##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-Q
   þ

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended
    September 30, 2008o

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
    EXCHANGE ACTFor the Transition Period
    from          to    Commission file number
    001-32586
  Dresser-Rand Group
    Inc.
 (Exact name of registrant as
    specified in its charter)
   Delaware

20-1780492(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)West8 Tower, Suite 1000
    10205 Westheimer Rd.
    Houston, TX(Address of principal
    executive offices)

77042(Zip Code)   (713) 354-6100
 (Registrants telephone
    number, including area code)
   (Former name, former address and
    former fiscal year, if changed since last report)
  þ o
  12b-2
  Large
    accelerated
    filer þ
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ




---



##### 



DRESSER-RAND
    GROUP INC.
  TABLE OF CONTENTS
   
 PagePART I.  FINANCIAL
    INFORMATIONItem 1.


Financial Statements (unaudited):Consolidated Statement of Income for the three
    and nine months ended September 30, 2008 and 2007


3Consolidated Balance Sheet at September 30,
    2008 and December 31, 2007


4Consolidated Statement of Cash Flows for the nine
    months ended September 30, 2008 and 2007


5Notes to Unaudited Consolidated Financial
    Statements at September 30, 2008


6-22Item 2.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


23-33Item 3.


Quantitative and Qualitative Disclosure about
    Market Risk


33Item 4.


Controls and Procedures


34PART II.  OTHER
    INFORMATIONItem 1.


Legal Proceedings


34-35Item 1A.


Risk Factors


35Item 2.


Unregistered Sales of Equity Securities and Use
    of Proceeds


35Item 5.


Other Information


35Item 6.


Exhibits


36Signatures


37ExhibitsEX-10.1: FIRST AMENDMENT TO THE 2005 STOCK INCENTIVE PLANEX-10.2: THIRD  AMENDMENT TO THE 2005 DIRECTORS STOCK INCENTIVE PLANEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION   2




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##### Table of Contents



PART I. 
    FINANCIAL INFORMATION  ITEM 1.
    FINANCIAL
    STATEMENTS  DRESSER-RAND
    GROUP INC.
  CONSOLIDATED
    STATEMENT OF INCOME
  Three Months Ended September 30,


Nine Months Ended September 30,2008


2007


2008


2007(Unaudited; $ in millions,except per share amounts)Net sales of products

$
451.7


$
317.0


$
1,187.0


$
913.7Net sales of services


92.2



72.3



261.9



231.2Total revenues


543.9



389.3



1,448.9



1,144.9Cost of products sold


320.0



240.8



855.6



674.2Cost of services sold


66.5



50.1



180.2



161.8Total cost of sales


386.5



290.9



1,035.8



836.0Gross profit


157.4



98.4



413.1



308.9Selling and administrative expenses


71.1



57.6



204.0



179.4Research and development expenses


3.5



4.4



9.3



10.1Curtailment amendment / partial settlement










(5.4
)


Income from operations


82.8



36.4



205.2



119.4Interest expense, net


(7.1
)


(9.3
)


(21.2
)


(30.2
)Other (expense) income, net


(5.4
)


5.6



(2.4
)


9.3Income before income taxes


70.3



32.7



181.6



98.5Provision for income taxes


23.5



11.4



60.9



35.6Net income

$
46.8


$
21.3


$
120.7


$
62.9Net income per common share-basic and diluted

$
0.57


$
0.25


$
1.43


$
0.74Weighted average shares outstanding  (In
    thousands)Basic


82,392



85,472



84,407



85,466Diluted


82,608



85,693



84,591



85,536    3




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
  CONSOLIDATED
    BALANCE SHEET
  September 30,


December 31,2008


2007(Unaudited; $ in millions,except per share amount)ASSETSCurrent assetsCash and cash equivalents

$
103.1


$
206.2Accounts receivable, less allowance for losses of $8.0 at 2008
    and $5.9 at 2007


299.5



311.9Inventories, net


340.9



265.3Prepaid expenses


41.1



23.0Deferred income taxes, net


19.3



19.3Total current assets


803.9



825.7Property, plant and equipment, net


252.7



216.7Goodwill


447.7



447.5Intangible assets, net


453.6



440.0Other assets


19.4



21.0Total assets

$
1,977.3


$
1,950.9LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable and accruals

$
400.1


$
358.4Customer advance payments


302.5



239.9Accrued income taxes payable


6.6



22.0Loans payable


0.2



0.2Total current liabilities


709.4



620.5Deferred income taxes


52.2



48.4Postemployment and other employee benefit liabilities


64.7



80.6Long-term debt


370.1



370.3Other noncurrent liabilities


30.5



25.9Total liabilities


1,226.9



1,145.7Commitments and contingencies (Notes 3 and 7 through
    11)Stockholders equityCommon stock, $0.01 par value, 250,000,000 shares
    authorized; and, 81,949,525 and 85,826,523 shares issued
    and outstanding, respectively


