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Gardner Denver Inc (NYSE:GDI)

Gardner Denver Investor Day Conference Call

November 8, 2011 12:30 PM ET

Executives

Michael Larsen – VP and CFO

Barry Pennypacker – President and CEO

Chris Celtruda – VP, Gardner Denver and President Industrial Products Group

Duane Morgan – VP, Gardner Denver and President Engineered Products Group

Michael Larsen

I’m Michael Larsen the CFO of the company and with me today from the management team is Barry Pennypacker, our President and CEO, Chris Celtruda President of the Industrial Products Group and Duane Morgan runs our Engineered Products Group and then Vik Kini, FP&A and Investor Relations. So thank you very much for coming today.

Before we get started I have to take you through the Safe Harbor statement here, so please bear with me. Just a reminder that all of the statements made by Gardner Denver during this meeting 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 the general matter forward-looking statements are those focused upon anticipated events or trends and assumptions expectation 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 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.

Factors that could cause or contribute to such differences are set forth in our SEC filings including but not limited to our annual report on the Form 10-K for the fiscal year ending December 31, 2010 and our quarterly reports on Form 10-Q. Gardner Denver does not undertake or plan to update these forward-looking statements even though the company situation may change.

Therefore you should not rely on these forward-looking statements are represented the company’s or its management views as of any date subsequent to today. As a reminder this meeting is being broadcast and (Inaudible) to a live webcast. This free webcast will be available for replay through the investor relations page on the Gardner Denver website at gardnerdenver.com.

So with that we will start shortly here with an update on the company and our strategies by Barry Pennypacker and then I will give an update on the financials of the company for 2011 and going forward. We will then go through the Industrial Products Group with Chris Celtruda at around 2:30 followed by a break and then Duane Morgan on EPG at around 3:30 goes to wrap it up with closing remarks and Q&A somewhere around 4:30. I would like to ask you to hold your questions until the general Q&A section.

So now before I turn it over to Barry I would like to start with a video that we think illustrates the new Gardner Denver. Alright with that I will turn it over to Barry.

(Video Playing)

Barry Pennypacker

Thanks. That video really does give me Goosebumps because it truly is the indicative of the new Gardner Denver and some of the things that we are trying to do as a company. Try get into my presentation I just have a few things to bring you up to speed with one was recently I had a party at my house had the entire executive team there my wife bought this property and I told a couple of you that once there is a beautiful pump house that we found on there that we have it restored and it’s a great piece of property. But I was taking these guys around and got to the back of the property where I have a pool and that pool is still with alligators and I once in a while go out there and swim in that pool because I believe that in order to be in this position you got to have courage so I told these guys that in order for them to be executives at Gardner Denver they have to exhibit courage like I do and if in fact any of them were willing to jump into that pool swim the length of it and go out the other side they can have anything I have, they could have my house, they could have my kids not my wife I keep her but everything else they have.

So there were no takers of that but we started walking away and heading out towards the pump house and I heard a splash turn around and look there is Larsen in the pool swimming with three alligators. And actually he made it he got to the land but just bit off one of his shoes and he turn around and look so what the heck is going on and I walked up and I said Michael you know you really have made the transition to Gardner Denver you are a very courageous man and I told you that you know any of you who are able to swim the length of that pool and make it through without the alligator eating you, you can have anything what I have and anything that he wants. And so I’m going to grant you that and Larsen looked down he said just tell me who on the hell threw me in the pool.

The second thing I want to tell you is that we have this Internet here at Gardner Denver that we every morning when we start up our computer we get a different new story of some of the things that has happened throughout the company Jeff welcome. Some of the things that have happened throughout the company and today’s story I want to, it’s an interesting one its fun. We have a plant in Sedalia, very big plant where we manufacture (Inaudible) and the pressure packages for marine on particular. And the head of HR there is (Inaudible) found out that there is a national competition for rock bands of most companies and a good one so these guys formed this rock band, went to the competition and none of them never been on stage but for the one drummer.

They got on stage and they crashed through the competition and they made it to the finals and that’s through Nokia who are fulltime musicians ended up beating our guys out. But it’s just one of those things that we encourage and you see through our posters that we communicate these wonderful ideas and stories everyday and most of the time they are about the Gardner Denver way and interesting things that our employees have done. But sometimes they are just some great human interest story and that was one of them.

Alright, now back to business. So what is it, what is it we are about. Now in the shares we are going to be about 2.4 global as you know very first show in a few minutes very attractive end markets in some cases particularly as we standard today the gas business. We have leading brands and technologies in the areas that we currently serve and very good distribution channels particularly in the Industrial Products Group where we are continuing to proliferate our strategy as continuing to grow share. We are operationally focused I mean this is a company where I think if you are not operationally oriented whether you are the GC the CIO or my assistant you are probably not going to survive. This is a company that’s really driven on operating the business and not operating spreadsheets and I know that necessary evil and we do that a lot. However, I would much rather be down the business with the operating guys operating the business and not worrying about spreadsheets.

We continue to grow profitably in the aftermarket and Duane’s business in particular that (Inaudible) you see sitting there in front of you is really driving substantial amount of growth for us and will continue to drive us through the next four or five years with exceptional growth opportunities in the aftermarket, as a result of the strong prices that we are seeing in the shale plays around the world. We have a strong track record on analyzing and integrating acquisitions we will continue to be a acquisitive company you will see some of the acquisitions we’ve done in the past and we’ve announced the Robuschi one which I’m not going to talk to you much about because I asked Chris to you can’t certainly be all the time and I would rather have the operating guys talk to you a little bit about their businesses. The Robuschi acquisition is a great one for us, it’s going to be a big neighbor for us to do some things that we need to do in Europe and in more expeditious way.

And we are focused on cash and earnings growth I mean it’s, it drives every single metric we have here and it is at either provides earnings growth or a superior cash flow. These two guys you see sitting over here to my right are compensated on those two metrics and I think you will find that as we go forward, that is at the best we continue to evolve the company into one that’s operationally excellent that those numbers will continue to grow as we do. And I think the takeaway here is we are in this, we are in the early phase of this transformation, I mean we have a lot of, we have a lot of businesses that are not performing where they should be and we know that we recognize that we are transforming this business into one of high quality, high margin industrial company. With an extensional and continuing exposure to energy and with energy the way it’s going to play out over the course of the next five to seven years it’s the business that we want to continue to invest in. But the takeaway is that we are still in the early stages, we’ve got a long way to go, we have a lot of opportunity in front of us and that’s a good thing for all of us.

Global leader in vacuum and fluid transport technology so you see the types of industries that we serve energy of course that’s a great picture and we love it, continue to grow in our medical business, mining particularly in places like Brazil and Australia where we have strong presence through our Nash business continue to drive growth for us. Transportation there has been a number of you with actually how many more possible ways to get Gardner Denver to be exposed to tracking and within the transportation business we are seeing substantial growth in our blower operations it is because of the strong need for continued vastly increased and moving sand and profits and those types of things for the tracking operations around the U.S. Food and beverage Chris will talk a little bit about that in his presentation but it is a nice business where we feel, we believe that we are world leader in air for blowing bottles and hopefully as we continue to evolve the strategy with the augment of the Robuschi acquisition we continue to grow our presence in food.

You can see here that about 1.1 in engineering and 1.2 in industrial products. Lot of brands that we focused on and we continue to proliferate around the world it means we are very focused on taking these brands and pushing it against multiple channels and that’s on the right hand side of the chart is particularly important to us as we continue to take the CompAir products through GD channels then GD products through CompAir channels we are seeing substantial opportunities for internal growth.

Very diversified, as you can see we see a lot of different end markets, we touch them all globally in many different countries so we are able to see very early on where things are trending and I will talk a little bit about those trends for a few minutes. But as you can see our exposure outside of North America continues to be in excess of 60% and we are very pleased with that we want to see that Asia 16% continue to grow and I think as you will hear the operating guys talk today between Duane and Chris we’ve got I think a pretty good solid strategy and how we are going to take that 16% in excess of 25% going forward will continue to grow.

Well we are very we see a lot of different end markets across many different global economies and it gives us an opportunity to see where things are heading in a pretty quick way. This chart you’ve seen before it’s, it represents that we think that we are pretty much positioned in our product portfolio as a third to third to third between early cycle, mid cycle and late cycle. I could ask all the time for rattling this cycle and we are somewhere at leaving the second third into the third and final portion of this.

The Nash business in particular is late cycled and that is showing some (Inaudible) of some of the larger infrastructure projects that we participate in where clouting activity has done there in six months in advance of the shipment are starting to show us some promise. Some of the earlier cycle of business particularly in the Thomas area where we stroll back in 2008 the business turning off like light switch, which was an indication that you know things to come. That business continues to be strong globally, we saw it we get first in the U.S. and that business continues to just move right along without any near term signings of a light switch like we have back in ’08.

Little bit about the end markets. For us and I take a lot of industrial companies if you are not putting green up there I think you are in the U.S. but I think you have a little bit of an issue. We are seeing strong growth in the (Inaudible) product lines and it continues to be dependent upon the tax free utilization is a solid driver towards that. Europe continues to be stable for us and yeah well we are relying on IT, I guess you can’t be that so it might be until tomorrow as time waits for us. Europe continues to be quite for us I mean we have a strong presence in Germany but in Germany in particular we are very stable and continuing to grow. There is some caution in some of the markets that we serve the Euro zone uncertainty exists but we are not panicked about it but we are prepared should there be an issue to in fact the contingency plans we put in place in order to ensure that we are able to continue to grow through the cycle.

Oil and gas is green that is the matter for talking about Poland, talking about China, talking about the U.S., talking about Brazil, talking about Russia anywhere in the world that we are serious natural gas and oil and liquids that our business is extremely strong and will continue to be strong throughout the next four to five years. China, I talked with China in particular we are seeing some softening in China I mean it’s not a big portion of our revenues it’s not a big portion of our earnings but to the markets that we serve particularly in the Industrial Products Group, where we are putting in infrastructure with regards to compressed air we are seeing some slowing in China.

It’s not as I said the magnitude of the magnitude that will adversely affect us from an earnings perspective but it’s just interesting to note that there is some softening in China. But APAC for us is extremely strong in areas where we made investments in the going to downturn places like Indonesia, Vietnam where we’ve Korea where we put infrastructure at place, where we invested through the cycle we are starting to see that pay off.

Chris will talk a little bit about the custom mixture packaging business that we’ve formed in (Inaudible) with the increase in the offshore market how that’s paying off for us and you will see that mining’s business the investments that we made in our Boshan facility in China in Wuxi now that’s paying off for us as we continue to engineer products and manufacture products in the areas of the world, for those areas of the world. I mentioned a little bit during our last earnings call about the dragging, which Chris will give you a little more detail on but trying to take products that are produced in places like the U.S. and Germany and engineers are also putting those things to markets where there is emerging growth is extremely difficult.

And OEM applications for all of our where we have OEM application they are stable continue to see growth around GDP and maybe a little bit in excess. So generally for us end markets are favorable they continue to be for us and we don’t see any change in the uncertainty that exist in Europe and how it’s going to affect our business long term. So generally I would say we are pretty happy and extremely optimistic about our earnings potential growth.

So let’s back up the five point strategies. This doesn’t change it gets a little boring I think for some of you but it is what it is. We have five point strategy its organic growth, aftermarket, innovation, selective acquisitions and margin expansion. There is nothing else to our strategy we don’t have any secrets to us, we don’t have a book somewhere hidden back of my (Inaudible) or in our offices around the globe indicate anything more than these five points. And I would like to talk a little bit about each one of them.

Organic growth for us continues to be double digit. The energy business is really helping that as well as our investments that I mentioned earlier to the emerging markets. Particularly in places like Brazil, China and India. Our India strategy now, I can no longer tell you that I know all of our three employees by name because now we are up in excess about 30 so and continuing to grow so our India strategy is evolving. I’m getting questions from a number of you at points in times about this (Inaudible) is it too late for us in India and the answer to that is no we are bringing products and services to that market that are necessary for them to continue to evolve and become the economic super power that India believes they can be.

Aftermarket greater than 30% so our revenue today you can see back in time where it was about 15%. Conscious strategy for us is continue to be at the fore front of everything we do. The growth in Well Servicing certainly has helped that strategy but it hasn’t been by accident you will see from Duane’s presentation the substantial investments that we are making in capacity and how we continue to do that in order to achieve our longer term target of 40% to 45% of our revenue. And I do believe that I said when I came on board that it’s going to take 10 years we are three and a half years into that now and I believe that there is a chance that we will get there before the 10 years. But it’s not by accident it’s by investment.

Third point which leads me into innovation is extremely important in order for aftermarket in the future. So until we get the third point where we are reinventing the company every 10 years with regards to our revenue stream which is our long-term objectives we are no longer, we are not there yet but we do believe that every year we’d like to have 10% of our revenue for the products and when we get to that point then we will be able to say that our aftermarket growth will get to the 40%, 45% because we will put them into sale after we continue to evolve and build our new product strategy.

