##### Table of Contents



Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-Q
 Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For
the Quarterly Period Ended June 30, 2005
 Commission
file number 001-32586
 Dresser-Rand Group Inc.
  Delaware
    
    20-1780492(State or other jurisdiction
    
    (I.R.S. Employerof
    
    Identification No.)incorporation ororganization)
 Paul Clark DriveOlean, NY
    
    14760(Address of principal
    
    (Zip Code)executive offices)
  
   
  o þ
 o þ
 o þ
    Page 1 of 32




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PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Consolidated Statement of Operations (Successor) and Combined Statement of
Operations (Predecessor) for the three months and six months ended June 30, 2005,
(Successor) and 2004 (Predecessor)
    
    
    3Consolidated Balance Sheet at June 30, 2005, and December 31, 2004
    
    
    4Consolidated Statement of Cash Flows (Successor) and Combined Statement of Cash
Flows (Predecessor) for the six months ended June 30, 2005, (Successor) and 2004
(Predecessor)
    
    
    5Notes to Consolidated and Combined Financial Statements at June 30, 2005
    
    
    6-13Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14-21Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    23-24PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 6. Exhibits
    
    
    26Signatures
    
    
    27Exhibits
    
    
    28-32EX-31.1: CERTIFICATIONEX-31.1: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  Page 2 of 32




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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Successor
    
    
    
    Predecessor
    
    
    Successor
    
    
    
    PredecessorThree months ended
    
    
    
    Three months ended
    
    
    Six months ended
    
    
    
    Six months endedJune 30, 2005
    
    
    
    June 30, 2004
    
    
    June 30, 2005
    
    
    
    June 30, 2004Net sales of products
    
    $
    247,143
    
    
    
    $
    213,027
    
    
    $
    425,591
    
    
    
    $
    339,389Net sales of services
    
    
    55,335
    
    
    
    
    55,917
    
    
    
    110,887
    
    
    
    
    98,990Net sales to affiliates
    
    
    
    
    
    
    
    356
    
    
    
    
    
    
    
    
    982Other operating revenue
    
    
    
    
    
    
    
    583
    
    
    
    
    
    
    
    
    870Total
    
    
    302,478
    
    
    
    
    269,883
    
    
    
    536,478
    
    
    
    
    440,231Cost of products sold
    
    
    197,066
    
    
    
    
    172,439
    
    
    
    340,881
    
    
    
    
    261,542Cost of services sold
    
    
    41,634
    
    
    
    
    43,633
    
    
    
    84,110
    
    
    
    
    76,813Cost of products sold to affiliates
    
    
    
    
    
    
    
    174
    
    
    
    
    
    
    
    
    656Total
    
    
    238,700
    
    
    
    
    216,246
    
    
    
    424,991
    
    
    
    
    339,011Gross profit
    
    
    63,778
    
    
    
    
    53,637
    
    
    
    111,487
    
    
    
    
    101,220Selling and administrative expenses
    
    
    41,156
    
    
    
    
    37,874
    
    
    
    78,517
    
    
    
    
    77,510Research and development expenses
    
    
    1,864
    
    
    
    
    1,568
    
    
    
    3,496
    
    
    
    
    3,092Income from operations
    
    
    20,758
    
    
    
    
    14,195
    
    
    
    29,474
    
    
    
    
    20,618Interest (expense) income, net
    
    
    (14,420
    )
    
    
    
    1,399
    
    
    
    (29,653
    )
    
    
    
    1,102Other expense, net
    
    
    (400
    )
    
    
    
    (280
    )
    
    
    (580
    )
    
    
    
    (2,665
    )Income
(loss) before income taxes
    
    
    5,938
    
    
    
    
    15,314
    
    
    
    (759
    )
    
    
    
    19,055Provision for income taxes
    
    
    7,463
    
    
    
    
    1,944
    
    
    
    4,784
    
    
    
    
    2,375Net (loss) income
    
    $
    (1,525
    )
    
    
    $
    13,370
    
    
    $
    (5,543
    )
    
    
    $
    16,680Net loss per share:Basic and diluted
    
    $
    (0.03
    )
    
    
    
    
    
    
    $
    (0.10
    )Shares used in computing net loss per share:Basic and diluted
    
    
    54,219,297
    
    
    
