Effect of exchange rate changes on cash and equivalents			6,836				(4,511	)
(Decrease) increase in cash and equivalents			(24,882	)			49,955
Cash and equivalents, beginning of year			110,906				64,601
Cash and equivalents, end of period		$	86,024			$	114,556

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

GARDNER DENVER, INC.

(Dollars in thousands, except per share amounts or amounts described in millions)

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

     The accompanying consolidated financial statements include the accounts of Gardner Denver, Inc. and those subsidiaries that are majority-owned or over which Gardner Denver, Inc. exercises control (referred to herein as “Gardner Denver” or the “Company”). In consolidation, all significant intercompany transactions and accounts have been eliminated. Current and prior year per share amounts in this report on Form 10-Q reflect the effect of a two-for-one stock split (in the form of a 100% stock dividend) that was completed on June 1, 2006 (see Note 3).

     The financial information presented as of any date other than December 31, 2005 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 (“generally accepted accounting principles”) 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 generally accepted accounting principles 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 consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Gardner Denver’s Annual Report on Form 10-K for the year ended December 31, 2005.

     The results of operations for the nine-month period ended September 30, 2006 are not necessarily indicative of the results to be expected for the full year. The balance sheet at December 31, 2005 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements.

     Other than as specifically indicated in the “Notes to 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, 2005.

     In the first quarter of 2006, the Company made certain organizational changes that resulted in a realignment of its reportable segments. The operations of the Company’s line of specialty bronze and high alloy pumps for the general industrial and marine markets (acquired in July 2005 as part of Thomas Industries Inc. (“Thomas”)) (see Note 2) and the operations of its line of self-sealing couplings (acquired in January 2004 as part of Syltone plc (“Syltone”)) were transferred from the Compressor and Vacuum Products segment to the Fluid Transfer Products segment. Accordingly, reportable segment information for these two operations has been included in the Fluid Transfer Products segment results. Results for the three and nine-month periods ended September 30, 2005 have been restated to reflect this realignment. In addition, operating results of the Todo Group (“Todo”), a manufacturer of self-sealing couplings that was acquired in January 2006 (see Note 2) have been included in the Fluid Transfer Products segment from the date of acquisition.

Changes in Accounting Principles and Effects of New Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). SFAS No. 123(R) supersedes Accounting Principals Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and amends SFAS No. 95, “Statement of Cash Flows.” The Company adopted the provisions of SFAS No. 123(R) effective January 1, 2006. Disclosures related to the Company’s stock-based compensation plans are included in Note 9.

     In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 in the first quarter of 2007. The cumulative effects, if any, of applying FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. Management has commenced the process of evaluating the expected effect of FIN 48 on the Company’s consolidated financial statements and related disclosure requirements.

     In June 2006, the Emerging Issues Task Force reached a consensus on the income statement presentation of various types of taxes. The new guidance, Emerging Issues Task Force Issue 06-3 “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)” (“EITF 06-3”) applies to any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, and some excise taxes. The presentation of taxes within the scope of this issue on either a gross (included in revenues and costs) or a net (excluded from revenues) basis is an accounting policy decision that should be disclosed pursuant to APB Opinion No. 22, “Disclosure of Accounting Policies.” The EITF’s decision on gross versus net presentation requires that any such taxes reported on a gross basis be disclosed on an aggregate basis in interim and annual financial statements, for each period for which an income statement is presented, if those amounts are significant. EITF 06-3 is effective for fiscal years beginning after December 15, 2006. Management has commenced the process of evaluating the expected effect of EITF 06-3 on the Company’s disclosure requirements.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. SFAS No. 157 applies whenever other statements require or permit assets or liabilities to be measured at fair value. This statement is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of SFAS No. 157 will have on the Company’s consolidated financial statements and related disclosure requirements.

     In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”), which requires companies to recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of defined benefit pension and other postretirement benefit plans. SFAS No.158 requires prospective application, and the recognition and disclosure requirements are effective for fiscal years ending after December 15, 2006. Additionally, this statement requires companies to measure plan assets and obligations at their year-end balance sheet date. This requirement is effective for fiscal years ending after December 15, 2008. Management has commenced the process of evaluating the expected effect of SFAS No. 158 on the Company’s consolidated financial statements and related disclosure requirements.

     In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”), which addresses the diversity in practice in quantifying financial statement misstatements and provides interpretive guidance regarding the consideration given to prior year misstatements when determining materiality in current year financial statements. SAB No. 108 is effective for fiscal years ending after November 15, 2006. Management is currently evaluating the impact the adoption of SAB No. 108 will have on the Company’s consolidated financial statements and related disclosure requirements.

Note 2. Business Combinations

     Service marks, trademarks and/or tradenames and related designs or logotypes owned by Gardner Denver, Inc. or its subsidiaries are shown in italics.