Selective acquisitions I mean we are on track with the integration plans we’ve put together for Robuschi, I’m very excited about that acquisition it’s in Italy and I know there is a lot of unrest about Italy right now that our information about Robuschi and where we think it’s going to be continue to show substantial growth. Great portion of the revenue that Robuschi will bring to us is outside of Italy and with some proprietary products that will certainly enable us to use that selective acquisition to drive organic growth across some of the other channels that we’ve already have established globally.

We do, do complete, sometimes we do our margin expansion strategy you know that’s the company, that’s the fabric that’s what drives everything that we need to do internally. You will see the graph and the chart that indicate the progress that we made on that we are going to continue to do so being driven by restructuring and productivity that we know lot of the improvements that we are having this year and will drive into next year that accompanies for our productivity I suppose to restructuring.

I’m not going to say restructuring is done because restructuring (Inaudible) never be done we should always be getting productivity which have given us the opportunity to consolidate facilities. And I think that we are going to continue to see more of that through involvement strategy over the next couple of years. But I will tell you that I think that these five points are engrained in our strategy they are certain and they are making good progress toward implement these five in all of our businesses and being supported very strongly by the principles of the Gardner Denver way.

You can see our organic growth over the course of the last three years and backlog growing the keys are you know we have leading brands and technologies. We invested in some of those brands and technologies to the bottom of the cycle and continue to invest in them today. Very diverse end markets with strong and distribution channels our distribution network in the U.S. are put up against any distribution network that it enters we are the one globally. We are growing our emerging market presence I think both presentations will be evidence to that.

We are looking at some of the markets that we are investing in are higher growth, which we haven’t done in the past I mean this is not an accident that we are enjoying some of the growth that we have in energy today. It was something that we recognized through our strategic planning process three years and have invested a substantial portion of our capital taking advantage of the high end growth market. And after market is going to continue to be an area that we are focused on and one that we will drive very profitable growth and will continue to evolve the strategies.

Expanding our presence on emerging markets you can see that we are going to continue to do that we believe that ’12 is going to be a good year for us in some of these markets we are not expecting substantial growth in a lot of these of course the areas where you see things like India, where we are going to continue to invest and take advantage of that growing economy. A couple of key points is that we are not expecting when we are in the process of putting together 2012, we are not expecting the industrialized in countries to continue to have the type of growth we had this year. But we do believe that the emerging economies will continue to outperform the industrial countries. And that we have great opportunities for growing our earnings when we continue to go forward.

We continue to take advantage of the large aftermarket opportunity we continue to, we are growing our install base. One of the ways that I think it’s important for us to continue to grow the aftermarket is to have the install base grow and we are growing that we are doing it profitably we are now buying our way into certain markets. You will see some of the technology that we have available to us today through remote monitoring which gives us an (Inaudible) on some of the customers.

We actually see a testimonial from one of our customers on the half of the revolutionist and how these remote monitoring activities that we are implementing enabled us to truly get this order. Extended marketing and service agreement we will talk a little bit about this we are doing some neat things globally and how we first value engineer our products internally to get in a more reliable and as we do so be able to go to the market and extend the warranties and service agreements and put them into sales. And of course as always strong focus in our innovation effort to design proprietary features where others cannot participate that’s a strong mistake that we have to do to grow the aftermarket as we design our proprietary features into our products and continue to evolve the company into one of innovation, as an innovation leader I suppose to a copy cat.

I think that will lead us to higher margin and excellent specially growth. Innovation, Hoffman Revolution the PZ-2400 and the Quantima Compressor you will see more details from into the guide on those particular products. But I think you will find that our long-term after we are saying publically now is to reinvent the company every 10 years with new product introduction and I think we’ve got a good start in that but we are not there yet we still have a long way to go. But as the fabric of the company is changing the people who are running the company are changing to ones that took us this way and I think you will find that as we go forward next year, the year after and the year after that we will have more than one page on innovated products that we are introducing to the market.

24 acquisitions over 15 years all that we can see the best of our ability have been accretive (Inaudible) we continue to evaluate acquisitions on that particular criteria. Robuschi will be accretive in year one told you that and I think it’s going to be a fantastic opportunity for us going forward. And you know it just goes to show that we do have a growth competency you saw in the previous slides we did due diligence on five other deals but recently that we didn’t conclude. Because we don’t see our way to continue to making it accretive in year one and possibly affecting our return on investment capital it’s not an acquisition that we are interested in doing and I think we will continue to have that strong track record going forward.

IPG margin expansion we spend a lot of time from talking about the energy markets and as we should because they are growing much faster than the industrial markets. But this margin expansion activity that we’ve undertaken here at the Industrial Products Group and the progression that we are making towards that 14 X 14 is something that needs to be celebrated and talked about. We are doing, we did the restructuring and I don’t know that there is too many CEOs that could stand up for today and say that we are going to have the same revenue as we did in 2008 with 2400 less people. I don’t think just too many CEOs could say that but that’s all a testimony of the Gardner Denver way and how we are running the business today.

The productivity improvements that we are making through implementation of the principle of Lean continue to drive improvements of the capital investments that we are making in the business continue to drive improvements and productivity. The people investments that we are making in the business continue to drive productivity improvement. And number three and I’ve been talking about this for a long time now low cost sourcing we are still just getting started, we are still just getting started with our low cost sourcing and I said in the last call that we brought in some folks that likes to work with that, know how to do this and I think the early results are that next year, year after that we will be talking about how that third that we need from low cost sourcing is truly going to be driving margin expansion opportunities within IPG and EPG for that matter. EPG is a little bit more lumpy but I think you can tell that we have long-term plans they are not immune even with those pipes and margins with 50 basis points of improvement that we alluded to.

We will get that this year we will get it, we are going to get it this year last peak we thought our margins were at 24.5% I think with the activities that we’ve taken the restructuring we’ve done the productivity improvements we’ve made the capital improvements we made I think that a new peak will be at 28.5%. Great opportunity for us to continue to drive expansion in margins in this business and that’s the one that we are going to continue to focus on and quite frankly where we are going to continue to invest in.

The strategies supported by the Gardner Denver way the triangle in the middle is something that is near and dear to us of our hearts. The customers drive our behavior every single day and that’s really the fabric here is those sitting around the table can tell you and some of our customers will tell you. And that value proposition that we offer our customers is noticed by our shareholders that fed’s notice they will give us the resources to invest in the business to continue to grow it. And if our employees who are continuing to invest in the business to make our customers value proposition continue to grow.

We will provide the commitment necessary to get 14 by 14 they get some deep excess points of improvement in EPG margins to get the aftermarket to 45% of revenue because without people we are never going to be able to accomplish the objectives that we’ve placed forward in our strategic plan. And it is all about human resources I mean we are reinventing the company, we are continuing to evolve this with regards to people and people processes are in fact improving and I think the quality of the resource that we are putting on are also improving every day.

We are building this high performance culture I mean we are operationally focused, policy deployments drive in everything we do, with good operating rhythm, we have clear accountability and everything is about continuous improvement no matter what the process is. If you look at the senior executive team of the company I think you will see that we are bringing in people with companies that are noted for world-class performance and we are going to continue to do that as we evolve this culture.

But it is one that I believe and I’m proud of to say that it is about we don’t celebrate very long to all the successes that we get record after, record after record every quarter as the operating guys can tell you those successes aren’t celebrated very long if at all because we will always find something wrong with the business that we need to go after, we will find that we would have to go after it relentlessly.

So now we will move over to Michael and then go through the financial update on the company and some of the metrics that are important to all.

Michael Larsen

Alright, thank you Barry. I will give you an update on our financials here. Before I do that just a couple of words on our track record here in terms of financial results. As you will hear today from Chris and Duane we’ve got some very favorable dynamics and some quite attractive end markets that we think position us well for future growth. The margin expansion goals that we’ve defined externally we believe are well within our reach we’ve got detailed plans to attain those margin goals (Inaudible) the Gardner Denver way which we really believe is a differentiator for our company.

We’ve demonstrated before that we can manage through uncertain times back in ’08 and ’09 and I will tell a little bit more about that. And we are prepared to do that again we’re demonstrating the restructure the business and right size our cost structure if required. We generate a lot of cash and probably a bit more about that and how we think about the deployment and we’ve got a pretty good track record as Barry said on accretive M&A and an active pipeline. But really our entire focus here is on delivering superior cash and earnings growth to move the company forward.

The company has performed well if you look these time frame here between 2000 and 2010 you can see revenue growth and our CAGR up about 17% earnings per share slightly ahead of that 19% and good cash performance $31 million in 2000 this year we’ve generated in excess of $300 million of CFOA. So good strong track record on financials and 2011 is still different this will be a record year on many of the key financials if not all of the key financial metric. Revenue is in the $2.4 billion range up 25%. Earnings per share on a GAAP basis $5.25 in line with the guidance that we provide on the October call and no change in guidance. Earnings per share will be up about 60% this year after being up 40% last year. And cash are targeted 1.2 times net income and we are going to get very close if not exceed that for the total year 2011. So, a very good year for the company.

Both segments are performing well; you can see our Industrial Products Group revenues up double digit and very good progress on margin expansion. Engineered Products Group revenue growth of about 40% obviously lead by energy and Duane is going to talk in greater detail about that as well as very good incremental margins in EPG one of the reasons we really like this business. But the key is with both segments performing I will tell you though when you peel back the onion here as Barry said there are some businesses within here that aren’t performing up to our standards and we are working really hard on getting those fixed and address those challenges as we move into 2012.

To look at our internal long-term operating goals, which we haven’t shared externally before but our goal is to grow top line twice the rate of global GDP obviously we are doing better than that this year with 3Q year-to-date revenues up 29% and good progress on margin expansion, earnings per share up 74% on a year-to-date basis. Free cash flow conversion occurs at about 86% and it was some big CapEx year for us we are counting on strong fourth quarter to get us close to the 100%, which is our goal. Return on investment capital at about 19% also a good progress and we’ve had a Lean cost structure and our SG&A as sense of sales that 16% to 17% we’ve made a lot of progress but we still got a lot of work to do and I think that’s the key message here.

Little bit more on our cost structure what we’ve done here is laid out our cost structure on the left side you can see our total cost of about $2 billion 80% of it is variable and about 20% is booking by SG&A. And the big opportunities that are remaining that we are working hard on is obviously European footprint and Chris will talk about the Robuschi acquisition and what that will allow us to do what we have in excess of 3000 employees in Europe. Low cost country sourcing we will buy is roughly $1 billion and that to be we’ve got some plan to make some real progress here as Chris will share with you. And our shared service centers global, low cost, shared service facilities not just for financing even though that’s where we are starting but really multifunctional to really in an attempt to bring Lean into the back office and then continue to drive margin expansion that way.

We want to be Lean especially in times like this as economic uncertainty and volatility is very, is really a strong track record on cost reductions our head count and footprint is sound substantially. We are making progress on implementing one ERP across the enterprise with 71% we will continue to push that as you can see here our operating margins have significantly improved. So I would say on the economy we are more cautiously optimistic on the economy but we are prepared and we’ve been working on contingency plans since April and we will decide to restructure our business if we need to in response to the economy. We generate a lot of cash obviously it’s very important that you remain disciplined in terms of how we deploy that cash and I will talk about that in a moment but our working capital as a percentage of sales in the mid teens with the investment rates below one are kind of the metrics that we look at as we think about our cash generation.

On capital deployment these are the priorities for us as we generate a lot of cash and we are not a capital intensive business so our CapEx historically as I said this is a big year for us with $55 million but I think of it as about 2% of our sales. We would like to keep our pat CapEx below our D&A as we invest organically in growth and whether it’s expanding capacity energy business or productivity new machine tools and our plants in Sedalia, which Chris will cover with you.

We do return cash to our shareholders through dividend and we are opportunistic in terms of buying back the stocks, which even in the third quarter take advantage of some unusual volatility and we are going to continue to buyback our option creep on a regular basis. Our financial obligations obviously we’ve got a track record of making acquisition and taking out debt and quickly delevering using our strong cash flow and we are in a strong position in terms of balance sheet at this point.

And on acquisitions strategic where we can get synergies not so much in the sales side but particularly in the cost side is what we put into our models as we think about how do we deploy cash to make sure that we are not dependent on an upturn from a macro standpoint that really we can generate the synergies primarily as from a cost standpoint and create a lot of value for our shareholders that way and we’ve got pretty good track record in terms of doing that. So, really very focused on creating value for our shareholders.

This is how we think about 2012 again 2011 $5.25 roughly on a GAAP basis which is consistent with our guidance. We’ve got some tailwind and some headwind that we’ve given out. We believe like I said our margin expansion goals are within our reach as we continue to rollout the Gardner Denver way across the enterprise. We’ve got very good orders momentum the EPG backlog in particular is strong not just in energy but we do have significant strength in it well we have also diverse end markets beyond that.

