##### Table of Contents



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 1934
 For the Quarterly Period Ended June 30, 2007
 o
    
    Transition Report under Section 13 or 15(d) of the Exchange Act
 For the Transition Period from  to
 Commission file number 001-32586
 Dresser-Rand Group Inc.
  Delaware
    
    20-1780492(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)1200 W. Sam 
Houston Parkway, N. 
Houston, TX
    
    77043(Address of principal executive offices)
    
    (Zip Code)
 
  
  þ o
  þ o o
 o þ




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##### 



PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited):Consolidated Statement of Income for the three months and six months ended June
30, 2007 and 2006
    
    
    3Consolidated Balance Sheet at June 30, 2007 and December 31, 2006
    
    
    4Consolidated Statement of Cash Flows for the six months ended June 30, 2007 and 2006
    
    
    5Notes to Unaudited Consolidated Financial Statements at June 30, 2007
    
    
    6-17Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18-27Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28-29PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A.
Risk Factors
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    32-36Exhibits
    
    
    33-36EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  
   Three months ended June 30,
    
    
    Six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales of products
    
    $
    354.6
    
    
    $
    349.6
    
    
    $
    596.7
    
    
    $
    579.2Net sales of services
    
    
    86.6
    
    
    
    74.4
    
    
    
    158.9
    
    
    
    136.3Total revenues
    
    
    441.2
    
    
    
    424.0
    
    
    
    755.6
    
    
    
    715.5Cost of products sold
    
    
    260.1
    
    
    
    275.6
    
    
    
    433.4
    
    
    
    455.8Cost of services sold
    
    
    62.2
    
    
    
    52.0
    
    
    
    111.7
    
    
    
    96.3Total cost of products and services sold
    
    
    322.3
    
    
    
    327.6
    
    
    
    545.1
    
    
    
    552.1Gross profit
    
    
    118.9
    
    
    
    96.4
    
    
    
    210.5
    
    
    
    163.4Selling and administrative expenses (2006 amounts include $16.8 of
stock based compensation  exit units)
    
    
    66.2
    
    
    
    66.0
    
    
    
    121.8
    
    
    
    112.5Research and development expenses
    
    
    2.6
    
    
    
    3.2
    
    
    
    5.7
    
    
    
    5.3Curtailment (gain)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.8
    )Income from operations
    
    
    50.1
    
    
    
    27.2
    
    
    
    83.0
    
    
    
    57.4Interest expense, net
    
    
    (10.0
    )
    
    
    (12.4
    )
    
    
    (20.9
    )
    
    
    (26.0
    )Other income, net
    
    
    1.3
    
    
    
    4.1
    
    
    
    3.7
    
    
    
    6.0Income before income taxes
    
    
    41.4
    
    
    
    18.9
    
    
    
    65.8
    
    
    
    37.4Provision for income taxes
    
    
    15.2
    
    
    
    8.2
    
    
    
    24.2
    
    
    
    14.4Net income
    
    $
    26.2
    
    
    $
    10.7
    
    
    $
    41.6
    
    
    $
    23.0Net income per common share-basic and diluted
    
    $
    0.31
    
    
    $
    0.13
    
    
    $
    0.49
    
    
    $
    0.27Weighted average shares outstanding-basic and diluted
    
    
    85,465
    
    
    
    85,447
    
    
    
    85,462
    
    
    
    85,446
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June 30,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    160.8
    
    
    $
    146.8Accounts receivable, less allowance for doubtful
accounts of $6.1 at 2007 and 2006
    
    
    256.6
    
    
    
    305.1Inventories, net
    
    
    205.9
    
    
    
    183.0Prepaid expenses
    
    
    26.5
    
    
    
    20.2Deferred income taxes
    
    
    9.2
    
    
    
    13.9Total current assets
    
    
    659.0
    
    
    
    669.0Property, plant and equipment, net
    
    
    219.1
    
    
    
    223.1Goodwill
    
    
    423.4
    
    
    
    410.5Intangible assets, net
    
    
    444.3
    
    
    
    446.9Other assets
    
    
    19.7
    
    
    
    21.8Total assets
    
    $
    1,765.5
    
    
    $
    1,771.3Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable and accruals
    
    $
    303.5
    
    
    $
    303.7Customer advance payments
    
    
    182.9
    
    
    
    137.4Accrued income taxes payable
    
    
    15.0
    
    
    
    30.3Loans payable
    
    
    0.1
    
    
    
    0.1Total current liabilities
    
    
    501.5
    
    
    
    471.5Deferred income taxes
    
    
    32.1
    
    
    
    26.5Postemployment and other employee benefit liabilities
    
    
    110.2
    
    
    
    113.7Long-term debt
    
    
    396.8
    
    
    
    505.6Other noncurrent liabilities
    
    
    27.8
    
    
    
    22.1Total liabilities
    
    
    1,068.4
    
    
    
    1,139.4Commitments and contingencies (Notes 8 through 12)Stockholders equityCommon stock, $0.01 par value, 250,000,000 shares authorized;
and, 85,817,455 and 85,477,160 shares issued and
outstanding, respectively
    
    
    0.9
    
    
    
    0.9Additional paid-in capital
    
    
    524.7
    
    
    
    518.8Retained earnings
    
    
    164.6
    
    
    
    123.1Accumulated other comprehensive income (loss)
    
    
    6.9
    
    
    
    (10.9
    )Total stockholders equity
    
    
    697.1
    
    
    
    631.9Total liabilities and stockholders equity
    
    $
    1,765.5
    
    
    $
    1,771.3
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Six Months ended June 30,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    41.6
    
    
    $
    23.0Adjustments to arrive at net cash provided by operating activities:Depreciation and amortization
    
    
    24.2
    
    
    
    25.8Stock-based compensation
    
    
    5.7
    
    
    
    17.7Amortization of debt financing costs
    
    
    3.7
    
    
    
    2.9Deferred income taxes
    
    
    2.6
    
    
    
    5.6Provision for losses on inventory
    
    
    0.6
    
    
    
    0.1Gain on sale of property, plant and equipment
    
    
    (0.5
    )
    
    
    Curtailment gain
    
    
    
    
    