     The following table presents summary information with respect to acquisitions completed by Gardner Denver during 2005:

Date of Acquisition		Acquired Entity		Net Transaction Value
June 1, 2005		Bottarini S.p.A.		€8.0 million (approximately $10.0 million)
July 1, 2005		Thomas Industries Inc.		$483.5 million

     During the nine-month period ended September 30, 2006, the Company also made cash acquisition payments of approximately $4.0 million, primarily consisting of payments to former stockholders and transaction-related costs in connection with Thomas, and reflected in the above transaction value.

     On January 9, 2006, the Company completed the acquisition of the Todo Group (“Todo”) for a purchase price of 126.2 million Swedish kronor (approximately $16.1 million), net of debt and cash acquired. Todo, with assembly operations in Sweden and the United Kingdom, and a central European sales and distribution operation in the Netherlands, has an extensive offering of dry-break couplers. Todo-Matic self-sealing couplings are used by oil, chemical and gas companies to transfer their products. The Todo acquisition extends the Company’s product line of Emco Wheaton couplers, added as part of the Syltone plc (“Syltone”) acquisition in 2004.

     All acquisitions have been accounted for by the purchase method and, accordingly, their results are included in the Company’s consolidated financial statements from the respective dates of acquisition. Under the purchase method, the purchase price is allocated based on the fair value of assets received and liabilities assumed as of the acquisition date.

Acquisition of Thomas Industries Inc.

     Under the purchase method of accounting, the assets and liabilities of Thomas were recorded at their estimated respective fair values as of July 1, 2005. The initial allocation of the purchase price was subsequently adjusted when preliminary valuation estimates were finalized. The following table summarizes the nature and amount of such adjustments recorded in 2006:

Thomas Industries Inc.
Purchase Price Allocation and Adjustments
September 30, 2006

Total intangible assets recorded as of December 31, 2005		$	360,373
Purchase accounting adjustments recorded in 2006:
Fair value of current assets and liabilities, net			9,090
Fair value of property, plant and equipment, net			2,893
Termination benefits and other related liabilities			(2,872	)
Income taxes, net			4,865
Other, net			1,951
Total intangible assets recorded as of September 30, 2006		$	376,300
Goodwill		$	276,955
Identifiable intangible assets			99,345
Total		$	376,300

     Finalization of the fair value of the Thomas tangible and amortizable intangible assets resulted in a cumulative $5.5 million pre-tax charge to depreciation expense and a cumulative $3.2 million pre-tax credit to amortization expense in the second quarter of 2006.

     In connection with the acquisition of Thomas, the Company initiated plans to close and consolidate certain former Thomas facilities, primarily in the U.S. and Europe. These plans include various voluntary and involuntary employee termination and relocation programs affecting both salaried and hourly employees and exit costs associated with the sale, lease termination or sublease of certain manufacturing and administrative facilities. The terminations, relocations and facility exits are expected to be substantively completed during the next nine months. A liability of $17,500 was included in the allocation of the Thomas purchase price for the estimated cost of these actions at July 1, 2005 in accordance with EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” Based on finalization of these plans, an estimated total cost of $16,862 has been included in the allocation of the Thomas purchase price. The cost of these plans is comprised of the following:

Voluntary and involuntary employee termination and relocation		$	14,718
Lease termination and related costs			1,007
Other			1,137
Total		$	16,862

     The following table summarizes the activity in the associated accrual account. All additional amounts accrued, net, were recorded as adjustments to the cost of acquiring Thomas.

		Termination
		Benefits				Other				Total
Established at July 1, 2005		$	16,814			$	686			$	17,500
Amounts paid			(8,157	)			—				(8,157	)
Balance at December 31, 2005			8,657				686				9,343
Additional amounts accrued (reversed), net			(2,096	)			1,458				(638	)
Amounts paid			(3,096	)			(527	)			(3,623	)
Balance at September 30, 2006		$	3,465			$	1,617			$	5,082

Note 3. Stockholders’ Equity and Stock Split

     On May 2, 2006, the Company’s stockholders approved an increase in the number of authorized shares of common stock from 50 million to 100 million. This increase in shares allowed the Company to complete the previously announced two-for-one stock split (in the form of a 100% stock dividend). Stockholders of record at the close of business on May 11, 2006 received a stock dividend of one share of the Company’s common stock for each share owned. The stock dividend was paid after the close of business on June 1, 2006. All shares reserved for issuance pursuant to the Company’s stock option, retirement savings and stock purchase plans were automatically increased by the same proportion pursuant to the Company’s Long-Term Incentive Plan and retirement savings plan. In addition, shares subject to outstanding options or other rights to acquire the Company’s stock and the exercise price for such shares were adjusted proportionately. The Company transferred $0.3 million to common stock from additional paid-in capital, representing the aggregate par value of the shares issued under the stock split. Current and prior year share and per share amounts in this report on Form 10-Q reflect the effect of the two-for-one stock split (in the form of a 100% stock dividend) that was completed on June 1, 2006.