0.8



0.9Additional paid-in capital


382.3



527.3Retained earnings


350.3



229.7Accumulated other comprehensive income


17.0



47.3Total stockholders equity


750.4



805.2Total liabilities and stockholders equity

$
1,977.3


$
1,950.9    4




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
  CONSOLIDATED
    STATEMENT OF CASH FLOWS
  Nine Months EndedSeptember 30,2008


2007(Unaudited; $ in millions)Cash flows from operating activitiesNet income

$
120.7


$
62.9Adjustments to arrive at net cash provided by operating
    activities:Depreciation and amortization


37.0



36.4Deferred income taxes


2.3



5.6Stock-based compensation


4.4



6.8Amortization of debt financing costs


2.3



6.1Provision for losses on inventory


2.1



1.0Loss (gain) on sale of property, plant and equipment


0.3



(0.4
)Curtailment amendment / partial settlement


(11.8
)


Working capital and otherAccounts receivable


18.5



77.0Customer advances


44.2



72.0Accounts payable


12.1



(14.9
)Inventories


(52.4
)


(53.1
)Other


(12.7
)


(11.7
)Net cash provided by operating activities


167.0



187.7Cash flows from investing activitiesCapital expenditures


(27.6
)


(15.0
)Acquisitions


(89.6
)


(8.1
)Proceeds from sales of property, plant and equipment


0.3



5.2Net cash used in investing activities


(116.9
)


(17.9
)Cash flows from financing activitiesProceeds from exercise of stock options


1.4



0.4Repurchase of common stock


(150.2
)


Payments for debt financing costs






(4.5
)Payments of long-term debt


(0.2
)


(137.1
)Net cash used in financing activities


(149.0
)


(141.2
)Effect of exchange rate changes on cash and cash equivalents


(4.2
)


8.6Net (decrease) increase in cash and cash equivalents


(103.1
)


37.2Cash and cash equivalents, beginning of the period


206.2



146.8Cash and cash equivalents, end of period

$
103.1


$
184.0    5




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##### Table of Contents



DRESSER-RAND
    GROUP INC.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS($ millions, except per share amounts)
  1.
    Basis of
    presentation  Form 10-K
  2.
    New
    accounting standards  Fair Value Measurements.
    Level 1

Unadjusted quoted prices in active markets for identical assets
    or liabilitiesLevel 2

Unadjusted quoted prices in active markets for similar assets or
    liabilities, orUnadjusted quoted prices for identical or similar assets or
    liabilities in markets that are not active, orInputs other than quoted prices that are observable for the
    asset or liabilityLevel 3

Unobservable inputs for the asset or liability     Foreign currency exchange contracts assets

$
4.2Foreign currency exchange contracts liabilities

$
4.0   over-the-counter
  No. 157-2, Partial Deferral of the Effective Date of Statement
    No. 157 No. 157-2
 6




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
  Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans, an
    amendment of FASB Statements No. 87, 88, 106 and 132(R),
  Disclosures about Derivative Instruments and Hedging
    Activities, an amendment of FASB Statement No. 133
  3.
    Acquisitions
    (£ in millions)               7




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
      2008


2007Accounts receivable, net

$
12.2


$
Inventory, net


33.2



4.6Prepaid expenses


1.1



Total current assets


46.5



4.6Property, plant and equipment


39.8



0.5Amortizable intangible assets


33.4



3.0Goodwill


20.3



Other assets


0.2



Total assets acquired


140.2



8.1Accounts payable and accruals


20.2



Customer advance payments


26.0



Other liabilities


4.4



Total liabilities assumed


50.6



Cash paid  net of $18.6 cash acquired in 2008

$
89.6


$
8.1     4.
    Intangible
    assets and goodwill    September 30, 2008


Weighted


December 31, 2007Accumulated


Average





AccumulatedCost


Amortization


Useful Lives


Cost


AmortizationTrade names

$
93.4


$
8.5



39 years


$
88.7


$
6.9Customer relationships


255.6



25.0



38 years



246.9



20.2Software


30.6



12.0



10 years



30.6



9.7Existing technology


138.0



20.6



24 years



127.1



16.5Non-compete


2.2



0.1



4 years







Total amortizable intangible assets

$
519.8


$
66.2






$
493.3


$
53.3    8




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
    September 30,2008Beginning balance acquisitions

