##### 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 September 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 and nine months ended
September 30, 2007 and 2006
    
    3Consolidated Balance Sheet at September 30, 2007 and December 31, 2006
    
    4Consolidated Statement of Cash Flows for the nine months ended September 30, 2007 and 2006
    
    5Notes to Unaudited Consolidated Financial Statements at September 30, 2007
    
    6-18Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    19-28Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    29Item 4. Controls and Procedures
    
    29-30PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    31Item 1A. Risk Factors
    
    31-32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    32Item 6. Exhibits
    
    32-33Signatures
    
    34-38Exhibits
    
    35-38EX-10.3: OFFER LETTEREX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  
 
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales of products
    
    $
    317.0
    
    
    $
    244.2
    
    
    $
    913.7
    
    
    $
    823.5Net sales of services
    
    
    72.3
    
    
    
    66.1
    
    
    
    231.2
    
    
    
    202.3Total revenues
    
    
    389.3
    
    
    
    310.3
    
    
    
    1,144.9
    
    
    
    1,025.8Cost of products sold
    
    
    240.8
    
    
    
    165.7
    
    
    
    674.2
    
    
    
    621.5Cost of services sold
    
    
    50.1
    
    
    
    45.3
    
    
    
    161.8
    
    
    
    141.5Total cost of products and services sold
    
    
    290.9
    
    
    
    211.0
    
    
    
    836.0
    
    
    
    763.0Gross profit
    
    
    98.4
    
    
    
    99.3
    
    
    
    308.9
    
    
    
    262.8Selling and administrative expenses (nine months ended September 30,
2006 amount include $16.8 of stock based compensation  exit units)
    
    
    57.6
    
    
    
    48.4
    
    
    
    179.4
    
    
    
    161.0Research and development expenses
    
    
    4.4
    
    
    
    2.5
    
    
    
    10.1
    
    
    
    7.8Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.8
    )Income from operations
    
    
    36.4
    
    
    
    48.4
    
    
    
    119.4
    
    
    
    105.8Interest expense, net
    
    
    (9.3
    )
    
    
    (11.0
    )
    
    
    (30.2
    )
    
    
    (37.0
    )Other income, net
    
    
    5.6
    
    
    
    1.0
    
    
    
    9.3
    
    
    
    7.0Income before income taxes
    
    
    32.7
    
    
    
    38.4
    
    
    
    98.5
    
    
    
    75.8Provision for income taxes
    
    
    11.4
    
    
    
    15.5
    
    
    
    35.6
    
    
    
    29.9Net income
    
    $
    21.3
    
    
    $
    22.9
    
    
    $
    62.9
    
    
    $
    45.9Net income per common share-basic and diluted
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    0.74
    
    
    $
    0.54Weighted average shares outstandingBasic
    
    
    85,472
    
    
    
    85,457
    
    
    
    85,466
    
    
    
    85,450Diluted
    
    
    85,693
    
    
    
    85,457
    
    
    
    85,536
    
    
    
    85,450
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September 30,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    184.0
    
    
    $
    146.8Accounts receivable, less allowance for doubtful
accounts of $7.1 at 2007 and $6.1 at 2006
    
    
    236.1
    
    
    
    305.1Inventories, net
    
    
    245.7
    
    
    
    183.0Prepaid expenses
    
    
    30.5
    
    
    
    20.2Deferred income taxes
    
    
    13.8
    
    
    
    13.9Total current assets
    
    
    710.1
    
    
    
    669.0Property, plant and equipment, net
    
    
    216.0
    
    
    
    223.1Goodwill
    
    
    443.8
    
    
    
    410.5Intangible assets, net
    
    
    443.2
    
    
    
    446.9Other assets
    
    
    21.4
    
    
    
    21.8Total assets
    
    $
    1,834.5
    
    
    $
    1,771.3Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable and accruals
    
    $
    321.6
    
    
    $
    303.7Customer advance payments
    
    
    217.1
    
    
    
    137.4Accrued income taxes payable
    
    
    11.0
    
    
    
    30.3Loans payable
    
    
    
    
    
    
    0.1Total current liabilities
    
    
    549.7
    
    
    
    471.5Deferred income taxes
    
    
    36.3
    
    
    
    26.5Postemployment and other employee benefit liabilities
    
    
    112.3
    
    
    
    113.7Long-term debt
    
    
    370.0
    
    
    
    505.6Other noncurrent liabilities
    
    
    28.2
    
    
    
    22.1Total liabilities
    
    
    1,096.5
    
    
    
    1,139.4Commitments and contingencies (Notes 8 through 12)Stockholders equityCommon stock, $0.01 par value, 250,000,000 shares authorized;
and, 85,819,681 and 85,477,160 shares issued and
outstanding, respectively
    
    
    0.9
    
    
    
    0.9Additional paid-in capital
    
    
    525.9
    
    
    
    518.8Retained earnings
    
    
    185.9
    
    
    
    123.1Accumulated other comprehensive income (loss)
    
    
    25.3
    
    
    
    (10.9
    )Total stockholders equity
    
    
    738.0
    
    
    