    
    (11.8
    )Working capital and otherAccounts receivable
    
    
    52.1
    
    
    
    24.4Customer advances
    
    
    43.5
    
    
    
    (9.5
    )Accounts payable
    
    
    3.7
    
    
    
    (20.2
    )Inventories
    
    
    (16.6
    )
    
    
    (33.8
    )Other
    
    
    (24.4
    )
    
    
    (17.3
    )Net cash provided by operating activities
    
    
    136.2
    
    
    
    6.9Cash flows from investing activitiesCapital expenditures
    
    
    (8.6
    )
    
    
    (8.7
    )Acquisitions
    
    
    (8.1
    )
    
    
    Proceeds from sale of property, plant and equipment
    
    
    0.6
    
    
    
    Net cash (used in) investing activities
    
    
    (16.1
    )
    
    
    (8.7
    )Cash flows from financing activitiesProceeds from exercise of stock options
    
    
    0.2
    
    
    
    Payments of long-term debt
    
    
    (110.1
    )
    
    
    (50.0
    )Net cash (used in) financing activities
    
    
    (109.9
    )
    
    
    (50.0
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    3.8
    
    
    
    2.8Net increase (decrease) in cash and cash equivalents
    
    
    14.0
    
    
    
    (49.0
    )Cash and cash equivalents, beginning of the period
    
    
    146.8
    
    
    
    98.0Cash and cash equivalents, end of period
    
    $
    160.8
    
    
    $
    49.0
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1. Basis of presentation
  2. Adoption of new accounting standard
 Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
 3. Stock based compensation  exit units
    Page 6 of 37




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4. Curtailment gain
  5. Intangible assets and goodwill
  June 30, 2007
    
    
    Weighted
    
    
    December 31, 2006Accumulated
    
    
    Average
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Useful Lives
    
    
    Cost
    
    
    AmortizationTrade names
    
    $
    88.6
    
    
    $
    5.7
    
    
    40 years
    
    $
    87.6
    
    
    $
    4.6Customer relationships
    
    
    242.4
    
    
    
    16.7
    
    
    39 years
    
    
    237.5
    
    
    
    13.0Software
    
    
    30.5
    
    
    
    8.1
    
    
    10 years
    
    
    30.5
    
    
    
    6.6Existing technology
    
    
    127.0
    
    
    
    13.8
    
    
    25 years
    
    
    126.6
    
    
    
    11.1Order backlog
    
    
    0.1
    
    
    
    
    
    
    19 months
    
    
    26.3
    
    
    
    26.3Non-compete agreement
    
    
    
    
    
    
    
    
    
    2 years
    
    
    4.4
    
    
    
    4.4Total amortizable
intangible assets
    
    $
    488.6
    
    
    $
    44.3
    
    
    
    
    
    
    $
    512.9
    
    
    $
    66.0
   June 30,2007Beginning balance
    
    $
    410.5Foreign currency translation adjustments
    
    
    12.9Ending balance
    
    $

    423.4
 6. Inventories
  June 30,
    
    
    December 31,2007
    
    
    2006Raw materials and supplies
    
    $
    127.1
    
    
    $
    112.7Work-in-process and finished goods
    
    
    270.0
    
    
    
    210.0397.1
    
    
    
    322.7Less progress payments
    
    
    (191.2
    )
    
    
    (139.7
    )Total inventories
    
    $
    205.9
    
    
    $
    183.0
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7. Property, plant and equipment
  June 30
    
    
    December 31,2007
    
    
    2006Land
    
    $
    10.3
    
    
    $
    10.2Buildings and improvements
    
    
    78.6
    
    
    
    74.1Machinery and equipment
    
    
    202.1
    
    
    
    195.7291.0
    
    
    
    280.0Less:Accumulated depreciation
    
    
    (71.9
    )
    
    
    (56.9
    )Property, plant and equipment, net
    
    $
    219.1
    
    
    $
    223.1
 8. Income taxes
     Jurisdiction
    
    Open YearsBrazil
    
    
    2002 - 2006Canada
    
    
    2003 - 2006France
    
    
    2004 - 2006
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Jurisdiction
    
    Open YearsGermany
    
    
    2002 - 2006India
    
    
    2000 - 2006Italy
    
    
    2002 - 2006Malaysia
    
    
    1999 - 2006Netherlands
    
    
    2004 - 2006Norway
    
    
    1997 - 2006United Kingdom
    
    
    2004 - 2006United States
    
    
    2004 - 2006Venezuela
    
    
    2003 - 2006
  9. Pension plans
  Three months ended June 30,
    
    
    Six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    1.8
    
    
    $
    1.5
    
    
    $
    3.5
    
    
    $
    2.9Interest cost
    
    
    4.6
    
    
    
    4.4
    
    
    
    9.2
    
    
    
    8.7Expected return on
plan assets
    
    
    (5.5
    )
    
    
    (5.0
    )
    
    
    (10.9
    )
    
    
    (10.0
    )Net amortization of
plan net losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Net pension expense
    
    $
    0.9
    
    
    $
    0.9
    
    
    $
    1.8
    
    
    $
    1.7
 10. Postretirement benefits other than pensions
  Three months ended June 30,
    
    
    Six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    0.4
    
    
    $
    0.4
    
    
    $
    0.8
    
    
    $
    0.9Interest cost
    
    
    0.6
    
    
    
    0.6
    
    
    
    1.2
    
    
    
    1.2Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.8
    )Net amortization of prior service (credit)
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.3
    )
    
    
    Net periodic postretirement benefits cost
(gain)
    
    $
    0.8
    
    
    $
    1.0
    
    
    $
    1.7
    
    
    $
    (9.7
    )
  11. Commitments and contingencies
  Page 9 of 37




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12. Warranty accruals
   Six months ended June 30,2007
    
    
    2006Beginning balance
    
    $
    23.4
    
    
    $
    21.5Provisions for warranties issued during the period
    
    
    9.9
    
    
    
    7.8Adjustments to warranties issued in prior periods
    
    
    (0.1
    )
    
    
    0.8Payments during period
    
    
    (7.9
    )
    
    
    (7.3
    )Foreign currency translation adjustments
    
    
    0.6
    
    
    