$
447.5Acquisitions

$
20.3Foreign currency adjustments


(20.1
)Ending balance

$
447.7   5.
    Inventories    September 30,


December 31,2008


2007Raw materials and supplies

$
146.4


$
123.9Work-in-process
    and finished goods


594.4



330.2740.8



454.1Less:Progress payments


(399.9
)


(188.8
)Inventories, net

$
340.9


$
265.3     6.
    Property,
    plant and equipment    September 30,


December 31,2008


2007Cost:Land

$
15.6


$
9.6Buildings and improvements


95.0



80.4Machinery and equipment


252.4



215.4363.0



305.4Less: Accumulated depreciation


(110.3
)


(88.7
)Property, plant and equipment, net

$
252.7


$
216.7   7.
    Income
    taxes   9




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
    8.
    Pension
    plans    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2008


2007


2008


2007Service cost

$
1.8


$
1.7



5.4


$
5.2Interest cost


5.1



4.7



15.4



13.9Expected return on plan assets


(5.8
)


(5.5
)


(17.4
)


(16.4
)Amortization of net losses










0.2



Net pension expense

$
1.1


$
0.9


$
3.6


$
2.7   9.
    Postretirement
    benefits other than pensions    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2008


2007


2008


2007Service cost

$



$
0.3


$
0.1


$
1.1Interest cost


0.3



0.6



1.1



1.8Amortization of prior service (credit)


(1.9
)


(0.2
)


(5.5
)


(0.5
)Curtailment amendment / partial settlement










(5.4
)


Amortization of net (gain) loss


(0.1
)


0.1



(0.1
)


0.1Net periodic postretirement benefits (gain) cost

$
(1.7
)

$
0.8


$
(9.8
)

$
2.5    10




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
    10.
    Commitments
    and contingencies         11




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
    11.
    Warranty
    accruals      Nine Months Ended September 30,2008


2007Beginning balance

$
28.5


$
23.4Acquisitions


1.1



Provisions for warranties issued during the period


18.4



15.4Adjustments to warranties issued in prior periods


4.5



(0.9
)Payments during the period


(18.3
)


(11.7
)Foreign currency adjustments


(1.4
)


1.3Ending balance

$
32.8


$
27.5   12.
    Segment
    information         12




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
    Three Months Ended September 30,


Nine Months Ended September 30,2008


2007


2008


2007RevenuesNew units

$
306.7


$
194.0


$
755.4


$
540.6Aftermarket parts and services


237.2



195.3



693.5



604.3Total revenues

$
543.9


$
389.3


$
1,448.9


$
1,144.9Operating IncomeNew units

$
37.8


$
12.0


$
72.7


$
34.0Aftermarket parts and services


63.8



43.1



184.6



143.2Unallocated


(18.8
)


(18.7
)


(52.1
)


(57.8
)Total operating income

$
82.8


$
36.4


$
205.2


$
119.4Depreciation and AmortizationNew units

$
7.3


$
6.6


$
20.7


$
18.8Aftermarket parts and services


4.8



5.6



16.3



17.6Total depreciation and amortization

$
12.1


$
12.2


$
37.0


$
36.4Total Assets (including Goodwill)New units

$
347.1


$
265.0


$
347.1


$
265.0Aftermarket parts and services


729.6



653.4



729.6



653.4Unallocated


900.6



916.1



900.6



916.1Total assets

$
1,977.3


$
1,834.5


$
1,977.3


$
1,834.5  13




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
  13.
    Stockholders
    equity    AccumulatedOtherCommon


Additional


Retained


ComprehensiveStock


Paid-in Capital


Earnings


Income


TotalAt December 31, 2007

$
0.9


$
527.3


$
229.7


$
47.3


$
805.2Stock-based employee compensation






5.1











5.1Stock repurchase


(0.1
)


(150.1
)










(150.2
)Adoption of FASB Statement No. 158










(0.1
)






(0.1
)Net income










120.7







120.7Other comprehensive income (loss)Foreign currency translation adjustment














(26.5
)


(26.5
)Pension and other postretirement benefit plans  net
    of $2.4 tax:Adoption of FASB Statement No. 158














(0.3
)


(0.3
)Benefit plans amortization














(3.3
)


(3.3
)Benefit plan amendment














2.2



2.2Curtailment amendment














(4.5
)


(4.5
)Partial settlement














1.2



1.2Net gain from remeasurement














0.9



0.9At September 30, 2008

$
0.8


$
382.3


$
350.3


$
17.0


$
750.4     Nine Months EndedThree Months Ended September 30,


September 30,2008


2007


2008


2007Net income

$
46.8


$
21.3


$
120.7


$
62.9Other comprehensive (loss) income:Foreign currency adjustments


(42.0
)


18.4



(26.5
)


31.2Pension and other postretirement benefit plans  net
    of $2.4 tax in 2008:Adoption of FASB Statement No. 158










