UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31, 2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number:
001-32586
DRESSER-RAND GROUP
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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20-1780492
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(State or other jurisdiction
of
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(I.R.S. Employer Identification
No.)
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incorporation or
organization)
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West8 Tower, Suite 1000
10205 Westheimer Rd.
Houston, Texas 77042
(Address Of Principal
Executive Offices)
(713) 354-6100
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 par value
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New York Stock Exchange
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Securities registered pursuant to
Section 12(g) of the Act:
None
(Title of class)
(Title of class)
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price
of $26.10 per share at which the common equity was last sold, as
of the last business day of the registrants most recently
completed second fiscal quarter was $2,151,157,276
There were 82,529,890 shares of common stock outstanding on
February 19, 2010.
DOCUMENTS INCORPORATED BY
REFERENCE
Portions of the Registrants Definitive Proxy Statement for
its 2010 Annual Meeting of Stockholders (the Proxy
Statement) are incorporated by reference into
Part III.
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ITEM 1.
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BUSINESS
($ in millions)
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Overview
Dresser-Rand Group Inc. is a Delaware corporation formed in
October 2004. Dresser-Rand Company, an affiliate of Dresser-Rand
Group Inc., was initially formed on December 31, 1986, when
Dresser Industries, Inc. and Ingersoll Rand entered into a
partnership agreement for the formation of Dresser-Rand Company,
a New York general partnership owned 50% by Dresser Industries,
Inc. and 50% by Ingersoll Rand. On October 1, 1992, Dresser
Industries, Inc. purchased a 1% equity interest from
Dresser-Rand Company. In September 1999, Dresser Industries,
Inc. merged with Halliburton Industries, and Dresser Industries,
Inc.s ownership interest in Dresser-Rand Company
transferred to Halliburton Industries. On February 2, 2000,
a wholly-owned subsidiary of Ingersoll Rand purchased
Halliburton Industries 51% interest in Dresser-Rand
Company. On August 25, 2004, Dresser-Rand Holdings, LLC, an
affiliate of First Reserve Corporation (First
Reserve), a private equity firm, entered into an equity
purchase agreement with Ingersoll Rand to purchase all of the
equity interests in the Dresser-Rand Entities for approximately
$1.13 billion. The acquisition closed on October 29,
2004. On August 4, 2005, Dresser-Rand Group, Inc.,
completed its initial public offering of common stock at $21.00
per share. The common stock trades on the New York Stock
Exchange under the symbol DRC. During 2006 and 2007,
there were three secondary sales of the Companys stock by
D-R Interholding, LLC, an affiliate of First Reserve
Corporation. D-R Interholding LLC subsequently sold its entire
interest in Dresser-Rand Group Inc. In this
Form 10-K,
we refer to this acquisition as the Acquisition and
the term Transactions means, collectively, the
Acquisition and the related financings to fund the Acquisition.
Unless the context otherwise indicates, as used in this
Form 10-K,
(i) the terms we, our,
us, the Company, the
Successor and similar terms refer to Dresser-Rand
Group Inc. and its consolidated subsidiaries, (ii) the term
Dresser-Rand Entities refers to Dresser-Rand Company
and its direct and indirect subsidiaries, Dresser-Rand Canada,
Inc. and Dresser-Rand GmbH and (iii) the term
Ingersoll Rand refers to Ingersoll Rand Company
Limited, and its predecessors, which sold its interest in the
Dresser-Rand Entities in the Acquisition.
We are among the largest global suppliers of custom-engineered
rotating equipment solutions for long-life, critical
applications in the oil, gas, chemical, petrochemical, process,
power, military and other industries worldwide. Our segments are
(1) new units and (2) aftermarket parts and services.
Our products and services are widely used in applications that
include gas gathering, gas recompression and export, gas lift
and high pressure re-injection;
CO2
re-injection, enhanced oil recovery, main refrigeration
compression and other duties for liquefied natural gas (LNG)
plants; gas transmission and storage as well as gas processing;
a variety of refinery services; ammonia and methanol synthesis
gas; ethylene and other petrochemical services and chemical
plant services. Our custom-engineered products are also used in
other advanced applications to recover
and/or
increase energy efficiency. These include, among others, hot gas
turbo-expanders for energy recovery in refineries; co- and
tri-generation combined heat and power (CHP) packages for
institutional and other clients; steam turbines to generate
power in ships using steam raised by recovering exhaust heat
from the main engines, and compressed air energy storage (CAES)
applications for utility sized power generation projects that
are environmentally friendly and provides unique grid management
features. The typical CAES plant makes use of our classes of
axial compressors, centrifugal compressors, gas expanders,
controls and rotating equipment system integration capabilities.
Other general industrial markets served include paper, steel,
sugar, and distributed power generation. We operate globally
with manufacturing facilities in the United States, France,
United Kingdom, Germany, Norway, China and India.
We provide a wide array of products and services to our
worldwide client base in over 140 countries from our global
locations (65 sales offices, 37 service centers and 12
manufacturing locations) in 18 U.S. states and 29
countries. Our clients include Chevron, Royal Dutch Shell,
ExxonMobil, BP, Statoil, Total, Petrobras, Pemex, PDVSA,
Petronas, Saudi Aramco, ConocoPhillips, LUKOIL, Marathon
Petroleum Company, Repsol, and Dow Chemical Company.
Our solutions-based service offering combines our
industry-leading technology, extensive worldwide service center
network and deep product expertise. This approach drives our
growth as we offer integrated service solutions that help our
clients lower their life cycle costs, minimize adverse
environmental impact and maximize returns on their production
and processing equipment. We believe our business model and
alliance-based approach align us with our clients who
increasingly choose service providers that can help optimize
performance over the entire life cycle of their equipment. Our
alliance program encompasses both the provision of new units
and/or parts
and services. We offer our clients a dedicated team, advanced
business tools, a streamlined engineering and procurement
process, and a life cycle approach to manufacturing, operating
and maintaining their equipment, whether originally manufactured
by us or by a third party. In many of our alliances, we are
either the exclusive or preferred supplier of equipment and
aftermarket parts and services to a client. Our alliances enable
us to:
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lower clients total cost of ownership and improve
equipment performance;
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lower both our clients and our transaction costs;
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better forecast our future revenues;
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develop a broad, continuing
business-to-business
relationship with our clients that often results in a
substantial increase in the level of activity with those
clients; and
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provide access to the entire organization that enhances
communications.
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The markets in which we operate are large and fragmented. We
estimate that in 2009, the worldwide aggregate annual value of
new unit sales of the classes of equipment we manufacture was
approximately $5 billion and the aftermarket parts and
services needs of the installed base of such equipment (both
in-house and outsourced) was approximately $9.5 billion.
The recent adverse economic conditions and the downturn in the
oil and gas markets at the end of 2008 and into 2009 adversely
affected new unit bookings, which will result in lower new unit
sales in 2010. While the low level of new unit bookings in 2009
reflected the ongoing project delays that we have experienced
throughout the first nine months of 2009, we believe we are
experiencing a recovery in the new units market. Moreover, we
continue to believe that in the long-term we are well positioned
to benefit from a variety of trends that should continue to
drive demand for our products and services, including:
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the increased worldwide demand for energy resulting from
population and economic growth;
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the maturation of production fields worldwide, which requires
increased use of compression equipment to maintain production
levels;
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the increase in demand for natural gas, which is driving growth
in gas production, storage and transmission infrastructure;
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regulatory and environmental initiatives, including clean fuel
legislation and stricter emissions controls worldwide;
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the increased interest in and government support for renewable
energy sources such as wind, solar and wave as well as
environmentally focused solutions such as compressed air energy
and carbon capture and sequestration;
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the aging installed base of equipment, which is increasing
demand for aftermarket parts and services, revamps and
upgrades; and
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the increased outsourcing of equipment maintenance and
operations.
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Business
Strategy
In 2009, approximately 89% of our revenues were generated from
energy infrastructure and oilfield spending. Additionally, 55%
of our total combined revenues were generated by our new units
segment and 45% by our aftermarket parts and services segment.
We intend to continue to focus on the upstream, midstream, and
downstream segments of the oil and gas market. However, we are
not focused exclusively on the oil and gas market; our presence
in the emerging opportunities in the alternative energy and
environmental services markets for our type of rotating
equipment has continued to grow every year. Thus, we expect to
capitalize on the expected long-term growth in equipment and
services investment in these markets.
As we enter 2010, the market for new unit orders appears to be
improving from the low level of bookings we experienced in 2009.
While an accurate prediction of whether the economic environment
will worsen or improve is difficult, we believe that we are
experiencing a recovery in the new unit market. In the fourth
quarter 2009, we have booked more than $369 million of new
unit orders. This was slightly more than the $358 million
of new unit orders booked in the first nine months of 2009.
Additionally, our discussions with key clients continue to give
us confidence that 2010 new unit bookings may begin to approach
the 2008 level.
This is not the first downturn that we have experienced. We have
been planning our footprint and manufacturing strategy over the
past nine years knowing that our new units business is cyclical.
We believe we have built a unique business model that will allow
us to flex our manufacturing capacity as is necessary during
cyclical upswings and downturns. Through our use of a
flexible manufacturing strategy, we can accomplish
the same amount of manufacturing in less space, where we use our
suppliers to flex up or down as needed to meet our manufacturing
requirements.
For example, nearly ten years ago, we took steps to lower our
operating costs and breakeven point by completing a number of
restructuring programs across the entire Company. During 2002 to
2004, we consolidated facilities and
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reduced headcount by more than 20 percent. Since then,
revenues more than doubled without adding significant
manufacturing capacity. We accomplished this as a result of our
business realignment toward the aftermarket parts and services
segment, our lean manufacturing initiatives, and our decision to
use the supply chain to flex manufacturing capacity to meet
rising demand.
Our business model has yielded record results in 2009. We also
expect our business model to minimize operating margin
deterioration in 2010 despite lower revenues driven by lower
2009 new unit bookings. Approximately one-half of our revenues
derive from our new units segment, which is tied to energy
infrastructure investments. This segment is cyclical by nature.
Our flexible manufacturing model, which fundamentally reflects
our ability to flex our supply chain, helps us in times of
slowing demand to keep our factories relatively full and fixed
costs more fully absorbed, which has helped us maintain
operating margins much better than in past industry downturns.
Another important aspect of our business model is that about
half of our revenues derive from the aftermarket segment, which
is much less cycle sensitive. Our equipment is mission critical
to the operating assets of our end user clients. They run
continuously and, therefore, require parts and servicing
generally regardless of commodity prices. In 2009, this segment
of our business represented approximately 76% of the
Companys operating income. By putting talented people and
more efficient processes in place over the last nine years, we
have grown this segment at about a 10% compounded annual rate.
Two other important characteristics of our business model are
our strong value proposition and our low capital intensity. Our
value proposition currently is centered around our clients
total cost of owning and operating our supplied equipment. We
believe we have built some of the most efficient and reliable
equipment in the world. This class of equipment may run for
30 years or more. Over the life cycle of that equipment,
the more efficient the equipment is, the less energy it consumes
to operate and the less
CO2
and other emissions emanate from the equipment driving our
machines. Hence, there is a quantifiable value proposition
associated with what we build. With respect to our low capital
intensity, we have demonstrated the ability to run our business
on an ongoing basis with net working capital and capital
expenditure requirements of approximately 5% and 1.5% to 2% of
sales, respectively.