    631.9Total liabilities and stockholders equity
    
    $
    1,834.5
    
    
    $
    1,771.3
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Nine Months ended September 30,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    62.9
    
    
    $
    45.9Adjustments to arrive at net cash provided by operating activities:Depreciation and amortization
    
    
    36.4
    
    
    
    38.6Stock-based compensation
    
    
    6.8
    
    
    
    18.3Amortization of debt financing costs
    
    
    6.1
    
    
    
    3.9Deferred income taxes
    
    
    5.6
    
    
    
    13.0Provision for losses on inventory
    
    
    1.0
    
    
    
    1.0Gain on sale of property, plant and equipment
    
    
    (0.4
    )
    
    
    Curtailment gain
    
    
    
    
    
    
    (11.8
    )Working capital and otherAccounts receivable
    
    
    77.0
    
    
    
    44.0Customer advances
    
    
    72.0
    
    
    
    12.0Accounts payable
    
    
    (14.9
    )
    
    
    (28.8
    )Inventories
    
    
    (53.1
    )
    
    
    (42.9
    )Other
    
    
    (11.7
    )
    
    
    (1.1
    )Net cash provided by operating activities
    
    
    187.7
    
    
    
    92.1Cash flows from investing activitiesCapital expenditures
    
    
    (15.0
    )
    
    
    (13.1
    )Acquisitions
    
    
    (8.1
    )
    
    
    Proceeds from sale of property, plant and equipment
    
    
    5.2
    
    
    
    Net cash used in investing activities
    
    
    (17.9
    )
    
    
    (13.1
    )Cash flows from financing activitiesPayments of long-term debt
    
    
    (137.1
    )
    
    
    (50.1
    )Payments for debt financing costs
    
    
    (4.5
    )
    
    
    Proceeds from exercise of stock options
    
    
    0.4
    
    
    
    Net cash used in financing activities
    
    
    (141.2
    )
    
    
    (50.1
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    8.6
    
    
    
    2.6Net increase in cash and cash equivalents
    
    
    37.2
    
    
    
    31.5Cash and cash equivalents, beginning of the period
    
    
    146.8
    
    
    
    98.0Cash and cash equivalents, end of period
    
    $
    184.0
    
    
    $
    129.5
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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
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4. Curtailment gain
  5. Intangible assets and goodwill
  September 30, 2007
    
    
    Weighted
    
    
    December 31, 2006Accumulated
    
    
    Average
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Useful Lives
    
    
    Cost
    
    
    AmortizationTrade names
    
    $
    88.6
    
    
    $
    6.3
    
    
    40 years
    
    $
    87.6
    
    
    $
    4.6Customer relationships
    
    
    244.4
    
    
    
    17.1
    
    
    40 years
    
    
    237.5
    
    
    
    13.0Software
    
    
    30.6
    
    
    
    8.9
    
    
    10 years
    
    
    30.5
    
    
    
    6.6Existing technology
    
    
    127.0
    
    
    
    15.1
    
    
    25 years
    
    
    126.6
    
    
    
    11.1Order backlog
    
    
    
    
    
    
    
    
    
    15 months
    
    
    26.3
    
    
    
    26.3Non-compete agreement
    
    
    
    
    
    
    
    
    
    2 years
    
    
    4.4
    
    
    
    4.4Total amortizable intangible assets
    
    $
    490.6
    
    
    $
    47.4
    
    
    
    
    
    
    $
    512.9
    
    
    $
    66.0
   September 30,2007Beginning balance
    
    $
    410.5Foreign currency translation adjustments
    
    
    33.3Ending balance
    
    $
    443.8
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6. Inventories
  September 30,
    
    
    December 31,2007
    
    
    2006Raw materials and supplies
    
    $
    126.3
    
    
    $
    112.7Work-in-process and finished goods
    
    
    325.9
    
    
    
    210.0452.2
    
    
    
    322.7Less progress payments
    
    
    (206.5
    )
    
    
    (139.7
    )Total inventories
    
    $
    245.7
    
    
    $
    183.0
  7. Property, plant and equipment
  September 30,
    
    
    December 31,2007
    
    
    2006Land
    
    $
    9.5
    
    
    $
    10.2Buildings and improvements
    
    
    76.5
    
    
    
    74.1Machinery and equipment
    
    
    209.9
    
    
    
    195.7295.9
    
    
    
    280.0Less: Accumulated depreciation
    
    
    (79.9
    )
    
    
    (56.9
    )Property, plant and equipment, net
    
    $
    216.0
    
    
    $
    223.1
 8. Income taxes
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Jurisdiction
    
    Open YearsBrazil
    
    2002 - 2006Canada
    
    2003 - 2006France
    
    2004 - 2006Germany
    
    2003 - 2006India
    
    2000 - 2006Italy
    
    2002 - 2006Malaysia
    
    2000 - 2006Netherlands
    
    2004 - 2006Norway
    
    1997 - 2006United Kingdom
    
    2004 - 2006United States
    
    2004 - 2006Venezuela
    
    2003 - 2006
  9. Pension plans
  Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    1.7
    