(0.3
)


Benefit plans amortization


(1.2
)






(3.3
)


Benefit plan amendment










2.2



5.0Curtailment amendment










(4.5
)


Partial settlement










1.2



Net gain from remeasurement










0.9



Total comprehensive income

$
3.6


$
39.7


$
90.4


$
99.1    14




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
      14.
    Supplemental
    guarantor financial information      CONDENSED
    CONSOLIDATING STATEMENT OF INCOME
    For the three months ended September 30, 2008
  Subsidiary


Subsidiary


ConsolidatingIssuer


Guarantors


Non-Guarantors


Adjustments


TotalNet sales

$



$
319.4


$
271.1


$
(46.6
)

$
543.9Cost of sales






232.7



197.7



(43.9
)


386.5Gross profit






86.7



73.4



(2.7
)


157.4Selling and administrative expenses


28.3



14.0



31.0



(2.2
)


71.1Research and development expenses






3.2



0.3







3.5(Loss) income from operations


(28.3
)


69.5



42.1



(0.5
)


82.8Equity earnings in affiliates


66.1



1.0







(67.1
)


Interest (expense) income, net


(8.5
)


0.3



1.1







(7.1
)Intercompany interest and fees


5.5



0.8



(6.3
)






Other (expense), net


(0.7
)


(0.1
)


(4.6
)






(5.4
)Income before income taxes


34.1



71.5



32.3



(67.6
)


70.3(Benefit) provision for income taxes


(12.7
)


25.0



11.2







23.5Net income

$
46.8


$
46.5


$
21.1


$
(67.6
)

$
46.8  15




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
  CONDENSED
    CONSOLIDATING STATEMENT OF INCOME
    For the three months ended September 30, 2007
  Subsidiary


Subsidiary


ConsolidatingIssuer


Guarantors


Non-Guarantors


Adjustments


TotalNet sales

$



$
278.4


$
144.7


$
(33.8
)

$
389.3Cost of sales






225.5



99.2



(33.8
)


290.9Gross profit






52.9



45.5







98.4Selling and administrative expenses


23.1



14.8



20.1



(0.4
)


57.6Research and development expenses






4.4











4.4(Loss) income from operations


(23.1
)


33.7



25.4



0.4



36.4Equity earnings in affiliates


35.2



0.3







(35.5
)


Interest (expense) income, net


(9.4
)


(0.3
)


0.4







(9.3
)Intercompany interest and fees


6.3



(1.0
)


(5.3
)






Other income (expense), net


4.6



(0.3
)


1.3







5.6Income before income taxes


13.6



32.4



21.8



(35.1
)


32.7(Benefit) provision for income taxes


(7.7
)


12.0



7.1







11.4Net income

$
21.3


$
20.4


$
14.7


$
(35.1
)

$
21.3  16




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##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
  CONDENSED
    CONSOLIDATING STATEMENT OF INCOME
    For the nine months ended September 30, 2008
  Subsidiary


Subsidiary


ConsolidatingIssuer


Guarantors


Non-Guarantors


Adjustments


TotalNet sales

$



$
921.0


$
648.7


$
(120.8
)

$
1,448.9Cost of sales






674.5



465.3



(104.0
)


1,035.8Gross profit






246.5



183.4



(16.8
)


413.1Selling and administrative expenses


92.8



42.7



82.5



(14.0
)


204.0Research and development expenses






8.9



0.4







9.3Curtailment amendment / partial settlement






(5.4
)










(5.4
)(Loss) income from operations


(92.8
)


200.3



100.5



(2.8
)


205.2Equity earnings in affiliates


181.6



3.7







(185.3
)


Interest (expense) income, net


(24.5
)


0.3



3.0







(21.2
)Intercompany interest and fees


12.8



3.4



(16.2
)






Other income (expense), net


4.6



(4.8
)


(2.2
)






(2.4
)Income before income taxes


81.7



202.9



85.1



(188.1
)


181.6(Benefit) provision for income taxes


(39.0
)


73.3



26.6







60.9Net income

$
120.7


$
129.6


$
58.5


$
(188.1
)

$
120.7  17




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
  CONDENSED
    CONSOLIDATING STATEMENT OF INCOME
    For the nine months ended September 30, 2007
  Subsidiary


Subsidiary


ConsolidatingIssuer


Guarantors


Non-Guarantors


Adjustments


TotalNet sales

$



$
764.2


$
471.5


$
(90.8
)

$
1,144.9Cost of sales






580.2



337.1



(81.3
)


836.0Gross profit






184.0



134.4



(9.5
)


308.9Selling and administrative expenses


87.1



38.7



65.5



(11.9
)