With respect to our long-term business strategy, our intent is
as follows:
Increase Sales of Aftermarket Parts and Services to the
Existing Installed Base. The substantial portion
of the aftermarket parts and services needs of the existing
installed base of equipment that we currently do not, or only
partially service, represents a significant opportunity for
growth. We believe the market has a general preference for
aftermarket original equipment manufacturers parts and
services. We are implementing a proactive approach to
aftermarket parts and services sales that capitalizes on our
knowledge of the installed base of our own and our
competitors equipment. Through the D-R Avenue project, we
have assembled a significant amount of data on both
Dresser-Rands and our competitors installed
equipment base. We have developed predictive models that help us
identify and be proactive in securing aftermarket parts and
services opportunities. We are upgrading our service response by
integrating the expertise of our factory-based product engineers
with the client-oriented service personnel in the field through
our Client Interface and Response System (CIRS). CIRS
significantly enhances our ability to rapidly and accurately
respond to any technical support or service request from our
clients. We are expanding our service center network, which is
the largest in the industry. Through our lean operating system,
we have instilled a culture of operational and visual
excellence. We believe our premium service level will result in
continued growth of sales of aftermarket parts and services. We
also expect positive contributions from recently added service
centers coupled with the traction we are gaining from newly
acquired businesses.
Expand Aftermarket Parts and Services Business to
Non-Dresser-Rand Original Equipment Manufacturers
Equipment. We believe the aftermarket parts and
services market for non-Dresser-Rand equipment represents a
significant growth opportunity that we continue to pursue on a
systematic basis. As a result of the knowledge and expertise
derived from our long history and experience servicing the
largest installed base in the industry, combined with our
extensive investment in technology, we have a proven process of
applying our technology and processes to improve the operating
efficiency and performance of our competitors products.
Additionally, with the largest global network of full-capability
service centers and field service support for our class of
equipment, we are often in a position to provide quick response
to clients and to offer local service. We believe these, along
with our world class field service safety performance, are
important service differentiators for our clients. By using D-R
Avenue, we intend to capitalize on our knowledge, our broad
network of service centers, flexible technology and existing
relationships with most major industry participants to grow our
aftermarket parts and services solutions for non-Dresser-Rand
equipment. We are able to identify technology upgrades that
improve the performance of our clients assets and to
proactively suggest upgrade and revamp projects that clients may
not have considered.
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Grow Alliances. As a result of the need to
improve efficiency in a competitive global economy, oil and gas
companies are frequently consolidating their supplier
relationships and seeking alliances with suppliers, shifting
from purchasing units and services on an individual
transactional basis to choosing long-term service providers that
can help them optimize performance over the entire life cycle of
their equipment. We continue to see a high level of interest
among our clients in seeking alliances with us, and we have
entered into agreements with more than 50 of our clients. We
plan to leverage our market leadership, global presence, and
comprehensive range of products and services to continue to take
advantage of this trend by pursuing new client alliances as well
as strengthening our existing alliances. We currently are the
only alliance partner for rotating equipment with Marathon
Petroleum Company. In addition, we are a preferred supplier to
other alliance partners, including BP, Royal Dutch Shell,
Statoil, ConocoPhillips, ExxonMobil, Chevron, Petrobras, Pemex,
Valero, Praxair, Mustang Engineering, Fluor, PDVSA, and Repsol.
Expand our Performance-Based Long-Term Service
Contracts. We are growing our participation in
the outsourced services market with our performance-based
operations and maintenance solutions (known as our
Availability+ program), which are designed to offer
clients significant value (improved equipment performance,
decreased life cycle cost and higher availability levels) versus
the traditional services and products approach. These contracts
generally represent multiyear, recurring revenue opportunities
for us that typically include a performance-based element to the
service provided. We offer these contracts for most of the
markets that we serve.
Introduce New and Innovative Products and
Technologies. We believe we are an industry
leader in introducing new, value-added technology. Product
innovation has historically provided, and we believe will
continue to provide, significant opportunities to increase
revenues from both new units sales and upgrades to the installed
base of equipment manufactured by us and other original
equipment manufacturers. Many of our products utilize innovative
technology that lowers operating costs and increases reliability
and performance. Examples of such technology offerings include
adapting the DATUM compressor platform for the revamping of
other original equipment manufacturers equipment, a new
design of dry-gas seals and bearings, a new generation of
rotating separators and an integrated compression system (ICS).
We have introduced a complete line of remote-monitoring and
control instrumentation that offers significant performance
benefits to clients and enhances our operations and maintenance
services offering. Further discussion about innovative products
and technologies can be found under New Product Development.
We plan to continue developing innovative products,
including new compressor platforms, which could further open up
new markets to us.
Continue to Improve Profitability. We
continually seek to improve our financial and operating
performance through cost reductions and productivity
improvements. Process efficiencies, cycle time reductions and
cost improvements are being driven by greater worldwide
collaboration across Dresser-Rand locations. We have Process
Innovation teams removing waste using advanced lean
manufacturing methodologies such as value stream mapping. A
large portion of our finished products comes from purchased
materials and we are extending our process innovation and lean
methodologies to remove waste from our supply chain. We are
focused on continuing to improve our cost position in every area
of our business, and we continue to believe there is substantial
opportunity to further increase our productivity.
Selectively Pursue Acquisitions. We intend to
continue our disciplined pursuit of acquisition opportunities
that fit our business strategy. We will focus on acquisitions
within the energy sector that add new products or technologies
to our portfolio, provide us with access to new markets or
enhance our current product offering or service capabilities.
Given our size and the large number of small companies in our
industry and related industries, we believe many opportunities
for strategic acquisitions remain.
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Services
and Products
We design, manufacture and market highly engineered rotating
equipment and provide services primarily to the worldwide oil,
gas, petrochemical and industrial process industries. Our
segments are new units and aftermarket parts and services. The
following charts show the proportion of our revenue generated by
segment, destination and end market for the periods indicated:
Segment and destination revenues and related financial
information for 2009, 2008, and 2007 can be found in
Note 20, Segment Information, in the Notes to Consolidated
Financial Statements in Item 15 of this
Form 10-K.
New
Units
We are a leading manufacturer of highly-engineered turbo and
reciprocating compression equipment and steam turbines. We also
manufacture special-purpose gas turbines. Our new unit products
are built to client specifications for long-life, critical
applications. The following is a description of the new unit
products that we currently offer.
Dresser-Rand
Major Product Categories
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End Markets
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Maximum
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Up
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Mid
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Down
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Petro
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Product
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Performance
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Stream
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Stream
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Stream
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Chemical
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Chemical
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Industrial
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Power
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Turbo Products
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Centrifugal Compressors
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up to 500k CFM
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Gas Turbines & Power Recovery Turbines
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up to 50+ MW
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Hot Gas Expanders
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up to 1600 °F
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Reciprocating Compressors
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Process
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up to 45k HP
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Separable
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up to 11k HP,
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7500 psig
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Steam Turbines
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up to 75 MW
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Turbo Products. We are a leading supplier of
turbomachinery for the oil and gas industry worldwide. Turbo
products sales represented 53.4%, 54.9%, and 60.9% of our total
new unit revenues for the fiscal years ended 2009, 2008, and
2007, respectively. Centrifugal compressors utilize
turbomachinery technology that employs a series of graduated
impellers to increase pressure. Generally, these centrifugal
compressors are used to re-inject natural gases into petroleum
fields to increase field pressures for added petroleum recovery
or to re-inject carbon dioxide
(CO2)
to meet regulatory requirements. In addition, centrifugal
compression is used to separate the composition of various gases
in process applications to extract specific gases. These
compressors are also used to provide the compression needed to
increase pressures required to transport gases between gas
sources through pipelines. Applications for our turbo products
include gas lift and injection, gas gathering, storage and
transmission, synthetic fuels, ethylene, fertilizer, refineries
and chemical production and CAES application.
Our proprietary DATUM product line incorporates enhanced
engineering features that provide significant operating and
maintenance benefits for our clients. The DATUM is a
comprehensive line of radial and axial split
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centrifugal compressors, with modular and scalable construction,
for flows to 500,000 cubic feet per minute (cfm) (236 m3/s), and
discharge pressures to over 10,000 pounds per square inch gauge
(psig) (690 barg). In some applications, a single DATUM
compressor can compress greater flows per frame size than a
comparable existing product offering, resulting in the
capability to handle the same pressure ratio with fewer frames.
The DATUM product line also offers improved rotor stability
characteristics. DATUM compressors are available in 15 frame
sizes. In addition to the DATUM centrifugal compressor line, we
manufacture a line of axial flow compressors, legacy centrifugal
compressors, warm-gas expanders, hot-gas expanders, gas and
power turbines and control systems.
In addition, we offer a variety of gas turbines ranging in power
capacity from approximately 1.5 to 50+ megawatts (MW), which
support driver needs for various centrifugal compressor product
lines, as well as for power generation applications.
Reciprocating Compressors. We are a leading
supplier of reciprocating compressors, offering products ranging
from medium to high speed separable units driven by engines to
large slow speed-motor driven process reciprocating compressors.
In 2009, in new unit process reciprocating compressor sales, we
were the clear leader in North America, and we continued to rank
in the top three in worldwide market share. Reciprocating
compressor product sales represented 21.0%, 25.7%, and 17.3% of
our total new unit revenues for the fiscal years ended 2009,
2008, and 2007, respectively. Reciprocating compressors use a
traditional piston and cylinder engine design to increase
pressure within a chamber. Typically, reciprocating compressors
are used in lower volume/higher compression ratio applications
and are better able to handle changes in pressure and flow
compared to centrifugal compressors. We offer 11 models of
process reciprocating compressors, with power capacity up to
45,000 horsepower (33.6 MW), and pressures ranging from
vacuum to 60,000 psig (4140 barg). We offer seven models of
medium to high speed reciprocating compressors, with power
ratings over 11,000 horsepower (8.2 MW). Applications for
our reciprocating compressors include upstream production (gas
lift, boil-off/residue gas, export, gathering, processing,
Liquefied Petroleum Gas, and Natural Gas Liquids), midstream
services (gas transport, storage, fuel gas and
CO2
injection) and downstream processing (G-T-L,
H2
production, refining, cool gas, methanol and ethylene,
NH3,
nitric acid, and urea).We also offer control systems for our
reciprocating compressors.
Steam Turbines. We are a leading supplier of
standard and engineered mechanical drive steam turbines and
turbine generator sets. Steam turbine product sales represented
25.6%, 19.4%, and 21.9% of our total new unit revenues for the
fiscal years ended 2009, 2008, and 2007, respectively. Steam
turbines use steam from power plant or process applications and
expand it through nozzles and fixed and rotating vanes,
converting the steam energy into mechanical energy of rotation.
We are one of the few remaining North American manufacturers of
standard and engineered to order multi-stage steam turbines. Our
steam turbine models have power capacity up to 75MW and are used
primarily to drive pumps, fans, blowers, generators and
compressors. Our steam turbines are used in a variety of
industries, including oil and gas, refining, petrochemical,
chemical, pulp and paper, metals, industrial power production
and utilities, sugar and palm oil. We are the sole supplier to
the United States Navy of steam turbines for aircraft carrier
propulsion and other ship services.