    
    $
    1.5
    
    
    $
    5.2
    
    
    $
    4.4Interest cost
    
    
    4.7
    
    
    
    4.4
    
    
    
    13.9
    
    
    
    13.1Expected return on plan assets
    
    
    (5.5
    )
    
    
    (5.0
    )
    
    
    (16.4
    )
    
    
    (15.1
    )Net amortization of plan net losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Net pension expense
    
    $
    0.9
    
    
    $
    0.9
    
    
    $
    2.7
    
    
    $
    2.5
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10. Postretirement benefits other than pensions
  Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    0.3
    
    
    $
    0.4
    
    
    $
    1.1
    
    
    $
    1.3Interest cost
    
    
    0.6
    
    
    
    0.6
    
    
    
    1.8
    
    
    
    1.8Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.8
    )Net amortization of prior service (credit)
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.5
    )
    
    
    Amortization of net loss
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Net periodic postretirement benefits cost (gain)
    
    $
    0.8
    
    
    $
    1.0
    
    
    $
    2.5
    
    
    $
    (8.7
    )
  11. Commitments and contingencies
   12. Warranty accruals
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Nine months ended September 30,2007
    
    
    2006Beginning balance
    
    $
    23.4
    
    
    $
    21.5Provisions for warranties issued during the period
    
    
    15.4
    
    
    
    11.5Adjustments to warranties issued in prior periods
    
    
    (0.9
    )
    
    
    0.2Payments during period
    
    
    (11.7
    )
    
    
    (11.2
    )Foreign currency translation adjustments
    
    
    1.3
    
    
    
    1.0Ending balance
    
    $
    27.5
    
    
    $
    23.0
 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.
   Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesNew units
    
    $
    194.0
    
    
    $
    113.7
    
    
    $
    540.6
    
    
    $
    501.0Aftermarket parts and services
    
    
    195.3
    
    
    
    196.6
    
    
    
    604.3
    
    
    
    524.8Total Revenues
    
    $
    389.3
    
    
    $
    310.3
    
    
    $
    1,144.9
    
    
    $
    1,025.8Operating IncomeNew units
    
    $
    12.0
    
    
    $
    11.4
    
    
    $
    34.0
    
    
    $
    24.7Aftermarket parts and services
    
    
    43.1
    
    
    
    51.9
    
    
    
    143.2
    
    
    
    131.8Unallocable
    
    
    (18.7
    )
    
    
    (14.9
    )
    
    
    (57.8
    )
    
    
    (50.7
    )Total Operating Income
    
    $
    36.4
    
    
    $
    48.4
    
    
    $
    119.4
    
    
    $
    105.8Depreciation and AmortizationNew units
    
    $
    6.6
    
    
    $
    5.6
    
    
    $
    18.8
    
    
    $
    20.4Aftermarket parts and services
    
    
    5.6
    
    
    
    7.2
    
    
    
    17.6
    
    
    
    18.2Total Depreciation and Amortization
    
    $
    12.2
    
    
    $
    12.8
    
    
    $
    36.4
    
    
    $
    38.6Total Assets (including Goodwill)New units
    
    $
    265.0
    
    
    $
    239.9
    
    
    $
    265.0
    
    
    $
    239.9Aftermarket parts and services
    
    
    653.4
    
    
    
    577.9
    
    
    
    653.4
    
    
    
    577.9Unallocable
    
    
    916.1
    
    
    
    882.3
    
    
    
    916.1
    
    
    
    882.3Total Assets
    
    $
    1,834.5
    
    
    $
    1,700.1
    
    
    $
    1,834.5
    
    
    $
    1,700.1
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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
    
    
    
    
    
    
    7.1
    
    
    
    
    
    
    
    
    
    
    
    7.1Adoption of FASB Interpretation No. 48
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Net income
    
    
    
    
    
    
    
    
    
    
    62.9
    
    
    
    
    
    
    
    62.9Other comprehensive incomeBenefit plan amendment  net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    5.0Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31.2
    
    
    
    31.2At September 30, 2007
    
    $
    0.9
    
    
    $
    525.9
    
    
    $
    185.9
    
    
    $
    25.3
    
    
    $
    738.0
  Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    21.3
    
    
    $
    22.9
    
    
    $
    62.9
    
    
    $
    45.9Other comprehensive income:Benefit plan amendment  net of tax
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    Minimum pension liability  net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Foreign currency translation adjustment
    
    
    18.4
    
    
    
    (3.9
    )
    
    
    31.2
    
    
    
    9.5Total comprehensive income
    
    $
    39.7
    
    
    $
    19.0
    
    
    $
    99.1
    
    
    $
    55.3
   15. Acquisition
   Inventory
    
    $
    4.6Property, plant and equipment
    
    
    0.5Amortizable intangible assets
    
    
    3.0Cash paid  net
    
    $
    8.1
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16. Supplemental guarantor financial information
   Page 13 of 38




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CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2007
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    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
 CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2006
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalNet sales
    
    $
    
    
    
    $
    210.4
    
    
    $
    122.9
    
    
    $
    (23.0
    )
    