179.4Research and development expenses






10.0



0.1







10.1(Loss) income from operations


(87.1
)


135.3



68.8



2.4



119.4Equity earnings in affiliates


118.1



0.5







(118.6
)


Interest (expense), net


(27.2
)


(0.3
)


(2.7
)






(30.2
)Intercompany interest and fees


21.5



0.9



(22.4
)






Other income (expense), net


7.0



(1.3
)


3.6







9.3Income before income taxes


32.3



135.1



47.3



(116.2
)


98.5(Benefit) provision for income taxes


(30.6
)


50.2



16.0







35.6Net income

$
62.9


$
84.9


$
31.3


$
(116.2
)

$
62.9  18




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
  CONDENSED
    CONSOLIDATING BALANCE SHEET
    September 30, 2008
  Subsidiary


Subsidiary


ConsolidatingIssuer


Guarantors


Non-Guarantors


Adjustments


TotalASSETSCash and cash equivalents

$



$



$
113.4


$
(10.3
)

$
103.1Accounts receivables, net






157.8



141.8



(0.1
)


299.5Inventories, net






215.5



134.1



(8.7
)


340.9Prepaids expenses and deferred income taxes


22.5



8.6



29.2



0.1



60.4Total current assets


22.5



381.9



418.5



(19.0
)


803.9Investment in affiliates


1,638.9



64.9







(1,703.8
)


Property, plant, and equipment, net






153.9



98.8







252.7Intangible assets, net






448.5



452.8







901.3Other assets


16.0



1.4



2.0







19.4Total assets

$
1,677.4


$
1,050.6


$
972.1


$
(1,722.8
)

$
1,977.3LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable and accruals

$
(27.0
)

$
368.2


$
378.2


$
(10.2
)

$
709.2Loans payable






0.2











0.2Total current liabilities


(27.0
)


368.4



378.2



(10.2
)


709.4Long-term debt


370.0



0.1











370.1Intercompany accounts


555.0



(607.0
)


52.0







Other noncurrent liabilities


29.0



56.2



62.2







147.4Total liabilities


927.0



(182.3
)


492.4



(10.2
)


1,226.9Common stock


0.8















0.8Other stockholders equity


749.6



1,232.9



479.7



(1,712.6
)


749.6Total stockholders equity


750.4



1,232.9



479.7



(1,712.6
)


750.4Total liabilities and stockholders equity

$
1,677.4


$
1,050.6


$
972.1


$
(1,722.8
)

$
1,977.3  19




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
  CONDENSED
    CONSOLIDATING BALANCE SHEET
    December 31, 2007
  Subsidiary


Subsidiary


ConsolidatingIssuer


Guarantors


Non-Guarantors


Adjustments


TotalASSETSCash and cash equivalents

$
70.7


$



$
135.5


$



$
206.2Accounts receivable, net


0.1



155.9



155.9







311.9Inventories, net






184.4



86.8



(5.9
)


265.3Prepaid expenses and deferred income taxes


21.1



2.8



18.4







42.3Total current assets


91.9



343.1



396.6



(5.9
)


825.7Investment in affiliates


1,466.5



69.9







(1,536.4
)


Property, plant, and equipment, net






149.1



67.6







216.7Intangible assets, net






454.6



432.9







887.5Other assets


18.7







2.3







21.0Total assets

$
1,577.1


$
1,016.7


$
899.4


$
(1,542.3
)

$
1,950.9LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable and accruals

$
(36.4
)

$
316.9


$
339.8


$



$
620.3Loans payable






0.2











0.2Total current liabilities


(36.4
)


317.1



339.8







620.5Long-term debt


370.0



0.3











370.3Intercompany accounts


408.5



(482.7
)


74.2







Other noncurrent liabilities


29.8



63.1



62.0







154.9Total liabilities


771.9



(102.2
)


476.0







1,145.7Common stock


0.9















0.9Other stockholders equity


804.3



1,118.9



423.4



(1,542.3
)


804.3Total stockholders equity


805.2



1,118.9



423.4



(1,542.3
)


805.2Total liabilities and stockholders equity

$
1,577.1


$
1,016.7


$
899.4


$
(1,542.3
)

$
1,950.9  20




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
  CONDENSED
    CONSOLIDATING STATEMENT OF CASH FLOWS
    For the nine months ended September 30, 2008
  Subsidiary


Subsidiary


ConsolidatingIssuer


Guarantors


Non-Guarantors


Adjustments


TotalCash flows from operating activities:Net cash (used in) provided by operating activities

$
(47.2
)

$
155.2


$
69.4


$
(10.4
)

$
167.0Cash flows from investing activities:Capital expenditures






(22.2
)


(5.4
)