    1.0Ending balance
    
    $
    25.9
    
    
    $
    23.8
 13. Segment information
  1)
    
    New Units are highly engineered solutions to new requests from customers. The segment
includes engineering, manufacturing, sales and administrative support.2)
    
    Aftermarket Parts and Services consist of aftermarket support solutions for the existing
population of installed equipment. The segment includes engineering, manufacturing, sales and
administrative support.
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Three months ended June 30,
    
    
    Six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesNew units
    
    $
    232.2
    
    
    $
    248.3
    
    
    $
    346.6
    
    
    $
    387.3Aftermarket parts and services
    
    
    209.0
    
    
    
    175.7
    
    
    
    409.0
    
    
    
    328.2Total Revenues
    
    $
    441.2
    
    
    $
    424.0
    
    
    $
    755.6
    
    
    $
    715.5Operating IncomeNew units
    
    $
    17.4
    
    
    $
    14.6
    
    
    $
    22.0
    
    
    $
    13.3Aftermarket parts and services
    
    
    52.0
    
    
    
    45.5
    
    
    
    100.1
    
    
    
    79.8Unallocable
    
    
    (19.3
    )
    
    
    (32.9
    )
    
    
    (39.1
    )
    
    
    (35.7
    )Total Operating Income
    
    $
    50.1
    
    
    $
    27.2
    
    
    $
    83.0
    
    
    $
    57.4Depreciation and AmortizationNew units
    
    $
    7.2
    
    
    $
    8.3
    
    
    $
    12.2
    
    
    $
    14.8Aftermarket parts and services
    
    
    5.1
    
    
    
    4.4
    
    
    
    12.0
    
    
    
    11.0Total Depreciation and Amortization
    
    $
    12.3
    
    
    $
    12.7
    
    
    $
    24.2
    
    
    $
    25.8Total Assets (including Goodwill)New units
    
    $
    251.7
    
    
    $
    276.9
    
    
    $
    251.7
    
    
    $
    276.9Aftermarket parts and services
    
    
    626.1
    
    
    
    560.6
    
    
    
    626.1
    
    
    
    560.6Unallocable
    
    
    887.7
    
    
    
    802.2
    
    
    
    887.7
    
    
    
    802.2Total Assets
    
    $
    1,765.5
    
    
    $
    1,639.7
    
    
    $
    1,765.5
    
    
    $
    1,639.7
 14. Stockholders equity
  AccumulatedOtherCommon
    
    
    Additional
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Paid-in Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalAt December 31, 2006
    
    $
    0.9
    
    
    $
    518.8
    
    
    $
    123.1
    
    
    $
    (10.9
    )
    
    $
    631.9Stock based employee compensation
    
    

    
    
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Adoption of FASB Interpretation No. 48
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Net income
    
    
    
    
    
    
    
    
    
    
    41.6
    
    
    
    
    
    
    
    41.6Other comprehensive incomeBenefit plan amendment  net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    5.0Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.8
    
    
    
    12.8At June 30, 2007
    
    $
    0.9
    
    
    $
    524.7
    
    
    $
    164.6
    
    
    $
    6.9
    
    
    $
    697.1
  Three months ended June 30,
    
    
    Six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    26.2
    
    
    $
    10.7
    
    
    $
    41.6
    
    
    $
    23.0Other comprehensive income:Benefit plan amendment  net of tax
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    Minimum
pension liability  net of tax
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Foreign currency translation adjustment
    
    
    7.8
    
    
    
    5.2
    
    
    
    12.8
    
    
    
    13.4Total comprehensive income
    
    $
    34.0
    
    
    $
    15.8
    
    
    $
    59.4
    
    
    $
    36.3
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15. Acquisition
   Inventory
    
    $
    4.6Property, plant and equipment
    
    
    0.5Amortizable intangible assets
    
    
    3.0Cash paid  net
    
    $
    8.1
  16. Supplemental guarantor financial information
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CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended June 30, 2007
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalNet sales
    
    $
    
    
    
    $
    269.2
    
    
    $
    199.9
    
    
    $
    (27.9
    )
    
    $
    441.2Cost of sales
    
    
    
    
    
    
    201.6
    
    
    
    146.8
    
    
    
    (26.1
    )
    
    
    322.3Gross profit
    
    
    
    
    
    
    67.6
    
    
    
    53.1
    
    
    
    (1.8
    )
    
    
    118.9Selling and administrative expenses
    
    
    31.2
    
    
    
    13.2
    
    
    
    26.9
    
    
    
    (5.1
    )
    
    
    66.2Research and development expenses
    
    
    
    
    
    
    2.5
    
    
    
    0.1
    
    
    
    
    
    
    
    2.6(Loss) income from operations
    
    
    (31.2
    )
    
    
    51.9
    
    
    
    26.1
    
    
    
    3.3
    
    
    
    50.1Equity earnings (losses) in affiliates
    
    
    45.3
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (44.9
    )
    
    
    Interest (expense), net
    
    
    (8.6
    )
    
    
    
    
    
    
    (1.4
    )
    
    
    
    
    
    
    (10.0
    )Intercompany interest and fees
    
    
    9.8
    
    
    
    1.0
    
    
    
    (10.8
    )
    
    
    
    
    
    
    Other income (expense), net
    
    
    2.2
    
    
    
    (0.9
    )
    
    
    
    
    
    
    
    
    
    
    1.3Income before income taxes
    
    
    17.5
    
    
    
    51.6
    
    
    
    13.9
    
    
    
    (41.6
    )
    
    
    41.4(Benefit) provision for income taxes
    
    
    (8.7
    )
    
    
    19.1
    
    
    
    4.8
    
    
    
    
    
    
    
    15.2Net income
    
    $
    26.2
    
    
    $
    32.5
    
    
    $
    9.1
    
    
    $
    (41.6
    )
    
    $
    26.2
 CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended June 30, 2006
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalNet sales
    
    $
    
    
    
    $
    221.6
    
    
    $
    238.0
    
    
    $
    (35.6
    )
    
    $
    424.0Cost of sales
    
    
    
    
    
    
    171.9
    
    
    
    190.6
    
    
    
    (34.9
    )
    
    
    327.6Gross profit
    
    
    