Note 4. Inventories

		September 30,				December 31,
		2006				2005
Raw materials, including parts and subassemblies		$	104,212			$	95,855
Work-in-process			39,653				37,230
Finished goods			95,493				80,494
			239,358				213,579
Excess of FIFO costs over LIFO costs			(10,803	)			(6,253	)
Inventories, net		$	228,555			$	207,326

Note 5. Goodwill and Other Intangible Assets

     The changes in the carrying amount of goodwill attributable to each business segment for the nine-month period ended September 30, 2006, and the year ended December 31, 2005, are presented in the table below. The adjustments to goodwill recorded in 2006 reflect the finalization of the purchase price allocations for the Thomas and Bottarini S.p.A. (“Bottarini”) acquisitions.

		Compressor &				Fluid
		Vacuum				Transfer
		Products				Products				Total
Balance as of December 31, 2004		$	336,075			$	38,084			$	374,159
Acquisitions			256,942				—				256,942
Adjustments to goodwill			4,332				—				4,332
Foreign currency translation			(13,908	)			(1,281	)			(15,189	)
Balance as of December 31, 2005			583,441				36,803				620,244
Acquisitions			—				12,409				12,409
Adjustments to goodwill			24,724				—				24,724
Foreign currency translation			20,093				1,572				21,665
Balance as of September 30, 2006		$	628,258			$	50,784			$	679,042

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

		September 30, 2006								December 31, 2005
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Amortized intangible assets:
Customer lists and relationships		$	63,290			$	(7,793	)		$	105,896			$	(7,389	)
Acquired technology			37,691				(18,652	)			30,802				(13,164	)
Other			11,758				(4,376	)			13,453				(3,558	)
Unamortized intangible assets:
Trademarks			115,593				—				77,476				—
Total other intangible assets		$	228,332			$	(30,821	)		$	227,627			$	(24,111	)

     Amortization of intangible assets for the three and nine-month periods ended September 30, 2006, was $2.6 million and $5.8 million, respectively. Finalization of the fair value of the Thomas amortizable intangible assets resulted in a cumulative $3.2 million pre-tax credit to amortization expense in the second quarter of 2006. Amortization of intangible assets for the three and nine-month periods

ended September 30, 2005, was $2.9 million and $6.6 million, respectively. Amortization of intangible assets is anticipated to be approximately $8.0 to $9.0 million annually in 2006 through 2010, based upon existing intangible assets with finite useful lives as of September 30, 2006.

Note 6. Accrued Product Warranty

     The following table summarizes the activity in the Company’s product warranty accrual for the three and nine-month periods ended September 30, 2006 and 2005, respectively:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Balance at beginning of period		$	17,048			$	10,861			$	15,254			$	10,671
Product warranty accruals			3,101				3,464				10,985				7,374
Settlements			(3,961	)			(3,235	)			(10,709	)			(6,700	)
Other (acquisitions and foreign currency translation)			747				5,872				1,405				5,617
Balance at end of period		$	16,935			$	16,962			$	16,935			$	16,962

Note 7. Pension and Other Postretirement Benefits

     The following table summarizes the components of net periodic benefit cost for the Company’s defined benefit pension plans and other postretirement benefit plans recognized for the three and nine–month periods ended September 30, 2006 and 2005, respectively:

		Three Months Ended September 30,
		Pension Benefits																Other
		U.S. Plans								Non-U.S. Plans								Postretirement Benefits
		2006				2005				2006				2005				2006				2005
Service cost		$	857			$	1,346			$	1,342			$	1,342			$	33			$	28
Interest cost			993				1,025				2,120				2,008				390				409
Expected return on plan assets			(1,087	)			(1,150	)			(2,367	)			(1,901	)			—				—
Amortization of prior-service cost			(18	)			(2	)			—				—				(27	)			11
Amortization of net loss (gain)			124				136				122				56				(56	)			(139	)
Net periodic benefit expense		$	869			$	1,355			$	1,217			$	1,505			$	340			$	309

		Nine Months Ended September 30,
		Pension Benefits																Other
		U.S. Plans								Non-U.S. Plans								Postretirement Benefits
		2006				2005				2006				2005				2006				2005
Service cost		$	2,571			$	2,552			$	4,026			$	3,815			$	99			$	28
Interest cost			2,979				2,801				6,360				5,948				1,170				1,169
Expected return on plan assets			(3,261	)			(3,100	)			(7,101	)			(5,935	)			—				—
Amortization of prior-service cost			(54	)			(52	)			—				—				(81	)			(39	)
Amortization of net loss (gain)			372				356				366				135				(168	)			(439	)
Net periodic benefit expense		$	2,607			$	2,557			$	3,651			$	3,963			$	1,020			$	719

     During the third quarter of 2006, the Company announced changes to certain of its defined pension benefit plans, effective November 1, 2006. See Note 16, “Subsequent Event.”