(27.6
)Proceeds from sale of property, plant and equipment






0.1



0.2







0.3Acquisitions


(89.6
)














(89.6
)Net cash used in investing activities


(89.6
)


(22.1
)


(5.2
)






(116.9
)Cash flows from financing activities:Proceeds from exercised options


1.4















1.4Payments of long-term debt






(0.2
)










(0.2
)Repurchase of common stock


(150.2
)














(150.2
)Change in intercompany accounts


214.9



(132.9
)


(82.1
)


0.1



Net cash provided by (used in) financing activities


66.1



(133.1
)


(82.1
)


0.1



(149.0
)Effect of exchange rate changes










(4.2
)






(4.2
)Net (decrease) increase in cash and equivalents


(70.7
)






(22.1
)


(10.3
)


(103.1
)Cash and cash equivalents, beginning of period


70.7







135.5







206.2Cash and cash equivalents, end of period

$



$



$
113.4


$
(10.3
)

$
103.1  21




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    ($ millions, except per share amounts)
  CONDENSED
    CONSOLIDATING STATEMENT OF CASH FLOWS
    For the nine months ended September 30, 2007
  Subsidiary


Subsidiary


ConsolidatingIssuer


Guarantors


Non-Guarantors


Adjustments


TotalCash flows from operating activities:Net cash (used in) provided by operating activities

$
(68.2
)

$
179.5


$
68.7


$
7.7


$
187.7Cash flows from investing activities:Capital expenditures






(12.0
)


(3.0
)






(15.0
)Proceeds from sale of property, plant and equipment






4.6



0.6







5.2Acquisition






(8.1
)










(8.1
)Net cash used in investing activities






(15.5
)


(2.4
)






(17.9
)Cash flows from financing activities:Net change in debt


(62.1
)






(75.0
)






(137.1
)Cash paid for debt issuance costs


(4.5
)














(4.5
)Proceeds from exercise of options


0.4















0.4Change in intercompany accounts


125.6



(164.0
)


46.1



(7.7
)


Net cash provided by (used in) financing activities


59.4



(164.0
)


(28.9
)


(7.7
)


(141.2
)Effect of exchange rate changes










8.6







8.6Net (decrease) increase in cash and equivalents


(8.8
)






46.0







37.2Cash and cash equivalents, beginning of period


37.0







109.8







146.8Cash and cash equivalents, end of period

$
28.2


$



$
155.8


$



$
184.0  22




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS ($ in millions)  Overview
          Results
    of Operations
  Three
    months ended September 30, 2008, compared to the three
    months ended September 30, 2007:
  Three Months Ended


Three Months EndedSeptember 30,


September 30,


Period to Period Change2008


2007


2007 to 2008


% ChangeStatement of Operations Data:Total revenues

$
543.9



100.0
%

$
389.3



100.0
%

$
154.6



39.7
%Cost of sales


386.5



71.1



290.9



74.7



95.6



32.9
%Gross profit


157.4



28.9



98.4



25.3



59.0



60.0
%Selling and administrative expenses


71.1



13.1



57.6



14.8



13.5



23.4
%Research and development expenses


3.5



0.6



4.4



1.1



(0.9
)


(20.5
)%Operating income


82.8



15.2



36.4



9.4



46.4



127.5
%Interest expense, net


(7.1
)


(1.3
)


(9.3
)


(2.4
)


2.2



(23.7
)%Other (expense) income, net


(5.4
)


(1.0
)


5.6



1.4



(11.0
)


(196.4
)%Income before income taxes


70.3



12.9



32.7



8.4



37.6



115.0
%Provision for income taxes


23.5



4.3



11.4



2.9



12.1



106.1
%Net income

$
46.8



8.6
%

$
21.3



5.5
%

$
25.5



119.7
%Bookings

$
733.1






$
496.2






$
236.9



47.7
%Backlog - ending

$
2,385.9






$
1,750.8






$
635.1



36.3
%  23




---



##### Table of Contents



Total revenues.
  Cost of sales.
  Gross profit.
  Selling and administrative expenses.
  Research and development expenses.
  Operating income.
  Interest expense, net.
  Other (expense) income, net.
  Provision for income taxes.
 24




---



##### Table of Contents



Bookings and backlog.
  Segment
    information
          Segment
    Analysis  three months ended September 30, 2008,
    compared to three months ended September 30,
    2007:
  Three Months Ended September 30,