    
    
    
    
    
    54,219,297




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##### Table of Contents



June 30,
    
    
    December 31,2005
    
    
    2004(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    176,172
    
    
    $
    111,500Accounts receivable, less allowance for doubtful
accounts of $11,847 in 2005 and $14,569 in 2004
    
    
    181,497
    
    
    
    265,479Inventories, net
    
    
    160,286
    
    
    
    175,873Prepaid expenses
    
    
    21,566
    
    
    
    14,256Deferred income taxes
    
    
    11,193
    
    
    
    7,445Total current assets
    
    
    550,714
    
    
    
    574,553Investments in and advances to partially owned
companies  at equity
    
    
    2,012
    
    
    
    12,448Property, plant and equipment, less accumulated depreciation
of $14,016 in 2005 and $3,949 in 2004
    
    
    213,880
    
    
    
    226,764Goodwill
    
    
    395,788
    
    
    
    423,330Intangible assets, net
    
    
    454,382
    
    
    
    479,587Other assets
    
    
    30,111
    
    
    
    34,392Total assets
    
    $
    1,646,887
    
    
    $
    1,751,074Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable and accruals
    
    $
    258,579
    
    
    $
    271,275Customer advance payments
    
    
    115,953
    
    
    
    38,661Income taxes payable
    
    
    2,222
    
    
    
    12,977Loans payable
    
    
    69
    
    
    
    2,734Current maturities of long-term debt
    
    
    
    
    
    
    4,015Total current liabilities
    
    
    376,823
    
    
    
    329,662Deferred income taxes
    
    
    29,444
    
    
    
    27,287Postemployment and other employee benefit liabilities
    
    
    109,864
    
    
    
    111,640Long-term debt
    
    
    689,662
    
    
    
    816,664Other noncurrent liabilities
    
    
    15,478
    
    
    
    12,924Total liabilities
    
    
    1,221,271
    
    
    
    1,298,177Commitments and contingencies
(Notes 6, 7 and 8)Shareholders EquityCommon stock, $0.01 par value, 250,000,000 shares
authorized in 2005 and 101,200,000 shares in 2004;
54,219,297 shares issued and outstanding.
    
    
    542
    
    
    
    542Additional paid in capital
    
    
    439,499
    
    
    
    436,642Retained earnings
    
    
    1,686
    
    
    
    7,229Accumulated other comprehensive (loss) income
    
    
    (16,111
    )
    
    
    8,484Total shareholders equity
    
    
    425,616
    
    
    
    452,897Total liabilities and shareholders equity
    
    $
    1,646,887
    
    
    $
    1,751,074




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##### Table of Contents



Successor
    
    
    
    PredecessorSix months ended
    
    
    
    Six months endedJune 30, 2005
    
    
    
    June 30, 2004Cash flows from operating activitiesNet (loss) income
    
    $
    (5,543
    )
    
    
    $
    16,680Adjustments to arrive at net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    33,610
    
    
    
    
    13,973Amortization of deferred financing costs
    
    
    4,804
    
    
    
    
    Adjustment to allowance for doubtful accounts
    
    
    (1,773
    )
    
    
    
    (819
    )Provision for estimated losses on inventory
    
    
    1,004
    
    
    
    
    4,471Deferred income taxes
    
    
    (285
    )
    
    
    
    (1,871
    )Employee equity compensation
    
    
    2,857
    
    
    
    
    Other
    
    
    (1,303
    )
    
    
    
    (2,586
    )(Increase) decrease in:Accounts receivable
    
    
    78,612
    
    
    
    
    37,220Inventories
    
    
    8,178
    
    
    
    
    (14,259
    )Other current and noncurrent assets
    
    
    (12,519
    )
    
    
    
    12,814Increase (decrease) in:Accounts payable and accruals
    
    
    7,006
    
    
    
    
    (31,966
    )Customer advance payments
    
    
    79,824
    
    
    
    
    23,327Other current and noncurrent liabilities
    
    
    (6,078
    )
    
    
    
    (41,005
    )Net cash provided by operating activities
    
    
    188,394
    
    
    
    
    15,979Cash flows from investing activitiesCapital expenditures
    
    
    (5,001
    )
    
    
    
    (2,321
    )Proceeds from sale of equity investment
    
    
    10,000
    
    
    