Good progress on aftermarket Robuschi will be accretive and we do have a reduced share count as we head into next year. Headwinds obviously no surprises here and there is some uncertainty from a macro standpoint China, Europe Barry talked about those. Our late cycle infrastructure projects quoting activity is very good in businesses like our Nash business. We are yet to book these large late cycle infrastructure projects that we will typically see right around this time. And obviously as we put together a strong set of financials in 2011 the comparisons are going to be a little more difficult as we head into next year. But we believe that with the dynamics and with the way we position the company that we will be able to deliver in an uncertain environment going into 2012.

So with that I would like to turn it over to Chris Celtruda to go through the Industrial Products Group.

Chris Celtruda

Thank you, Michael. Alright, my pleasure to share with you just a little bit of lead behind strategy for the Industrial Products Group we will start with just a brief overview that really illustrates the breadth that we have in the industrial product group. We’ve got a nice bundle of established brands in many cases premium brands that have intellectual property that positions them very nicely in the marketplace. Brand names like Gardner Denver, CompAir on the blower side Elmo Rietschle and now Robuschi. I really believe this gives us in accordance with one of the most complete ranges of air management products in the marketplace and it is up to us to go and connect those products with our global customer base.

As we go down the chart we can see that we are an active participant in some very attractive end markets and it’s not just industrial markets its power and energy, it’s transportation, waste water, foods and beverage, places where we can connect solution that give our customers additional value. Some of these customer include some of the best known names throughout industry manufacturing companies like GE which we work with on the transportation side offer compressors for the air breaking systems on the locomotives.

Companies like Hyundai Heavy Industries which is an enormous engineering product company in Asia that we work with on offshore oil platform integration. On the blowers side we work with Air Liquide for gas management. Coco-Cola for creating suction to allow faster filling of the bottles during beverage manufacturing. Tetra Pak the manufacturing of the packaging for food and beverage all sell over $1.2 billion global leader in air movement and air management and we think our prospects are very strong given the portfolio of products that we have.

(Inaudible) the entire corporation we have a five point strategy that prepares us to grow this business and to meet our expectations. Our focus in the future on the organic growth side is to really look at the emerging markets. Today we may be underweight some of the markets that are very aggressively growing in the world markets like India, markets like Brazil and China I will talk a little bit more about how we think we can really separate our growth story by investing in these markets.

On the aftermarket side it’s a really a shift in our strategy in the past it’s been about growing our install base proliferating compressors and blowers across the world now we are looking at how to become more agile. How could we go and provide solutions not just for our products but for our competitor’s products. How could we go on total value add in terms of the way we sell aftermarket get engaged in long-term warranty and service agreement.

Innovation has been a really large portion of the transformation of the industrial product group. Our refurbishment and refreshing of our product line due to the investment in high speed centrifugal machines the introduction of the Quantima and the Revolution. The compressors focused on low cost and localized packages. We had some issues in the past taking products over manufacture in much more mature markets, Eastern, Western Europe and North America and trying to sell them into much more cost sensitive markets. We think we kind of unlocked a code in terms of taking our technology and adapting it for emerging markets.

And then looking to the future oil free/oil less something that I will talk a little bit more about as the voice of our customer tells that they need different products to adapt for their processes of the future. Selective acquisitions is an area we’ve been very focused in the last few months. We spent a significant amount of time reviewing and understand how Robuschi was a good fit for Gardner Denver we’ve spent an equal amount of time understanding how we are going to integrate that business and maximize its potential when we combine it with all the other capabilities that we have when it’s the Gardner Denver way, when it’s product innovation or whether it’s managing global channels. I will talk a little bit about why Robuschi is going to really be a catalyst for us not just in 2012 but beyond.

And margin improvement this is really our number one priority day in and day out we’ve been through a lot of restructuring. There is more that can be done we’ve gained a lot of productivity to the Gardner Denver way not too much to be sourcing and I will talk a little bit about how these things will take us to 14 by 14 and beyond.

Organic growth has been a good story in the last few years the business has expanded recovered significantly from the downturn that we saw a few years past. So another thing that we focus very strongly on organic growth and channel management after the CompAir acquisition there has been a lot of effort to go and hold CompAir products to Gardner Denver distribution hole the Gardner Denver products to CompAir distribution and it’s really about technical sales. We sell highly engineered products and it’s about total value approach to selling.

We don’t just sell a compressor or blower we sell power and efficiency for our customers sell life cycle cost management we are with solutions that perhaps gives them (Inaudible) maintenance and repair profile over a longer time compared to our contestants. Our focus is really around strengthening our distributor’s ability to sell our product. In many cases we are not the least expensive product in the market we are a premium brand in many places and that value is got to be sold to our customers in a different way than just selling price.

Emerging markets and talk briefly here as that in the past we’ve been very focused on much more mature markets. And in the past six months very limited we’ve developed sales channels we started aggressively in India with one two sales people I can tell you today that we proliferated we’ve got a sales presence that expand the entire country. From Mumbai to Chennai deployment towards at Delhi to Ahmedabad we now have sales offices and sales people that are not only technically trained but also application and customer focused so that they can provide additional value total sales value to the customers.

We are not leaving the party in India this is a $1.2 billion market for compressors and blowers that’s got enormous opportunity for future growth it’s an economy with a GDP expansion of 8% or better over the next five years, it’s an economy that consume 70% of its GDP internally and there is a midst of a major infrastructure out fill they are going to spend probably in the order of $700 billion to build railways and airports and roads and bridges and other infrastructure that requires our products. We are very focused on taking advantage of that.

We are seeing our first very large engineered package orders in India and we are looking very closely at how could we accelerate our growth. Today we face a 25% import duty for our products going into the Indian market our competitors are on the ground today packaging, manufacturing advancing themselves of local sources of supply we will close that gap and give ourselves the advantage that we need to compete on a level field in one of the fastest growing markets in the world. Beyond that Southeast Asia has become very attractive to us and during the past years investment in Indonesia and Korea, the Philippines and Thailand all of which have turned into very attractive markets for us to sell and to gain share for our products.

On the organic growth side I’m going to talk a little bit and share with you how the Gardner Denver way gives us advantage in terms of market share. As we reduced our lead time as we reduce our cost it allows us to provide product availability in excess of the availability of our competitor’s products. So once again we don’t have to compete on price but compete on availability and have the right products in the market when our customers need them. Another area that I will talk a little bit further about is where we have CEP or customer engineered packages.

Our customers have come to us and looked at the products that we sell are high pressure products our dry oil free compressor products, our large centrifugal blowers and that we really enjoy and we like to work with your products so that we wish you can integrate them with drivers and with coolers and with other aspects of automation is value. So that we can have a relationship that goes on into the future right for maintenance and repair, remote monitoring and additional value S we have seen great success in the (Inaudible) over the engineering product companies building relationship for longer cycle, higher value packages for blowers and compressors.

And I will talk a little bit about oil free and oil less technology. This is really where the marketplace is going for our customers are demanding solutions for the future and our investment profile is very aligned with filling out our product line to meet the needs of our customers.

Talks first about aftermarket historically aftermarket has been about pretty much proliferate and been an enormous install base less in expense that install base by having our (Inaudible) solutions and our parts go into every one of those products. We continue to do that we are very focused on growing our installed base and defending our title in terms of aftermarket. But there is a few other areas that I want to share that we are focused deeply on and these are some examples that show we are going after third party repair solutions you know we’ve developed an enormous capability in terms of machining compressor wheels as part of developing the Quantima and the Revolution.

Both compressor wheels are impeller are very similar to the impeller that are used in traditional centrifugal machines manufactured by our competitors. We develop and interrupt machining capabilities that shorten the lead time for those products and through our global network we developed repair capability that repair not only our machines but our competitor’s machines. So in this case we don’t have to wait for our installed base for the products we can go right into the aftermarket and eventually take the highest margin portion of our competitor’s value stream.

Similarly on the locomotive compressors we’ve developed a crankshaft remanufacturing process that allows us to refurbish legacy cranks from our locomotive compressors as well as those of our competitors. This once again shortens the cycle time and certainly our ability to convert the locomotive compressor from a reparable unit to a repaired unit while accelerating cash and offering additional value for our customers. The other area that we are focused in terms of total value aftermarket is managed care partnerships.

We’ve got super compressor brand the Champion brand manufactured in Princeton, Illinois. This recognized for reliability and quality that we are now bundling with the managed care service contract. To-date we’ve got 4000 locations under contract in North America all in Goodyear tire standards, Sears, Walmart, Sam’s Club we just completed a project with Pepboys and what is before their customer is peace of buying and high availability for compressors to ensure that there is continuity of operations within their automotive service centers whether it reports to us as a channel for what is essentially a premium (Inaudible) but to leverage the fact that it’s highly reliable and we can offer a total service solution over a period of time for a very attractive price.

I mentioned the custom engineered packages earlier and this is a really exciting high value growth opportunity for us. It’s a large market globally within the engineering product companies, companies like I mentioned Hyundai Heavy Industries, Patronus out of Japan, MacDermid out of the United States these are the companies that do global infrastructure build out. So whether it’s an optional oil platform for Patronus or for Petrobras remember it’s a semiconductor fab for Intel or Advanced Micro whether it’s a large government waste water project in Brazil or in India.

The bridge between a bundle of products and the end user is one of the VBCs. We’ve invested an enormous amount of time building out our sales network in Southeast Asia especially in Korea to build relationships with VBCs as a channel for some of our very high value products. When we talk about high value products our order size for CEP packages probably in the area of $2 million to $3 million a factor of maybe 10 or what we sell in normal distributing compressors for lower package.

And this is really riding on the back of global infrastructure build out now like that the emerging market in India and Brazil where there is oil and gas mining and order just basic industrial manufacturing this is an area you’ve got growth rates in excess of GDP even within areas that have very attractive GDP growth rate. The past year we’ve seen a 2x increase in our orders for CEP packages and a 2x increase in our shipments that we believe that this is becoming; it can become a big portion of the IPG portfolio as we go forward. This is the longer cycle business these are orders that are larger in value and larger in lead time in terms of conversion but very, very attractive in terms of the markets that we are playing.

We have talked a lot about our innovation and our focus on high speed centrifugals and I’m happy to tell you that the market is responded very favorably, we introduced the Quantima approximately two years ago we’ve shipped well in excess of 100 Quantima units. We’ve had many customers come back for repeat orders this is a very innovative and proprietary design for us just 2 stage high speed motor on active magnetic bearings.

It’s got very high uptime, very low need for periodic maintenance variable speed, highly energy efficient device and it has no gear box and it’s not only oil free it’s oil less there is absolutely no oil that goes into a Quantima. So there is no oil on the compressed air side, which makes it very suitable for pharmaceutical applications makes it very suitable for food and beverage, makes it very suitable for textile. We just sold our first Quantima into Pakistan to run the loams on the Japanese weaving machine for a very large customer that’s involved in clothing manufacturing.

Our feedback from our customers has been nothing short of stellar as we’ve said that the best testimony is when they come back and order more we are seeing repeat customers. And I think it’s really interesting to note that when you think about this unit there is a lot of technology that goes into it. And this technology is really aligned around higher liability. But does it mean that high reliability drive differential in terms of aftermarket and we really have the confidence that we sell, we bundle with an aftermarket service solution that allows us to get a revenue stream from that unit over a period of time through the remote monitoring capability that we afford and our customers tend to review the performance of the machine, their recommendations and tweaks to ensure it that’s given them the output that we need.

Similarly on the Revolution this is our next high speed centrifugal machine. This is designed to be in the blowers and used predominantly in a waste water treatment side. Sam type of technology in terms of magnetic bearings, self enclosed, high efficiency we are seeing energy savings of up to 50% and it’s really about selling a total customer value solution it’s not about selling a one-time purchase of a compressor or a blower, it’s about selling life cycle solution. The life cycle solution that includes power saving, the life cycle solution that includes reliability enhancement and an uptime for a customer.

I’m going to go ahead and queue a customer video that will talk a little bit about what we do with Hoffman this is the first installation in Saint Charles, Illinois this is a remote webcam one of the service that we provide Saint Charles is remote monitoring of this unit our engineering team can go ahead and remotely view the unit, then we will go ahead and zoom in actually go ahead and pan to the right and you could see that this unit is located very close to the active waste water treatment facility in Saint Charles you can see the (Inaudible) tanks and reservoirs outside. Go ahead and pan back and zoom out a little bit and you will see the legacy machines which happen to be some 30 plus year old Hoffman traditional centrifugal blowers that are still installed this machine replaces both of those legacy blowers and they’ve retained them as a backup in case there is some future issue with our machine not that we anticipate it. But the customer’s capital legacy machine is in there as a backup.