    $
    310.3Cost of sales
    
    
    
    
    
    
    154.2
    
    
    
    82.3
    
    
    
    (25.5
    )
    
    
    211.0Gross profit
    
    
    
    
    
    
    56.2
    
    
    
    40.6
    
    
    
    2.5
    
    
    
    99.3Selling and administrative expenses
    
    
    1.0
    
    
    
    31.3
    
    
    
    16.5
    
    
    
    (0.4
    )
    
    
    48.4Research and development expenses
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    2.5(Loss) income from operations
    
    
    (1.0
    )
    
    
    22.4
    
    
    
    24.1
    
    
    
    2.9
    
    
    
    48.4Equity earnings in affiliates
    
    
    31.8
    
    
    
    1.1
    
    
    
    
    
    
    
    (32.9
    )
    
    
    Interest (expense) income, net
    
    
    (10.7
    )
    
    
    0.1
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (11.0
    )Intercompany interest and fees
    
    
    (6.8
    )
    
    
    12.3
    
    
    
    (5.5
    )
    
    
    
    
    
    
    Other (expense) income, net
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    1.4
    
    
    
    
    
    
    
    1.0Income before income taxes
    
    
    13.0
    
    
    
    35.8
    
    
    
    19.6
    
    
    
    (30.0
    )
    
    
    38.4(Benefit) provision for income taxes
    
    
    (9.9
    )
    
    
    13.7
    
    
    
    11.7
    
    
    
    
    
    
    
    15.5Net income
    
    $
    22.9
    
    
    $
    22.1
    
    
    $
    7.9
    
    
    $
    (30.0
    )
    
    $
    22.9
 Page 14 of 38




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2007
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    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
 CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2006
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalNet sales
    
    $
    
    
    
    $
    599.8
    
    
    $
    515.8
    
    
    $
    (89.8
    )
    
    $
    1,025.8Cost of sales
    
    
    
    
    
    
    451.8
    
    
    
    401.1
    
    
    
    (89.9
    )
    
    
    763.0Gross profit
    
    
    
    
    
    
    148.0
    
    
    
    114.7
    
    
    
    0.1
    
    
    
    262.8Selling and administrative expenses
    
    
    18.6
    
    
    
    92.9
    
    
    
    50.5
    
    
    
    (1.0
    )
    
    
    161.0Research and development expenses
    
    
    
    
    
    
    7.7
    
    
    
    0.1
    
    
    
    
    
    
    
    7.8Curtailment gain
    
    
    
    
    
    
    (11.8
    )
    
    
    
    
    
    
    
    
    
    
    (11.8
    )(Loss) income from operations
    
    
    (18.6
    )
    
    
    59.2
    
    
    
    64.1
    
    
    
    1.1
    
    
    
    105.8Equity earnings in affiliates
    
    
    84.4
    
    
    
    6.7
    
    
    
    
    
    
    
    (91.1
    )
    
    
    Interest (expense), net
    
    
    (33.9
    )
    
    
    (0.2
    )
    
    
    (2.9
    )
    
    
    
    
    
    
    (37.0
    )Intercompany interest and fees
    
    
    (20.1
    )
    
    
    38.1
    
    
    
    (18.0
    )
    
    
    
    
    
    
    Other income (expense), net
    
    
    4.1
    
    
    
    (0.2
    )
    
    
    3.1
    
    
    
    
    
    
    
    7.0Income before income taxes
    
    
    15.9
    
    
    
    103.6
    
    
    
    46.3
    
    
    
    (90.0
    )
    
    
    75.8(Benefit) provision for income taxes
    
    
    (30.0
    )
    
    
    39.4
    
    
    
    20.5
    
    
    
    
    
    
    
    29.9Net income
    
    $
    45.9
    
    
    $
    64.2
    
    
    $
    25.8
    
    
    $
    (90.0
    )
    
    $
    45.9
 Page 15 of 38




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2007
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalASSETSCash and cash equivalents
    
    $
    28.2
    
    
    $
    
    
    
    $
    155.8
    
    
    $
    
    
    
    $
    184.0Accounts receivable, net
    
    
    1.0
    
    
    
    105.6
    
    
    
    129.5
    
    
    
    
    
    
    
    236.1Inventories, net
    
    
    
    
    
    
    181.8
    
    
    
    70.5
    
    
    
    (6.6
    )
    
    
    245.7Prepaid expenses and deferred income taxes
    
    
    18.2
    
    
    
    6.6
    
    
    
    19.5
    
    
    
    
    
    
    
    44.3Total current assets
    
    
    47.4
    
    
    
    294.0
    
    
    
    375.3
    
    
    
    (6.6
    )
    
    
    710.1Investment in affiliates
    
    
    1,387.8
    
    
    
    67.8
    
    
    
    
    
    
    
    (1,455.6
    )
    
    
    Property, plant, and equipment, net
    
    
    
    
    
    
    149.7
    
    
    
    66.3
    
    
    
    
    
    
    
    216.0Intangible assets, net
    
    
    
    
    
    
    458.4
    
    
    
    428.6
    
    
    
    
    
    
    