    
    Proceeds from sales of property, plant and equipment
    
    
    241
    
    
    
    
    545Proceeds from sale of marketable securities
    
    
    
    
    
    
    
    1,037Net cash provided by (used in) investing activities
    
    
    5,240
    
    
    
    
    (739
    )Cash flows from financing activitiesPayments of short-term borrowings
    
    
    (2,658
    )
    
    
    
    (475
    )(Payments of) proceeds from long term debt
    
    
    (121,162
    )
    
    
    
    36Changes in receivable from IR
    
    
    
    
    
    
    
    (15,960
    )Net cash used in financing activities
    
    
    (123,820
    )
    
    
    
    (16,399
    )Effect of exchange rate changes on cash
    
    
    (5,142
    )
    
    
    
    249Net increase (decrease) in cash and cash equivalents
    
    
    64,672
    
    
    
    
    (910
    )Cash and cash equivalents, beginning of the period
    
    
    111,500
    
    
    
    
    41,537Cash and cash equivalents, end of period
    
    $
    176,172
    
    
    
    $
    40,627




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##### Table of Contents



1. Basis of presentation
    2. Recently issued accounting standards
 , Inventory
Costs, an Amendment of Accounting Research Bulletin No. 43, and Chapter 4
 Share-Based Payments Accounting for Stock- Based Compensation Accounting for Stock Issued to Employees
 Exchanges of Non-monetary Assets Accounting for Non-monetary Transactions




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##### Table of Contents



Accounting for Conditional Asset
Retirement Obligations
 Accounting Changes and Error Corrections
 3. Inventories
  June 30,
    
    
    December 31,(In thousands)
    
    2005
    
    
    2004(unaudited)Raw materials and supplies
    
    $
    75,932
    
    
    $
    60,728Work-in-process and finished goods
    
    
    252,998
    
    
    
    209,247328,930
    
    
    
    269,975Less progress payments
    
    
    (168,644
    )
    
    
    (94,102
    )Total inventories
    
    $
    160,286
    
    
    $
    175,873
  4. Intangible assets and goodwill
  June 30, 2005
    
    
    December 31, 2004Accumulated
    
    
    
    
    
    
    Accumulated(In thousands)
    
    Cost
    
    
    amortization
    
    
    Cost
    
    

amortization(unaudited)Trade names
    
    $
    82,700
    
    
    $
    1,376
    
    
    $
    82,700
    
    
    $
    344Customer relationships
    
    
    224,413
    
    
    
    3,772
    
    
    
    227,746
    
    
    
    936Software and technology
    
    
    149,653
    
    
    
    5,216
    
    
    
    149,653
    
    
    
    1,304Other amortizable intangible assets
    
    
    31,677
    
    
    
    23,697
    
    
    
    31,828
    
    
    
    9,756Total
    
    $
    488,443
    
    
    $
    34,061
    
    
    $
    491,927
    
    
    $
    12,340




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##### Table of Contents



(In thousands)
    
    June 30, 2005Balance at January 1, 2005
    
    $
    423,330Translation adjustments
    
    
    (27,542
    )Balance at June 30, 2005
    
    $
    395,788
 5. Income taxes
   Accounting for Income Taxes.




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##### Table of Contents



6. Pension plans
  Successor
    
    
    
    Predecessor
    
    
    Successor
    
    
    
    PredecessorThree months ended
    
    
    
    Three months ended
    
    
    Six months ended
    
    
    
    Six months ended(In thousands)
    
    June 30, 2005
    
    
    
    June 30, 2004
    
    
    June 30, 2005
    
    
    
    June 30, 2004Service cost
    
    $
    1,232
    
    
    
    $
    1,403
    
    
    $
    2,593
    
    
    
    $
    2,806Interest cost
    
    
    4,315
    
    
    
    
    5,017
    
    
    
    8,637
    
    
    
    
    10,034Expected return on plan assets
    
    
    (5,016
    )
    
    
    
    (6,312
    )
    
    
    (9,753
    )
    
    
    
    (12,625
    )Net amortization of unrecognized:Prior service cost
    
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    
    173Plan net losses
    
    
    
    
    
    
    
    997
    
    
    
    
    
    
    