Note 8. Debt

     The Company’s debt is summarized as follows:

		September 30,				December 31,
		2006				2005
Short-term debt		$	201			$	1,860
Long-term debt:
Credit Line, due 2010 (1)		$	140,261			$	158,900
Term Loan, due 2010 (2)			194,000				255,000
Senior Subordinated Notes at 8%, due 2013			125,000				125,000
Secured Mortgages (3)			9,543				8,892
Variable Rate Industrial Revenue Bonds, due 2018 (4)			8,000				8,000
Capitalized leases and other long-term debt			14,226				11,070
Total long-term debt, including current maturities			491,030				566,862
Current maturities of long-term-debt			31,833				24,221
Total long-term debt, less current maturities		$	459,197			$	542,641

Note 9. Stock-Based Compensation Plans

     On January 1, 2006, Gardner Denver adopted SFAS No. 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. SFAS No. 123(R) supersedes the Company’s previous accounting under APB 25, for periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) to assist preparers with their implementation of SFAS No. 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

     The Company adopted SFAS No. 123(R) using the modified prospective transition method. Under this method, the Company’s consolidated financial statements as of and for the nine-month period ended September 30, 2006, reflect the impact of SFAS No. 123(R), while the consolidated financial statements for periods prior to January 1, 2006 have not been restated to reflect, and do not include, the impact of SFAS No. 123(R). Stock-based compensation expense recognized under SFAS No. 123(R) was $1.0 million and $4.6 million, respectively, for the third quarter and first nine months of 2006, which consisted of: (1) compensation expense for all unvested share-based awards outstanding as of December 31, 2005, based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS No. 123, and (2) compensation expense for share-based awards granted subsequent to adoption based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that are ultimately expected to vest. SFAS No. 123(R) amends SFAS No. 95 to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid, which is included within operating cash flows. The following table shows the impact of the adoption of SFAS No. 123(R) on the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows.

		Three Months Ended				Nine Months Ended
		September 30, 2006				September 30, 2006
Selling and administrative expenses		$	953			$	4,559
Total stock-based compensation expense included in operating expenses			953				4,559
Income before income taxes			(953	)			(4,559	)
Provision for income taxes			260				(1,311	)
Net income		$	(693	)		$	(3,248	)
Basic and diluted earnings per share		$	(0.01	)		$	(0.06	)
Net cash provided by operating activities		$	(643	)		$	(2,925	)
Net cash used in financing activities		$	643			$	2,925

Plan Descriptions

     Under the Company’s Long-Term Incentive Plan (the “Incentive Plan”), designated employees are eligible to receive awards in the form of stock options, stock appreciation rights, restricted stock awards or performance shares, as determined by the Management Development and Compensation Committee of the Board of Directors. The Company’s Incentive Plan is intended to assist the Company in recruiting and retaining employees and directors, and to associate the interests of eligible participants with those of the Company and its shareholders. An aggregate of 8,500,000 shares of common stock has been authorized for issuance under the Incentive Plan. Under the Incentive Plan, the grant price of an option is determined by the Management Development and Compensation Committee, but must not be less than the average of the high price and low price of the Company’s common stock on the date of grant. The Incentive Plan provides that the term of any option granted may not exceed ten years. Under the

terms of existing awards, one-third of employee options granted become vested and exercisable on each of the first three anniversaries of the date of grant (or upon retirement, death or cessation of service due to disability, if earlier). The options granted to employees in 2006, 2005 and 2004 expire seven years after the date of grant.

     Pursuant to the Incentive Plan, the Company also issues share-based awards to directors who are not employees of Gardner Denver or its affiliates. Since 2002, each nonemployee director has been granted options to purchase 9,000 shares of common stock on the day after the annual meeting of stockholders. These options are granted at the fair market value (the average of the high and low price) of the common stock on the date of grant, become exercisable on the first anniversary of the date of grant (or upon retirement, death or cessation of service due to disability, if earlier) and expire five years after the date of grant. The maximum allowable grant to a nonemployee director in any given year is an option to purchase 18,000 shares of common stock.

     The Company also has an employee stock purchase plan (the “Stock Purchase Plan”), a qualified plan under the requirements of Section 423 of the Internal Revenue Code, and has reserved 2,300,000 shares for issuance under this plan. The Stock Purchase Plan requires participants to have the purchase price of their options withheld from their pay over a one-year period. No options were offered to employees under the Stock Purchase Plan in 2006, 2005 or 2004.