    
    
    
    49.7
    
    
    
    47.4
    
    
    
    (0.7
    )
    
    
    96.4Selling and administrative expenses
    
    
    17.3
    
    
    
    31.7
    
    
    
    17.4
    
    
    
    (0.4
    )
    
    
    66.0Research and development expenses
    
    
    
    
    
    
    3.2
    
    
    
    
    
    
    
    
    
    
    
    3.2(Loss) income from operations
    
    
    (17.3
    )
    
    
    14.8
    
    
    
    30.0
    
    
    
    (0.3
    )
    
    
    27.2Equity earnings in affiliates
    
    
    34.5
    
    
    
    4.0
    
    
    
    
    
    
    
    (38.5
    )
    
    
    Interest (expense), net
    
    
    (10.6
    )
    
    
    (0.5
    )
    
    
    (1.3
    )
    
    
    
    
    
    
    (12.4
    )Intercompany interest and fees
    
    
    (14.8
    )
    
    
    22.1
    
    
    
    (7.3
    )
    
    
    
    
    
    
    Other income (expense), net
    
    
    3.2
    
    
    
    (0.3
    )
    
    
    1.2
    
    
    
    
    
    
    
    4.1Income before income taxes
    
    
    (5.0
    )
    
    
    40.1
    
    
    
    22.6
    
    
    
    (38.8
    )
    
    
    18.9(Benefit) provision for income taxes
    
    
    (15.7
    )
    
    
    16.5
    
    
    
    7.4
    
    
    
    
    
    
    
    8.2Net income
    
    $
    10.7
    
    
    $
    23.6
    
    
    $
    15.2
    
    
    $
    (38.8
    )
    
    $
    10.7
 Page 13 of 37




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the six months ended June 30, 2007
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalNet sales
    
    $
    
    
    
    $
    485.7
    
    
    $
    326.9
    
    
    $
    (57.0
    )
    
    $
    755.6Cost of sales
    
    
    
    
    
    
    354.6
    
    
    
    237.9
    
    
    
    (47.4
    )
    
    
    545.1Gross profit
    
    
    
    
    
    
    131.1
    
    
    
    89.0
    
    
    
    (9.6
    )
    
    
    210.5Selling and administrative expenses
    
    
    64.0
    
    
    
    23.9
    
    
    
    45.5
    
    
    
    (11.6
    )
    
    
    121.8Research and development expenses
    
    
    
    
    
    
    5.5
    
    
    
    0.2
    
    
    
    
    
    
    
    5.7(Loss) income from operations
    
    
    (64.0
    )
    
    
    101.7
    
    
    
    43.3
    
    
    
    2.0
    
    
    
    83.0Equity earnings in affiliates
    
    
    82.9
    
    
    
    0.2
    
    
    
    
    
    
    
    (83.1
    )
    
    
    Interest (expense), net
    
    
    (17.8
    )
    
    
    
    
    
    
    (3.1
    )
    
    
    
    
    
    
    (20.9
    )Intercompany interest and fees
    
    
    15.2
    
    
    
    2.0
    
    
    
    (17.2
    )
    
    
    
    
    
    
    Other income (expense), net
    
    
    2.4
    
    
    
    (1.0
    )
    
    
    2.3
    
    
    
    
    
    
    
    3.7Income before income taxes
    
    
    18.7
    
    
    
    102.9
    
    
    
    25.3
    
    
    
    (81.1
    )
    
    
    65.8(Benefit) provision for income taxes
    
    
    (22.9
    )
    
    
    38.3
    
    
    
    8.8
    
    
    
    
    
    
    
    24.2Net income
    
    $
    41.6
    
    
    $
    64.6
    
    
    $
    16.5
    
    
    $
    (81.1
    )
    
    $
    41.6
 CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the six months ended June 30, 2006
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalNet sales
    
    $
    
    
    
    $
    389.4
    
    
    $
    392.8
    
    
    $
    (66.7
    )
    
    $
    715.5Cost of sales
    
    
    
    
    
    
    297.5
    
    
    
    318.8
    
    
    
    (64.2
    )
    
    
    552.1Gross profit
    
    
    
    
    
    
    91.9
    
    
    
    74.0
    
    
    
    (2.5
    )
    
    
    163.4Selling and administrative expenses
    
    
    17.6
    
    
    
    61.6
    
    
    
    34.0
    
    
    
    (0.7
    )
    
    
    112.5Research and development expenses
    
    
    
    
    
    
    5.3
    
    
    
    
    
    
    
    
    
    
    
    5.3Curtailment Gain
    
    
    
    
    
    
    (11.8
    )
    
    
    
    
    
    
    
    
    
    
    (11.8
    )(Loss) income from operations
    
    
    (17.6
    )
    
    
    36.8
    
    
    
    40.0
    
    
    
    (1.8
    )
    
    
    57.4Equity earnings in affiliates
    
    
    52.6
    
    
    
    5.6
    
    
    
    
    
    
    
    (58.2
    )
    
    
    Interest (expense), net
    
    
    (23.2
    )
    
    
    (0.3
    )
    
    
    (2.5
    )
    
    
    
    
    
    
    (26.0
    )Intercompany interest and fees
    
    
    (13.4
    )
    
    
    25.8
    
    
    
    (12.4
    )
    
    
    
    
    
    
    Other income, net
    
    
    4.4
    
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    6.0Income before income taxes
    
    
    2.8
    
    
    
    67.9
    
    
    
    26.7
    
    
    
    (60.0
    )
    
    
    37.4(Benefit) provision for income taxes
    
    
    (20.2
    )
    
    
    25.8
    
    
    
    8.8
    
    
    
    
    
    
    
    14.4Net income
    
    $
    23.0
    
    
    $
    42.1
    
    
    $
    17.9
    
    
    $
    (60.0
    )
    
    $
    23.0
 Page 14 of 37




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2007
 Subsidiary
    
    
    Subsidiary Non
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalASSETSCash and cash equivalents
    
    $
    39.1
    
    
    $
    
    
    
    $
    121.7
    
    
    $
    
    
    
    $
    160.8Accounts
receivable, net
    
    
    0.3
    
    
    
    127.5
    
    
    