    
    1,994Net periodic pension cost
    
    $
    531
    
    
    
    $
    1,191
    
    
    $
    1,477
    
    
    
    $
    2,382
 7. Postretirement benefits other than pensions
  Successor
    
    
    
    Predecessor
    
    
    Successor
    
    
    
    PredecessorThree months ended    
    
    
    Three months ended
    
    
    Six months ended
    
    
    
    Six months ended(In thousands)
    
    June 30, 2005
    
    
    June 30, 2004
    
    June 30, 2005
    
    
    June 30, 2004Service cost
    
    $
    547
    
    
    
    $
    465
    
    
    $
    999
    
    
    
    $
    978Interest cost
    
    
    695
    
    
    
    
    2,734
    
    
    
    1,368
    
    
    
    
    5,677Net amortization of unrecognized:Prior service cost
    
    
    
    
    
    
    
    (258
    )
    
    
    
    
    
    
    
    (516
    )Plan net losses
    
    
    
    
    
    
    
    794
    
    
    
    
    
    
    
    
    1,899Net periodic postretirement
benefits cost
    
    $
    1,242
    
    
    
    $
    3,735
    
    
    $
    2,367
    
    
    
    $
    8,038
 8. Commitments and contingencies




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9. Warranty accruals




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##### Table of Contents



Six
Months endedSuccessor
    
    
    
    PredecessorJune 30,
    
    
    
    June 30,(In thousands)
    
    2005
    
    
    
    2004Beginning of period
    
    $
    21,078
    
    
    
    $
    23,699Provisions for warranties issued during the period
    
    
    5,648
    
    
    
    
    5,436Adjustments to warranties issued in prior periods
    
    
    653
    
    
    
    
    (2,269
    )Payments during the period
    
    
    (7,243
    )
    
    
    
    (7,947
    )Translation adjustments
    
    
    (989
    )
    
    
    
    297End of period
    
    $
    19,147
    
    
    
    $
    19,216
 10. Other comprehensive (loss) income
  Successor
    
    
    
    Predecessor
    
    
    Successor
    
    
    
    PredecessorThree months
    
    
    
    Three months
    
    
    Six months
    
    
    
    Six monthsended
    
    
    
    ended
    
    
    ended
    
    
    
    endedJune 30, 2005
    
    
    
    June 30, 2004
    
    
    June 30, 2005
    
    
    
    June 30, 2004(In thousands)Net (loss) income
    
    $
    (1,525
    )
    
    
    $
    13,370
    
    
    $
    (5,543
    )
    
    
    $
    16,680Other comprehensive (loss) income:Change in value of cash flow hedge
    
    
    
    
    
    
    
    (88
    )
    
    
    
    
    
    
    
    136Foreign currency translation adjustment
    
    
    (10,852
    )
    
    
    
    1,012
    
    
    
    (24,595
    )
    
    
    
    2,011Comprehensive (loss) income
    
    $
    (12,377
    )
    
    
    $
    14,294
    
    
    $
    (30,138
    )
    
    
    $
    18,827
  June 30,
    
    
    December 31,2005
    
    
    2004(In thousands)
    
    (Unaudited)Minimum pension liability, net of tax
    
    $
    (922
    )
    
    $
    (922
    )Foreign currency translation adjustment
    
    
    (15,189
    )
    
    
    9,406Accumulated other comprehensive (loss) income
    
    $
    (16,111
    )
    
    $
    8,484
 11. Segment information




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##### Table of Contents



Successor
    
    
    Predecessor
    
    Successor
    
    
    PredecessorThree months
    
    
    Three months
    
    Six months
    
    
    Six monthsended
    
    
    ended
    
    ended
    
    
    endedJune 30, 2005
    
    
    June 30, 2004
    
    June 30, 2005
    
    
    June 30, 2004(In thousands)SalesNew units
    
    $
    148,192
    
    
    
    $
    126,878
    
    
    $
    236,457
    
    
    
    $
    170,677Aftermarket
parts and
services
    
    
    154,286
    
    
    
    
    143,005
    
    
    
    300,021
    
    
    
    
    269,554Total
    
    $
    302,478
    
    
    
    $
    269,883
    
    
    $
    536,478
    
    
    
    $
    440,231Operating IncomeNew units
    
    $
    2,429
    
    
    