We will go to another view and this is a view that our customer service team can see and allows us to remotely monitor and provide value for our customers of the entirely new process. So this is actually where the process where the air gets blown to agitate sewage treatment the other one is just outside of the installation. And then we can go to the dash board this is a remote view an active remote view of the actual controller for that machine and say I don’t know if you watch updates pretty frequently you watch the active bearing measurements in the left side is probably the highest frequency of update.

What this allows us to do is as we have this fed into a multiplexer with the protection limits and our customer service and our field engineering team can remotely monitor that and make recommendation. And I will tell you in the last few weeks we had an instance where our team is remotely monitoring this unit we saw pressure spike and the pressure spiked up into a range that we determine to be (Inaudible) so need to be changed with the filters our service engineer got in the line with the people at Saint Charles and said they need to change its filter and the local municipality went down and took a look at it said yep we need to change that filter, corrected the pressure immediately and then the efficiency of the machine went back up to the expected level.

So that’s the kind of value that we can have through one of these total service court agreements and through the remote monitoring. So go ahead and queue the video that tells a little bit more and get some testimonial from this customer. I think that sums that up pretty well I think that’s the kind of reaction that we are getting to our high speed centrifugal products in the marketplace it’s around total value 47% of energy savings after one month of operation it’s a pretty big compelling case for our customers to come back and proliferate this technology to their other facilities. And we are seeing similar results in the Quantima. And I mentioned the electric bearing the magnetic bearing technology and the fact that that’s got a very long life built into it that gives us an opportunity to look at other ways to add aftermarket to customer value through remote monitoring.

Alright, so traditionally perhaps a high speed compressor would have a bearing that go bad and I don’t think the bearing is going to go bad as often on a Quantima or a Revolution but the filters are going to go and get clogged at some frequency and there is some of the electronic gear in there that’s going to need to be modified and upgraded. And through a service contracts of remote monitoring we can work with the customer and tailor that efficiency and give them that total value at the same time we are getting ourselves some aftermarket value compared to what we got at the third party stream for an older legacy type product. So it’s a pretty exciting time for us as we get these products into the marketplace and ramp up the installations.

(Video Playing)

Another area where innovation is really ramping up for is localization and we’ve got two exciting success stories that have been transacted during the current year the first is the Dragon line of compressors, which is our very first Asian design, Asian manufactured line of compressors and on left you’ve got a beautiful picture of our engineering team joined by the General Manger of my Asia Pacific operation in traditional Chinese warrior regalia and this is to celebrate the fact that he has been to course of six months with this team not only go out with a clean sheet of paper and design a new range of compressors.

And in the course of those six months they delivered prototypes that exceeded all performance expectations at the same time provided an increase in efficiency with a reduce noise level, which is very important for the marketplace. And really going after the 30% or 35% cost advantage that we have with locally manufactured and local competitors of the Asia Pacific marketplace. This is a real opportunity for us to go and take some market share and ramp this up into production next year and it’s a success story from a Gardner Denver way point of view to where a team is really attack innovation, attack productivity and very rapidly put together a solution that uses all localized manufactured build material for the most part and really meets the needs of the local market.

Similarly on the blower side not quite the same story because it was a globally engineered device not a locally engineered device but it was value engineered for the emerging market not just Southeast Asia but for South America, Africa, Eastern Europe, place is worth price point for a side channel blower doesn’t meet the price point of our German engineer device perhaps where there isn’t an interest in long-term reliability.

Our Airgen blower is now manufactured in our Jiangsu, China plant on high velocity line we can produce in the area of 50 to 80 of these every single day. And with 100% local supply mix everything from the motor to the impeller to the castings and forgings that go into the case are all over China and this is now being put through our global distribution channels into markets that where performance, the reliability and the price of the unit meets the requirements of those customers in that market. So in the past this the segment of the market that maybe (Inaudible) to the local buyer alright to where our higher price point, and reliability German product was in line to the needs of that marketplace that will go after some share in the lower tier.

Also in the innovation sides is really a shift in our investment strategy. If you look at the past compressors most of our investment was in oil flooded screws it was around renewing expand the range of oil flooded screws, driving efficiency, driving cost take out and we will continue to do that. But today based on the market feedback, based on the voice of the customer oil free and oil less is the way for the future.

So you may be familiar with the term oil free, oil free air is air that contains no oil particles in discharge very important pharmaceutical manufacturing, very important in medical, food and beverage any place where any contamination could cause problems. We’ve got on the low band power range our single stage water injected screws, when we move up on a little bit higher power, higher flow we’ve got our two stage dry flow machines and on the very top of the range we’ve got our expansive Quantima range. This gives us a general coverage over that market but with not the graph needed to serve need to every customer.

Today what we are focused on not just oil free but oil less and oil less means that absolutely no oil in the product. There is no oil in the discharge stream for the air there is no oil on the gear box, there is no oil in the slump, there is no oil around the screws and this is pretty important from the customers in terms of just broader contamination. That’s just contamination of the product that they maybe manufacturing or processing but in terms of their facility. The number one cost for maintenance on an oil flooded compressor is the top off the oil to the leakage.

The number cause of remediation from an industrial facility is the leakage of machine tools and from compressors gets into the ground and the ground water. When you go to a true oil less state you preclude those two problems that offer the low machines may have, it gives us the competitive advantage. So our investment strategy not just around renewing our product line and adapting to get customers and solutions they made, it is really around the concept of oil free and oil less and this is something that differentiates us pretty significantly from our competition.

We’ve got two competitors in the oil free area competitors that clearly understands that you can’t have oil in your compressed air stream in certain process industries, we don’t have large amount of competitors in the oil less area that’s been one of the differentiators of the Quantima and as we go in and focus on innovation in the future it could be one of the differentiators for our complete range of oil free OLS compressors.

Shifting gears a little bit to talk about acquisitions and very specifically about Robuschi an enormous amount of work is gone into the selection and the review and the preparation for the integration of the Robuschi business. And I want to talk a little bit about why this is such a great bid for us. Robuschi is not just a great brand but it’s a great range of products, they’ve gotten us drive new products they filled in gaps in our product range they’ve got some very large names (Inaudible) that give us some good managers that we don’t have today there is just a number of places where they have intellectual property and differentiated products that fill out places in our range that would have taken us a fair amount of engineering investment and time to settle in.

So that’s complementary range really gives us an opportunity to leverage our global channel to market. There are areas of the world where Robuschi is very strong they’ve got a nice footprint in China, they’ve got a manufacturing center in Brazil, they’ve got distribution in North Carolina and based on their Italian footprint they are very strong in Europe, Eastern Europe and Russia.

There are places that Gardner Denver has got their brands and the Elmo Rietschle brands have free distribution in Southeast Asia particular parts of South America outside Brazil are places that where we believe we can pull their products through into our channels. So both complementary channels and complementary technologies really give us an opportunity to have an unparallel range of displacement blowers within the marketplace.

Robuschi has got an enormous install base this install base is important to us from an aftermarket point of view. They’ve enjoyed very nice growth in recent years as a function of their innovation moving to some of these fast growing markets that’s an install base that we can leverage for aftermarket solutions whoever is preserving are entitled in terms of spare parts, offering service contracts for low monitoring, bundling with some of the other products that we have within our range there are some things we can do there.

Similar to rest of the IPG business it’s a diverse end market they are (Inaudible) waste water in Europe, they’ve got a footprint in mining in Eastern Europe and in parts of Southeast Asia there is really some places that we think we can learn from them in terms of access in fast growing markets. It’s a well run business we’ve spent some time with their leadership team, they’ve got a very good handle on running that business they’ve got a good handle on what their customers need, we are looking very forward to integrating them with our blower leadership team in Europe. And finally we will be able to make this a success for the entirety of the product range.

When we look at what we are going to do from an integration point of view we’ve talked about this really being an enabler for one of our biggest opportunities for future productivity, which is addressing of our high cost European footprint our high cost European sensitive headcount. Michael mentioned earlier that we have 3000 employees in Europe I’ve got three or four different plants manufacturing blowers in Europe that are in Germany and in United Kingdom and the fact that we’ve gotten that 3000 square foot advanced manufacturing facility in Parma, Italy really affords us some opportunity.

When I first walked through that facility I kind of put my mental check list together as I walked through the 300,000 square feet I calculated alright give me 25% to 30% of the square footage is being used for machining 25% or 30% of this square foot which is being used to sampling test to blowers and really probably 30% to 40% of the square footage is really just being used to store inventory.

Alright, that’s really the opportunity that I see to accelerate our consolidation model with a very short amount of efforts in Gardner Denver way we can go and teach them some things on (Inaudible) we can teach some things on Lean, on vendor managed inventories and three of the large amount of that floor space is today being used to store equipment and detailed parts of vendors goods and enable the ability to move other product lines into facility.

We talked about the fact that there is some cost advantages and on a conservative basis there is a 20% labor cost advantage for central Italy to Germany and the United Kingdom. Alright, so by restructuring the business yeah we will take some overhead out in terms of the plants and redundancy in terms of administration, but just basic touch labor is going to cost us less in Italy than it causes some of the places in Europe today.

We’ve got the opportunity to allow for strategic sourcing today I would content that 90% of the supply for Robuschi is manufactured within a couple of 100 kilometers to the plant. The concept of low cost sourcing; low cost country really hasn’t been something that they’ve advantaged themselves of. We believe that once we go in decomposed commodities that we know that they have that are similar to us leverage that spend it has the material savings that we will be able to get as well. And switching to channel leverage there should be some volume opportunity for us to take those products into other parts of the world in extends of other customers with some of the things that we haven’t been able to offer them back.

These are the things that you are very focused on to make this deal creative and new one that really changed the paradigm that we had over a very heavy cost structure in Europe for a lower business and really positioned us to the future, not just for 14 X 14 but for beyond. As you saw in our trajectory we are closing in on the performance as expected to meet 14 X 14. Our ability to fundamentally change our cost structure in Europe both from a manufacturing point of view and from a supply point of view it’s really going to be the next chapter of our story in terms of the core business.

So when you talk about that margin expansion it’s been a good story we’ve gone from 5% to 12% for this year. It was expectations of getting beyond that and achieving the 14 X 14. Our commitment every year is 150 basis points annually with or without volume with no volume gain we are committed to 150 basis points and how do we do that is through the three things that have been mentioned over and over and over again today.

It’s the restructuring reducing the number of sites rationalizing our footprint, consolidating our overhead costs, productivity clean and investing in our process, eliminating waste and for the low cost country sourcing it has been the area where we’ve got a lot of opportunity. I think we’ve done some work it’s just the tip of the ice berg and I will talk a little bit more about how we expect to accelerate that and have that be a bigger contribution to our market expansion in the coming years.

So today if you look at our low cost country sourcing we’ve just come along with establishing a centralized team. We have a team in China a project manager and supply and development professionals working with our vendor base to go in and find a typical few number of vendor reach commodity to give us the performance that we need not just on price but on delivery. We have brought on a leader within IPG to drive our strategy and to drive the right products as we get rapid return on investment.

We have established a team in India and we’ve got a seasoned leader for that team and he is starting development supply base in India and then we’ve got leaders in each region the U.S., Europe and Asia to go ahead and make sure those products come to provision and that material is delivered on time to our factories so we can convert it and have turn our orders into cash quickly.

We setup as a function of our new consolidation in China a distribution hub where all the material that source from our Chinese suppliers for Chinese consumption our international consumption is consolidated packaged and shipped around the world every single week driving some efficiencies. And we’ve spent a fair amount of time using the SAP tool now that we have an SAP penetration of an high level with an IPG we now have the ability to go into decompose the bills with materials and identify commodity groups and identify commodity stands and commodity mix so that we can get packages put together and get those delivered much more rapidly than we have in the past.

We are targeting to doubling of our spends in these low cost regions and across the bottom of the screen there is some of the commodity groups that we expect to get pretty high leverage on it. It’s things like hoses and fix, electric motors and drives, gear boxes and gear trains, bearings and seals these are things that today we have many suppliers for where our spend is very diffused and we have the opportunity perhaps not to go to a single supplier for them but to a smaller group of suppliers with redundancies.

So that we can preserve the ability to the factories that convert they are getting leverage in advance from our global spend. As Michael said, global spend was all of Gardner Denver on the order of billion dollar the spend for IPG is a larger percentage to that million dollars of spend, when I cut it down to the commodities these are the leading commodities that we spent for compressors and blowers and these are the places we look to leverage that spend and get savings to low cost country sourcing.

The Gardner Denver way is not just about year over activities it is about labor productivity and I think the best case study that we’ve had is the largest manufacturing center of Sedalia, Missouri. Sedalia Missouri is a few years into their Lean journey and the results are nothing less than phenomenal 2009 the initial value streams are aligned within that factory so that we could go from raw material to a box and understand all the steps to joining.