    128.8
    
    
    
    
    
    
    
    256.6Inventories, net
    
    
    
    
    
    
    164.9
    
    
    
    48.0
    
    
    
    (7.0
    )
    
    
    205.9Prepaid expenses and deferred income taxes
    
    
    15.0
    
    
    
    4.6
    
    
    
    16.1
    
    
    
    
    
    
    
    35.7Total current assets
    
    
    54.4
    
    
    
    297.0
    
    
    
    314.6
    
    
    
    (7.0
    )
    
    
    659.0Investment in affiliates
    
    
    1,334.3
    
    
    
    65.7
    
    
    
    
    
    
    
    (1,400.0
    )
    
    
    Property, plant, and equipment, net
    
    
    
    
    
    
    155.6
    
    
    
    63.5
    
    
    
    
    
    
    
    219.1Intangible assets, net
    
    
    
    
    
    
    462.1
    
    
    
    405.6
    
    
    
    
    
    
    
    867.7Other assets
    
    
    16.5
    
    
    
    
    
    
    
    3.2
    
    
    
    
    
    
    
    19.7Total assets
    
    $
    1,405.2
    
    
    $
    980.4
    
    
    $
    786.9
    
    
    $
    (1,407.0
    )
    
    $
    1,765.5LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable and accruals
    
    $
    6.4
    
    
    $
    291.5
    
    
    $
    203.5
    
    
    $
    
    
    
    $
    501.4Loans payable
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Total current liabilities
    
    
    6.4
    
    
    
    291.5
    
    
    
    203.6
    
    
    
    
    
    
    
    501.5Long-term debt
    
    
    370.0
    
    
    
    
    
    
    
    26.8
    
    
    
    
    
    
    
    396.8Intercompany
accounts, net
    
    
    320.3
    
    
    
    (454.4
    )
    
    
    134.1
    
    
    
    
    
    
    
    Other noncurrent liabilities
    
    
    11.4
    
    
    
    97.1
    
    
    
    61.6
    
    
    
    
    
    
    
    170.1Total liabilities
    
    
    708.1
    
    
    
    (65.8
    )
    
    
    426.1
    
    
    
    
    
    
    
    1,068.4Common stock
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Other stockholders equity
    
    
    696.2
    
    
    
    1,046.2
    
    
    
    360.8
    
    
    
    (1,407.0
    )
    
    
    696.2Total stockholders equity
    
    
    697.1
    
    
    
    1,046.2
    
    
    
    360.8
    
    
    
    (1,407.0
    )
    
    
    697.1Total liabilities and stockholders equity
    
    $
    1,405.2
    
    
    $
    980.4
    
    
    $
    786.9
    
    
    $
    (1,407.0
    )
    
    $
    1,765.5
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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2006
 Subsidiary
    
    
    Subsidiary Non
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalASSETSCash and cash equivalents
    
    $
    37.0
    
    
    $
    
    
    
    $
    109.8
    
    
    $
    
    
    
    $
    146.8Accounts
receivable, net
    
    
    
    
    
    
    145.7
    
    
    
    159.4
    
    
    
    
    
    
    
    305.1Inventories, net
    
    
    
    
    
    
    133.3
    
    
    
    58.7
    
    
    
    (9.0
    )
    
    
    183.0Prepaid expenses and deferred income taxes
    
    
    8.6
    
    
    
    4.3
    
    
    
    21.2
    
    
    
    
    
    
    
    34.1Total current assets
    
    
    45.6
    
    
    
    283.3
    
    
    
    349.1
    
    
    
    (9.0
    )
    
    
    669.0Investment in affiliates
    
    
    1,232.9
    
    
    
    59.4
    
    
    
    
    
    
    
    (1,292.3
    )
    
    
    Property, plant, and equipment, net
    
    
    
    
    
    
    160.8
    
    
    
    62.3
    
    
    
    
    
    
    
    223.1Intangible assets, net
    
    
    
    
    
    
    466.6
    
    
    
    390.8
    
    
    
    
    
    
    
    857.4Other assets
    
    
    14.9
    
    
    
    4.3
    
    
    
    2.6
    
    
    
    
    
    
    
    21.8Total assets
    
    $
    1,293.4
    
    
    $
    974.4
    
    
    $
    804.8
    
    
    $
    (1,301.3
    )
    
    $
    1,771.3LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable and accruals
    
    $
    22.4
    
    
    $
    222.4
    
    
    $
    226.6
    
    
    $
    
    
    
    $
    471.4Loans payable
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Total current liabilities
    
    
    22.4
    
    
    
    222.4
    
    
    
    226.7
    
    
    
    
    
    
    
    471.5Long-term debt
    
    
    432.2
    
    
    
    
    
    
    
    73.4
    
    
    
    
    
    
    
    505.6Intercompany
accounts, net
    
    
    197.9
    
    
    
    (344.8
    )
    
    
    146.9
    
    
    
    
    
    
    
    Other noncurrent liabilities
    
    
    9.0
    
    
    
    99.0
    
    
    
    54.3
    
    
    
    
    
    
    
    162.3Total liabilities
    
    
    661.5
    
    
    
    (23.4
    )
    
    
    501.3
    
    
    
    
    
    
    
    1,139.4Common stock
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Other stockholders equity
    
    
    631.0
    
    
    
    997.8
    
    
    
    303.5
    
    
    
    (1,301.3
    )
    
    
    631.0Total stockholders equity
    
    
    631.9
    
    
    
    997.8
    
    
    
    303.5
    
    
    
    (1,301.3
    )
    
    
    631.9Total liabilities and stockholders equity
    
    $
    1,293.4
    
    
    $
    974.4
    
    
    $
    804.8
    
    
    $
    (1,301.3
    )
    
    $
    1,771.3
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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2007
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalCash flows from operating activities:Net cash (used in) provided by operating activities
    
    $
    (54.2
    )
    
    $
    150.4
    
    
    $
    41.9
    
    
    $
    (1.9
    )
    
    $
    136.2Cash flows from investing activities:Capital expenditures
    
    
    (2.2
    )
    
    
    (4.8
    )
    
    
    (1.6
    )
    
    
    
    
    
    
    (8.6
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    
    
    
    