New
Product Development
We believe clients are increasingly choosing their suppliers
based upon capability to custom engineer, manufacture and
deliver reliable, high-performance products, with the lowest
total cost of ownership, in the shortest cycle time, and to
provide timely, locally based service and support. New product
and technology development is a fundamental part of our value
proposition and we believe that we are an industry leader in
introducing new, value-added products and technologies. Our
increasing investment in research and development also includes
a continued commitment to attract and retain a staff of
innovative technical experts who are recognized within the
industry.
We have delivered numerous products and technologies that
contribute to aftermarket parts and services growth, as well as
design and process improvements that increase profitability. We
continue to invest in the advancement of core technologies that
include improving our DATUM compressor efficiency, as well as
new technologies that will ensure our long term industry
leadership. Our continuing investment in Ramgen Power Systems,
LLC provides an opportunity to commercialize a breakthrough
compression technology that applies proven supersonic aircraft
technology to ground-based air and gas compressors.
We are also making incremental research and development
investments that support our growth strategies for environmental
solutions that include combined heat and power and ocean wave
energy, as well as our proven energy storage solutions for
alternative energy power generation via Compressed Air Energy
Storage (SMARTCAES). This includes continued development and
commercialization of technologies that were acquired as part of
the former Peter Brotherhood Ltd and Enginuity companies for
combined heat and power, wave energy, as well as efficiency
improvements and emissions reductions for large reciprocating
gas engines.
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In 2009, we made substantial progress on our new Integrated
Compression System (ICS). The ICS uses as a platform
high-efficiency DATUM centrifugal compressor technology driven
by a high-speed, close-coupled motor, including an integrated
gas-liquid separation technology, packaged with process coolers
in a single module. It provides a complete compression system
that can be applied to upstream, midstream and downstream
markets and is part of our technology roadmap to subsea
compression.
In 2009, we shipped our first VECTRA 30G power turbines,
replacing our older but highly successful DR-61, which when
combined with the GE-LM2500 gas generator provide a high speed
gas turbine solution that is available for new equipment and as
a retrofit for legacy turbine packages. The advantage of our
VECTRA product line is a modular aero-derivative design with
high efficiency and quick change-out that increases operating
availability and lowers operating costs.
Revamp/Upgrade
Opportunities
In addition to supplying new rotating units, there are
significant opportunities for us to supply engineered revamp and
upgrade services to the installed base of rotating equipment.
Revamp services involve significant improvement to the
aerodynamic performance of rotating machinery by incorporating
newer technology to enhance equipment efficiency, durability or
capacity. For example, steam turbine revamps involve modifying
the original steam flow path components to match new operating
specifications such as requirements for power, speed and steam
condition.
Upgrade services are offered on all our lines of rotating
equipment, either in conjunction with revamps or on a stand
alone basis. Upgrades are offered to provide the latest
applicable technology components for the equipment to improve
durability, reliability,
and/or
availability. Typical upgrades include replacement of components
such as governors, bearings, seals, pistons, electronic control
devices and retrofitting of existing lubrication, sealing and
control systems with newer technology.
Our proactive efforts to educate our clients on improved revamp
technologies to our DATUM line provides significant growth
potential with attractive margins. We have the support systems
in place, including our technology platform and service
facilities and our cost effective Corporate Product Configurator
platform, to prepare accurate proposals that will allow us to
take advantage of the growth potential in this market. In
addition, we believe our alliance relationships will allow us to
create new revamp opportunities.
Aftermarket
Parts and Services
We continue to believe that the aftermarket parts and services
segment provides us with long-term growth opportunities.
Aftermarket parts and services are generally less cycle
sensitive then the new units segment, although revenues and
bookings tend to be higher in the second half of the year. With
a typical operating life of 30 years or more, rotating
equipment requires substantial aftermarket parts and services
over its operating life. Parts and services activities realize
higher margins than new unit sales. Additionally, the cumulative
revenues from these aftermarket activities often exceed the
initial purchase price of the unit, which in many cases is as
low as five percent of the total life cycle cost of the unit to
the client. Our aftermarket parts and services business offers a
range of services designed to enable clients to maximize their
return on assets by optimizing the performance of their
mission-critical rotating equipment. We offer a broad range of
aftermarket parts and services, including:
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Replacement Parts
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Equipment Repair & Rerates
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Field Service Turnaround
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Equipment Installation
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U.S. Navy Service and Repair
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Applied Technology
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Operation and Maintenance Contracts
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Long-Term Service Agreements
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Rotor/Spare Parts Storage
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Special Coatings/Weldings
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Condition Monitoring
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Product Training
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Controls Retrofit
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Turnkey Installation/Project Management
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Site/Reliability Audits
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We believe we have the largest installed base of the classes of
equipment we manufacture and the largest associated aftermarket
parts and services business in the industry. Many of the units
we manufacture are unique and highly engineered and require
knowledge of their design and performance characteristics to
service. We estimate that we currently provide approximately 55%
of the supplier-provided aftermarket parts and services needs of
our own manufactured equipment base and approximately 4% percent
of the supplier provided aftermarket parts and services needs of
the equipment base of other manufacturers. We focus on a global
offering of technologically advanced aftermarket products and
services, and as a result, our aftermarket activities tend to be
concentrated on the provision of higher-value added parts and
upgrades, and the delivery of sophisticated operating, repair
and overhaul services. Smaller independent companies tend to
focus on local markets and have a more basic aftermarket
offering.
We believe equipment owners and operators generally prefer to
purchase aftermarket parts and services from the original
equipment manufacturer of a unit. A significant portion of our
installed base is serviced in-house by our clients. However, we
believe there is an increasing trend for clients to outsource
this activity, driven by declining in-house expertise, cost
efficiency and the superior service levels and operating
performance offered by original equipment manufacturer service
providers. We believe the steady demand for aftermarket parts
and services from our installed base represents a stable source
of recurring revenues and cash flow. Moreover, with our
value-based solutions strategy, we have a demonstrated track
record of growth in this segment as a result of our focus on
expanding our service offerings into new areas, including
servicing other original equipment manufacturers installed
base of equipment, developing new technology upgrades and
increasing our penetration of higher value-added services to our
own installed base.
Because equipment in our industry typically has a multi-decade
operating life, we believe aftermarket parts and services
capability is a key element in both new unit purchasing
decisions and sales of service contracts. Given the critical
role played by the equipment we sell, clients place a great deal
of importance on a suppliers ability to provide rapid,
comprehensive service, and we believe that the aftermarket parts
and services business represents a significant long-term growth
opportunity. We believe important factors for our clients
include a broad product range, servicing capability, the ability
to provide technology upgrades, local presence and rapid
response time. We provide our solutions to our clients through a
proprietary network of 37 service centers in 20 countries,
employing over 1,500 service center and field service personnel,
servicing our own and other original equipment
manufacturers turbo and reciprocating compressors as well
as steam and gas turbines. We believe our coverage area of
service centers servicing both turbo and reciprocating
compressors and steam turbines is approximately 50% larger than
that of our next closest competitor.
Sales and
Marketing
We market our services and products worldwide through our
established sales presence in 23 countries. In addition, in
certain countries in which we do business, we sell our products
and services through sales representatives. Our sales force is
comprised of over 500 direct sales/service personnel and a
global network of approximately 130 independent representatives,
all of whom sell our products and provide service and
aftermarket support to our installed base locally in over 140
countries. We are able to deliver significant value to our
clients through the use of our Corporate Product Configurator
(CPC) platform, which permits us to interactively configure
certain engineered solutions in real time at their location or
ours in days rather than months. We believe this capability to
be unique in the industry.
Manufacturing
and Engineering Design
Our products and services are used primarily in supplying and
servicing mission critical rotating equipment for the energy
infrastructure worldwide, where increased environmental
regulations test our innovative technologies and design
capabilities. Our technologies support our clients
competitiveness by improving process efficiencies and reducing
emissions. We have taken aggressive steps to address the
challenge of increasing environmental regulation, including a
newly-created strategic business unit to focus on our growth in
environmental markets. Not only do we impact the environment
through the products and services offered, but also through the
manufacture of our products.
10
Our Lean Manufacturing and Quality efforts are critical to
reducing waste in production, transportation, inventory and
material use. For instance, through the use of a flexible
manufacturing strategy, we can accomplish the same amount
of manufacturing in less space, where we use our suppliers to
flex our capacity up or down as needed to meet our manufacturing
requirements.
We are committed to providing our clients with the highest
quality products and services, and are continuously striving for
improved quality and efficiency of both our products and our
processes. Our current worldwide Process Innovation team
includes approximately 100 employees who work across the
globe to improve quality, on-time delivery, cycle time, and
profitability. The team uses a number of continuous improvement
tools such as 6 Sigma, Lean Methodologies, Value Analysis/Value
Engineering, and Total Quality Management. They teach employees
how to apply value-creation and change management methodologies
to their areas of responsibility, and to take ownership of
process improvement. The Lean philosophy and Quality Improvement
principles are continually being inspired and expanded
throughout our Company in a structured fashion using a variety
of training tools. Since mid 2008, over 8,100 courses and
workshops have been completed, and over 2,100 employees
have completed at least one on-line Lean course. From management
to machine tool operators, our employees have an understanding
of these Quality and Lean practices. To further improve
efficiency and productivity, the entire organization is
currently undergoing a transformation through a Global Singular
Process (GSP) effort. Through data, processes, people, and
technology, a common way of doing business is being defined.
Efficiency in our operations remains a priority as we focus on
providing our clients with faster and improved configured
solutions, shorter response times, improved cycle times, and
consistent on-time delivery. Investments in 2009 have improved
the efficiency of our operations. From 6-S workplace procedures
in all Service Centers to energy audits in our largest
manufacturing facilities, improvement initiatives are obvious
day-to-day
events. Cost improvements through waste reduction were also
significant in 2009. Project FIT was launched to drive
financially measurable reductions in indirect spending areas
such as energy use, rent, consultants, etc. over a two-year
period. In addition, consumption management of expense items
such as travel and logistics, information technology, and other
non-product commodities are expected to contribute to improved
financial results.
We will further provide a competitive advantage to our clients
through our current localization strategy as reflected in 2009
with new strategic arrangements in the Kingdom of Saudi Arabia
and in South Korea.
Clients
Our global client base consists of most major independent oil
and gas producers and distributors worldwide, national oil and
gas companies, major energy companies, independent refiners,
multinational engineering, procurement and construction
companies, petrochemical companies, the United States government
and other businesses operating in certain process industries.
Our clients include Chevron, Royal Dutch Shell, ExxonMobil, BP,
Statoil, Total, Petrobras, Pemex, PDVSA, Petronas, Saudi Aramco,
ConocoPhillips, LUKOIL, Marathon Petroleum Company, Repsol, and
Dow Chemical Company. In 2009, Chevron totaled 5.1% of total net
revenues. In 2008, BP totaled 5.0% of total net revenues and in
2007, no one client exceeded 5.0% of total net revenues.