Period to Period Change2008





2007





2007 to 2008


% ChangeStatement of Segment Data:RevenuesNew units

$
306.7



56.4
%

$
194.0



49.8
%

$
112.7



58.1
%Aftermarket parts and services


237.2



43.6
%


195.3



50.2
%


41.9



21.5
%Total revenues

$
543.9



100.0
%

$
389.3



100.0
%

$
154.6



39.7
%Gross profitNew units

$
60.8






$
29.7






$
31.1



104.7
%Aftermarket parts and services


96.6







68.7







27.9



40.6
%Total gross profit

$
157.4






$
98.4






$
59.0



60.0
%Operating incomeNew units

$
37.8






$
12.0






$
25.8



215.0
%Aftermarket parts and services


63.8







43.1







20.7



48.0
%Unallocated


(18.8
)






(18.7
)






(0.1
)


0.5
%Total operating income

$
82.8






$
36.4






$
46.4



127.5
%BookingsNew units

$
442.2






$
285.1






$
157.1



55.1
%Aftermarket parts and services


290.9







211.1







79.8



37.8
%Total bookings

$
733.1






$
496.2






$
236.9



47.7
%Backlog - endingNew units

$
1,966.0






$
1,456.7






$
509.3



35.0
%Aftermarket parts and services


419.9







294.1







125.8



42.8
%Total backlog

$
2,385.9






$
1,750.8






$
635.1



36.3
%  25




---



##### Table of Contents



New
    Units
  Revenues.
  Gross profit.
  Operating income.
  Bookings and Backlog.
  Aftermarket
    Parts and Services
  Revenues.
  Gross profit.
  Operating income.
  Bookings and Backlog.
 26




---



##### Table of Contents



Results
    of Operations
  Nine
    months ended September 30, 2008, compared to the nine
    months ended September 30, 2007:
  Nine Months Ended


Nine Months Ended


Period to Period ChangeSeptember 30, 2008


September 30, 2007


2007 to 2008


% ChangeStatement of Operations Data:Total revenues

$
1,448.9



100.0
%

$
1,144.9



100.0
%

$
304.0



26.6
%Cost of sales


1,035.8



71.5



836.0



73.0



199.8



23.9
%Gross profit


413.1



28.5



308.9



27.0



104.2



33.7
%Selling and administrative expenses


204.0



14.1



179.4



15.7



24.6



13.7
%Research and development expenses


9.3



0.6



10.1



0.9



(0.8
)


(7.9
)%Curtailment amendment / partial settlement


(5.4
)


(0.4
)










(5.4
)


NMOperating income


205.2



14.2



119.4



10.4



85.8



71.9
%Interest expense, net


(21.2
)


(1.5
)


(30.2
)


(2.6
)


9.0



(29.8
)%Other (expense) income, net


(2.4
)


(0.2
)


9.3



0.8



(11.7
)


(125.8
)%Income before income taxes


181.6



12.5



98.5



8.6



83.1



84.4
%Provision for income taxes


60.9



4.2



35.6



3.1



25.3



71.1
%Net income

$
120.7



8.3
%

$
62.9



5.5
%

$
57.8



91.9
%Bookings

$
1,812.5






$
1,581.0






$
231.5



14.6
%Backlog - ending

$
2,385.9






$
1,750.8






$
635.1



36.3
%   Total revenues.
  Cost of sales.
  Gross profit.
 27




---



##### Table of Contents



Selling and administrative expenses.
  Research and development expenses.
  Curtailment amendment / partial
    settlement.
  Operating income.
  Interest expense, net.
  Other (expense), income net.
  Provision for income taxes.
  Bookings and backlog.
 28




---



##### Table of Contents



Segment
    Analysis  nine months ended September 30, 2008,
    compared to nine months ended September 30,
    2007:
  Nine Months Ended September 30,





Period to Period Change2008





2007





2007 to 2008


% ChangeStatement of Segment Data:RevenuesNew units

$
755.4



52.1
%

$
540.6



47.2
%

$
214.8



39.7
%Aftermarket parts and services


693.5



47.9
%


604.3



52.8
%


89.2



14.8
%Total revenues

$
1,448.9



100.0
%

$
1,144.9



100.0
%

$
304.0



26.6
%Gross profitNew units

$
133.1






$
86.0






$
47.1



54.8
%Aftermarket parts and services


280.0







222.9







57.1



25.6
%Total gross profit

$
413.1






$
308.9






$
104.2



33.7
%Operating incomeNew units

$
72.7






$
34.0






$
38.7



113.8
%Aftermarket parts and services


184.6







143.2







41.4



28.9
%Unallocated


(52.1
)






(57.8
)