    0.6Acquisitions
    
    
    (8.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.1
    )Net cash
(used in) investing activities
    
    
    (10.3
    )
    
    
    (4.7
    )
    
    
    (1.1
    )
    
    
    
    
    
    
    (16.1
    )Cash flows from financing activities:Net change in debt
    
    
    (62.2
    )
    
    
    
    
    
    
    (47.9
    )
    
    
    
    
    
    
    (110.1
    )Proceeds from exercise of options
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Change in intercompany accounts
    
    
    128.6
    
    
    
    (145.7
    )
    
    
    15.2
    
    
    
    1.9
    
    
    
    Net cash provided by (used in) financing activities
    
    
    66.6
    
    
    
    (145.7
    )
    
    
    (32.7
    )
    
    
    1.9
    
    
    
    (109.9
    )Effect of exchange rate changes
    
    
    
    
    
    
    
    
    
    
    3.8
    
    
    
    
    
    
    
    3.8Net increase in cash and equivalents
    
    
    2.1
    
    
    
    
    
    
    
    11.9
    
    
    
    
    
    
    
    14.0Cash and cash equivalents, beginning of period
    
    
    37.0
    
    
    
    
    
    
    
    109.8
    
    
    
    
    
    
    
    146.8Cash and cash equivalents, end of period
    
    $
    39.1
    
    
    $
    
    
    
    $
    121.7
    
    
    $
    
    
    
    $
    160.8
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2006
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalCash flows from operating activities:Net cash (used in) provided by operating activities
    
    $
    (33.8
    )
    
    $
    72.8
    
    
    $
    (25.1
    )
    
    $
    (7.0
    )
    
    $
    6.9Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (7.2
    )
    
    
    (1.5
    )
    
    
    
    
    
    
    (8.7
    )Net cash
(used in) investing activities
    
    
    
    
    
    
    (7.2
    )
    
    
    (1.5
    )
    
    
    
    
    
    
    (8.7
    )Cash flows from financing activities:Net change in debt
    
    
    (50.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50.0
    )Change in intercompany accounts
    
    
    83.8
    
    
    
    (107.1
    )
    
    
    25.1
    
    
    
    (1.8
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    33.8
    
    
    
    (107.1
    )
    
    
    25.1
    
    
    
    (1.8
    )
    
    
    (50.0
    )Effect of exchange rate changes
    
    
    
    
    
    
    
    
    
    
    2.8
    
    
    
    
    
    
    
    2.8Net (decrease) increase in cash and equivalents
    
    
    
    
    
    
    (41.5
    )
    
    
    1.3
    
    
    
    (8.8
    )
    
    
    (49.0
    )Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    41.5
    
    
    
    56.5
    
    
    
    
    
    
    
    98.0Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    57.8
    
    
    $
    (8.8
    )
    
    $
    49.0
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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (dollars in millions, except per unit amounts)
 Overview
       Results of Operations
 Three months ended June 30, 2007 compared to the three months ended June 30, 2006
 Three months ended
    
    
    Three months ended
    
    
    Period to Period ChangeJune 30, 2007
    
    
    June 30, 2006
    
    
    2006 to 2007
    
    
    % ChangeStatement of Operations Data:Total revenues
    
    $
    441.2
    
    
    
    100.0
    %
    
    $
    424.0
    
    
    
    100.0
    %
    
    $
    17.2
    
    
    
    4.1
    %Cost of sales
    
    
    322.3
    
    
    
    73.1
    
    
    
    327.6
    
    
    
    77.3
    
    
    
    (5.3
    )
    
    
    (1.6
    )%Gross profit
    
    
    118.9
    
    
    
    26.9
    
    
    
    96.4
    
    
    
    22.7
    
    
    
    22.5
    
    
    
    23.3
    %Selling and administrative expenses
    
    
    66.2
    
    
    
    15.0
    
    
    
    66.0
    
    
    
    15.6
    
    
    
    0.2
    
    
    
    0.3
    %Research and development expenses
    
    
    2.6
    
    
    
    0.5
    
    
    
    3.2
    
    
    
    0.8
    
    
    
    (0.6
    )
    
    
    (18.8
    )%Operating income
    
    
    50.1
    
    
    
    11.4
    
    
    
    27.2
    
    
    
    6.4
    
    
    
    22.9
    
    
    
    84.2
    %Interest (expense), net
    
    
    (10.0
    )
    
    
    (2.3
    )
    
    
    (12.4
    )
    
    
    (2.9
    )
    
    
    2.4
    
    
    
    (19.4
    )%Other income, net
    
    
    1.3
    
    
    
    0.3
    
    
    
    4.1
    
    
    
    1.0
    
    
    
    (2.8
    )
    
    
    (68.3
    )%Income before income taxes
    
    
    41.4
    
    
    
    9.4
    
    
    
    18.9
    
    
    
    4.5
    
    
    
    22.5
    
    
    
    119.0
    %Provision for income taxes
    
    
    15.2
    
    
    
    3.5
    
    
    
    8.2
    
    
    
    2.0
    
    
    
    7.0
    
    
    
    85.4
    %Net income
    
    $
    26.2
    
    
    
    5.9
    %
    
    $
    10.7
    
    
    
    2.5
    %
    
    $
    15.5
    
    
    
    144.9
    %Bookings
    
    $
    659.2
    
    
    
    
    
    
    $
    434.1
    
    
    
    
    
    
    $
    225.1
    
    
    
    51.9
    %Backlog  ending
    
    $
    1,612.5
    
    
    
    
    
    
    $
    1,013.1
    
    
    
    
    
    
    $
    599.4
    
    
    
    59.2
    %
 Total revenues.
 Page 18 of 37




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Cost of sales.
 Gross profit.
 Selling and administrative expenses.
 Stock based compensation  exit units.
   Page 19 of 37




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Research and development expenses.
 Operating income.
 Interest expense, net.
 Other income (expense), net.
 Provision for income taxes.
  Bookings and backlog.
 Segment Information
     Page 20 of 37




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Segment Analysis  three months ended June 30, 2007, compared to three months ended June
30, 2006
 Period to Period ChangeThree months ended
    