Stock Option Awards

     The following summary presents information regarding outstanding stock options as of September 30, 2006 and changes during the nine-month period then ended (underlying shares in thousands):

						Outstanding								Weighted-
						Weighted-				Aggregate				Average
						Average				Intrinsic				Remaining
		Shares				Exercise Price				Value				Contractual Life
Outstanding at December 31, 2005			2,665			$	12.39
Granted			362			$	31.98
Exercised			(483	)		$	9.52
Forfeited or canceled			(25	)		$	24.45
Outstanding at September 30, 2006			2,519			$	15.63			$	44,300			4.5 years
Exercisable at September 30, 2006			1,729			$	11.60			$	37,122			4.0 years

     The weighted-average estimated grant-date fair values of employee and director stock options granted during the nine-month period ended September 30, 2006 was $10.31. No options were granted during the third quarter of 2006.

      The total pre-tax intrinsic value of options exercised during the third quarter of 2006 and 2005, was $1.8 million and $5.5 million, respectively. The total pre-tax intrinsic value of options exercised during the first nine months of 2006 and 2005, was $11.7 million and $8.8 million, respectively. Pre-tax unrecognized compensation expense for stock options, net of estimated forfeitures, was $3.3 million as of September 30, 2006, and will be recognized as expense over a weighted-average period of 1.5 years.

Restricted Stock Awards

     The following summary presents information regarding outstanding restricted stock awards as of September 30, 2006 and changes during the nine-month period then ended (underlying shares in thousands):

						Weighted-
		Shares				Average Price
Nonvested at December 31, 2005			36			$	8.85
Granted			50			$	30.58
Vested			(36	)		$	8.85
Forfeited			—			$	—
Nonvested at September 30, 2006			50			$	30.58

     The restricted stock awards granted during the first nine months of 2006 cliff vest three years after the date of grant. The restricted share award grants were valued at the average of the high and low price of the Company’s common stock on the date of grant. Pre-tax unrecognized compensation expense, net of estimated forfeitures, for nonvested restricted stock awards was $0.3 million as of September 30, 2006, which will be recognized as expense over a weighted-average period of 2.4 years. The total fair value of restricted stock awards that vested during the nine-month period ended September 30, 2006 was $1.1 million. No restricted stock awards vested during the nine-month period ended September 30, 2005.

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

     The fair value of each stock option grant under the Company’s Long-Term Incentive Plan was estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average assumptions for the periods indicated are noted in the table below. No stock options were granted during the three-month periods ended September 30, 2006 and 2005. Expected volatility is based on historical volatility of the Company’s common stock calculated over the expected term of the option. The expected term for the majority of the options granted in the first nine months of 2006 was calculated in accordance with SAB 107 using the simplified method for “plain-vanilla” options. The expected terms for options granted to certain executives and non-employee directors that have similar historical exercise behavior were determined separately for valuation purposes. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the date of grant.

		For the Three								For the Nine
		Months Ended								Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Assumptions:
Risk-free interest rate			N/A				N/A				4.7	%			3.9	%
Dividend yield			N/A				N/A				—				—
Volatility factor			N/A				N/A				27				33
Expected life (in years)			N/A				N/A				4.8				4.4

Pro Forma Net Earnings

     In accordance with the modified prospective transition method, the Company’s consolidated financial statements for prior periods have not been restated and do not include the impact of SFAS No. 123(R). Accordingly, no compensation expense related to stock option awards was recognized in the three and nine-month periods ending September 30, 2005, as all stock options granted had an exercise price equal to the fair market value of the underlying common stock on the date of grant. The following table provides pro forma net income and earnings per share as if the fair-value-based method of accounting had been applied to all outstanding and unvested stock option awards prior to the adoption of SFAS 123(R). For purposes of this pro forma disclosure, the estimated fair value of a stock option award is assumed to be expensed over the award’s vesting periods using the Black-Scholes model.

		Three Months Ended				Nine Months Ended
		September 30, 2005				September 30, 2005
Net income, as reported		$	16,661			$	41,616
Less: Total stock-based employee compensation expense determined under fair value method, net of related tax effects			(439	)			(1,218	)
Pro forma net income		$	16,222			$	40,398
Basic earnings per share, as reported		$	0.32			$	0.90
Basic earnings per share, pro forma		$	0.31			$	0.87
Diluted earnings per share, as reported		$	0.32			$	0.88
Diluted earnings per share, pro forma		$	0.31			$	0.85

     For stock option awards with accelerated vesting provisions that are granted to retirement-eligible employees and to employees that become eligible for retirement subsequent to the grant date, the Company previously followed the guidance of APB 25 and SFAS No. 123, which allowed compensation costs to be recognized ratably over the vesting period of the award. SFAS No. 123(R) requires compensation costs to be recognized over the requisite service period of the award instead of ratably over the vesting period stated in the grant. For awards granted prior to adoption, the Securities and Exchange Commission clarified that companies should continue to follow the vesting method they had previously been using. As a result, for awards granted prior to adoption, the Company will continue to recognize compensation costs ratably over the vesting period with accelerated recognition of the unvested portion upon actual retirement. The Company will follow the guidance of SFAS No. 123(R) for stock option awards granted subsequent to the adoption date. Therefore, the proforma information presented in the above table is not comparable to the amounts recognized by the Company over the same respective periods of 2006.