    $
    168
    
    
    $
    (3,629
    )
    
    
    $
    1,662Aftermarket
parts and
services
    
    
    30,936
    
    
    
    
    24,347
    
    
    
    54,780
    
    
    
    
    43,070Unallocable
    
    
    (12,607
    )
    
    
    
    (10,320
    )
    
    
    (21,677
    )
    
    
    
    (24,114
    )Total
    
    $
    20,758
    
    
    
    $
    14,195
    
    
    $
    29,474
    
    
    
    $
    20,618Depreciation and
AmortizationNew units
    
    $
    8,249
    
    
    
    $
    3,762
    
    
    $
    14,700
    
    
    
    $
    5,721Aftermarket
parts and
services
    
    
    8,410
    
    
    
    
    3,178
    
    
    
    18,910
    
    
    
    
    8,252Total
    
    $
    16,659
    
    
    
    $
    6,940
    
    
    $
    33,610
    
    
    
    $
    13,973Total AssetsNew units
    
    $
    212,844
    
    
    
    
    
    
    
    $
    212,844Aftermarket
parts and
services
    
    
    522,909
    
    
    
    
    
    
    
    
    522,909Unallocable
    
    
    911,134
    
    
    
    
    
    
    
    
    911,134Total
    
    $
    1,646,887
    
    
    
    
    
    
    
    $
    1,646,887
 12. Acquisition




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13. Subsequent events




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Overview
   New Units
 Aftermarket Parts and Services
 Results of Operations
 Total
Company  three months ended June 30, 2005 (Successor)
compared to three months ended June 30, 2004 (Predecessor)
 Period to PeriodSuccessor
    
    
    Predecessor
    
    ChangeThree Months
    
    
    Three Months
    
    2004 toEnded June 30, 2005
    
    
    Ended June 30, 2004
    
    2005
    
    
    Change(Dollars in millions)Statement of Operations Data:Sales, net
    
    $
    302.5
    
    
    
    100.0
    %
    
    
    $
    269.9
    
    
    
    100.0
    %
    
    $
    32.6
    
    
    
    12.1
    %Cost of goods sold
    
    
    238.7
    
    
    
    78.9
    %
    
    
    
    216.3
    
    
    
    80.1
    %
    
    
    22.4
    
    
    
    10.4
    %Gross profit
    
    
    63.8
    
    
    
    21.1
    %
    
    
    
    53.6
    
    
    
    19.9
    %
    
    
    10.2
    
    
    
    19.0
    %Selling and administrative expenses
    
    
    41.2
    
    
    
    13.6
    %
    
    
    
    37.8
    
    
    
    14.0
    %
    
    
    3.4
    
    
    
    9.0
    %Research and development expenses
    
    
    1.9
    
    
    
    0.6
    %
    
    
    
    1.6
    
    
    
    0.6
    %
    
    
    0.3
    
    
    
    18.8
    %Operating income
    
    
    20.7
    
    
    
    6.8
    %
    
    
    
    14.2
    
    
    
    5.3
    %
    
    
    6.5
    
    
    
    45.8
    %Interest (expense) income, net
    
    
    (14.4
    )
    
    
    (4.8
    )%
    
    
    
    1.4
    
    
    
    0.5
    %
    
    
    (15.8
    )
    
    
    (1128.6
    )%Other (expense), net
    
    
    (0.4
    )
    
    
    (0.1
    )%
    
    
    
    (0.3
    )
    
    
    (0.1
    )%
    
    
    (0.1
    )
    
    
    33.3
    %Income (loss) before income taxes
    
    
    5.9
    
    
    
    1.9
    %
    
    
    
    15.3
    
    
    
    5.7
    %
    
    
    (9.4
    )
    
    
    (61.4
    )%Provision for income taxes
    
    
    7.4
    
    
    
    2.4
    %
    
    
    
    1.9
    
    
    
    0.7
    %
    
    
    5.5
    
    
    
    289.5
    %Net income (loss)
    
    $
    (1.5
    )
    
    
    (0.5
    )%
    
    
    $
    13.4
    
    
    
    5.0
    %
    
    $
    (14.9
    )
    
    
    (111.2
    )%




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##### Table of Contents



Sales .
 Cost of goods sold .
 Selling and administrative expenses .
 Research and development .
 Operating income .
 Interest (expense) income, net th
 Provision for income taxes .
 Bookings and backlog .