    
    Three months ended
    
    
    2006 toJune 30, 2007
    
    
    June 30, 2006
    
    
    2007
    
    
    % ChangeStatement of Segment Data:RevenuesNew units
    
    $
    232.2
    
    
    
    52.6
    %
    
    $
    248.3
    
    
    
    58.6
    %
    
    $
    (16.1
    )
    
    
    (6.5
    )%Aftermarket parts and services
    
    
    209.0
    
    
    
    47.4
    %
    
    
    175.7
    
    
    
    41.4
    %
    
    
    33.3
    
    
    
    19.0
    %Total revenues
    
    $
    441.2
    
    
    
    100.0
    %
    
    $
    424.0
    
    
    
    100.0
    %
    
    $
    17.2
    
    
    
    4.1
    %Gross profitNew units
    
    $
    39.6
    
    
    
    
    
    
    $
    30.7
    
    
    
    
    
    
    $
    8.9
    
    
    
    29.0
    %Aftermarket parts and services
    
    
    79.3
    
    
    
    
    
    
    
    65.7
    
    
    
    
    
    
    
    13.6
    
    
    
    20.7
    %Total gross profit
    
    $
    118.9
    
    
    
    
    
    
    $
    96.4
    
    
    
    
    
    
    $
    22.5
    
    
    
    23.3
    %Operating incomeNew units
    
    $
    17.4
    
    
    
    
    
    
    $
    14.6
    
    
    
    
    
    
    $
    2.8
    
    
    
    19.2
    %Aftermarket parts and services
    
    
    52.0
    
    
    
    
    
    
    
    45.5
    
    
    
    
    
    
    
    6.5
    
    
    
    14.3
    %Unallocated expense
    
    
    (19.3
    )
    
    
    
    
    
    
    (32.9
    )
    
    
    
    
    
    
    13.6
    
    
    
    (41.3
    )%Total operating income
    
    $
    50.1
    
    
    
    
    
    
    $
    27.2
    
    
    
    
    
    
    $
    22.9
    
    
    
    84.2
    %BookingsNew units
    
    $
    452.9
    
    
    
    
    
    
    $
    232.2
    
    
    
    
    
    
    $
    220.7
    
    
    
    95.0
    %Aftermarket parts and services
    
    
    206.3
    
    
    
    
    
    
    
    201.9
    
    
    
    
    
    
    
    4.4
    
    
    
    2.2
    %Total bookings
    
    $
    659.2
    
    
    
    
    
    
    $
    434.1
    
    
    
    
    
    
    $
    225.1
    
    
    
    51.9
    %Backlog  endingNew units
    
    $
    1,335.2
    
    
    
    
    
    
    $
    739.5
    
    
    
    
    
    
    $
    595.7
    
    
    
    80.6
    %Aftermarket parts and services
    
    
    277.3
    
    
    
    
    
    
    
    273.6
    
    
    
    
    
    
    
    3.7
    
    
    
    1.4
    %Total backlog
    
    $
    1,612.5
    
    
    
    
    
    
    $
    1,013.1
    
    
    
    
    
    
    $
    599.4
    
    
    
    59.2
    %
 New Units
 Revenues.
 Gross profit.
 Operating income.
 Bookings and Backlog.
 Page 21 of 37




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Aftermarket Parts and Services
 Revenues.
 Gross profit.
 Operating income.
 Bookings and Backlog.
 Results of Operations
 Six Months ended June 30, 2007 compared to the six months ended June 30, 2006
 Six months ended
    
    
    Six months ended
    
    
    Period to Period ChangeJune 30, 2007
    
    
    June 30, 2006
    
    
    2006 to 2007
    
    
    % ChangeStatement of Operations Data:Total revenues
    
    $
    755.6
    
    
    
    100.0
    %
    
    $
    715.5
    
    
    
    100.0
    %
    
    $
    40.1
    
    
    
    5.6
    %Cost of sales
    
    
    545.1
    
    
    
    72.1
    
    
    
    552.1
    
    
    
    77.2
    
    
    
    (7.0
    )
    
    
    (1.3
    )%Gross profit
    
    
    210.5
    
    
    
    27.9
    
    
    
    163.4
    
    
    
    22.8
    
    
    
    47.1
    
    
    
    28.8
    %Selling and administrative expenses
    
    
    121.8
    
    
    
    16.1
    
    
    
    112.5
    
    
    
    15.7
    
    
    
    9.3
    
    
    
    8.3
    %Research and development expenses
    
    
    5.7
    
    
    
    0.8
    
    
    
    5.3
    
    
    
    0.7
    
    
    
    0.4
    
    
    
    7.5
    %Curtailment gain
    
    
    
    
    
    
    
    
    
    
    (11.8
    )
    
    
    (1.6
    )
    
    
    11.8
    
    
    NMOperating income
    
    
    83.0
    
    
    
    11.0
    
    
    
    57.4
    
    
    
    8.0
    
    
    
    25.6
    
    
    
    44.6
    %Interest (expense), net
    
    
    (20.9
    )
    
    
    (2.8
    )
    
    
    (26.0
    )
    
    
    (3.6
    )
    
    
    5.1
    
    
    
    (19.6
    )%Other income, net
    
    
    3.7
    
    
    
    0.5
    
    
    
    6.0
    
    
    
    0.8
    
    
    
    (2.3
    )
    
    NMIncome before income taxes
    
    
    65.8
    
    
    
    8.7
    
    
    
    37.4
    
    
    
    5.2
    
    
    
    28.4
    
    
    
    75.9
    %Provision for income taxes
    
    
    24.2
    
    
    
    3.2
    
    
    
    14.4
    
    
    
    2.0
    
    
    
    9.8
    
    
    
    68.1
    %Net income
    
    $
    41.6
    
    
    
    5.5
    %
    
    $
    23.0
    
    
    
    3.2
    %
    
    $
    18.6
    
    
    
    80.9
    %Bookings
    
    $
    1,084.8
    
    
    
    
    
    
    $
    799.4
    
    
    
    
    
    
    $
    285.4
    
    
    
    35.7
    %Backlog  ending
    
    $
    1,612.5
    
    
    
    
    
    
    $
    1,013.1
    
    
    
    
    