     The Company’s income taxes currently payable have been reduced by the tax benefits from employee stock option exercises and the vesting of restricted stock awards. These benefits totaled $0.6 million and $1.2 million for the three-month periods ended September 30, 2006 and 2005, respectively, and $2.9 million and $2.0 million for the nine-month periods of 2006 and 2005, respectively, and were recorded as an increase to additional paid-in capital.

Note 10. Earnings Per Share

     The following table details the calculation of basic and diluted earnings per share (shares in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Basic Earnings Per Share:
Net income		$	32,117			$	16,661			$	95,613			$	41,616
Shares:
Weighted average number of common shares outstanding			52,436				51,742				52,258				46,438
Basic earnings per common share		$	0.61			$	0.32			$	1.83			$	0.90
Diluted Earnings Per Share:
Net income		$	32,117			$	16,661			$	95,613			$	41,616
Shares:
Weighted average number of common shares outstanding			52,436				51,742				52,258				46,438
Assuming conversion of dilutive stock options issued and outstanding			1,112				1,000				1,147				1,082
Weighted average number of common shares outstanding, as adjusted			53,548				52,742				53,405				47,520
Diluted earnings per common share		$	0.60			$	0.32			$	1.79			$	0.88

     For the quarters ended September 30, 2006 and 2005, respectively, antidilutive options to purchase 208 thousand and 580 thousand weighted-average shares of common stock were outstanding. For the nine months ended September 30, 2006 and 2005, respectively, antidilutive options to purchase 196 thousand and 460 thousand weighted-average shares of common stock were outstanding. Antidilutive options outstanding were not included in the computation of diluted earnings per share.

Note 11. Comprehensive Income

     For the three-month periods ended September 30, 2006 and 2005, comprehensive income was $37.7 million and $18.1 million, respectively. For the nine-month periods ended September 30, 2006 and 2005, comprehensive income was $127.1 million and $28.0 million, respectively. Items impacting the Company’s comprehensive income, but not included in net income, consist of foreign currency translation adjustments, including realized and unrealized gains and losses (net of income taxes) on foreign currency hedges of the Company’s investment in foreign subsidiaries, fair market value adjustments of interest rate swaps and additional minimum pension liability (net of income taxes).

Note 12. Supplemental Cash Flow Information

     In the nine-month periods of 2006 and 2005, the Company paid $51.3 million and $11.7 million, respectively, to various taxing authorities for income taxes. Interest paid for the nine- month periods of 2006 and 2005, was $24.9 million and $14.1 million, respectively.

Note 13. 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 an increasing number of asbestos personal injury lawsuits. The Company has also been named as a defendant in an increasing number of silicosis 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, the vast majority of the plaintiffs are not impaired with a disease for which the Company bears any 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 used in the Products were enclosed within the subject Products.

     The Company has entered into a series of cost-sharing agreements with multiple insurance companies to secure coverage for asbestos and silicosis lawsuits. The Company also believes some of the potential liabilities regarding these lawsuits are covered by indemnity agreements with other parties. The Company’s uninsured settlement payments for past asbestos and silicosis lawsuits have been immaterial.

     The Company believes that the pending and future asbestos and silicosis lawsuits will not, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: the Company’s anticipated insurance and indemnification rights to address the risks of such matters; the limited potential asbestos exposure from the components described above; the Company’s experience that the vast majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica from or relating to the Products or for which the Company otherwise bears responsibility; various potential defenses available to the Company with respect to such matters; and the Company’s prior disposition of comparable matters. However, due to inherent uncertainties of litigation and because future developments, including, without limitation, potential insolvencies of insurance companies, could cause a different outcome, there can be no assurance that the resolution of pending or future lawsuits, whether by judgment, settlement or dismissal, will not have a material adverse effect on its consolidated financial position, results of operations or liquidity.

     The Company has also been identified as a potentially responsible party with respect to several sites designated for environmental cleanup under various state and federal laws. The Company does not believe that the future potential costs related to these sites will have a material adverse effect on its consolidated financial position, results of operations or liquidity.

Note 14. Segment Results

     The Company’s organizational structure is based on the products and services it offers and consists of five operating divisions: Compressor, Blower, Liquid Ring Pump, Fluid Transfer and Thomas Products. These divisions comprise two reportable segments: Compressor and Vacuum Products and Fluid Transfer Products. The Compressor, Blower, Liquid Ring Pump and Thomas Products divisions are aggregated into the Compressor and Vacuum Products segment because the long-term financial performance of these businesses are affected by similar economic conditions and their products, manufacturing processes and other business characteristics are similar in nature.