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##### Table of Contents



Segment Analysis  three months ended June 30,
2005 (Successor) compared to three months ended
June 30, 2004 (Predecessor)
 Period to PeriodSuccessor
    
    
    Predecessor
    
    ChangeThree Months Ended
    
    
    Three Months Ended
    
    2004 toJune 30, 2005
    
    

June
30, 2004
    
    2005
    
    Change(Dollars in millions)Sales, netNew units
    
    $
    148.2
    
    
    
    49.0
    %
    
    
    $
    126.9
    
    
    
    47.0
    %
    
    $
    21.3
    
    
    
    16.8
    %Aftermarket parts and services
    
    
    154.3
    
    
    
    51.0
    %
    
    
    
    143.0
    
    
    
    53.0
    %
    
    
    11.3
    
    
    
    7.9
    %$
    302.5
    
    
    
    100.0
    %
    
    
    $
    269.9
    
    
    
    100.0
    %
    
    $
    32.6
    
    
    
    12.1
    %Gross ProfitNew units
    
    $
    15.0
    
    
    
    
    
    
    
    $
    11.5
    
    
    
    
    
    
    $
    3.5
    
    
    
    30.4
    %Aftermarket parts and services
    
    
    48.8
    
    
    
    
    
    
    
    
    42.1
    
    
    
    
    
    
    
    6.7
    
    
    
    15.9
    %Total gross profit
    
    $
    63.8
    
    
    
    
    
    
    
    $
    53.6
    
    
    
    
    
    
    $
    10.2
    
    
    
    19.0
    %Operating Income (Loss)New units
    
    $
    2.4
    
    
    
    
    
    
    
    $
    0.2
    
    
    
    
    
    
    $
    2.2
    
    
    
    1100.0
    %Aftermarket parts and services
    
    
    30.9
    
    
    
    
    
    
    
    
    24.3
    
    
    
    
    
    
    
    6.6
    
    
    
    27.2
    %Unallocated corporate expense
    
    
    (12.6
    )
    
    
    
    
    
    
    
    (10.3
    )
    
    
    
    
    
    
    (2.3
    )
    
    
    22.3
    %Total operating income
    
    $
    20.7
    
    
    
    
    
    
    
    $
    14.2
    
    
    
    
    
    
    $
    6.5
    
    
    
    45.8
    %
 New Units
 Sales .
 Gross profit .
 Operating income .
 Bookings and backlog .




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##### Table of Contents



Aftermarket Parts and Services
 Sales .
 Gross profit .
 Operating income .
 Bookings and backlog .
 Total
Company  Six months ended June 30, 2005 (Successor)
compared to six months ended June 30, 2004 (Predecessor)
 Period to PeriodSuccessor
    
    
    Predecessor
    
    ChangeSix Months Ended
    
    
    Six Months Ended
    
    2004 toJune 30, 2005
    
    
    June 30, 2004
    
    2005
    
    Change(Dollars in millions)Statement of Operations Data:Sales, net
    
    $
    536.5
    
    
    
    100.0
    %
    
    
    $
    440.2
    
    
    
    100.0
    %
    
    $
    96.3
    
    
    
    21.9
    %Cost of goods sold
    
    
    425.0
    
    
    
    79.2
    %
    
    
    
    339.0
    
    
    
    77.0
    %
    
    
    86.0
    
    
    
    25.4
    %Gross profit
    
    
    111.5
    
    
    
    20.8
    %
    
    
    
    101.2
    
    
    
    23.0
    %
    
    
    10.3
    
    
    
    10.2
    %Selling and administrative expenses
    
    
    78.5
    
    
    
    14.6
    %
    
    
    
    77.5
    
    
    
    17.6
    %
    
    
    1.0
    
    
    
    1.3
    %Research and development expenses
    
    
    3.5
    
    
    
    0.7
    %
    
    
    
    3.1
    
    
    
    0.7
    %
    
    
    0.4
    
    
    
    12.9
    %Operating income
    
    
    29.5
    
    
    
    5.5
    %
    
    
    
    20.6
    
    
    
    4.7
    %
    
    
    8.9
    
    
    