We believe our business model aligns us with our clients who are
shifting from purchasing isolated units and services on an
individual transactional basis to choosing service providers
that can help optimize performance over the entire life cycle of
their equipment. We are responding to this demand through an
alliance-based approach. An alliance can encompass the provision
of new units
and/or parts
and services, whereby we offer our clients a dedicated,
experienced team, streamlined engineering and procurement
processes, and a life cycle approach to operating and
maintaining their equipment. Pursuant to the terms of an
alliance agreement, we may become the clients exclusive or
preferred supplier of rotating equipment and aftermarket parts
and services which gives us an advantage in obtaining new
business from that client. Our client alliance agreements
include frame agreements, preferred supplier agreements and
blanket purchasing agreements. The alliance agreements are
generally terminable upon 30 days notice without penalty,
and therefore do not assure a long-term business relationship,
but to date, we have not had an alliance client terminate our
relationship.
Competition
We encounter competition in all areas of our business. We
compete against products manufactured by competitors worldwide.
The principal methods of competition in these markets relate to
product performance, client service, product lead times, global
reach, brand reputation, breadth of product line, quality of
aftermarket service and support and price. We believe the
significant capital required to construct new manufacturing
facilities, the production volumes required to maintain low unit
costs, the need to secure a broad range of reliable raw material
and intermediate
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material supplies, the significant technical knowledge required
to develop high-performance products, applications and processes
and the need to develop close, integrated relationships with
clients are barriers to entry for potential new market entrants.
Some of our existing competitors have greater financial and
other resources than we do.
Over the last 25 years, the turbo compressor industry has
consolidated from more than 15 to 7 of our larger competitors,
the reciprocating compressor industry has consolidated from more
than 12 to 6 of our larger competitors and the steam turbine
industry has consolidated from more than 18 to 5 of our larger
competitors. Our larger competitors in the new unit segment of
the turbo compressor industry include GE Oil &
Gas/Nuovo Pignone, Siemens, Solar Turbines, Inc., Rolls-Royce
Group plc, Elliott Company, Mitsubishi Heavy Industries and MAN
Turbo; in the reciprocating compressor industry include GE Oil
and Gas/Nuovo Pignone, Burckhardt Compression,
Neuman & Esser Group, Ariel Corp., Thomassen and
Mitsui & Co., Ltd.; and in the steam turbine industry
include Elliott Company, Siemens, GE Oil & Gas/Nuovo
Pignone, Mitsubishi Heavy Industries and Shin Nippon Machinery
Co. Ltd.
In our aftermarket parts and services segment, we compete with
our major competitors as discussed above, small independent
local providers and our clients in-house service
providers. However, we believe there is an increasing trend for
clients to outsource services, driven by declining in-house
expertise, cost efficiency and the superior service levels and
operating performance offered by original equipment
manufacturers knowledgeable service providers.
Research
and Development
Our research and development expenses were $20.3 million,
$12.7 million, and $12.8 million for the years ended
December 31, 2009, 2008, and 2007, respectively. Certain
development expenses are associated with specific orders and are
not shown as research and development expenses on our
consolidated statement of income, but instead are included in
cost of sales. We believe current expenditures are adequate to
sustain ongoing research and development activities. We make a
substantial investment in research and development each year in
order to maintain our product and services leadership positions.
We have developed many of the technology and product
breakthroughs in our markets, and manufacture some of the most
advanced products available in each of our product lines. We
believe we have significant opportunities for growth by
developing new services and products that offer our clients
greater performance and significant cost savings. We are also
actively involved in research and development programs designed
to improve existing products and manufacturing methods.
Employees
As of December 31, 2009, we had approximately
6,100 employees worldwide. Of our employees, approximately
64% are located in the United States. Approximately 37% of our
employees in the United States are covered by collective
bargaining agreements.
Painted
Post, N.Y.
In November of 2007, Local 313 of IUE-CWA, the union that
represents certain employees at the Companys Painted Post
facility (the IUE) made an offer to have its
striking members return to work under the terms of the
previously expired union agreement. The Company rejected that
offer and a lockout of the represented employees commenced.
Approximately one week later, after reaching an impasse in
negotiations, the Company exercised its right to implement
the terms of its last contract offer, ended the lockout, and the
employees represented by the IUE agreed to return to work under
the implemented terms. Subsequently, the IUE filed several
unfair labor practice (ULP) charges against the
Company with Region 3 of the National Labor Relations Board
(NLRB), asserting multiple allegations arising from
the protracted labor dispute, its termination, contract
negotiations and related matters.
Region 3 of the NLRB decided to proceed to complaint on only
one-third of the ULP allegations asserted by the IUE, while the
remaining claims were dismissed. Notably, the NLRB found that
many of the critical aspects of the Companys negotiations
with the IUE were handled appropriately, including the
NLRBs findings that the Unions strike was not an
unfair labor practice strike and the Companys declaration
of impasse and its unilateral implementation of its last offer
were lawful. The Company, therefore, continued to operate under
a more contemporary and competitive implemented contract offer
while contract negotiations with the IUE continued in 2008 and
2009. In November 2009, a collective bargaining agreement
between the union and the Company was ratified, which agreement,
expires in March 2013. As a result, the Company was not required
to make available the retiree medical benefits which the Company
eliminated in its implemented last contract offer. The Company
recognized a non-cash curtailment amendment gain of $18.6 in
other comprehensive income on December 31, 2007, that is
being amortized over 36 months beginning January 2008, as a
result of the elimination of those benefits.
12
The claims that proceeded to complaint before the NLRB included
the Companys handling of the one week lockout, the
negotiation of the recall process used to return employees to
the facility after reaching impasse and lifting the lockout, and
the termination of two employees who engaged in misconduct on
the picket line during the strike. The trial of this matter took
place before a NLRB Administrative Law Judge (the
ALJ) in Elmira and Painted Post, N.Y. during the
summer of 2009. On January 29, 2010, the ALJ issued a
decision in an administrative hearing which found in favor of
the union on some issues and upheld the Companys position
on others. The Company continues to believe it complied with the
law with respect to these allegations. While management believes
it should ultimately prevail with respect to these ULP
allegations, several levels of appeal may be necessary. The
Company anticipates that any impact arising from the ULPs will
not have a material adverse effect on the Companys
financial condition. The litigation process, including appeals
if elected by either party, could reasonably take 3 to
5 years and potentially even longer to resolve with
finality.
Wellsville,
N.Y.
The Company and Moore Lodge No. 1580, affiliated with
District Lodge No. 65 of the International Association of
Machinists and Aerospace Workers, AFL-CIO, the union that
represents certain employees at the Companys Wellsville
facility (the Machinists), entered into a collective
bargaining agreement in August 2009. The agreement, expires in
August 2012.
Other
Labor Relations Matters
A collective bargaining agreement will expire at our Burlington,
IA facility in June 2010. In addition, we have an agreement with
the United Brotherhood of Carpenters and Joiners of America
whereby we hire skilled trade workers on a
contract-by-contract
basis in many parts of the United States. Our contract with the
United Brotherhood of Carpenters and Joiners of America can be
terminated by either party with 90 days prior written
notice. Additionally, approximately 47% of our employees outside
of the United States belong to industry or national labor
unions. Our operations in the following other locations have
individuals under collective bargaining agreements
and/or are
unionized: Olean, NY; Le Havre, France; Peterborough, UK;
Naroda, India; Oberhausen and Bielefeld, Germany; and Kongsberg,
Norway. Although we believe that our relations with our
represented employees are good, we cannot assure you that we
will be successful in negotiating new collective bargaining
agreements, that such negotiations will not result in
significant increases in cost of labor or that a breakdown in
such negotiations will not result in the disruption of our
operations.
Environmental
and Government Regulation
Manufacturers, such as our Company, are subject to extensive
environmental laws and regulations concerning, among other
things, emissions to the air, discharges to land, surface water
and subsurface water, the generation, handling, storage,
transportation, treatment and disposal of waste and other
materials, and the remediation of environmental pollution
relating to such companies (past and present) properties
and operations. Costs and expenses under such environmental laws
incidental to ongoing operations are generally included within
operating budgets. Potential costs and expenses may also be
incurred in connection with the repair or upgrade of facilities
to meet existing or new requirements under environmental laws.
In many instances, the ultimate costs under environmental laws
and the time period during which such costs are likely to be
incurred are difficult to predict. We do not believe that our
liabilities in connection with compliance issues will have a
material adverse effect on us.
Various federal, state and local laws and regulations impose
liability on current or previous real property owners, lessees
or operators for the cost of investigating, cleaning up or
removing contamination caused by hazardous or toxic substances
at the property. In addition, such laws impose liability for
such costs on persons who disposed of, or arranged for the
disposal of, hazardous substances at third-party sites. Such
liability may be imposed without regard to the legality of the
original actions and without regard to whether we knew of, or
were responsible for, the presence of such hazardous or toxic
substances, and such liability may be joint and several with
other parties. If the liability is joint and several, we could
be responsible for payment of the full amount of the liability,
whether or not any other responsible party is also liable.
We have sent wastes from our operations to various third-party
waste disposal sites. From time to time we receive notices from
representatives of governmental agencies and private parties
contending that we are potentially liable for a portion of the
investigation and remediation costs and damages at such
third-party sites. We do not believe that our liabilities in
connection with such third-party sites, either individually or
in the aggregate, will have a material adverse effect on us.
13
The equity purchase agreement entered into in connection with
the Acquisition provides that, with the exception of
non-Superfund off-site liabilities and non-asbestos
environmental tort cases, which had a three-year time limit for
a claim to be filed, Ingersoll Rand will remain responsible
without time limit for certain specified known environmental
liabilities that existed as of the October 29, 2004,
closing date. Each of these liabilities has been placed on the
Environmental Remediation and Compliance Schedule to the equity
purchase agreement (the Final Schedule). We are
responsible for all environmental liabilities that were not
identified prior to the closing date and placed on the Final
Schedule, although we may have claims against others.
Pursuant to the equity purchase agreement, Ingersoll Rand is
responsible for all response actions associated with the
contamination matters placed on the Final Schedule and must
perform such response actions diligently. However, to the extent
contamination at leased properties was caused by a third party
and to the extent contamination at owned properties resulted
from the migration of releases caused by a third party,
Ingersoll Rand is only required to conduct response actions
after being ordered to do so by a governmental authority.
Intellectual
Property
We rely on a combination of patent, trademark, copyright and
trade secret laws, employee and third-party
nondisclosure/confidentiality agreements and license agreements
to protect our intellectual property. We sell most of our
products and provide services under a number of registered trade
names, service names, brand names and registered trademarks,
which we believe are widely recognized in the industry.
In addition, many of our products and technologies are protected
by patents. Except for our Companys name and principal
mark Dresser-Rand, no single patent, trademark or
trade name is material to our business as a whole. We anticipate
we will apply for additional patents in the future as we develop
new products and processes. Any issued patents that cover our
proprietary technology may not provide us with substantial
protection or be commercially beneficial to us. The issuance of
a patent is not conclusive as to its validity or its
enforceability. If we are unable to protect our patented
technologies or confidential information, our competitors could
commercialize our technologies. Competitors may also be able to
design around our patents. In addition, we may also face claims
that our products, services, or operations infringe patents or
misappropriate other intellectual property rights of others.