    887.0Other assets
    
    
    19.0
    
    
    
    
    
    
    
    2.4
    
    
    
    
    
    
    
    21.4Total assets
    
    $
    1,454.2
    
    
    $
    969.9
    
    
    $
    872.6
    
    
    $
    (1,462.2
    )
    
    $
    1,834.5LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable and accruals
    
    $
    (8.6
    )
    
    $
    281.1
    
    
    $
    277.2
    
    
    $
    
    
    
    $
    549.7Loans payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total current liabilities
    
    
    (8.6
    )
    
    
    281.1
    
    
    
    277.2
    
    
    
    
    
    
    
    549.7Long-term debt
    
    
    370.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    370.0Intercompany accounts-net
    
    
    343.5
    
    
    
    (480.9
    )
    
    
    137.4
    
    
    
    
    
    
    
    Other noncurrent liabilities
    
    
    11.3
    
    
    
    101.3
    
    
    
    64.2
    
    
    
    
    
    
    
    176.8Total liabilities
    
    
    716.2
    
    
    
    (98.5
    )
    
    
    478.8
    
    
    
    
    
    
    
    1,096.5Common stock
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Other stockholders equity
    
    
    737.1
    
    
    
    1,068.4
    
    
    
    393.8
    
    
    
    (1,462.2
    )
    
    
    737.1Total stockholders equity
    
    
    738.0
    
    
    
    1,068.4
    
    
    
    393.8
    
    
    
    (1,462.2
    )
    
    
    738.0Total liabilities and stockholders equity
    
    $
    1,454.2
    
    
    $
    969.9
    
    
    $
    872.6
    
    
    $
    (1,462.2
    )
    
    $
    1,834.5
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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2006
 SubsidiarySubsidiary
    
    
    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 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
    )Acquisitions
    
    
    
    
    
    
    (8.1
    )
    
    
    
    
    
    
    
    
    
    
    (8.1
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    4.6
    
    
    
    0.6
    
    
    
    
    
    
    
    5.2Net 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
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2006
 Subsidiary
    
    
    Subsidiary
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalCash flows from operating activities:Net cash (used in) provided by operating
activities
    
    $
    (41.9
    )
    
    $
    120.1
    
    
    $
    14.9
    
    
    $
    (1.0
    )
    
    $
    92.1Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (10.0
    )
    
    
    (3.1
    )
    
    
    
    
    
    
    (13.1
    )Net cash used in investing activities
    
    
    
    
    
    
    (10.0
    )
    
    
    (3.1
    )
    
    
    
    
    
    
    (13.1
    )Cash flows from financing activities:Net change in debt
    
    
    (50.0
    )
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (50.1
    )Change in intercompany accounts
    
    
    147.5
    
    
    
    (151.7
    )
    
    
    3.2
    
    
    
    1.0
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    97.5
    
    
    
    (151.7
    )
    
    
    3.1
    
    
    
    1.0
    
    
    
    (50.1
    )Effect of exchange rate changes
    
    
    
    
    
    
    
    
    
    
    2.6
    
    
    
    
    
    
    
    2.6Net increase (decrease) in cash and equivalents
    
    
    55.6
    
    
    
    (41.6
    )
    
    
    17.5
    
    
    
    
    
    
    
    31.5Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    41.6
    
    
    
    56.4
    
    
    
    
    
    
    
    98.0Cash and cash equivalents, end of period
    
    $
    55.6
    
    
    $
    
    
    
    $
    73.9
    
    
    $
    
    
    
    $
    129.5
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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 September 30, 2007 compared to the three months ended September 30, 2006
 Three months ended
    
    
    Three months ended
    
    
    Period to Period ChangeSeptember 30, 2007
    
    
    September 30, 2006
    
    
    2006 to 2007
    
    
    % ChangeStatement of Operations Data:Total revenues
    
    $
    389.3
    
    
    
    100.0
    %
    
    $
    310.3
    
    
    
    100.0
    %
    
    $
    79.0
    
    
    
    25.5
    %Cost of sales
    
    
    290.9
    
    
    
    74.7
    
    
    
    211.0
    
    
    
    68.0
    
    
    
    79.9
    
    
    
    37.9
    %Gross profit
    
    
    98.4
    
    
    
    25.3
    
    
    
    99.3
    
    
    
    32.0
    
    
    
    (0.9
    )
    
    
    (0.9
    )%Selling and administrative expenses
    
    
    57.6
    
    
    
    14.8
    
    
    
    48.4
    
    
    
    15.6
    
    
    
    9.2
    
    
    
    19.0
    %Research and development expenses
    
    
    4.4
    
    
    
    1.1
    
    
    
    2.5
    
    
    
    0.8
    
    
    
    1.9
    
    
    
    76.0
    %Operating income
    
    
    36.4
    
    
    
    9.4
    
    
    
    48.4
    
    
    
    15.6
    
    
    
    (12.0
    )
    
    
    (24.8
    )%Interest (expense), net
    
    
    (9.3
    )
    
    
    (2.4
    )
    
    
    (11.0
    )
    
    
    (3.5
    )
    