     In the first quarter of 2006, the Company made certain organizational changes that resulted in a realignment of its reportable segments. The operations of the Company’s line of specialty bronze and high alloy pumps for the general industrial and marine markets (acquired in July 2005 as part of Thomas) and the operations of its line of self-sealing couplings (acquired in January 2004 as part of Syltone) were transferred from the Compressor and Vacuum Products segment to the Fluid Transfer Products segment. Accordingly, the results of these two operations have been included in the Fluid Transfer Products segment results. Results for the three and nine-month periods ended September 30, 2005 have been restated to reflect this realignment. In addition, operating results of Todo, a manufacturer of self-sealing couplings that was acquired in January 2006 (see Note 2) have been included in the Fluid Transfer Products segment from the date of acquisition.

     The following table provides financial information by business segment for the three and nine-month periods ended September 30, 2006 and 2005:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Compressor and Vacuum Products
Revenues		$	326,094			$	295,185			$	969,929			$	681,683
Operating earnings			33,332				22,944				102,891				51,617
Operating earnings as a percentage of revenues			10.2	%			7.8	%			10.6	%			7.6	%
Fluid Transfer Products
Revenues		$	87,934			$	60,910			$	259,705			$	163,582
Operating earnings			22,364				10,199				66,247				23,138
Operating earnings as a percentage of revenues			25.4	%			16.7	%			25.5	%			14.1	%
Reconciliation of Segment Results to Consolidated Results
Total segment operating earnings		$	55,696			$	33,143			$	169,138			$	74,755
Interest expense			8,762				10,358				28,574				19,642
Other income, net			(1,015	)			(1,016	)			(2,155	)			(4,338	)
Consolidated income before income taxes		$	47,949			$	23,801			$	142,719			$	59,451

     The following table provides financial information by business segment for the years ended December 31, 2005, 2004 and 2003 reflecting the organizational change described above. Segment disclosures in 2003, which are included in the table for comparative purposes, were not affected by the reorganization because the relevant operations were acquired by the Company in 2004 and 2005:

		Year Ended December 31,
		2005				2004				2003
Compressor and Vacuum Products
Revenues		$	982,476			$	572,181			$	369,023
Operating earnings			83,093				42,398				27,792
Operating earnings as a percentage of revenues			8.5	%			7.4	%			7.5	%
Fluid Transfer Products
Revenues		$	232,076			$	167,358			$	70,507
Operating earnings			37,542				19,352				4,093
Operating earnings as a percentage of revenues			16.2	%			11.6	%			5.8	%
Reconciliation of Segment Results to Consolidated Results
Total segment operating earnings		$	120,635			$	61,750			$	31,885
Interest expense			30,433				10,102				4,748
Other income, net			(5,442	)			(638	)			(3,221	)
Consolidated income before income taxes		$	95,644			$	52,286			$	30,358
LIFO Liquidation Income
Compressor and Vacuum Products		$	—			$	132			$	316
Fluid Transfer Products			—				—				50
Total		$	—			$	132			$	366
Depreciation and Amortization Expense
Compressor and Vacuum Products		$	33,705			$	17,414			$	11,739
Fluid Transfer Products			4,617				4,487				2,827
Total		$	38,322			$	21,901			$	14,566
Capital Expenditures
Compressor and Vacuum Products		$	30,588			$	15,221			$	8,864
Fluid Transfer Products			4,930				4,329				3,086
Total		$	35,518			$	19,550			$	11,950
Identifiable Assets as of December 31
Compressor and Vacuum Products		$	1,422,119			$	811,290			$	375,376
Fluid Transfer Products			156,281				143,253				72,528
General corporate (unallocated)			136,660				74,066				141,829
Total assets		$	1,715,060			$	1,028,609			$	589,733

     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 presented 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.

The consolidating balance sheet at December 31, 2005 has been revised from what had been previously reported. The amount of the adjustments was not material to the consolidated financial statements and did not affect the Consolidated Statements of Operations, Consolidated Balance Sheets and Consolidated Statements of Cash Flows. These adjustments were made to properly reflect the amount of a certain intercompany investment of the Guarantor Subsidiaries and the reclassification of certain intercompany investments from long-term inter-company (receivable) payable to investments in affiliates and capital in excess of par value. This classification is consistent with the consolidating balance sheet presentation at September 30, 2006. The tables below present the balance sheet items affected by the changes as revised and as previously reported, and a reconciliation of the changes.