With respect to proprietary know-how, we rely on trade secret
protection and confidentiality agreements. Monitoring the
unauthorized use of our proprietary technology is difficult and
the steps we have taken may not prevent unauthorized use of such
technology. The disclosure or misappropriation of our trade
secrets and other proprietary information could harm our ability
to protect our rights and our competitive position.
Our Companys name and principal trademark is a combination
of the names of our founder companies, Dresser Industries, Inc.
and Ingersoll Rand. We have acquired rights to use the
Rand portion of our principal mark from Ingersoll
Rand, and the rights to use the Dresser portion of
our name from Dresser, Inc., the successor of Dresser
Industries, Inc. If we lose the right to use either the
Dresser or Rand portion of our name, our
ability to build our brand identity could be negatively affected.
Additional
Information
We file annual, quarterly and current reports, amendments to
these reports, proxy statements and other information with the
United States Securities and Exchange Commission
(SEC). Our SEC filings may be accessed and read free
of charge through our website at www.dresser-rand.com or
through the SECs website at
www.sec.gov. These SEC filings are available
on our website as soon as reasonably practicable after we file
them electronically with the SEC. The information contained on,
or that may be accessed through, our website is not part of this
Form 10-K.
All documents we file are also available at the SECs
Public Reference Room located at 100 F Street, N.E.,
Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.
We have adopted a Code of Conduct that applies to all employees,
executive officers and directors. The Code of Conduct is posted
on our website, www.dresser-rand.com, and is available in
print upon written request by any stockholder at no cost. The
request should be submitted to Dresser-Rand Group Inc.,
c/o General
Counsel, West8 Tower, Suite 1000, 10205 Westheimer Rd.
Houston, TX, 77042. Any amendment to the Code of Conduct or any
waiver of any provision of the Code of Conduct granted to our
principal executive officer, principal financial officer,
principal accounting officer or controller or person performing
similar functions will be disclosed on our website at
www.dresser-rand.com or in a report on
Form 8-K
within four business days of such event. Any waiver of any
provision of the Code of Conduct granted to an executive officer
or director may only be made by the Board or a Committee of the
Board authorized to do so.
14
Economic
recessions could adversely affect our business.
Prolonged periods of little or no economic growth could decrease
demand for oil and gas, which in turn, could result in lower
prices for oil and gas. Such decreased demand and lower prices
can result in lower demand for our new equipment and, therefore,
could adversely affect our results of operations and cash flows.
The decline in growth rates in the United States and worldwide
in late 2008 and into 2009 significantly reduced demand for our
products and services. New units and aftermarket bookings in
2009 declined 49.1% and 14.6%, respectively, from 2008 levels.
Volatility
and disruption of the credit markets may negatively impact
us.
We intend to finance our operations and initiatives with
existing cash, cash from operations, and borrowings under our
credit facility, if necessary. Adverse national and
international economic conditions may affect our ability to
fully draw upon our credit facility and we may not be able to
obtain financing at competitive pricing and terms. Further,
while we believe our current liquidity is adequate for our
current plans, deterioration in the credit markets or prolonged
tightening of credit availability could adversely affect the
ability of our clients to pay us or the ability of our suppliers
to meet our needs or do so competitively, which could affect our
results of operations, liquidity and cash flows.
Our
operating results and cash flows could be harmed because of
industry downturns.
Conditions in the oil and gas industry, which affect
approximately 89% of our revenue, are subject to factors beyond
our control. The businesses of most of our clients, particularly
oil, gas and petrochemical companies, are, to varying degrees,
cyclical and historically have experienced periodic downturns.
Profitability in those industries is highly sensitive to supply
and demand cycles and volatile commodity prices, and our clients
in those industries historically have tended to delay large
capital projects, including expensive maintenance and upgrades,
during industry downturns. These industry downturns have been
characterized by diminished product demand, excess manufacturing
capacity and subsequent accelerated erosion of average selling
prices. Demand for our new units and, to a lesser extent,
aftermarket parts and services is driven by a combination of
long-term and cyclical trends, including increased outsourcing
of services, maturing oil and gas fields, the aging of the
installed base of equipment throughout the industry, gas market
growth and the construction of new energy infrastructure, and
regulatory factors. In addition, the growth of new unit sales is
generally linked to the growth of oil and gas consumption in
markets in which we operate. Moreover, new unit bookings can be
highly variable due to volatile market conditions, subjectivity
clients exercise in placing orders, and timing of large orders.
Prices of oil and gas have been very volatile over the past two
years with significant increases until achieving historic highs
in July 2008 and a significant decline since that time. These
price declines reduced demand for our new units, and to a lesser
extent for our aftermarket parts and services, from the levels
experienced during 2008 and our new unit bookings in 2009
declined 49.1% compared with 2008. Prolonged periods of reduced
client investment in new units could have a material adverse
impact on our financial condition, results of operations and
cash flows. Any significant downturn in our clients
markets or in general economic conditions could result in a
reduction in demand for our services and products and could harm
our business. Such downturns, including the perception that they
might continue, could have a significant negative impact on the
market price of our common stock and our senior subordinated
notes.
We may
not be successful in implementing our business strategy to
increase our aftermarket parts and services
revenue.
We estimate that we currently provide approximately 55% of the
supplier-provided aftermarket parts and services needs of our
own manufactured equipment base and approximately 4% of the
aftermarket parts and services needs of the equipment base of
other manufacturers. The successful implementation of our
strategy depends on our ability to provide aftermarket parts and
services to both our own and our competitors installed
base of equipment, to develop and maintain our alliance
relationships and to maintain competitive costs. Our ability to
successfully implement our aftermarket business strategy also
depends to a large extent on the success of our competitors in
servicing the aftermarket parts and services needs of our
clients, the willingness of our clients to outsource their
service needs to us, the willingness of our competitors
clients to outsource their service needs to us and general
economic conditions. In addition, our ability to implement our
localization initiatives, make strategic acquisitions and to
enter into new alliance
15
agreements with national oil companies in developing countries
will impact the success of our business strategy. We cannot
assure you that we will succeed in implementing our strategy.
We
face intense competition that may cause us to lose market share
and harm our financial performance.
We encounter competition in all areas of our business. The
principal methods of competition in our markets include product
performance, client service, product lead times, global reach,
brand reputation, breadth of product line, quality of
aftermarket service and support and price. Our clients
increasingly demand more technologically advanced and integrated
products, and we must continue to develop our expertise and
technical capabilities in order to manufacture and market these
products successfully. To remain competitive, we will need to
invest continuously in research and development, manufacturing,
marketing, client service and support and our distribution
networks. If we fail to develop and introduce new technologies
or make product improvements that are accepted in the
marketplace, our business could be adversely affected. In our
aftermarket parts and services segment, we compete with our
major competitors, small independent local providers and our
clients in-house service providers. Other original
equipment manufacturers typically have an advantage in competing
for services and upgrades to their own equipment. Failure to
penetrate this market will adversely affect our ability to grow
our business. In addition, our competitors are increasingly
emulating our alliance strategy. Our alliance relationships are
terminable without penalty by either party, and our failure to
maintain or enter into new alliance relationships will adversely
affect our ability to grow our business.
We may
not be able to integrate our acquisitions successfully, or
achieve the expected benefits from, any future acquisitions,
which could adversely affect our results.
We have at times used acquisitions as a means of expanding our
business to enhance returns and expect that we will continue to
do so. If we do not successfully integrate our acquisitions, we
may not realize expected operating improvements and synergies.
Future acquisitions may require us to incur additional debt and
contingent liabilities, which may materially and adversely
affect our business, operating results and financial condition.
The acquisition and integration of companies involve a number of
risks, including:
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use of available cash, new borrowings or borrowings under our
restated senior secured credit facility to consummate the
acquisition;
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demands on management related to the increase in our size after
an acquisition;
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diversion of managements attention from existing
operations to the integration of acquired companies;
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integration into our existing systems;
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difficulties in the assimilation and retention of
employees; and
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potential adverse effects on our operating results.
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We may not be able to maintain the levels of operating
efficiency that acquired companies achieved separately.
Successful integration of acquired operations will depend upon
our ability to manage those operations and to eliminate
redundant and excess costs. We may not be able to achieve the
cost reductions and other benefits that we would hope to achieve
from acquisitions, which could have a material adverse effect on
our business, financial condition, results of operations and
cash flows.
Economic,
political and other risks associated with worldwide sales and
operations could adversely affect our business.
Since we manufacture and sell our products and services
worldwide, our business is subject to risks associated with
doing business globally. For the year ended December 31,
2009, 38% of our net revenue was derived from North America, 19%
from Europe, 16% from the Middle East and Africa, 17% from Asia
Pacific and 10% from Latin America. Accordingly, our future
results could be harmed by a variety of factors, including:
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changes in foreign currency exchange rates;
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exchange controls which impact our ability to convert currencies;
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changes in a specific countrys or regions political
or economic conditions, particularly in developing countries;
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civil unrest in any of the countries in which we operate;
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tariffs, other trade protection measures and import or export
licensing requirements;
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potentially negative consequences from changes in tax laws;
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difficulty in staffing and managing widespread operations;
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differing labor regulations;
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requirements relating to withholding taxes on remittances and
other payments by subsidiaries;
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different regimes controlling the protection of our intellectual
property;
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restrictions on our ability to own or operate subsidiaries, make
investments or acquire new businesses in these jurisdictions;
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restrictions on our ability to repatriate dividends from our
subsidiaries;
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difficulty in collecting international accounts receivable;
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difficulty in enforcement of contractual obligations governed by
non-U.S. law;
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unexpected transportation delays or interruptions;
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unexpected changes in regulatory requirements; and
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the burden of complying with multiple and potentially
conflicting laws.
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Our worldwide operations are affected by global economic and
political conditions. Changes in economic or political
conditions in any of the countries in which we operate could
result in exchange rate movements, new currency or exchange
controls or other restrictions being imposed on our operations
or expropriation.
Some of the markets in which we operate are politically unstable
and are subject to occasional civil and communal unrest. Riots,
strikes, the outbreak of war or terrorist attacks in locations
where we have operations or commercial interests, could also
adversely affect our business.
From time to time, certain of our foreign subsidiaries operate
in countries that are or have previously been subject to
sanctions and embargoes imposed by the U.S. government and
the United Nations. Those foreign subsidiaries sell compressors,
turbines and related parts, accessories and services to clients
including enterprises controlled by government agencies of these
countries in the oil, gas, petrochemical and power generation
industries. The Companys foreign subsidiaries
aggregate 2009 sales into countries that were subject to pending
sanctions and embargoes was approximately 3% of the
Companys total sales. Although not material in magnitude,
certain investors may view even our limited business in these
restricted countries adversely. This could have an adverse
impact on the price of our common stock and our senior
subordinated notes. These sanctions and embargoes do not
generally prohibit those subsidiaries from transacting business
in such countries; however, they can prohibit us and our
domestic subsidiaries, as well as employees of our foreign
subsidiaries who are U.S. citizens, from participating in,
approving or otherwise facilitating any aspect of the business
activities in those countries. These constraints on our ability
to have U.S. persons, including our senior management,
provide managerial oversight and supervision may negatively
affect the financial or operating performance of such business
activities.