5.7



(9.9
)%Total operating income

$
205.2






$
119.4






$
85.8



71.9
%BookingsNew units

$
1,013.4






$
973.0






$
40.4



4.2
%Aftermarket parts and services


799.1







608.0







191.1



31.4
%Total bookings

$
1,812.5






$
1,581.0






$
231.5



14.6
%Backlog - endingNew units

$
1,966.0






$
1,456.7






$
509.3



35.0
%Aftermarket parts and services


419.9







294.1







125.8



42.8
%Total backlog

$
2,385.9






$
1,750.8






$
635.1



36.3
%   New
    Units
  Revenues.
  Gross profit.
  Operating income.
 29




---



##### Table of Contents



Bookings and Backlog.
  Aftermarket
    Parts and Services
  Revenues.
  Gross profit.
  Operating income.
  Bookings and Backlog.
  Liquidity
    and Capital Resources (£ in millions)
  work-in-process.
     30




---



##### Table of Contents



2008


2007Accounts receivable, net

$
12.2


$
Inventory, net


33.2



4.6Prepaid expenses


1.1



Total current assets


46.5



4.6Property, plant and equipment


39.8



0.5Amortizable intangible assets


33.4



3.0Goodwill


20.3



Other assets


0.2



Total assets acquired


140.2



8.1Accounts payable and accruals


20.2



Customer advance payments


26.0



Other liabilities


4.4



Total liabilities assumed


50.6



Cash paid  net of $18.6 cash acquired in 2008

$
89.6


$
8.1    31




---



##### Table of Contents



New
    accounting standards
  Fair Value Measurements.
    Level 1

Unadjusted quoted prices in active markets for identical assets
    or liabilitiesLevel 2

Unadjusted quoted prices in active markets for similar assets or
    liabilities, orUnadjusted quoted prices for identical or similar assets or
    liabilities in markets that are not active, orInputs other than quoted prices that are observable for the
    asset or liabilityLevel 3

Unobservable inputs for the asset or liability     Foreign currency exchange contracts assets

$
4.2Foreign currency exchange contracts liabilities

$
4.0     No. 157-2, Partial Deferral of the Effective Date of Statement
    No. 157 No. 157-2
  Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans, an
    amendment of FASB Statements No. 87, 88, 106 and 132(R),
 32




---



##### Table of Contents



Disclosures about Derivative Instruments and Hedging
    Activities, an amendment of FASB Statement No. 133
  SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  form 10-Q Form 10-Q,
  
    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;
    our brand name may be confused with others;
    environmental compliance costs and liabilities;
    failure to maintain safety performance acceptable to our clients;
    unexpected product claims or regulations;
    infringement on our intellectual property or our infringement on
    others intellectual property; and
    other factors described in this report and as set forth in the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2007 and Item 1A of
    Part II of this report.  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ($ in
    millions)  non-U.S. subsidiaries
 33




---



##### Table of Contents



ITEM 4.
    CONTROLS
    AND PROCEDURES  Rules 13a-15(e)
   PART II. 
    OTHER INFORMATION  ITEM 1.
    LEGAL
    PROCEEDINGS ($ in millions)       34




---



##### Table of Contents



ITEM 1A.
    RISK
    FACTORS  The
    volatility and disruption of the credit markets may negatively
    impact us.
    ITEM 2.
    UNREGISTERED
    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  Repurchase
    of Common Stock
      ApproximateDollar Valueof SharesTotal Number


That May Yetof Shares


Be PurchasedTotal Number


Average Price


Purchased as Part of


Under theof Shares


Paid per


Publicly Announced Plans


Plans orPeriod

Purchased


Share


or Programs


ProgramsJuly 2008


2,529,063


$
35.36



2,529,063August 2008


879,091
(1)


37.64



875,926September 2008










Total


3,408,154


$
35.95



3,404,989


$
     (1)
    
    Includes 3,165 shares delivered to us as payment of
    withholding taxes due on the vesting of restricted stock issued
    under our stock incentive plan.  ITEM 5.
    OTHER
    INFORMATION   35




---



##### Table of Contents



ITEM 6.
    EXHIBITS    Exhibit 3.1

Amended and Restated Certificate of Incorporation of
    Dresser-Rand Group Inc. (incorporated by reference to
    Exhibit 3.1 to Dresser-Rand Group Inc.s Registration
    Statement on
    Form S-1/A
    filed on July 18, 2005, File
    No. 333-124963).Exhibit 3.2

Amended and Restated Bylaws (incorporated by reference to
    Exhibit 3.1 to Dresser-Rand Group Inc.s Current
    Report on
    Form 8-K
    filed on November 16, 2007, File
    No. 001-32586).Exhibit 10.1

First Amendment to Dresser-Rand Group Inc. 2005 Stock Incentive
    Plan dated October 28, 2008.Exhibit 10.2

Third Amendment to Dresser-Rand Group Inc. 2005 Directors
    Stock Incentive Plan dated October 28, 2008.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.)  36




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SIGNATURES    DRESSER-RAND GROUP INC.
  /s/  Lonnie
    A. Arnett       37