The focus we’ve made to shift the organization of the plant that we are individual leaders own the value streams. We implemented 5 S visual workplace that we could manage whether we are ahead or behind the daily pack time. And started a multiyear enhancement in capital equipment that is now total success of $12 million, state-of-the-art WiMax’s milling and grinding centers that allowed us to remove significant process time, increase our quality and become much more reliable in terms of factoring.

2010 and 2011 capital investment and paid dividends we focused on seven time reductions through SMED. We focused on total value streams with SIOP and demand planning, increased the amount of KANBAN, increased the number of Kaizen Blitz’s that we’ve held on a regular basis and move into vendor managed inventory. In recent months we focused on an enhanced SAP tool set. SAP is a wonderful tool for integrating operations and financial data but often times it’s not the most productive tool in the factory. The example that I use most often is that in our Sedalia plant whenever we received a repairable unit back our receiving department happen to go through no less than 15 different screens to transact a used unit back into our inventory and preparing to do release to remanufacture.

We’ve adapted a low cost SAP that reduce those 15 screens to a single user interaction and has interfaced that with a graphical output that now tracks the performance and establishes that unit to both our internal suppliers and our customers know exactly where that unit is at all time reducing our cycle time and driving productivity in the plant.

So if I look at these last three years our effective cost has gone down by 25% through waiting elimination, our cycle times have reduced by 40% so our ability to convert orders and to manage the mix that this facility leaves improved dramatically. And our inventory turns have gone up by 8%. We are feeling that all of these productivity measurements is the fact that we gained 10% market share in the truck blower market over that timeframe based on our increased availability and the enhancement of our reputation the marketplace for a quality product that prevail when the customer needs it.

A very soft tribute to the Gardner Denver way in these transformation but I will tell you by (Inaudible) complete. And I came off a meeting last week we started working on what now becomes the next future statement of Sedalia plant, which is the continue enhancement of those value strings focus on problem solving in the culture and an attitude that in terms of Lean you are never completed and you are never perfect.

It’s an endless journey and the team is committed to going further down the road in terms of making Sedalia plant that’s in the IPG for Gardner Denver. We envision this is a place for leaders tomorrow the plants will come to learn where these processes and these lessons will be exported to rave the water level performance throughout the IPG business.

Lastly when we talk to in terms of margin expansion is our focus on value engineering and this is an example to where cost savings can come through reengineering the product not only to be more efficient but to be more producible. The IPG portfolio is really the result of all the acquisitions that we talked about earlier.

So we’ve got at the heart of our compressors Airend that has a Gardner Denver legacy we’ve had Airend’s that have competitors category, we have Airends that have a temporary (Inaudible) that cover the entire performance range in terms of power and flowing. But the example here on the lower power range is that today in excess of five different Airends to cover low power portable screw compressors and marine compressors the E12, E123NG and the SSE they are manufacturing in India.

There is a Germany plant (Inaudible) and our Sedalia, Missouri plant. We’ve got new design and blue portion of the new GD4 Airends on the right it’s common and it can be made in with a gear box or it can be made for a direct drive or with the term to sort things out the cover let these three legacy designs did in the past. Now what this does for us is allows us to manufacture these Airends anywhere, they could be manufactured regionally, in Asia, the Americas or in Europe that could be manufactured using common machine tools and common machine tool programming, they could be manufactured using a common global low cost supply agency.

And at the same time they’ve been reengineered to be more producible so the actual time that it would take to assemble them will be less than those on the frequent design and by the way the performance will be improved in terms of efficiency. This is just the first step of us taking whatever in excess of 30 legacy Airend designs to cover the power flow range from oil flooded screw compressors and replacing them with what will end up being about 30% in terms of the number of designs manufactured across the world.

Unidentified Participant

How long does that take?

Chris Celtruda

In terms of this particular unit or in terms of walking through the whole.

Unidentified Participant

Just this program is that three years or five years.

Chris Celtruda

Right, it’s a three to five year range I can put on it. But this is the heart of other product lines if you look at the most prevalent offering out in the IPG compressor line today it’s oil flooded screws so we will be selling off a lot of these and this is a brilliant effort to reduce the complexity, to reduce the cost and to improve the velocity manufacture these products.

Okay, I’m going to wrap up my comments and transition us into a break. Thank you for hearing everyone on the Industrial Products Group.

Michael Larsen

Alright, thank you Chris. We will regroup here at 2:30. Thank you.

(Break)

Michael Larsen

Okay, welcome back everybody. I will hand it over to Duane Morgan here to go through our Engineered Products Group. Duane please.

Duane Morgan

Michael, thank you. It’s pleasure to be here. Thank you all for being here today in our first analyst meeting I guess. So I will take you through the Engineered Products Group. The Engineered Products Group is actually made up of four divisions, four distinct worldwide divisions each run by VPGM for that division. As we lay out the divisions and look at the divisions they have very distinct businesses, they have very distinct markets and starting with the petroleum and that what we call petroleum and industrial pumps division our Gardner Denver products, which takes our pressure pumping on and offshore drilling pumps as well as our industrial pumps. We sell in that area to some of the biggest names of Baker Hughes, Helmerich & Payne, Schlumberger as well as we are selling to a lot of other smaller customers as we go forward.

But I talk about pressure pumping you hear a lot about cracking but also if you think about our pumping we also have a lot of pumps that we manufacture in Quincy that are not just drilling pumps they are what we call well servicing pumps, pumps that are used in hot oil, pumps that are used in salt water disposal. A lot of pumps that are used in the industry it doesn’t get a lot of press if you will but we manufacture PAH and PEEs those folks have been in the oil and gas industry for a long time recognize those names in that nomenclature.

In the industrial pump side we have water jetting pumps, high pressure water jetting pumps we also have very small screw type pumps that are called (Inaudible) so again an array of different types of pumps into our petroleum and industrial pumps division. On the Nash division we are in the power generation market binding and paper, chemical processing and oil and gas again Nash is a liquid green vacuum hearing Chris talk about blowers well blowing we have Hoffman Revolution in our R&D center at Nash because if it blows it get suck, so we are going to look at the side of how can we use this possibly in a vacuum situation, where we don’t have to use water to create that vacuum. So again looking at the green side looking at what we can do by crossing our products across the product lines and using the different products as we know.

The Thomas division is a division that mainly in the medical portion of it isn’t the medical large portion of it is medical but also environmental, where you look at gas analysis, lab life sciences that’s our Welch impact brands where you are looking at the analysis in university labs you are looking at analysis in medical labs and also the auto and industrial and that is we have air assisted brakes, air assisted seats, we are doing coffee machines so there is a lot of different applications it will even within our Thomas division has forced the pumps that are concerned. And again we have the major customers that we serve there Invacare, Teijin in Japan Philips Respironics et cetera.

Then we have the Emco Wheaton business and the Emco Wheaton business is in transportation, energy, chemical, lot of you know about the loading arms but it’s much more than just loading arms it’s also our fuel systems business, which is what is called API valving on the side of tanker trucks. But it’s not just the dumb valving that we’ve gone into on the trucks it’s also the electronics the valves talks to the cab the cab talks to the back office. We are able to build products as it’s dispensed from the truck.

Another thing that we are doing is that we have a, we are able to setup a GPS range sense. So that if a truck is out delivering in South Africa and the truck is not within the GPS range sense it should be to open the valve the valve won’t open and that kind of helps whenever you are hauling quite a bit of, a lot of money there in that cargo. So again it’s not only the, I guess what I would call dumb valve would like for a better word it’s also the technology that we build with it. So again we have four distinct divisions they are full out global it’s a $1 billion global leader in pumps and fluids transfer.

I would be, I don’t think I would stand up here with Barry being in the room and say I have anything other than the five strategies. And we live by those five strategies also within the Engineered Products Group. As you can see organic growth we are looking at focus after 2012. Emerging markets is very important to us also.

Chris was talking about the operation setup that we are setting up in India part of that operation will be Nash because of the packaging that we do in the power industry in India already in Nash we feel that we can even gain more market and with Nash in the power industries by setting up with the IPG group. Obviously we will win in energy shale gas I will talk about that business a little bit more, how we are in it? What we are doing? And we are expanding capacity to meet the growing demand a lot of people think okay yes you are expanding capacity in the energy side but we are expanding capacity in some of our other businesses in the Nash side of it.

And not just expanding capacity but also improving our efficiencies giving machines that really improve our efficiencies, improve our throughputs et cetera whether it’s and we are also putting machines for instance Monroe, Louisiana and some of our sales. When we get our Lean sales put in place we have our machines integrated into the sales, so it’s expanding capacity yes, but it’s also improving efficiencies at the same time.

Aftermarket growth obviously the replacement of fluid then is very important to us as well as the repair with local presence. That’s why we talk about having our aftermarket shops in the areas where the shale’s are, that’s why we are going to be in (Inaudible) that’s where Marcellus voice of the customers that please come, we need you here, we need you to repair your pumps. We are using them, we are breaking them we need more fluid and come and take care of us. So we are going to be there.

Same reason why we are in Odessa, Texas, same reason why we are expanding in Fort Worth we need the capacity. That’s why we are in Shreveport, Louisiana with a small facility there to take care of our customers. So we have to have a local presence plus in the aftermarket in line our large install base and upgrade our legacy products. Whether it’s loading arms whether it’s Frac farms whether its Nash liquid ring compressors we have many legacy products, large amount of products in the marketplace, we are taking advantage of that in the aftermarket side of being there, being ready to support our customers when they need us.

And upgrade legacy products again in the Nash side of the business, well liquid ring vacuum pump where you create the vacuum with the liquid. Well in many areas water is a precious commodity well if we can reduce the amount of water that’s required to create that vacuum we’ve gotten a little greener and at the same time it takes less energy to do it we’ve even got more green.

So again aftermarket, which kind of bounces into our innovative products as you see there with the green products, fluid NOI we are working with the universities looking at the metallurgy. Looking at different ways that we can produce our fluid ins to give them longer life. Yet, we like selling the razor blades, there is no two ways about it. But again we have to be at the forefront of innovation especially when it comes to fluid ends and I will have a slide on that that we will talk about our progression as far as fluid ends what we’ve done, how we’ve designed for the different shale’s et cetera, et cetera.

Also on innovative products Thomas if you think of Thomas in the medical side you really think of gas Thomas has really been they are the guys that’s, that move air well guess what we’ve also figured out that we can move liquids. We’ve designed products for marine won a lot of awards on this product line and so now we are getting into the liquid side along with the gas side as far as the small pumps are concerned. Frac farm what’s that? Well we are kind of unique in that one of the major suppliers of both drilling pumps and Frac pumps well when you have both of those technologies and you have the engineers sitting together you think they will sit around and talk about.

What if and what if Frac farm means that there is some major customers that are saying what if I had a Frac pump that would be like a drilling pump that would have the, that would last 20 years other than five or seven years like a Frac pump and I could get that pressure, I could keep it one place there wouldn’t have to be a worry about the weight because I’m going to Frac 20 wells right here from this one location or maybe 30 wells right here from this one location. That’s the Frac farm, we have customers talking to us about that we already have designs in place that we can jump on, move fast et cetera. So those are opportunities that I see as we move forward into the marketplace.

And I also mentioned the university partnership developing products for local markets. Again Thomas we’ve decided to setup a full operating glass in our Wuxi. Okay, well the reason being is that we are designing product in Wuxi, China for the local market. We have products that we are selling in that market sometimes market under a different name we call it mega pump and we use it in Vietnam, Southeast Asia et cetera.

But it’s been a very good product for us and we are developing more product in (Inaudible). And the other thing we did was that last well these products that we outsource are very precise and rather than spending, sending those products to our labs in the U.S. we can send the product to our lab in Wuxi do all the test and do everything we need to do qualify that much quicker, much faster and we don’t have to worry about that transit timing qualifying products. So again the lab will help us grow our markets as well as low cost country sourcing and being able to qualify.

Selective acquisitions, again we are always in the market, we are always looking to expand our geographic area product line reach, and bolt-on in attractive end markets. Margin improvement supply chain, value engineering, low cost country sourcing and footprint reduction we will talk about footprint reduction lot over in EPG. But if you remember last year, last couple of years we talked about reducing our footprint within Thomas.

We reduced our footprint in Germany, reduced our footprint in North America, well this year we are reducing our footprint in Nash, we are taking four facilities in the U.S. and combining them into one in Bentleyville somewhere right outside of Pittsburg. We got to take our facilities that’s in distribution centers that’s in Saint Louise we are going to take a packaging center that’s in Elizabeth, which is somewhere at Pittsburg. We are going to take our division office, which is up in Trumbull, Connecticut. We are going to take an R&D center which is in Trumbull, Connecticut we are going to combine four into one. Everybody is excited it’s a beautiful facility the walls are going up its will be occupied in there in about the first, second quarter of next year. So, we do have focused growth on our strategies.