In addition, some of these countries are currently identified by
the State Department as terrorist-sponsoring states, namely
Iran, Sudan and Syria. Because certain of our foreign
subsidiaries have transacted business in these countries in our
last fiscal year, including sales to enterprises controlled by
agencies of the governments of such countries, our reputation
may suffer due to our association with these countries, which
may have a material adverse effect on the price of our common
stock and our senior subordinated notes. Further, certain
U.S. states have enacted legislation regarding investments
by pension funds and other retirement systems in companies that
have business activities or contacts with countries that have
been identified as terrorist-sponsoring states and similar
legislation may be pending in other states. As a result, pension
funds and other retirement systems may be subject to reporting
requirements with respect to investments in companies such as
ours or may be subject to limits or prohibitions with respect to
those investments that may have a material adverse effect on the
price of our common stock and our senior subordinated notes.
We operate in some countries in which the risk of bribery is
recognized. We have clear policies addressing the Companys
prohibition against illegal payments and have a comprehensive
training and certification of compliance program. However, a
risk remains despite our efforts. In such circumstances, we
could also face fines, sanctions and other penalties from
authorities in the relevant jurisdictions, including prohibition
of our participating in or curtailment of business operations in
those jurisdictions.
17
Fluctuations
in the value of the U.S. dollar and other currencies and the
volatility of exchange rates may adversely affect our financial
condition and results of operations.
Fluctuations in the value of the U.S. dollar may adversely
affect our results of operations. Because our consolidated
financial results are reported in U.S. dollars, if we
generate sales or earnings in other currencies the translation
of those results into U.S. dollars can result in a
significant increase or decrease in the amount of those sales or
earnings. In addition, our debt service requirements are
primarily in U.S. dollars, even though a significant
percentage of our cash flow is generated in euros or other
foreign currencies. Significant changes in the value of the euro
relative to the U.S. dollar could have a material adverse
effect on our financial condition and our ability to meet
interest and principal payments on U.S. dollar-denominated
debt, including our senior subordinated notes and the
U.S. dollar-denominated borrowings under our restated
senior secured credit facility. Significant fluctuations between
currencies may also adversely affect our clients and suppliers.
In addition, fluctuations in currencies relative to currencies
in which our earnings are generated may make it more difficult
to perform
period-to-period
comparisons of our reported results of operations. For example,
the economic and political situation in Venezuela is subject to
change. We are exposed to risks of currency devaluation in
Venezuela primarily as a result of our bolívar receivable
balances and bolívar cash balances. On occasion, the
Venezuelan government has devalued the bolivar, including a
recent devaluation on January 8, 2010. As a result of this
most recent devaluation, the Company recorded a foreign exchange
loss in our Consolidated Income Statement of approximately
$13.6 million and a reduction in our aftermarket backlog of
approximately $1.1 million in January 2010. It is not
possible to estimate the impact on U.S. dollar backlog
resulting from Venezuelan clients inability to fund
previously booked projects as a result of the devaluation.
Additionally, the Venezuelan government has exchange controls
and currency transfer restrictions that limit our ability to
convert bolívars into U.S. dollars and transfer funds
out of Venezuela, and we cannot assure you that our Venezuelan
subsidiary will be able to convert bolivars to U.S. dollars
to satisfy intercompany obligations. Specifically, included in
our cash balance of $223.2 million reported at
December 31, 2009, was $22.4 million denominated in
Venezuelan bolívars. The balance is primarily a result of
favorable operating cash flows in Venezuela. Due to the
government restrictions on transfers of cash out of the country
and control of exchange rates, we can not immediately convert
the cash at the official exchange rate at December 31,
2009. We have various applications to convert bolivars in order
to transfer approximately $17.1 million of such amount out
of the country, but have experienced substantial delays in
obtaining the necessary approvals, and in some cases, rejections
of our applications. Consequently, approximately
$3.1 million of our cash in Venezuela has been translated
to U.S. dollars at December 31, 2009, at an effective
exchange rate that was approximately 65% less favorable than the
official rate (Parallel Rate), which resulted in a
foreign exchange loss in our Consolidated Income Statement of
approximately $5.6 million for the year ended
December 31, 2009. Separately, we may from time to time
convert additional cash in Venezuela, but without going through
the application process, would only currently be able to do so
at the Parallel Rate. This would result in us having fewer
U.S. dollars than currently reported as a component of cash
and cash equivalents on our Consolidated Balance Sheet with the
difference recorded as a foreign exchange loss in our
Consolidated Income Statement.
In addition to currency translation risks, we incur currency
transaction risk whenever we or one of our subsidiaries enters
into either a purchase or a sales transaction using a currency
other than the local currency of the transacting entity. Given
the volatility of exchange rates, we cannot assure you that we
will be able to effectively manage our currency transaction
and/or
translation risks. Volatility in currency exchange rates may
have a material adverse effect on our financial condition or
results of operations. We have purchased and may continue to
purchase foreign currency hedging instruments protecting or
offsetting positions in certain currencies to reduce the risk of
adverse currency fluctuations on transactions, but we have not
historically hedged translation risk. We have in the past
experienced and expect to continue to experience economic loss
and a negative impact on earnings as a result of foreign
currency exchange rate fluctuations.
If we
lose our senior management or key personnel, our business may be
materially and adversely affected.
The success of our business is largely dependent on our senior
managers, as well as on our ability to attract and retain other
qualified key personnel. In addition, there is significant
demand in our industry for qualified engineers, mechanics and
other skilled workers. Certain members of our management
received a significant amount of the net proceeds from the
initial public offering and secondary offerings of our common
stock, and have the financial ability to retire. We cannot
assure you that we will be able to retain all of our current
senior management personnel and to attract and retain other
necessary personnel, including qualified mechanics, engineers
and other skilled workers, necessary for the development of our
business. The loss of the services of senior management and
other key personnel or the
18
failure to attract additional personnel as required could have a
material adverse effect on our business, financial condition and
results of operations.
Environmental
compliance costs and liabilities and responses to concerns
regarding climate change could affect our financial condition,
results of operations and cash flows adversely.
Our operations and properties are subject to stringent
U.S. and foreign, federal, state and local laws and
regulations relating to environmental protection, including laws
and regulations governing the investigation and clean up of
contaminated properties as well as air emissions, water
discharges, waste management and disposal and workplace health
and safety. Such laws and regulations affect a significant
percentage of our operations, are continually changing, are
generally different in every jurisdiction and can impose
substantial fines and sanctions for violations. Further, they
may require substantial
clean-up
costs for our properties (many of which are sites of
long-standing manufacturing operations) and the installation of
costly pollution control equipment or operational changes to
limit pollution emissions
and/or
decrease the likelihood of accidental hazardous substance
releases. We must conform our operations and properties to these
laws and adapt to regulatory requirements in all jurisdictions
as these requirements change.
We routinely deal with natural gas, oil and other petroleum
products. As a result of our manufacturing and services
operations, we generate, manage and dispose of, or recycle,
hazardous wastes and substances such as solvents, thinner, waste
paint, waste oil, wash-down wastes and sandblast material.
Hydrocarbons or other hazardous substances or wastes may have
been disposed or released on, under or from properties owned,
leased or operated by us or on, under or from other locations
where such substances or wastes have been taken for disposal.
These properties may be subject to investigatory,
clean-up and
monitoring requirements under U.S. and foreign, federal,
state and local environmental laws and regulations. Such
liability may be imposed without regard to the legality of the
original actions and without regard to whether we knew of, or
were responsible for, the presence of such hazardous or toxic
substances, and such liability may be joint and several with
other parties. If the liability is joint and several, we could
be responsible for payment of the full amount of the liability,
whether or not any other responsible party also is liable.
We have experienced, and expect to continue to experience, both
operating and capital costs to comply with environmental laws
and regulations, including the
clean-up and
investigation of some of our properties as well as offsite
disposal locations. In addition, although we believe our
operations are in compliance with environmental laws and
regulations and that we are indemnified by Ingersoll Rand for
certain contamination and compliance costs (subject to certain
exceptions and limitations), new laws and regulations, stricter
enforcement of existing laws and regulations, the discovery of
previously unknown contamination, the imposition of new
clean-up
requirements, new claims for property damage or personal injury
arising from environmental matters, or the refusal
and/or
inability of Ingersoll Rand to meet its indemnification
obligations could require us to incur costs or become the basis
for new or increased liabilities that could have a material
adverse effect on our business, financial condition and results
of operations.
We also expect that scientific examination of and political
attention to issues surrounding the existence and extent of
climate change will continue. A variety of regulatory
developments, both domestic and international, have been
introduced that are focused on restricting or managing the
emission of carbon dioxide, methane and other greenhouse gases.
These developments and further legislation that we expect may be
enacted or the development or changes within international
accords could adversely affect our operations and the demand for
or suitability of our products and services.
Failure
to maintain a safety performance that is acceptable to our
clients could result in the loss of future
business.
Our U.S. clients are heavily regulated by the Occupational
Safety & Health Administration concerning workplace
safety and health. Our clients have very high expectations
regarding safety and health issues and require us to maintain
safety performance records for our worldwide operations, field
services, repair centers, sales and manufacturing plants. Our
clients often insist that our safety performance equal or exceed
their safety performance requirements. We estimate that over 90%
of our clients have safety performance criteria for their
suppliers in order to be qualified for their approved
suppliers list. If we fail to meet a clients safety
performance requirements, we may be removed from that
clients approved suppliers database and precluded from
bidding on future business opportunities with that client.
In response to our clients requirements regarding safety
performance, we maintain a database to measure our monthly and
annual safety performance and track our incident rates. Our
incident rates help us identify and track accident trends,
determine root causes, formulate corrective actions, and
implement preventive initiatives. We cannot assure you that we
will be successful in maintaining or exceeding our clients
requirements in this regard or that we will not lose the
opportunity to bid on certain contracts.
19
Our
business could suffer if we are unsuccessful in negotiating new
collective bargaining agreements.
As of December 31, 2009, we had approximately
6,100 employees worldwide. Of our employees, approximately
64% are located in the United States. Approximately 37% of our
employees in the United States are covered by collective
bargaining agreements including operations in Olean, Painted
Post and Wellsville, NY., and in Burlington, IA. A collective
bargaining agreement will expire at our Burlington, IA facility
in June 2010. In addition, we have an agreement with the United
Brotherhood of Carpenters and Joiners of America whereby we hire
skilled trade workers on a
contract-by-contract
basis in many parts of the United States. Our contract with the
United Brotherhood of Carpenters and Joiners of America can be
terminated by either party with 90 days prior written
notice. Furthermore, approximately 47% of our employees outside
of the United States belong to industry or national labor
unions. Our operations in the following international locations
are unionized with agreements negotiated annually: Le Havre,
France; Peterborough, UK; Oberhausen and Bielefeld, Germany;
Kongsberg, Norway; and Naroda, India. Although we believe that
our relations with our represented employees are good, we cannot
assure you that we will be successful in negotiating new
collective bargaining agreements, that such negotiations will
not result in significant increases in the cost of labor or that
a breakdown in such negotiations will not result in the
disruption of our operations.