    
    1.7
    
    
    
    (15.5
    )%Other income, net
    
    
    5.6
    
    
    
    1.4
    
    
    
    1.0
    
    
    
    0.3
    
    
    
    4.6
    
    
    
    NMIncome before income taxes
    
    
    32.7
    
    
    
    8.4
    
    
    
    38.4
    
    
    
    12.4
    
    
    
    (5.7
    )
    
    
    (14.8
    )%Provision for income taxes
    
    
    11.4
    
    
    
    2.9
    
    
    
    15.5
    
    
    
    5.0
    
    
    
    (4.1
    )
    
    
    (26.5
    )%Net income
    
    $
    21.3
    
    
    
    5.5
    %
    
    $
    22.9
    
    
    
    7.4
    %
    
    $
    (1.6
    )
    
    
    (7.0
    )%Bookings
    
    $
    496.2
    
    
    
    
    
    
    $
    483.3
    
    
    
    
    
    
    $
    12.9
    
    
    
    2.7
    %Backlog  ending
    
    $
    1,750.8
    
    
    
    
    
    
    $
    1,183.0
    
    
    
    
    
    
    $
    567.8
    
    
    
    48.0
    %
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Total revenues.
 Cost of sales.
 Gross profit.
 Selling and administrative expenses.
 Research and development expenses.
 Operating income.
 Interest
(expense), net.
 Other income, net.
 Provision for income taxes.
  Bookings and backlog.
 Page 20 of 38




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Segment Analysis  three months ended September 30, 2007, compared to three months ended
September 30, 2006
 Three months ended
    
    
    Three months ended
    
    
    Period to Period ChangeSeptember 30, 2007
    
    
    September 30, 2006
    
    
    2006 to 2007
    
    
    % ChangeStatement of Segment Data:RevenuesNew units
    
    $
    194.0
    
    
    
    49.8
    %
    
    $
    113.7
    
    
    
    36.6
    %
    
    $
    80.3
    
    
    
    70.6
    %Aftermarket parts and services
    
    
    195.3
    
    
    
    50.2
    %
    
    
    196.6
    
    
    
    63.4
    %
    
    
    (1.3
    )
    
    
    (0.7
    )%Total revenues
    
    $
    389.3
    
    
    
    100.0
    %
    
    $
    310.3
    
    
    
    100.0
    %
    
    $
    79.0
    
    
    
    25.5
    %Gross profitNew units
    
    $
    29.7
    
    
    
    
    
    
    $
    24.0
    
    
    
    
    
    
    $
    5.7
    
    
    
    23.8
    %Aftermarket parts and services
    
    
    68.7
    
    
    
    
    
    
    
    75.3
    
    
    
    
    
    
    
    (6.6
    )
    
    
    (8.8
    )%Total gross profit
    
    $
    98.4
    
    
    
    
    
    
    $
    99.3
    
    
    
    
    
    
    $
    (0.9
    )
    
    
    (0.9
    )%Operating incomeNew units
    
    $
    12.0
    
    
    
    
    
    
    $
    11.4
    
    
    
    
    
    
    $
    0.6
    
    
    
    5.3
    %Aftermarket parts and services
    
    
    43.1
    
    
    
    
    
    
    
    51.9
    
    
    
    
    
    
    
    (8.8
    )
    
    
    (17.0
    )%Unallocated expense
    
    
    (18.7
    )
    
    
    
    
    
    
    (14.9
    )
    
    
    
    
    
    
    (3.8
    )
    
    
    25.5
    %Total operating income
    
    $
    36.4
    
    
    
    
    
    
    $
    48.4
    
    
    
    
    
    
    $
    (12.0
    )
    
    
    (24.8
    )%BookingsNew units
    
    $
    285.1
    
    
    
    
    
    
    $
    277.3
    
    
    
    
    
    
    $
    7.8
    
    
    
    2.8
    %Aftermarket parts and services
    
    
    211.1
    
    
    
    
    
    
    
    206.0
    
    
    
    
    
    
    
    5.1
    
    
    
    2.5
    %Total bookings
    
    $
    496.2
    
    
    
    
    
    
    $
    483.3
    
    
    
    
    
    
    $
    12.9
    
    
    
    2.7
    %Backlog  endingNew units
    
    $
    1,456.7
    
    
    
    
    
    
    $
    900.3
    
    
    
    
    
    
    $
    556.4
    
    
    
    61.8
    %Aftermarket parts and services
    
    
    294.1
    
    
    
    
    
    
    
    282.7
    
    
    
    
    
    
    
    11.4
    
    
    
    4.0
    %Total backlog
    
    $
    1,750.8
    
    
    
    
    
    
    $
    1,183.0
    
    
    
    
    
    
    $
    567.8
    
    
    
    48.0
    %
 New Units
 Revenues.
 Gross profit.
 Operating income.
 Page 21 of 38




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Bookings and Backlog.
 Aftermarket Parts and Services
 Revenues.
 Gross profit.
 Operating income.
 Bookings and Backlog.
 Page 22 of 38