    43.2
    %Interest (expense) income, net
    
    
    (29.6
    )
    
    
    (5.5
    )%
    
    
    
    1.1
    
    
    
    0.2
    %
    
    
    (30.7
    )
    
    
    (2790.9
    )%Other income (expense), net
    
    
    (0.6
    )
    
    
    (0.1
    )%
    
    
    
    (2.6
    )
    
    
    (0.6
    )%
    
    
    2.0
    
    
    
    (76.9
    )%Income (loss) before income taxes
    
    
    (0.7
    )
    
    
    (0.1
    )%
    
    
    
    19.1
    
    
    
    4.3
    %
    
    
    (19.8
    )
    
    
    (103.7
    )%(Benefit) Provision for income taxes
    
    
    4.8
    
    
    
    0.9
    %
    
    
    
    2.4
    
    
    
    0.5
    %
    
    
    2.4
    
    
    
    100.0
    %Net income (loss)
    
    $
    (5.5
    )
    
    
    (1.0
    )%
    
    
    $
    16.7
    
    
    
    3.8
    %
    
    $
    (22.2
    )
    
    
    (132.9
    )%
 Sales .
 Cost of goods sold .
 Page 17 of 32




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##### Table of Contents



Selling and administrative expenses .
 Research and development .
 Operating income .
 Interest
(expense) income, net . th
 Other expense, net .
 Provision for income taxes .
 Bookings .




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##### Table of Contents



Segment
Analysis  six months ended June 30, 2005 (Successor)
compared to six months ended June 
30, 2004 (Predecessor)
 Period to PeriodSuccessor
    
    
    Predecessor
    
    ChangeSix Months Ended
    
    
    Six Months Ended
    
    2004 toJune 30, 2005
    
    
    June 30, 2004
    
    2005
    
    Change(Dollars in millions)Sales, netNew units
    
    $
    236.5
    
    
    
    44.1
    %
    
    
    $
    170.7
    
    
    
    38.8
    %
    
    $
    65.8
    
    
    
    38.5
    %Aftermarket parts and services
    
    
    300.0
    
    
    
    55.9
    %
    
    
    
    269.5
    
    
    
    61.2
    %
    
    
    30.5
    
    
    
    11.3
    %$
    536.5
    
    
    
    100.0
    %
    
    
    $
    440.2
    
    
    
    100.0
    %
    
    $
    96.3
    
    
    
    21.9
    %Gross ProfitNew units
    
    $
    18.9
    
    
    
    
    
    
    
    $
    21.1
    
    
    
    
    
    
    
    ($2.2
    )
    
    
    (10.4)
    %Aftermarket parts and services
    
    
    92.6
    
    
    
    
    
    
    
    
    80.1
    
    
    
    
    
    
    
    12.5
    
    
    
    15.6
    %Total gross profit
    
    $
    111.5
    
    
    
    
    
    
    
    $
    101.2
    
    
    
    
    
    
    $
    10.3
    
    
    
    10.2
    %Operating Income (Loss)New units
    
    
    ($3.6
    )
    
    
    
    
    
    
    $
    1.7
    
    
    
    
    
    
    
    ($5.3
    )
    
    
    (311.8)
    %Aftermarket parts and services
    
    
    54.8
    
    
    
    
    
    
    
    
    43.1
    
    
    
    
    
    
    
    11.7
    
    
    
    27.1
    %Unallocated corporate expense
    
    
    (21.7
    )
    
    
    
    
    
    
    
    (24.2
    )
    
    
    
    
    
    
    2.5
    
    
    
    (10.3)
    %Total operating income
    
    $
    29.5
    
    
    
    
    
    
    
    $
    20.6
    
    
    
    
    
    
    $
    8.9
    
    
    
    43.2
    %
 New Units
 Sales .
 Gross profit .
 Operating
income (loss) .
 Bookings .
 Aftermarket Parts and Services
 Sales .
 Gross profit .
 Operating
income .