We may
be faced with product claims or adverse consequences of
regulations as a result of the hazardous applications in which
our products are used.
Because some of our products are used in systems that handle
volatile, toxic or hazardous substances, a failure or alleged
failure of certain of our products have resulted in, and in the
future could result in, claims against our Company for product
liability, including property damage, personal injury damage,
wrongful death, pollution and other environmental damage, and
consequential damages. These risks may expose our clients to
liability. If our clients suffer damages as a result of the
occurrence of such events, they may reduce their business with
us. Further, we may be subject to potentially material
liabilities relating to claims alleging personal injury as a
result of hazardous substances incorporated into our products.
Furthermore, a claim could be made for the adverse consequences
of environmental contamination under various regulations. Such
claims could have an adverse affect on our business, operations
and cash flow.
Third
parties may infringe our intellectual property or we may
infringe the intellectual property of third parties, and we may
expend significant resources enforcing or defending our rights
or suffer competitive injury.
Our success depends in part on our proprietary technology. We
rely on a combination of patent, copyright, trademark and trade
secret laws, confidentiality provisions and licensing
arrangements to establish and protect our proprietary rights. If
we fail to successfully enforce our intellectual property
rights, our competitive position could suffer, which could harm
our operating results. We may be required to spend significant
resources to monitor and police our intellectual property
rights. Similarly, if we were to infringe on the intellectual
property rights of others, our competitive position could
suffer. Furthermore, we cannot assure you that any pending
patent application or trademark application held by us will
result in an issued patent or registered trademark, or that any
issued or registered patents or trademarks will not be
challenged, invalidated, circumvented or rendered unenforceable.
Also, others may develop technologies that are similar or
superior to our technology, duplicate or reverse engineer our
technology or design around the patents owned or licensed by us.
Litigation may be necessary to enforce our intellectual property
rights and protect our proprietary information, or to defend
against claims by third parties that our products infringe their
intellectual property rights. Any litigation or claims brought
by or against us, whether with or without merit, or whether
successful or not, could result in substantial costs and
diversion of our resources, which could have a material adverse
effect on our business, financial condition or results of
operations. Any intellectual property litigation or claims
against us could result in the loss or compromise of our
intellectual property and proprietary rights, subject us to
significant liabilities, require us to seek licenses on
unfavorable terms, prevent us from manufacturing or selling
products and require us to redesign or, in the case of trademark
claims, rename our products, any of which could have a material
and adverse effect on our business, financial condition and
results of operations.
Our
business may be adversely affected if we encounter difficulties
as we implement an Oracle based information management
system.
We are in the process of implementing an Oracle based
information management system across our worldwide operations.
We have implemented the system in part at our LeHavre,
Burlington and Bielefeld facilities and our domestic field
service operations and have started implementation in the rest
of our North American manufacturing facilities and repair
centers. Although the transition to date has proceeded without
any material adverse effects, a
20
disruption in the implementation or the related procedures or
controls could adversely affect both our internal and disclosure
controls and harm our business, including our ability to
forecast or make sales, manage our supply chain and coordinate
production. Moreover, such a disruption could result in
unanticipated costs or expenditures and a diversion of
managements attention and resources.
Our
brand name may be subject to confusion.
Our Companys name and principal mark is a combination of
the names of our founder companies, Dresser Industries, Inc. and
Ingersoll Rand. We have acquired rights to use the
Rand portion of our principal mark from Ingersoll
Rand, and the rights to use the Dresser portion of
our name from Dresser, Inc., the successor of Dresser
Industries, Inc. If we lose the right to use either the
Dresser or Rand portion of our name, our
ability to build our brand identity could be negatively affected.
We
require a significant amount of cash to operate our business and
to service our indebtedness. Our ability to generate cash and
access capital on reasonable terms and conditions depends on
many factors beyond our control.
Our ability to make payments on and to refinance our debt, and
to fund planned capital expenditures and research and
development efforts, will depend on our ability to generate cash
and to access capital. Our ability to generate cash is subject
to economic, financial, competitive, legislative, regulatory and
other factors that may be beyond our control. We cannot assure
you that our business will generate sufficient cash flow from
operations or that future borrowings will be available to us
under our restated senior secured credit facility or otherwise
in an amount sufficient to enable us to pay our debt, or to fund
our other liquidity needs. We may need to refinance all or a
portion of our debt on or before maturity. We might be unable to
access the full amount of borrowings available under our
restated senior secured credit facility, which depends in part
on the financial condition of the financial institutions
participating in our credit facility. We might be unable to
refinance any of our debt, including our restated senior secured
credit facility or our senior subordinated notes, on
commercially reasonable terms.
The
covenants in our restated senior secured credit facility and the
indenture governing our senior subordinated notes impose
restrictions that may limit our operating and financial
flexibility.
Our restated senior secured credit facility and the indenture
governing our senior subordinated notes contain a number of
significant restrictions and covenants that limit our ability to:
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incur liens;
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borrow money, guarantee debt and, in the case of restricted
subsidiaries, sell preferred stock;
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issue redeemable preferred stock;
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pay dividends;
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make redemptions and repurchases of certain capital stock;
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make capital expenditures and specified types of investments;
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prepay, redeem or repurchase subordinated debt;
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sell assets or engage in acquisitions, mergers, consolidations
and asset dispositions;
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amend material agreements;
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change the nature of our business; and
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engage in affiliate transactions.
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The restated senior secured credit facility also requires us to
comply with specified financial ratios and tests, including but
not limited to, a maximum consolidated net leverage ratio and a
minimum consolidated interest coverage ratio. The indenture
governing our senior subordinated notes also contains
restrictions on dividends or other payments to us by our
restricted subsidiaries.
These covenants could have a material adverse affect on our
ability to finance our future operations or capital needs.
Furthermore, they may restrict our ability to expand, pursue our
business strategies and otherwise conduct our business. Our
ability to comply with these covenants may be affected by
circumstances and events beyond our control, such as economic
conditions and changes in regulations, and we cannot be sure
that we will be able to comply. A breach of these covenants
could result in a default under the indenture governing our
senior subordinated notes
and/or the
restated senior secured credit facility. If there were an event
of default under the indenture governing our senior
21
subordinated notes
and/or the
restated senior secured credit facility, the affected creditors
could cause all amounts borrowed under these instruments to be
due and payable immediately. Additionally, if we fail to repay
indebtedness under our restated senior secured credit facility
when it becomes due, the lenders under the restated senior
secured credit facility could proceed against the assets and
capital stock which we have pledged to them as security. Our
assets and cash flow might not be sufficient to repay our
outstanding debt in the event of a default.
Our
pension expenses and funding requirements are affected by
factors outside our control, including the performance of plan
assets, interest rates, actuarial data and experience and
changes in laws and regulations.
Our future funding obligations for our U.S. defined benefit
pension plans qualified with the Internal Revenue Service depend
upon the level of benefits provided by the plans, the future
performance of assets set aside in trusts for these plans, the
level of interest rates used to determine funding levels,
actuarial experience and changes in government laws and
regulations. If the market value of securities held by the plan
trusts declines, our pension expense would increase and, as a
result, could adversely affect our financial results. Decreases
in interest rates that are not offset by contributions and asset
returns could also increase our obligation under such plans.
Such factors and the statutory funding requirements of various
countries in which we sponsor pension plans may legally require
us to make contributions to our pension plans in the future, and
those contributions could be material. In addition, if local
authorities increase the minimum funding requirements for our
pension plans, we could be required to contribute more funds,
which would negatively affect our cash flow.
We
have reported material weaknesses in our internal controls over
financial reporting in prior years.
We reported material weaknesses in internal control over
financial reporting in our Annual Report on
Form 10-K
for the year ended December 31, 2006. Those material
weaknesses were remediated as of December 31, 2007. A
description of the material weaknesses is included in
Item 9A. Controls and Procedures, in our Annual
Report on
Form 10-K
for the year ended December 31, 2006.
While the remedial measures we have taken were effective in
sustaining the remediation of all previously identified material
weaknesses in our internal control over financial reporting,
deficiencies might arise in the future that could, among other
things, cause us to fail to timely file our periodic reports
with the SEC and require us to incur additional costs and divert
management resources. Errors in our financial statements could
require a restatement or prevent us from timely filing our
periodic reports with the SEC. Additionally, should we
subsequently encounter weaknesses in our internal control over
financial reporting, investors could lose confidence in our
reported financial information, which could have a negative
effect on the price of our securities.
The
market price of our common stock may be volatile.
Securities markets worldwide experience significant price and
volume fluctuations. This market volatility, as well as general
economic, market or political conditions, could reduce the
market price of our publicly traded securities in spite of our
operating performance. In addition, our operating results could
be below the expectations of securities analysts and investors,
and in response, the market price of our securities could
decrease significantly. Among other factors that could affect
the price of our securities are:
|
|
|
|
|
actual or anticipated variations in operating results;
|
|
|
|
changes in opinions and earnings and other financial estimates
by securities analysts;
|
|
|
|
actual or anticipated changes in economic, political or market
conditions, such as recessions, depressions or international
currency fluctuations;
|
|
|
|
actual or anticipated changes in the regulatory environment
affecting our industry;
|
|
|
|
changes in the market valuations of our industry peers; and
|
|
|
|
announcements by us or our competitors of significant
acquisitions, strategic partnerships, divestitures, joint
ventures, new products and technologies, or other strategic
initiatives.
|
In the past, following periods of volatility in the market price
of a companys securities, stockholders have often
instituted class action securities litigation against those
companies. Such litigation, if instituted, could result in
substantial costs and a diversion of management attention and
resources, which could significantly harm our profitability and
reputation.
22
Provisions
in our amended and restated certificate of incorporation and
amended and restated bylaws and Delaware law may discourage a
takeover attempt.
Provisions contained in our amended and restated certificate of
incorporation and amended and restated bylaws and Delaware law
could make it more difficult for a third party to acquire us.