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Results of Operations
 Nine Months ended September 30, 2007, compared to the nine months ended September 30, 2006
 Nine months ended
    
    
    Nine months ended
    
    
    Period to Period ChangeSeptember 30, 2007
    
    
    September 30, 2006
    
    
    2006 to 2007
    
    
    % ChangeStatement of Operations Data:Total revenues
    
    $
    1,144.9
    
    
    
    100.0
    %
    
    $
    1,025.8
    
    
    
    100.0
    %
    
    $
    119.1
    
    
    
    11.6
    %Cost of sales
    
    
    836.0
    
    
    
    73.0
    
    
    
    763.0
    
    
    
    74.4
    
    
    
    73.0
    
    
    
    9.6
    %Gross profit
    
    
    308.9
    
    
    
    27.0
    
    
    
    262.8
    
    
    
    25.6
    
    
    
    46.1
    
    
    
    17.5
    %Selling and administrative
expenses
    
    
    179.4
    
    
    
    15.7
    
    
    
    161.0
    
    
    
    15.7
    
    
    
    18.4
    
    
    
    11.4
    %Research and development
expenses
    
    
    10.1
    
    
    
    0.9
    
    
    
    7.8
    
    
    
    0.8
    
    
    
    2.3
    
    
    
    29.5
    %Curtailment gain
    
    
    
    
    
    
    
    
    
    
    (11.8
    )
    
    
    (1.2
    )
    
    
    11.8
    
    
    NMOperating income
    
    
    119.4
    
    
    
    10.4
    
    
    
    105.8
    
    
    
    10.3
    
    
    
    13.6
    
    
    
    12.9
    %Interest (expense), net
    
    
    (30.2
    )
    
    
    (2.6
    )
    
    
    (37.0
    )
    
    
    (3.6
    )
    
    
    6.8
    
    
    
    (18.4
    )%Other income, net
    
    
    9.3
    
    
    
    0.8
    
    
    
    7.0
    
    
    
    0.7
    
    
    
    2.3
    
    
    NMIncome before income taxes
    
    
    98.5
    
    
    
    8.6
    
    
    
    75.8
    
    
    
    7.4
    
    
    
    22.7
    
    
    
    29.9
    %Provision for income taxes
    
    
    35.6
    
    
    
    3.1
    
    
    
    29.9
    
    
    
    2.9
    
    
    
    5.7
    
    
    
    19.1
    %Net income
    
    $
    62.9
    
    
    
    5.5
    %
    
    $
    45.9
    
    
    
    4.5
    %
    
    $
    17.0
    
    
    
    37.0
    %Bookings
    
    $
    1,581.0
    
    
    
    
    
    
    $
    1,282.7
    
    
    
    
    
    
    $
    298.3
    
    
    
    23.3
    %Backlog  ending
    
    $
    1,750.8
    
    
    
    
    
    
    $
    1,183.0
    
    
    
    
    
    
    $
    567.8
    
    
    
    48.0
    %
 Total revenues.
 Cost of sales.
  Gross profit.
 Selling and administrative expenses.
 Page 23 of 38




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Stock based compensation  exit units.
   Curtailment
gain.
 Research and development expenses.
 Operating income.
 Interest expense, net.
 Page 24 of 38




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Other income, net.
 Provision for income taxes.
 Bookings.
 Segment Analysis  nine months ended September 30, 2007, compared to nine months ended September
30, 2006
 Period to Period ChangeNine months ended
    
    
    Nine months ended
    
    
    2006 toSeptember 30, 2007
    
    
    September 30, 2006
    
    
    2007
    
    
    % ChangeStatement of Segment Data:RevenuesNew units
    
    $
    540.6
    
    
    
    47.2
    %
    
    $
    501.0
    
    
    
    48.8
    %
    
    $
    39.6
    
    
    
    7.9
    %Aftermarket parts and
services
    
    
    604.3
    
    
    
    52.8
    %
    
    
    524.8
    
    
    
    51.2
    %
    
    
    79.5
    
    
    
    15.1
    %Total revenues
    
    $
    1,144.9
    
    
    
    100.0
    %
    
    $
    1,025.8
    
    
    
    100.0
    %
    
    $
    119.1
    
    
    
    11.6
    %Gross profitNew units
    
    $
    86.0
    
    
    
    
    
    
    $
    65.9
    
    
    
    
    
    
    $
    20.1
    
    
    
    30.5
    %Aftermarket parts and
services
    
    
    222.9
    
    
    
    
    
    
    
    196.9
    
    
    
    
    
    
    
    26.0
    
    
    
    13.2
    %Total gross profit
    
    $
    308.9
    
    
    
    
    
    
    $
    262.8
    
    
    
    
    
    
    $
    46.1
    
    
    
    17.5
    %Operating incomeNew units
    
    $
    34.0
    
    
    
    
    
    
    $
    24.7
    
    
    
    
    
    
    $
    9.3
    
    
    
    37.7
    %Aftermarket parts and
services
    
    
    143.2
    
    
    
    
    
    
    
    131.8
    
    
    
    
    
    
    
    11.4
    
    
    