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##### Table of Contents



Bookings .
 Liquidity and Capital Resources




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##### Table of Contents



Risk Factors
  
    
    material weaknesses in our internal controls;
 
    
    economic or industry downturns;
 
    
    our inability to implement our business strategy to increase our aftermarket parts and services revenue;
 
    
    competition in our markets;
 
    
    failure to complete or achieve the expected benefits from any future acquisitions;
 
    
    economic, political, currency and other risks associated with our international sales and operations;
 
    
    loss of our senior management;
 
    
    environment compliance costs and liabilities;
 
    
    failure to maintain safety performance acceptable to our clients;
 
    
    failure to negotiate new collective bargaining agreements;
 
    
    our ability to operate as a standalone company;
 
    
    unexpected product claims or regulations;
 
    
    infringement on our intellectual property or our infringement on others intellectual property; and
 
    
    other factors described in this report.




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
    
    
    identification by our auditors of misstatements in internal drafts of our financial
statements that were not initially identified by our internal control process, indicating
a weakness with respect to our ability to properly monitor and account for non-routine
transactions, and to apply GAAP in transactions subject to new or complex accounting
pronouncements;
 
    
    the need for a Chief Financial Officer with SEC reporting experience, a Director of
Financial Reporting with strong accounting and SEC reporting experience and additional
skilled accounting and SEC experienced personnel to enhance the accounting department to
remedy insufficient experience in public company accounting and periodic reporting matters
among our existing staff;
 
    
    the need to develop a tax department;
 
    
    the need to develop a risk management department;
 
    
    the need to establish an internal audit department; and
 
    
    the need to enhance our documentation of our systems and controls.
  
    
    hiring, in the second quarter of 2005, an experienced Chief Financial Officer with
broad finance and SEC reporting experience, a Chief Accounting Officer with significant
accounting experience and SEC reporting experience, a Director of Risk Management, a
Director of Internal Audit and a General Counsel;
 
    
    changing, in the second quarter of 2005, the organizational relationship of the
worldwide accounting organization so that the Controllers of the operating units report
directly to our Vice-president, Controller and Chief Accounting Officer.
 
    
    engaging additional outside consultants to assist our personnel with internal audit work and SEC reporting;
 
    
    outsourcing our tax functions to a professional service firm; and
 
    
    evaluating external resources to supplement our Section 404 evaluation efforts.




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##### Table of Contents








---



##### Table of Contents



PART II.  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS




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##### Table of Contents



ITEM 6. EXHIBITS
  Exhibit 3.1
    
    Amended and Restated Articles of Incorporation incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the
Registrants Registration Statement on Form S-1 (File No. 333-124963) filed with the SEC on August 2, 2005 (the
Form S-1).Exhibit 3.2
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrants Form S-1).Exhibit 10.1
    
    Amendment to the Amended and Restated Limited Liability Company Agreement of Dresser-Rand Holdings, LLC effective
as of June 24, 2005 (incorporated by reference to Exhibit 10.20 to the Registrants Form S-1).Exhibit 31.1
    
    Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.Exhibit 31.2
    
    Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certification of the President and Chief Executive Officer pursuant to Title 18, United States Code, Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (This certification is
being furnished and shall not be deemed filed with the SEC for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into
any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically
incorporates it by reference.)Exhibit 32.2
    
    Certification of the Executive Vice President and Chief Financial Officer pursuant to Title 18, United States
Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
(This certification is being furnished and shall not be deemed filed with the SEC for purposes of Section 18 of
the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be
incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that
the Registrant specifically incorporates it by reference.)




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##### Table of Contents



SIGNATURES
  DRESSER-RAND GROUP INC.August 24, 2005

/s/ Lonnie A. ArnettLonnie A. ArnettVice President, Controller and Chief
Accounting Officer




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description3.1
    
    Amended and Restated Articles of Incorporation incorporated by reference to Exhibit 3.1 to
Amendment No. 4 to the Registrants Registration Statement on Form S-1 (File No. 333-124963)
filed with the SEC on August 2, 2005 (the Form S-1).3.2
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrants
Form S-1).10.1
    
    Amendment to the Amended and Restated Limited Liability Company Agreement of Dresser-Rand
Holdings, LLC effective as of June 24, 2005 (incorporated by reference to Exhibit 10.20 to the
Registrants Form S-1).31.1
    
    Certification of the President and Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Executive Vice President and Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the President and Chief Executive Officer pursuant to Title 18, United
States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    Certification of the Executive Vice President and Chief Financial Officer pursuant to Title
18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.