Selected Consolidating Balance Sheet Line Items
December 31, 2005
AS REVISED

		Parent				Guarantor				Non- Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Investments in affiliates		$	838,050			$	215,061			$	32			$	(1,053,111	)		$	32
Other assets			21,287				(5,973	)			5,503				1,593				22,410
Total assets			1,083,204				589,617				1,099,051				(1,056,812	)			1,715,060
Liabilities and Stockholders’ Equity
Long-term inter-company (receivable) payable			(40,242	)			(136,952	)			191,276				(14,082	)			—
Total liabilities			537,447				(48,738	)			578,471				(10,409	)			1,056,771
Stockholders’ equity:
Capital in excess of par value			472,334				609,499				443,971				(1,052,979	)			472,825
Total stockholders’ equity			545,757				638,355				520,580				(1,046,403	)			658,289
Total liabilities and stockholders’ equity		$	1,083,204			$	589,617			$	1,099,051			$	(1,056,812	)		$	1,715,060

Selected Consolidating Balance Sheet Line Items
December 31, 2005
AS PREVIOUSLY REPORTED

		Parent				Guarantor				Non- Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Investments in affiliates		$	671,182			$	40,645			$	32			$	(711,791	)		$	68
Other assets			21,287				(5,973	)			5,503				1,557				22,374
Total assets			916,336				415,201				1,099,051				(715,528	)			1,715,060
Liabilities and Stockholders’ Equity
Long-term inter-company (receivable) payable			(207,110	)			(98,395	)			319,587				(14,082	)			—
Total liabilities			370,579				(10,181	)			706,782				(10,409	)			1,056,771
Stockholders’ equity:
Capital in excess of par value			472,334				396,526				315,660				(711,695	)			472,825
Total stockholders’ equity			545,757				425,382				392,269				(705,119	)			658,289
Total liabilities and stockholders’ equity		$	916,336			$	415,201			$	1,099,051			$	(715,528	)		$	1,715,060

RECONCILIATION OF THE CHANGES

										Long-term
		Investment								inter-company				Capital in excess
		In Affiliates				Other Assets				(receivable) payable				of par value
Parent Company
December 31, 2005 balance as previously reported		$	671,182			$	21,287			$	(207,110	)		$	472,334
Reclassification of Investment in Guarantor Subsidiaries from Long-term inter-company (receivable) payable			212,973				—				212,973				—
Reclassification of Investment in Non-guarantor Subsidiaries from Long-term inter-company (receivable) payable			(46,105	)			—				(46,105	)			—
December 31, 2005 balance as revised		$	838,050			$	21,287			$	(40,242	)		$	472,334

										Long-term
		Investment								inter-company				Capital in excess
		In Affiliates				Other Assets				(receivable) payable				of par value
Guarantor Subsidiaries
December 31, 2005 balance as previously reported		$	40,645			$	(5,973	)		$	(98,395	)		$	396,526
Reclassification of Investment in Non-guarantor Subsidiaries from Long-term inter-company (receivable) payable			174,416				—				174,416				—
Reclassification of Capital in excess of par from Long-term inter-company (receivable) payable			—				—				(212,973	)			212,973
December 31, 2005 balance as revised		$	215,061			$	(5,973	)		$	(136,952	)		$	609,499

										Long-term
		Investment								inter-company				Capital in excess
		In Affiliates				Other Assets				(receivable) payable				of par value
Non-Guarantor Subsidiaries
December 31, 2005 balance as previously reported		$	32			$	5,503			$	319,587			$	315,660
Reclassification of Capital in excess of par from Long-term inter-company (receivable) payable			—				—				(128,311	)			128,311
December 31, 2005 balance as revised		$	32			$	5,503			$	191,276			$	443,971

										Long-term
		Investment								inter-company				Capital in excess
		In Affiliates				Other Assets				(receivable) payable				of par value
Eliminations
December 31, 2005 balance as previously reported		$	(711,791	)		$	1,557			$	(14,082	)		$	(711,695	)
Reclassification of Investment in Guarantor Subsidiaries from Long-term inter-company (receivable) payable			(212,973	)			—				(212,973	)			—
Reclassification of Investment in Non-guarantor Subsidiaries from Long-term inter-company (receivable) payable			(128,311	)			—				(128,311	)			—
Reclassification of Capital in excess of par from Long-term inter-company (receivable) payable			—				—				341,284				(341,284	)
Other			(36	)			36				—				—
December 31, 2005 balance as revised		$	(1,053,111	)		$	1,593			$	(14,082	)		$	(1,052,979	)

Consolidating Statement of Operations
Three Months Ended September 30, 2006

		Parent				Guarantor				Non-Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Revenues		$	107,604			$	107,625			$	250,853			$	(52,054	)		$	414,028
Costs and expenses:
Cost of sales (excluding depreciation and amortization)			71,078				75,693				177,406				(52,628	)			271,549
Depreciation and amortization			2,651				3,053				7,296				—				13,000
Selling and administrative expenses			19,516				13,367				40,900				—				73,783
Interest expense			8,800				(2,457	)			2,419				—				8,762
Other (income) expense, net			(1,036	)			(2,064	)			2,149				(64	)			(1,015	)
Total costs and expenses			101,009				87,592				230,170				(52,692	)			366,079
Income before income taxes			6,595				20,033				20,683				638				47,949
Provision for income taxes			2,506				7,587				5,739				—				15,832
Net income		$	4,089			$	12,446			$	14,944			$	638			$	32,117