    8.6
    %Unallocated expense
    
    
    (57.8
    )
    
    
    
    
    
    
    (50.7
    )
    
    
    
    
    
    
    (7.1
    )
    
    
    14.0
    %Total operating income
    
    $
    119.4
    
    
    
    
    
    
    $
    105.8
    
    
    
    
    
    
    $
    13.6
    
    
    
    12.9
    %BookingsNew units
    
    $
    973.0
    
    
    
    
    
    
    $
    674.9
    
    
    
    
    
    
    $
    298.1
    
    
    
    44.2
    %Aftermarket parts and
services
    
    
    608.0
    
    
    
    
    
    
    
    607.8
    
    
    
    
    
    
    
    0.2
    
    
    
    0.0
    %Total bookings
    
    $
    1,581.0
    
    
    
    
    
    
    $
    1,282.7
    
    
    
    
    
    
    $
    298.3
    
    
    
    23.3
    %Backlog  endingNew units
    
    $
    1,456.7
    
    
    
    
    
    
    $
    900.3
    
    
    
    
    
    
    $
    556.4
    
    
    
    61.8
    %Aftermarket parts and
services
    
    
    294.1
    
    
    
    
    
    
    
    282.7
    
    
    
    
    
    
    
    11.4
    
    
    
    4.0
    %Total backlog
    
    $
    1,750.8
    
    
    
    
    
    
    $
    1,183.0
    
    
    
    
    
    
    $
    567.8
    
    
    
    48.0
    %
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New Units
 Revenues.
 Gross profit.
 Operating income.
 Bookings.
 Aftermarket Parts and Services
 Revenues.
 Gross profit.
 Operating income.
 Bookings.
 Page 26 of  38




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Liquidity and Capital Resources
     Recently adopted accounting standard
 Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
 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;
 Page 27 of  38




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##### Table of Contents




    
    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 28 of  38




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
    Material Weaknesses in Internal Control over Financial Reporting
  Page 29 of  38




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Internal Control  Integrated Framework
     Changes in Internal Control Over Financial Reporting
   Page 30 of  38




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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 results of operations
 Page 31 of  38




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Issuer Purchases of Equity Securities
  (c)
    
    
    (d)Total Number
    
    
    Approximateof Shares
    
    
    Dollar ValuePurchased as
    
    
    of SharesPart of
    
    
    That May Yet(a)
    
    
    (b)
    
    
    Publicly
    
    
    Be PurchasedTotal Number
    
    
    Average Price
    
    
    Announced
    
    
    Under theof Shares
    
    
    Paid Per
    
    
    Plans or
    
    
    Plans orPurchased
(1)
    
    
    Share
    
    
    Programs
    
    
    ProgramsPeriodJuly 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 2007
    
    
    1,971
    
    
    $
    37.69
    
    
    
    
    
    
    
    September 2007
    
    
    406
    
    
    $
    36.80
    
    
    
    
    
    
    
    Total
    
    
    2,377
    
    
    
    
    
    
    
    
 
 (1)
    
    These shares were delivered to us as payment of withholding taxes due on the vesting of
restricted stock issued under our 2005 Stock Incentive Plan. 
 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 10.1
    
    Offer Letter, dated July 15, 2007, from the Company to Mark
Baldwin (incorporated by reference to Exhibit 10.1 to
Dresser-Rand Group Inc.s Current Report on Form 8-K, filed
on July 19, 2007, File No., 001-32586).
 Page 32 of  38




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Exhibit 10.2
    
    Amended and Restated Credit Agreement, dated as of August 30, 2007, among Dresser-Rand Group Inc., certain of its
foreign subsidiaries, the syndicate of lenders party thereto, Citicorp North America, Inc., as Administrative
Agent, J.P. Morgan Securities Inc. and UBS Securities LLC, as Co-Syndication Agents, Citgroup Global Markets Inc.,
J.P. Morgan Securities Inc. and UBS Securities LLC, as Joint Lead Arrangers and Joint Book Managers, and Natixis
and Wells Fargo Bank, N.A., as Co-Documentation Agents (incorportated by reference to Exhibit 10.1 to Dresser-Rand
Group Inc.s Current Report on Form 8-K, filed on August 31, 2007, File No. 001-32586).Exhibit 10.3
    
    Offer Letter, dated August 27, 2007, from the Company to Mark Mai.Exhibit 31.1
    
    Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.Exhibit 31.2
    
    Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certification of the President and Chief Executive Officer pursuant to Title 18, United States Code, Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (This certification is
being furnished and shall not be deemed filed with the SEC for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into
any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically
incorporates it by reference.)Exhibit 32.2
    
    Certification of the Executive Vice President and Chief Financial Officer pursuant to Title 18, United States
Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
(This certification is being furnished and shall not be deemed filed with the SEC for purposes of Section 18 of
the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be
incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that
the Registrant specifically incorporates it by reference.)
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SIGNATURES
  DRESSER-RAND GROUP INC.Date:   October 30, 2007
    /s/ Lonnie A. ArnettLonnie A. ArnettVice President, Controller and Chief
Accounting Officer Page 34 of  38