The organic growth for EPG has been nice and it’s we did have the dip in ’09 but we have come back. Our key to organic growth has been of course the upstream and downstream energy, shale gas, rig count, crude oil processing. Again this past week the rig count went up in the U.S. I believe it was 2026, what’s interesting is I think 1112 rigs are drilling for oil, so it’s about 55% of the rigs in the U.S. drilling for oil out of the total. It used to be the other way around for gas being the majority of the rigs.

Infrastructure project as far as power generation, chemical processing, L&G we will be in all of that whether it’s with our Nash product, whether it’s with our Emco Wheaton product et cetera we will be in the infrastructure projects.

Aftermarket, as I talked about our pressure pump repair fluid and capacity that’s where we need to be in order to take advantage in the aftermarket and that’s another key to our organic growth.

Supply chain, the historic business in some areas what really you would have to work with is your supply chain. You have to get your suppliers in line you can’t rely on your conditional suppliers that you always have, you have to go out and get new suppliers, you have to make sure that they are meeting their own time delivery commitments so that you can meet yours. So again lot of work, lot of area but that is a key to our organic growth. And then international expansion in resource rich countries Brazil, China, Russia and I should put in there India also these are areas that we have an office in Russia in Moscow in China we obviously have our plants there and in Brazil I will show you a picture of our Nash plant in Campinas, Brazil. So I think we are well positioned for future growth as we look for organic growth in the future.

The energy market dynamics, I’ve been in the energy market I think now for 35 years and it’s been a fun ride it’s up and down but I guess most exciting in the last few years quite honestly. Before pre-2009 the domestic rig count was driven by gas, that’s what drove the domestic rig count and I just talk about with greater than 50% of your rigs searching for liquids and oil that has decoupled the pricing for with the decoupling of the pricing for oil and gas you can see the rigs now drilling for oil. Free market is a wonderful fitting especially in the oil industry. So we have a strong upside for the in the gas market.

I guess something that heads home to me in this gas market two weeks ago there was a article in the Houston Chronicle, and there has been $133 billion spent in the last couple of years on IOCs and NOCs that’s Independent Oil Companies and National Oil Companies that have in the shale plays. Whether it’s ExxonMobil buying XTO for $31 billion, whether it’s (Inaudible) getting into the shale, whether it’s CNOOC the China national company getting into the Eagle Ford with Chesapeake. $133 billion spent on development are buying into the shale plays by IOCs and NOCs remember in the past shale plays were dominated by small producer’s okay small guys. Now it’s the big guys that’s international oil companies that are getting involved I think that’s significant.

And I guess what’s even more significant was the recent announcement of the acquisition of Kinder Morgan buying El Paso. Look what’s happening Kinder Morgan is basically a liquids pipeline company, El Paso is basically a gas pipeline company. Kinder Morgan has been in the fern saying that there is going to be lot of gas in the next three to five, six, ten years it’s going to be pushed around in this United States. IOCs and NOCs are saying there is going to be a lot of gas that’s going to be coming out of these shale plays I want to be part of that. So I think the strong upside that we see maybe not next year, maybe not year after next but I think as we look down the road that’s where we are going to get our business in the gas in the U.S.

On the global rig count there is new record for global drilling activity in 2011. I think 2012 we are going to have steady growth if the oil price is holding in the $85 range which we are seeing and gas is in the $4 range, which gas is dropping a little bit below that but what happened in the past is the there has been more drilling for oil and there will probably be even more rigs going after the liquids and the oils whether it’s in the Bakken or whether it’s in the Eagle Ford. Shale liquids will continue to drive the rigs just like I said and that’s what we are seeing. So favorable energy pricing, strong shale dynamics as we look forward.

Speaking of shale’s I think everybody knows the map (Inaudible) up there where you see all the shale plays you know hydraulic fracturing and horizontal drilling makes shale gas viable from ’04 to ’08 I mean that’s where it all started. But in ’09 and to-date I think energy pricing makes oil and gas rich liquid shale’s very viable. As I said, you know this morning I looked at the rig count looked at the number of rigs drilling for oil I think it was 1112 you do the math that’s about 55% of the active rigs in the U.S. that are actually drilling for oil today. Whereas in the past there was probably 60%, 65% that were drilling for gas.

So you have significant increase in frack intensity I will talk about that in a little bit I will talk about frack that’s going down 10,000 feet taken off going down another six going across another 16,000 feet. Its mind boggling what’s happening and understand how we are pushing that much pressure down the hole out into the shale opening the formation, cracking the formation and letting the gas or the liquids flow out, interesting stuff. And as I said the U.S. shale is key to the energy independence 2004 I think gas is key as we go down this road in the next five to six years.

Talking about the shale’s in the U.S. but the international really has about six or seven times as much shale estimated anyway by the Energy Information Administration and as the U.S. does the big players are China, Argentina, Mexico, Eastern Europe, Gardner Denver is operating in Poland and actually Gardner Denver pumps are operating in Poland is what I should say there. But again we follow the guidance that are in these various countries around the world. International markets were developed with infrastructure in the next two to three years and we see that to be a large opportunity as we go down the road. So, what are we doing? We are investing in capacity and we are investing in aftermarket to win and to be at the forefront.

Speaking of international, Baker Hughes fractures unconventional shale well in Argentina, Baker Hughes opens facility in Australia, Baker Hughes into China, Schlumberger in the Baltic, Eurasia does the deal with Schlumberger and it’s in Russia. So, H&P FlexRig4M for drilling in Bahrain well as they go, we go. We have partnered with some of the larger drilling contractors or companies that are in this industries and if they go out of the U.S. we will go out of the U.S. When do we need to setup a aftermarket facility in one of these places, when they ask us to. We will be there we will service them just like we do here in the U.S.

So what are some key takeaways that I guess from some of these independent research reports as we look forward? Now this is spears that’s projecting but you can talk to other people and you know the numbers differ but I think it’s still heading in the same direction. Pressure pumping is the largest and fastest growing upstream oilfield market. In fact it’s estimated about $30 billion to spend on pressure pumping in ’11 this year on pressure pumping alone. We have 15,000 new horizontal wells in the U.S. drive demand for hydraulic fracking that’s where the fracking takes place whenever we do the horizontal well.

Frac horsepower we can debate this number of 11 million or go into 17 million we just know there is just a lot of frac horsepower that’s going to be produced out there. And really as you look at the frac horsepower this is talking about funds. The frac horsepower is really in the aftermarket fluid ends because that’s where the horsepower will have you measure it and that’s where you are going to be selling your horsepower’s in the fluid ends the replacements if you will as you go forward.

And forget, really forget all of these graphs and charts that you see here in front of you, we know how many pumps we’ve put out, we know what the market is for our pumps alone. That’s what we are betting on as far as being able to take care of our customers as being able to supply them the number of fluid ends that they need as we go down the road. So you can look at these charts, believe them, not believe them that’s okay. We know where we are we know what we need to do and we know the capacity that we need to create in order to take care of our customer’s needs as we go down the road.

And the international side is just getting starting. So again we have strong fundamentals to drive growth for the foreseeable future.

When I talk about our upstream products there are upstream products I think they say mine but you know the upstream products with Gardner Denver. Talking about pressure pumping, well we are a leader in both the pressure pumping there has been a lot of numbers that have come out, as Barry said on a call a couple of calls ago that if you add everybody’s numbers up we must, we obviously have zero but we know that that’s not the case and we kind of feel pretty good as to where we are.

Our pump and fluid end manufacturing is in Tulsa, Oklahoma and we also manufacture some of our new pumps in Odessa, Texas and we will also manufacture some new fluid ends in (Inaudible) when that facility get’s up and running. With significant expansion since ’08 and the aftermarket repair in Fort Worth, Texas and Marcellus those will be online in the second half of ’12. We actually have a facility in Forth Worth I will show you that facility what it’s like we are going to a world-class Lean facility that we’ve laid out way before we even started pouring any concrete.

So on the pressure pumping side it’s our, it’s we are global leader on the offshore, on and offshore drilling pumps believe it or not the first Gardner Denver drilling pump was built in 1890. We did some research 1890 was the first Gardner Denver drilling pump so we have 100 years of experience in drilling pumps. Then we feel like we are the industry standard in onshore drilling manufacture those drilling pumps in Quincy, Illinois. The new offshore pump was launched in last year it’s been a great success I will talk about that when we’ve done with it here on the slide a little further. But again we think that our logo of our mantra of Pumping Perfected fits us well. So we are a market leader with strong reputation for quality and durability.

Next, I would like to queue up a little bit of a video here on our Tulsa transformation. I do have some (Inaudible) over here in the corner in case any of you get missed behind about how this is and how you feel about it and the people when they look. So just let me know if you need some. Okay.

(Video Playing)

Duane Morgan

So anyway, that's our overview of the Tulsa plant. And then talking about the Tulsa plant, we are investing in well servicing capacity, no two ways about it.

The current investment program was completed in July of '11, we’ve doubled our capacity from what we did in '10, lean production, low cost. As the film said, we took it from five machines to two machines, we cut our production time in less than half. It's been a heck of a transformation and really, a lot of pride from the folks that are there. In fact, last July we brought the Board to the Tulsa plant and the guys were just excited as hell, because they were also able to barbecue for the Board. We have a probably a world-class barbecuing team at the Tulsa plant that can really kick butt on barbecue. I don't know if any of you all have ever barbecued baloney, but it is good, okay? Barbecued baloney is good.

Anyway, there has been a, as I said, significant lean time reduction and as you look over to our aftermarket and our fluid ends, you can see our Fort Worth facility is kind of a series of smaller buildings. We are taking that, transforming it into a world-class facility, around 70,000 square feet, manned with new machines, laid out so that we have a good flow through the building. The testing that you saw in the film there for Tulsa will be replicated at the Fort Worth facility, will also be replicated at the Altoona facility. This is what we do, this is how we do it, this is how we take care of our customer.

The Fort Worth upgrade to world class will be ready in the second half. In fact, we will be moving machines in there right after the first of the year. And the new Marcellus shale aftermarket repair and fluid end production will be ready about the middle of the year.

Again, it came from the voice of the customer, we are here in Marcellus, we are beating our pumps up, we actually have about six or seven mechanics at our customer shops in Marcellus week in and week out. And I can – the major customers demand us having our mechanics at their shops. They also demand us to have a facility that's close by so that we can do major repairs for their jumps, whether it's fluid ends or power ends, either one.

So – and the other thing that the Altoona facility does for us, it takes care of the one-site risk, Tulsa. As you know, there are sometimes some tornadoes that come through that area. God forbid anything like that could ever happen, but again, we want to make sure that we are manufacturing especially our fluid ends in more than just one site and so that's why we are going to also manufacture fluid ends and we are going to replicate what we are doing in Tulsa, not every – not all of it, but to a certain degree in Altoona.

So, these projects that we are spending money on have very high paybacks, we have one here two years, there are some that are paying back in less than a year. So, very excited about the capital that Barry and the Board and Michael is allowing us to spend in the energy side of the business and we think we are putting it to good use for our shareholders.

Pump and fluid end innovation, I'd like to talk a little about this. If you look at the chart there and look at the fluid ends going up the chart, you can see that our designs have evolved based on where our customers need to use these fluid ends, where they are fracking, what the pressures they are using, how severe it is, what kind of profits are going through, as I talked about – as I talked about the sands and the profits, they will be here on the table. As you get into the higher pressure, you get into the profits that really have to be pushed through the pump. It can tear up the fluid end.

So given that, we are continuously developing fluid ends to – for the severe service, we are developing fluid ends for longer life. We started out with the GWS fluid end for the Barnet Shale. We went to the Super GWS for Haynesville and Eagle Ford. And then we've now gone to a stainless steel design, we've got a Twist In design where it makes the ease of maintenance and the Y Drilling Module.

Again, we took the Y fluid end from the frac side, took that over to our drilling and said, let's make a wide fluid end for our 2400 pump and that's what we did; very successful, opportunistic as far as being able to take our frac technology, apply it to our drilling. And if you look at the picture on the right, we’ve taken our drilling technology into our frac and vice versa.

What you see there is two pumps basically doing the same thing. The blue one is our mother ship, if you will, our PZ-11, our drilling pump that's been in operation that our customers swear by. And the other is what I would call ultra light weight drilling pumps, but it's off of a design of our frac pump.

The two pumps will do the same thing, 5,000 psi, it will push fluid at about 650 gallons per minute, both of them do. But the difference is the weight reduction that you see and the footprint reduction. These – that smaller light weight drilling pump as we call it, it won't hold up, it won't be a – it won't operate for 20 years like a PZ-11 will, but on the other hand, it's used in applications where weight and size really matter and that's many times in the Marcellus shale where trucks have weight limits to get into certain areas.

So, some of our drilling contractors would take and set up their drilling rigs with these lighter weight drilling pumps so that they can get into the smaller areas, whether it's Arkansas, whether it's Marcellus, so that you just don't have – you don't have the weight limitation that you would if you were hauling around the PZ-11. The differential is 40,000 pounds versus about 18,000 pounds, big difference as far as the weight of the two pumps. Again, not as robust, but again takes care of the niche that you need.