    
    $
    599.4
    
    
    
    59.2
    %
 Total revenues.
 Page 22 of 37




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Cost of sales.
 Gross profit.
 Selling and administrative expenses.
 Stock based compensation  exit units.
  Page 23 of 37




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Research and development expenses.
 Operating income.
 Interest expense, net.
 Other income (expense), net.
 Provision for income taxes.
 Bookings.
 Segment Analysis  six months ended June 30, 2007, compared to six months ended June 30, 2006
 Page 24 of 37




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Period to Period ChangeSix months ended
    
    
    Six months ended
    
    
    2006 toJune 30, 2007
    
    
    June 30, 2006
    
    
    2007
    
    
    % ChangeStatement of Segment Data:RevenuesNew units
    
    $
    346.6
    
    
    
    45.9
    %
    
    $
    387.3
    
    
    
    54.1
    %
    
    $
    (40.7
    )
    
    
    (10.5
    )%Aftermarket parts and services
    
    
    409.0
    
    
    
    54.1
    %
    
    
    328.2
    
    
    
    45.9
    %
    
    
    80.8
    
    
    
    24.6
    %Total revenues
    
    $
    755.6
    
    
    
    100.0
    %
    
    $
    715.5
    
    
    
    100.0
    %
    
    $
    40.1
    
    
    
    5.6
    %Gross profitNew units
    
    $
    56.3
    
    
    
    
    
    
    $
    41.9
    
    
    
    
    
    
    $
    14.4
    
    
    
    34.4
    %Aftermarket parts and services
    
    
    154.2
    
    
    
    
    
    
    
    121.5
    
    
    
    
    
    
    
    32.7
    
    
    
    26.9
    %Total gross profit
    
    $
    210.5
    
    
    
    
    
    
    $
    163.4
    
    
    
    
    
    
    $
    47.1
    
    
    
    28.8
    %Operating incomeNew units
    
    $
    22.0
    
    
    
    
    
    
    $
    13.3
    
    
    
    
    
    
    $
    8.7
    
    
    
    65.4
    %Aftermarket parts and services
    
    
    100.1
    
    
    
    
    
    
    
    79.8
    
    
    
    
    
    
    
    20.3
    
    
    
    25.4
    %Unallocated expense
    
    
    (39.1
    )
    
    
    
    
    
    
    (35.7
    )
    
    
    
    
    
    
    (3.4
    )
    
    
    9.5
    %Total operating income
    
    $
    83.0
    
    
    
    
    
    
    $
    57.4
    
    
    
    
    
    
    $
    25.6
    
    
    
    44.6
    %BookingsNew units
    
    $
    687.9
    
    
    
    
    
    
    $
    397.6
    
    
    
    
    
    
    $
    290.3
    
    
    
    73.0
    %Aftermarket parts and services
    
    
    396.9
    
    
    
    
    
    
    
    401.8
    
    
    
    
    
    
    
    (4.9
    )
    
    
    (1.2
    )%Total bookings
    
    $
    1,084.8
    
    
    
    
    
    
    $
    799.4
    
    
    
    
    
    
    $
    285.4
    
    
    
    35.7
    %Backlog  endingNew units
    
    $
    1,335.2
    
    
    
    
    
    
    $
    739.5
    
    
    
    
    
    
    $
    595.7
    
    
    
    80.6
    %Aftermarket parts and services
    
    
    277.3
    
    
    
    
    
    
    
    273.6
    
    
    
    
    
    
    
    3.7
    
    
    
    1.4
    %Total backlog
    
    $
    1,612.5
    
    
    
    
    
    
    $
    1,013.1
    
    
    
    
    
    
    $
    599.4
    
    
    
    59.2
    %
 New Units
 Revenues.
 Gross profit.
 Operating income.
 Bookings.
 Aftermarket Parts and Services
 Revenues.
 Page 25 of 37




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Gross profit.
 Operating income.
 Bookings.
 Liquidity and Capital Resources
     Recently adopted accounting standard
 Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
 Page 26 of 37




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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    material weaknesses in our internal control over financial reporting;
    
    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;
    
    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 and as set forth in the Companys Annual Report on Form 10-K for the year ended
December 31, 2006.
 Page 27 of 37




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
    Material Weaknesses in Internal Control over Financial Reporting
  Page 28 of 37




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Internal Control  Integrated Framework
     Changes in Internal Control Over Financial Reporting
   Page 29 of 37




---



##### Table of Contents



PART II.  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
    
 ITEM 1A. RISK FACTORS
 Part I, Item 1A in our Annual Report on Form 10-K for the
year ended December 31, 2006 includes certain risk factors that could
materially affect our business, financial condition or future results. Those
Risk Factors have not materially changed except as set forth
below:
 Our business could suffer if we are unsuccessful in
negotiating new collective bargaining agreements.
  The economic and political conditions in Venezuela may
have an adverse impact on our financial condition and result of
operations
  Page 30 of 37




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  ELECTION OF DIRECTORS
  Votes For
    
    
    WitheldWilliam E. Maccaulay
    
    
    79,632,187
    
    
    
    330,635Jean-Paul Vettier
    
    
    79,623,902
    
    
    
    338,920Vincent R. Volpe Jr.
    
    
    79,653,697
    
    
    
    309,125Michael L. Underwood
    
    
    73,129,150
    
    
    
    6,833,672Philip R. Roth
    
    
    73,238,672
    
    
    
    6,724,150Louis A. Raspino
    
    
    73,237,332
    
    
    
    6,725,490Rita V. Foley
    
    
    79,602,612
    
    
    
    360,210Joseph C. Winkler
    
    
    79,604,082
    
    
    
    358,740
  RATIFICATION
OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Votes For
    
    Votes Against
    
    Abstain79,271,167
    
    590,195
    
    101,460
  
 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 3.2 to Dresser-Rand Group Inc.s Registration
Statement on Form S-1/A filed on July 18, 2005, File No.
333-124963).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.)
 Page 31 of 37




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SIGNATURES
  DRESSER-RAND GROUP INC.Date:   July 31, 2007
    /s/Lonnie A. ArnettLonnie A. ArnettVice President, Controller and Chief
Accounting Officer Page 32 of 37