So in order – by having – by being the leader, if you will, in both drilling and frac pumps, we are able to take the engineering, technology, et cetera from one, give it to the other, and really have the best of both. I talked about the frac farm earlier, what that does for us, and that's where you get the multi-well pads, you get the larger pump that you can make a high-speed pump.

I think I explained in kind of oilfield terms to someone at the OTC the difference between drilling and frac pump. And the way that I explained that was, think about a dragster and think about an 18-wheeler. An 18-wheeler is your drilling pump; put it on the road, that sucker is just going to run, it's going to do continuous duty, it's going to go across the U.S. back and forth five, six, 10 times, no problem. That's our drilling pump. Frac pump, that's your high-speed dragster. You are going to gun the hell out of it for a quarter mile, just run the – just run it all you can and it will perform, and it will perform well and it will do good. So, anyway, that's the difference between a frac pump and our drilling pump. And sorry, I had to get oilfield terms in there.

Our offshore drilling update, and this is interesting, because we designed this pump for the offshore side of the business because we are really known as an onshore drilling pump company. That's where we – that's where we play mostly. So we decided to get into the offshore side.

As Barry said, this is the PZ 2400. But blowing the hole of the first seven pumps we sold, four of them have gone to the land. So we affectionately call it our Surf and Turf pump. It not only does well on the offshore because of the higher pressures, but also does well onshore because of the higher pressures. And an example is in the Bakken as I talked about. This is – I think this is the fourth hole that this pump is drilling – it's on the fourth hole now. This is the number one pump that's out there. It's going down 10,000 feet vertical, 16,000 feet horizontal with 6,000 psi, record performance.

Now, those of you that are staying at the hotel, I did a little map quest. Now, we are going to take a piece of drilling pipe and we are going to run it from our office to the Desmond [ph]. We are going to push mud down that drilling pipe from here to there, then again to that drilling pipe, we've got thin on the end of it we are cutting rock, okay? So that rock is being cut, that mud is going out that drilling bit, it's coming up the annulus, pushing the rock back up to the top, so that gets all of the rock out of the hole. So, just as a visual, think about drill pipe from here to the Desmond and you are pushing mud down that drill pipe and then pulling mud back up. That's what that pump is doing.

Again, I want to use this as a little training tool here. And some folks have asked me about this. We get a lot of folks concerned about the fracking and what is called the balloon frac for 60 years and we have not had any problems with fracking getting into the water table.

As you can see, the water table is up here, probably about a 1,000, maybe 1,500 feet deep at the max. You're going down 10,000 feet before you even kick off and start to think about fracking. The key to this migration into the water table is this string right here, and that's the casing, that's the cemen. That's how you get the well prepared to put the drilling pipe down. It's setting the casing, it's making sure the cemen is correct, so that you do not have any way that mud or saltwater or whatever maybe down – further down in the ground can migrate up into the water table. So it's the casing side of the well that's very, very important as you drill down to make sure there is no migration.

Changing subjects just a little bit, talking about winning in emerging markets, I told you that I would show you the plant in Brazil, our Nash win in Campinas. Really a neat plant, about 75,000 square feet, standalone, low-cost operation, we have about 130 employees there, it's a strong growth in mining, oil and gas, Petrobras is one of our major customers, VALE in the mining, Metso in paper. This past year, we doubled our revenue at that plant. It's really exciting, nice little lean plant. Barry even took their Board – went to their Boards and put a little star on it. So I think they took pictures of it and so forth and so on. He doesn’t give many stars at plants, so it's kind of a fun day.

We also have a plant in Boshan, China. 150,000 square foot, very modern plant, it's advanced manufacturing capabilities – we manufacture not only for the domestic side, but the export. We also do packaging and the building over on the left is our packaging center. We package for the local market, we package for a lot of the regions around. We have about 300 employees there. We are strong in the local end markets, powder, chemicals, and we sell to the major companies in China, the national oil companies, as well as the national chemical companies. So, strong local presence in high-growth geographies.

And exposure to great long-term trends. Again, talking about Thomas and Emco Wheaton, and you can also kind of lump in innovation into this also. Obviously, in our Thomas side, we have growth opportunities in attractive end markets, environmental, government regulations.

The pumps that we use to able to suck the air in, if you will, in order to measure any tiny contaminants in the air is very important to us and as the government regulations get stronger, especially in some of the emerging countries, we see a lot of opportunities in our lab/life sciences where we have our wealth impact product line; university research is continuing, we see that as a dynamic market for us; and of course, in the medical side, the demographics of the aging.

So again, great long-term trends in Thomas, product translation to emerging end markets as I talked about earlier. Having our lab in Wuxi, China to where we are moving and develop tests, products for those emerging markets is very, very important. And innovation, pump with built-in intelligence. It's – we call it 1010I. This pump, okay, we are able to put built-in intelligence into this pump. We are able to determine the flow, very, very important, because in past, you had to go to another piece of equipment in that OEM, whatever it is, that might be – this pump might be in, to determine flow. Now we can do it in the pump; voice of the customer, that's what they wanted.

On the Emco Wheaton side of the business, the global movement of energy drives our growth there. We have strong growth prospects in emerging markets, whether it's FPSO, whether it's EBRVs, Energy Bridge Regasification Vessels, significant aftermarket opportunities, and we are becoming a solution provider.

As I talked about earlier, we are just not hanging dump equipment on the side of trucks, we are also being able to help the transporter bill, help the transporter make sure that the valves are not open where they shouldn't be open, help the transporter make sure that you don't contaminate the different compartments so that you don't have crossover in your fuels. So again, we are becoming a solution provider.

So again, as I said, significant growth opportunities in both our Thomas and our Emco Wheaton businesses. That's all I have today for my presentation. And now, I think we'll go to closing remarks and Q&A. Thank you.

Barry Pennypacker

Thanks, Duane. Well, I think you can see that this is a company that's still continuing its progression, one that's evolving, one that is building a team that is focused on significant growth in our earnings and our cash flow through that five-point strategy, a team that's really developed – continues to develop global powerful group of individuals that understand that strategy and are able to put that forward in a positive way to add shareholder value long term.

Michael showed you some of our metrics and some of our goals. I think you see through Duane and Mike's – Duane and Chris' presentation that we are trying to transition the company to one of higher performance, much focused in its capital deployment as opposed to some of the things we've done in the past.

Much more focused on the return on invested capital was something that was not a term that I heard when I first came to Gardner Denver. But believe me, we are focused on it and we are seeing it and it's in high-teens and we'll continue to grow as we continue to make these investments and have our people through the Gardner Denver way continue to add the types of returns that we know are necessary in order to command the type of multiple that we think we deserve in the marketplace as we continue to transition this company.

So with that, I think we will open it up for question and answer and we'll go from there.

Question-and-Answer Session

Barry Pennypacker

Hi.

Unidentified Participant

If you look across the portfolio today – and you've got a lot of new growth opportunities and you see still a lot of needs within Europe. Are there any glaring voids in the portfolio today as you see that – I don't know if you are willing to talk about or not, but are there –?

Barry Pennypacker

From a product perspective, I would say I'm very pleased with the product portfolio. From a geographic perspective, in order to meet the types of returns that we have from an organic growth standpoint, we are very deficient in footprint.

An example of that is, I think you heard the interference made today that we will be doing a greenfield operation in India and that Indian operation will be shared IPG and EPG. We have substantial growth opportunities in India for the Nash product line, some of the blower product line. They continue to put the infrastructure in place in India through railway, the movement of goods and services is extremely important. And our blower products are the types of things that are necessary in order to aid in the proliferation, if you will, of infrastructure.

So from India's perspective, we are deficient in footprint. And in Canada, we are deficient in footprint in order to service the oil and gas business that continues to grow, particularly in the oil sands area and the liquids area. We are deficient in our footprint there. In Eastern Europe, as the infrastructure is put in place for the oil and gas business, I would say were deficient.

But when I look at the product portfolio and I look at our long-term acquisition strategy, I don't see any glaring holes from a particular perspective. We were – I will be honest with you. Products of Robuschi; I was very concerned about our dry screw technology for areas like food, for areas like paper, but those guys, they have some secret sauce. And that was one of the reasons why we were able to pull the multiple that we paid, because we expect some substantial growth opportunities in markets that we don't currently participate in because of the technology. But I would say, going forward, we are in pretty good shape. What do you guys think?

Michael Larsen

I agree.

Unidentified Participant

So all these greenfield – these are just opening greenfield locations or you – where would you need to acquire versus –?

Barry Pennypacker

No, we don't need to acquire in those areas, we are going to do a greenfield.

Unidentified Participant

Barry, have you gotten to the ninth or tenth hour looking at a third platform –?

Barry Pennypacker

Yes, definitely, Cliff [ph]. I mean, because we need to figure out as we go forward what that looks like. I mean, it would be irresponsible on my part as a fact to just rely on industrial production, as well as the worldwide oil and gas market without thinking about what else fits our core competencies.

And this is one of the things that – as we continue to build the competence I think, if you will, of the operating team that I'll be able to withdraw myself from some of those things and get to the ninth and tenth hour, and I'm probably in the fourth or fifth hour.

But definitely, as Mike will comment too, as we – we are getting the performance of the company to the point where we don't have to be on the phone every week with the Schopfheim Germany facility to ensure that they are going to meet their commitments to us.

As – that gives us time to think more strategically about that fourth point of our strategy, selective acquisitions and there are definitely opportunities out there for us to, not stray too far from our course, but a little where we can apply the Gardner Denver principles, those five-point strategies will absolutely be applicable and that – there is metal, be informed, and things being moved and that's where at some point in time in the future, you should think about the third leg.

Michael Larsen

I think that's right. As we continue to develop our competency from an operational standpoint across the enterprise and build a team that will allow us to go and consider a third leg, I think that's something we will be ready for. We are spending some time thinking about it.

Unidentified Participant

Can I pick up on that one? As I look around the table at the managers here and as I think about your management ranks, I think Duane is the only guy who predates Barry in any place, senior survivor.

Barry Pennypacker

That's right.

Unidentified Participant

Well, I guess what I'm saying is it takes a long time for a culture to gel and it's not typically a three-year process. Now, I think you've done frankly a remarkable job and I've been around Gardner Denver since about 1998 knowing what you started with – starting a leadership. But it takes a long time to get that culture changed. How difficult – maybe I'll ask this to Duane, the things that – the demands that are put on you today as a manager are very different than they were five years ago. How your guys and girls responded to that and what did you have to do to help them respond to that?

Duane Morgan

Well, I mean, I'm really not a long-term Gardner Denver employee.

Unidentified Participant

I know that.

Duane Morgan

I've been here six years. Most of my career was spent with Cameron before that. If I look at my general manager ranks, all of my general managers are within the last three years, okay? So there is a different culture, there is a Danaher, there is a Dresser-Rand, there is a Cameron.

So there are different folks in those locations and in those management positions. And I guess the one thing is that we are all committed and we are all reading out of the same playbook. If you are singing out of the same hymnal and you know what verse to – or what page to turn to, it's kind of easy to get the culture right. We know what our expectations are. We deliver it every day, we are committed to making our numbers as we put forward and we have to play by that rulebook of the Gardner Denver Way. It's laid out, I can give you a copy of it if you want, and everybody knows what that lean transformation is and what we do and how we go about it.

Unidentified Participant

What's your big – I'm sorry, go ahead.

Unidentified Participant

Just shifting gear to the – you talk a lot in book – that individual presentations in yours, Michael, the low cost sourcing strategy. What's the inflection point here? Is there a way to kind of put numbers around it in terms of –?

Barry Pennypacker

Yes, you should – really and probably if you ask me for my single biggest disappointment in the three years I've been at Gardner Denver so far is this. We had the recession, we had certain things we had to do, we had to restructure this, we had to get it right, we had to make our capital investments right, because there is no excuse because we do have policy deployment and we do have goals and objectives in the businesses.

But for some reason or another, that's the one point of the culture that we haven't been able to get ingrained yet. And quite frankly, I think the only way that we are going to get ingrained here at Gardner Denver is by brute force. It's not something that I can talk about any longer, it's not something that I can will to happen any longer.

It's something that the person I brought in to run low cost sourcing is going to go to Duane's facility or to Chris' facility and with my support say, "You no longer have a choice, you are going to buy this goddamn casting from this supplier in Boshan, China and you got to put 35% on the bottom line and I don't really give a rat's behind who you buy the casting from for the last 25 years. I don't care if he has been taking you to the country club every Saturday night for dinner for the last 25 years, it's knocked, it's over, it's going to happen."

That was the only way it happened in prior lives, was by brute force. And quite frankly, we hadn’t manned it properly for brute force, but we've got it manned properly now for brute force. So expect – we are pretty good at communicating when we think those things are going to hit and it's going to be the latter part of next year and it should be substantial.

Unidentified Participant

Baseball analogy, what inning are we in?

Barry Pennypacker

We are not even at the ballpark yet. We are not even at the ballpark yet.

Unidentified Participant

So you have 13% margins in IPG in the third quarter without that. Is there a reason why we are not talking about 14 by 13 today or –?

Barry Pennypacker

Yes, because 14 by 14 is something I came up with and it sounds great.

Unidentified Participant

I was there.

Duane Morgan

And I've been bitching with him ever since.

Barry Pennypacker

And that's been wonderful. You don't have to go very – you don't have to look very deep into your computer minds to understand where we are headed, right? I mean, you can go back and look at volume and see where we are at compared to when we started this thing back in '08 and yes, we are going to be 14 by 14. Where it goes beyond that, we are still modeling. And when we feel like we have a new mantra to communicate, we will do that. And you should expect that to be coming soon.

Unidentified Participant

On the EPG side, and understanding that it's lumpy and maybe it's kind of mixed, but if you like the mix is pretty favorable today, the energy businesses are humming along, and we still have a pretty nice gap to close to kind of estimated peak. What's left there besides the 50 basis points? I guess what my question is, if we stayed at this mix, will it take eight years of 50 basis points to get to that –?

Barry Pennypacker

Absolutely. With – as you said, the energy business is very favorable, we have said that. I mean, the petroleum pump business and frac pump business, we've let you to – even we've told you it's better than the company average, and will continue to be better than the company average as we make the investments that we are making. I don't take lightly investment and quite frankly, I don't particularly like to put up new buildings, but when I see what our customers are telling us, most of these opportunities are for internal growth.

It is – it's a no-brainer. I mean, I could show you models that these guys presented to us for Canada, for Poland, for China where we are talking $15 million, $20 million investments, payback 18 months. I mean, (inaudible) every day of the week, I'll find the money. I'll find the money. So, yes, the long short of it is we will get to the peak faster than 50 basis points.

Unidentified Participant

So they don't – it just comes when?

Barry Pennypacker

Well, here is the thing. Just – we are talking about Nash late cycle business, very good reporting activity in North America, Western Europe with some big orders of booking. When those start to book for the large custom-engineered projects, it could be in the $5 million, $10 million, $15 million range. That is one of the enablers to get to the high-20s, which we define as the peak for the EPG business.

If you go back look at what we told you too, when we say that some of these investments we are making in places like Altoona, places like Bentleyville, places like Fort Worth, Texas, our standard return on invested capital is greater than 18%. I think you are going to find if our return on invested capital in those areas are better than 18% to 20% that the margins on those businesses have got to be better than the company average. You've got to get more than 50 basis points of improvement on that.

Unidentified Participant

Are you also saying that there is investment that's holding back the margins in the near term?

Barry Pennypacker

No, I wouldn’t say it's investment that's holding back the margins in the near term. It's people holding back the margins. We just don't have the resources. I mean, we don't – we just cannot go out and manufacture the type of people that we need to be part of this culture in a very short period of time. Now, I will tell you that I – it's a concern of mine, it's probably my single biggest concern is human resource and not the other resources, not the physical plant, not the capital, it's people.

We are doing things like this year, we have a very substantial effort underway, because I believe we have to grow the talent internally, to a program that we came up with called GOLD, which is Gardner Denver's Operational Leadership Development program.

And what we are going to do is we are going to hire five to 10 university students here and for the first year, they are going to travel the world and they are going to spend a quarter in Germany, they are going to spend a quarter in China, they are going to spend a quarter in Tulsa, Oklahoma, they are going to spend a quarter not at the corporate headquarters, because they don't – we don't add value here. And then at the end of the year, we are going to get together and we are going to have a draft and we are going to decide where those six kids go based on their core competencies, and we're taking applications if you are interested.

But that's the only way we are going to grow the talent that we need because we need to do it internally. And the internal talent that we have right now is fantastic, but they are just crazy with trying to get things done that we need to get done. So until we can get four, five, six years of the GOLD program and those next level of leadership, we are going to be constrained.

Unidentified Participant

I guess, Duane, one question I had was on – if you look at the upstream oil and gas business, Weir Group have sort of said that, "Look, next year the OE piece of that probably shrinks versus this year in terms of the addressable market, and the aftermarket is really what will carry ongoing growth." So I guess, if I look at your business today, it seems much more OE weighted than aftermarket compared with Weir Group's business. But I guess, I wanted to – how well do you think your position –?

Barry Pennypacker

I don't think you should assume that. Go back to – go back and look at that chart, let me see this – what page is that chart on, it's right around here. Go to page 56, okay?

It might be a hard distinction for you to make, but if you look at that middle chart in the middle of 56, we let that one out on purpose. You can see the light blue and dark blue. And as you can see, the dark blue is OEM pumps and we substantially believe that our OE business is going to – it's going to be on a steady downward track. There's no essential BUD to stop that.

The dynamic that's going to take place is that all of this incremental capacity that we are putting out there now is going to require aftermarket. And Weir Group is for the first – well, I shouldn’t say for the first time, but they are correct in their assumption that the aftermarket portion of the business should be up dramatically compared to the OE pump portion of the business.

Unidentified Participant

And the capacity you are putting in now, you think is – that comes on stream soon enough that you can take advantage of that on the fluid ends?

Barry Pennypacker

Yes, I mean, we've got people up there in Altoona busting contractors over their head every single day of the week to get that building done, yes, absolutely. I've got the machine folks come – the third – the second week of February, they are going to be dropped at home up there in Altoona and they are going to be running 30 days later.

Unidentified Participant

When this big international second leg, if you will, kicks in, are these domestic facilities you are building the ones that will supply that or are we going to need the local presence, local footprint?

Barry Pennypacker

We'll need local presence. I mean, you are not going to take a 20,000-pound fluid end from Altoona and ship it to Poland to be competitive. Fortunately for us, I mean, we've got a great footprint. If you look at what we have seen in Nuremberg, Germany right now, big stuff. If you look at what we have seen in Boshan, China right now, big stuff. And fluid ends are big stuff. And we are waiting and we are willing and we are able and I think we are positioned very well to take advantage of that as the market changes.

Unidentified Participant

Same thing with Brazil?

Barry Pennypacker

Brazil too, absolutely.

Unidentified Participant

Duane, I was surprised you said that 20% of the fleet pumps get upgraded annually. That seemed like a very impressive number. Where does that – what's the source on that?

Duane Morgan

Well, that's a source that we've bought. I've got quite a few friends in the industry and as you look – you got to back up and say, "Well, look here. What does that mean?"

Well, what it means is that maybe you are not taking that pump off of that frac fleet and putting a new one on there. Maybe what you are doing is taking that pump off of that frac fleet and you're repairing the power end of it, you are having to take care of some well mud that may have cracked, you may have to change out some bearings, you may have to change out other parts of that pump. So that 20% really – it really is a bit of an upgrade too. It's not only replacing what's coming out, but it's also upgrading or taking care of or re-manning what's there.

Unidentified Participant

Yes, that helps me. Thank you.

Unidentified Participant

You guys are obviously playing close attention to what Schlumberger says. In their last call, they talked about pricing being a little softer on the liquid side for fracking. It doesn’t sound like you guys are seeing any of that. Certainly, your volume end was much more positive. Where is the disconnect, who has too much supply or where is the weakness?

Barry Pennypacker

Go ahead, Duane and I'll –

Duane Morgan

If you listened to that call and read the call and seen exactly what they said, what they said was the increase in pricing of the higher-end fracking is leveling off, okay? That's what they said, was the increase in pricing that they saw in the frac jobs that are more robust, that are in the Bakken, et cetera, you are not seeing the increasing like it's been increasing, it's leveling off.

Now, you are seeing – in some of the lower-end fracking jobs, you are seeing a little bit of softness, if you will. But they are – the Baker's, the Schlumberger's, all of those guys, they want to play in the high-end frac jobs. And so, that's where they are. So it's not – the higher-end jobs are not increasing like they were as far as they've been able to get more price out of it, it's leveling off.

Unidentified Participant

Higher end being more stages?

Duane Morgan

Being more stages, more pressure, greater laterals like I was talking about, 10,000 and 16,000, those sorts of things.

Unidentified Participant

Okay.

Barry Pennypacker

Maybe a couple more?

Unidentified Participant

I guess, Chris, on – in the industrial business, there was some reference on the last call, obviously the China business slowing down and again today, can you talk about which industries you are seeing that in, how long it's been going on, what are you –?

Michael Larsen

Let me just say one thing about China. China can slow down and cut – China cut their GDP in half, you are not going to see any impact on Gardner Denver at all from an earnings perspective. Now you can tell him which month.

Chris Celtruda

Yes, in terms of significance – so – and I've talked a little bit in the break on this. We are seeing kind of a split, right. The longer cycle, larger project work, we are seeing steady order intake. I mentioned the work we are doing with the EPC companies both in China and Southeast Asia, very strong quotation pipeline, very strong booking rate.

I think what we are seeing is the fact that there has been some credit squeeze in China and an attempt to kind of cool off an overheated economy and curb inflation. So on the lower-end products, side channel blowers, low power level compressors, we are seeing some reduction in order intake. Your larger plant level compressors, your aftermarket, we are not seeing any change in order intake in those streams for us in China.

Michael Larsen

Let me just say a couple of things on long-term growth rates, okay? So clearly, 2011 is an unusual year in that you should not assume that the IPG business is going to continue to grow at 15% every year. You should not assume that the EPG business will continue to grow at 40% every year into perpetuity.

So we've shared with you today our internal goal of growing at two times GDP and I just wanted to – we don't give guidance on revenue, but I just want to make sure we were – we're kind of grounded on what the statistic expectations are for these businesses.

Now, China is a great business for us, it's been growing at 20% plus for many years. If the growth rate there is 10% next year or 5%, we will be just fine, okay? I'll (inaudible) if global GDP growth settles in the low-single digits, 2% to 4%, we can live with that too and we are comfortable to continue to grow earnings and deliver superior earnings and cash growth like we've done this year.

Unidentified Participant

So, a question on the global footprint. You highlighted some of the transformations you've done, the projects you have that are going in now. What about the rest of the footprint in terms of those transformative projects? Are those largely done, are there more of that we just don't know about?

Barry Pennypacker

I think if you take some of the hints that I have been communicating, I think one will have to assume that I'm not happy with our footprint in Europe. We said that we acquired Robuschi as an enabler for some cost reductions in areas where we have much higher cost. And I think enough said.

Unidentified Participant

Barry, what is the typical – I know it's a lot of different products, but what's the typical percentage of labor in the building materials, in the cost of goods sold?

Barry Pennypacker

Cost of goods sold? 10% in Celtruda's group and 20% – it varies greatly between by product line and by business.

Unidentified Participant

But if I looked at a blended average across the whole company – maybe? Okay. So materials are how much, 30%, 40%, 50%?

Barry Pennypacker

60%.

Unidentified Participant

60%? Okay. So your inability to harness your supply chain opportunities is a whole lot more troublesome than moving from Germany to Italy.

Barry Pennypacker

That's correct.

Unidentified Participant

Okay.

Barry Pennypacker

Absolutely. But moving from Germany to Italy buys me some time to get the supply chain fixed.

Unidentified Participant

Yes, I got it.

Michael Larsen

Okay. If there are no further questions, I think this concludes the meeting. Thank you very much for attending and –

Barry Pennypacker

Yes, let me just say a few words. This is our first time and it was – it's – I thought it was very good, I appreciate the preparation everyone put into this meeting. It does take a lot of preparation and it does take you away from the things that you should be doing on a daily basis, but I think it's important that you and the analyst community to get to know the operating team.

Next year, we won't be at this corporate office for the Analyst Day. It will be at one of the plants that I'm hoping that – I think Altoona is a – it’s a good place, maybe on a Friday before a Wednesday football game. I know some people have interest in – as (inaudible), maybe not as much today as – I think yesterday as a result of the things that are happening out there.

But anyway, I think it's important that we get out to the plant and show you the things we are doing and understanding that. And so, I think next year you could count on either Bentleyville, Pennsylvania, which is right outside of Pittsburgh or Altoona, which is right smack at the middle of the state. And we'll have a lot more fun that way.

Unidentified Participant

Barry, for you guys, I got to say – you can nod your heads or disagree with me, this has been a terrific – this is really right on to money. It's exactly what we needed, there wasn’t one bad slide in there. It told us the kind of stuff we need. I would have thought you've been doing this once a year for the last decade. So whoever (inaudible) in this presentation process did a damn good job.

Barry Pennypacker

Well, brute force.

Unidentified Participant

That's okay.

Barry Pennypacker

We are – yes, we are proud of the company and we've got a long way to go and we still have to – as I said, there is a lot of things that we don't celebrate internally. But we do face the brutal [ph] fact and that's the company we are.

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