Provisions of our amended and restated certificate of
incorporation and amended and restated bylaws and Delaware law
impose various procedural and other requirements, which could
make it more difficult for stockholders to effect certain
corporate actions. For example, our amended and restated
certificate of incorporation authorizes our board of directors
to determine the rights, preferences, privileges and
restrictions of unissued series of preferred stock, without any
vote or action by our stockholders. Thus, our board of directors
can authorize and issue shares of preferred stock with voting or
conversion rights that could adversely affect the voting or
other rights of holders of our common stock. These rights may
have the effect of delaying or deterring a change of control of
our Company. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of
our common stock.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None
Our corporate headquarters is located in Houston, Texas. The
following table describes the material facilities owned or
leased by us and our subsidiaries as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Approx.
|
|
|
|
Location
|
|
Status
|
|
Square Feet
|
|
|
Type
|
|
Bielefeld, Germany
|
|
Owned
|
|
|
30,492
|
|
|
Manufacturing and services
|
Burlington, Iowa
|
|
Owned
|
|
|
114,000
|
|
|
Manufacturing and services
|
Campinas, Brazil
|
|
Owned
|
|
|
36,870
|
|
|
Services
|
Houston, Texas
|
|
Owned
|
|
|
109,800
|
|
|
Manufacturing and services
|
Houston, Texas
|
|
Owned/Leased
|
|
|
173,002
|
|
|
Warehouse and offices
|
Kongsberg, Norway
|
|
Leased
|
|
|
119,737
|
|
|
Manufacturing and services
|
Le Havre, France
|
|
Owned
|
|
|
829,359
|
|
|
Manufacturing and services
|
Naroda, India
|
|
Leased
|
|
|
102,000
|
|
|
Manufacturing and services
|
Oberhausen, Germany
|
|
Owned
|
|
|
75,122
|
|
|
Manufacturing and services
|
Olean, New York
|
|
Owned/Leased
|
|
|
934,012
|
|
|
Manufacturing and services
|
Painted Post, New York
|
|
Owned
|
|
|
840,000
|
|
|
Manufacturing and services
|
Peterborough, United Kingdom
|
|
Owned/Leased
|
|
|
176,306
|
|
|
Manufacturing and services
|
Shanghai, China
|
|
Leased
|
|
|
92,493
|
|
|
Manufacturing and services
|
Wellsville, New York
|
|
Owned
|
|
|
396,912
|
|
|
Manufacturing and services
|
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS ($ and £ in millions)
|
We are involved in various litigation, claims and administrative
proceedings arising in the normal course of business. Amounts
recorded for identified contingent liabilities are estimates,
which are regularly reviewed and adjusted to reflect additional
information when it becomes available. We are indemnified by our
former owner, Ingersoll Rand Company Limited, for certain of
these matters as part of Ingersoll Rands sale of the
Company. While adverse decisions in certain of these litigation
matters, claims and administrative proceedings could have a
material effect on a particular periods results of
operations, subject to the uncertainties inherent in estimating
future costs for contingent liabilities and the benefit of the
indemnity from Ingersoll Rand, management believes that any
future accruals, with respect to these currently known
contingencies, would not have a material effect on the financial
condition, liquidity or cash flows of the Company.
Of the litigation pending, two separate tort claims have been
brought against the Company and others in 2008, with one brought
in the Court of Queens Bench Alberta, Judicial District of
Calgary, Canada by Talisman Energy Inc. and others and one
brought in the Prakhanong Provincial court, Thailand by Kaona
Power Supply Co. Ltd., alleging, among other matters, defects
and negligence in connection with the manufacture, testing,
installation and commissioning of certain new units and claiming
damages in the aggregate of approximately $30.0 plus
pre-judgment interest and costs, although the evidence currently
does not support damage claims in excess of $16.0. While damages
are a possibility, the Company shall vigorously defend these
lawsuits, including by asserting its contractual limitation of
23
liability and agreement to exclude consequential damages.
Moreover, the Company is asserting rights it believes it has to
insurance coverage with respect to these two claims.
In November of 2007, Local 313 of IUE-CWA, the union that
represents certain employees at the Companys Painted Post
facility (the IUE) made an offer to have its
striking members return to work under the terms of the
previously expired union agreement. The Company rejected that
offer and a lockout of the represented employees commenced.
Approximately one week later, after reaching an impasse in
negotiations, the Company exercised its right to implement
the terms of its last contract offer, ended the lockout, and the
employees represented by the IUE agreed to return to work under
the implemented terms. Subsequently, the IUE filed several
unfair labor practice (ULP) charges against the
Company with Region 3 of the National Labor Relations Board
(NLRB), asserting multiple allegations arising from
the protracted labor dispute, its termination, contract
negotiations and related matters.
Region 3 of the NLRB decided to proceed to complaint on only
one-third of the ULP allegations asserted by the IUE, while the
remaining claims were dismissed. Notably, the NLRB found that
many of the critical aspects of the Companys negotiations
with the IUE were handled appropriately, including, the
NLRBs findings that the Unions strike was not an
unfair labor practice strike and the Companys declaration
of impasse and its unilateral implementation of its last offer
were lawful.
The claims that proceeded to complaint before the NLRB included
the Companys handling of the one week lockout, the
negotiation of the recall process used to return employees to
the facility after reaching impasse and lifting the lockout, and
the termination of two employees who engaged in misconduct on
the picket line during the strike. The trial of this matter took
place before a NLRB Administrative Law Judge (the
ALJ) in Elmira and Painted Post, N.Y. during the
summer of 2009. On January 29, 2010, the ALJ issued a
decision in an administrative hearing which found in favor of
the union on some issues and upheld the Companys position
on others. The Company continues to believe it complied with the
law with respect to these allegations. While management believes
it should ultimately prevail with respect to these ULP
allegations, several levels of appeal may be necessary. The
Company anticipates that any impact arising from the ULPs will
not have a material adverse effect on the Companys
financial condition. The litigation process, including appeals
if elected by either party, could reasonably take 3 to
5 years and potentially even longer to resolve with
finality.
During the three months ended September 30, 2009, the
Company received notification from the current plan trustees of
one of its subsidiaries pension plans in the United
Kingdom that sex equalization under the plan may have been
achieved later than originally expected. The third-party trustee
at the time action was taken believes that it had taken the
appropriate steps to properly amend the plan as originally
expected. The Company has accrued $4.9 to address contingent
exposure regarding this dispute related to a period in the
1990s over potential unequal treatment of men and women
under the pension plan and is exploring its rights against
others.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of security holders during
the three months ended December 31, 2009.
24
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The following table sets forth, for the periods indicated, the
high and low sales prices per share of our common stock reported
in the New York Stock Exchange consolidated tape under the
symbol DRC.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2009
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2009
|
|
$
|
23.99
|
|
|
$
|
17.19
|
|
Three months ended June 30, 2009
|
|
$
|
29.36
|
|
|
$
|
22.57
|
|
Three months ended September 30, 2009
|
|
$
|
32.66
|
|
|
$
|
23.75
|
|
Three months ended December 31, 2009
|
|
$
|
32.42
|
|
|
$
|
27.59
|
|
2008
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2008
|
|
$
|
40.74
|
|
|
$
|
27.47
|
|
Three months ended June 30, 2008
|
|
$
|
41.76
|
|
|
$
|
30.49
|
|
Three months ended September 30, 2008
|
|
$
|
40.56
|
|
|
$
|
30.23
|
|
Three months ended December 31, 2008
|
|
$
|
30.11
|
|
|
$
|
12.74
|
|
As of February 22, 2010, there were 15 holders of record of
our common stock. By including persons holding shares in broker
accounts under street names, however, we estimate our
stockholder base to be approximately 31,883 as of
February 22, 2010.
We do not currently have plans to pay any cash dividends on our
common stock, and instead intend to retain earnings, if any, for
future operations and acquisitions. At December 31, 2009,
the amount available to us to pay cash dividends under the more
restrictive covenants of our restated senior secured credit
facility and our indenture governing the senior subordinated
notes is limited to 5% of the proceeds from any public offering
of stock since October 29, 2004. Any decision to declare
and pay dividends in the future will be made at the discretion
of our board of directors and will depend on, among other
things, our results of operations, financial condition, cash
requirements, contractual restrictions, business outlook and
other factors that our board of directors may deem relevant.
Issuer
Purchases of Equity Securities
The following table contains information about repurchases of
our common stock during the three months ended December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Value
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
of Shares
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
That May Yet
|
|
|
|
|
|
|
Average Price
|
|
|
Purchased as Part of
|
|
|
Be Purchased
|
|
|
|
Total Number of
|
|
|
Paid Per
|
|
|
Publicly Announced Plans
|
|
|
Under the
|
|
Period
|
|
Shares Purchased (1)
|
|
|
Share
|
|
|
or Programs
|
|
|
Plans or Programs
|
|
|
October 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2009
|
|
|
1,222
|
|
|
$
|
31.05
|
|
|
|
|
|
|
|
|
|
December 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These shares were delivered to us as payment of withholding
taxes due on the vesting of restricted stock issued under our
Stock Incentive Plan. |
25
Performance
Graph
The following is a line graph comparing the Companys
cumulative, total stockholder return with a general market index
(the S&P 500) and the PHLX Oil Service Sector Index
(OSX) of 15 companies in the oil service sector. The
selected indices are accessible to our stockholders in
newspapers, the internet and other readily available sources.
This graph assumes a $100 investment in each of Dresser-Rand
Group Inc., the S&P 500 and the PHLX Oil Service Sector
Index at the close of trading on August 5, 2005, the date
of our initial public offering, and also assumes the
reinvestment of all dividends.
Comparison
of Cumulative Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INDEXED RETURNS
|
|
|
|
|
Base
|
|
|
|
Years Ending
|
|
|
|
|
Period
|
|
|
|
|
|
Company/Index
|
|
|
8/5/05
|
|
|
|
12/30/05
|
|
|
|
12/29/06
|
|
|
|
12/31/07
|
|
|
|
12/31/08
|
|
|
|
12/31/09
|
|
Dresser-Rand Group Inc.
|
|
|
$
|
100
|
|
|
|
$
|
106
|
|
|
|
$
|
107
|
|
|
|
$
|
171
|
|
|
|
$
|
76
|
|
|
|
$
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 Index
|
|
|
|
100
|
|
|
|
|
103
|
|
|
|
|
119
|
|
|
|
|
125
|
|
|
|
|
79
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PHLX Oil Service Sector Index
|
|
|
|
100
|
|
|
|
|
110
|
|
|
|
|
121
|
|
|
|
|
182
|
|
|
|
|
73
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This Performance Graph shall not be deemed to be incorporated by
reference into our SEC filing and should not constitute
soliciting material or otherwise be considered filed under the
Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended.
26
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA ($ in millions, except per share
amounts)
|
The following selected financial information as of and for the
periods indicated has been derived from our audited consolidated
or combined financial statements. You should read the following
information together with Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and the
notes thereto included in Item 15 of this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales, third parties
|
|
$
|
2,289.6
|
|
|
$
|
2,194.7
|
|
|
$
|
1,665.0
|
|
|
$
|
1,501.5
|
|
|
$
|
1,206.9
|
|
Other operating revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,289.6
|
|
|
|
2,194.7
|
|
|
|
1,665.0
|
|
|
|
1,501.5
|
|
|
|
1,208.2
|
|
Cost of sales
|
|
|
1,632.1
|
|
|
|
1,576.1
|
|
|
|
1,216.1
|
|
|
|
1,097.8
|
|
|
|
921.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
657.5
|
|
|
|
618.6
|
|
|
|
448.9
|
|
|
|
403.7
|
|
|
|
287.2
|
|
Selling and administrative expenses(1)
|
|
|
287.3
|
|
|
|
273.8
|
|
|
|
239.0
|
|
|
|
228.8
|
|
|
|
164.0
|
|
Research and development expenses
|
|
|
20.3
|
|
|
|
12.7
|
|
|
|
12.8
|
|
|
|
10.4
|
|
|
|
7.1
|
|
Curtailment amendment/partial settlement(2)
|
|
|
1.3
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
(11.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
348.6
|
|
|
|
337.5
|
|
|
|
197.1
|
|
|
|
176.3
|
|
|
|
116.1
|
|
Interest expense, net
|
|
|
(31.8
|
)
|
|
|
(29.4
|
)
|
|
|
(36.8
|
)
|
|
|
(47.9
|
)
|
|
|
(57.0
|
)
|
Early redemption premium on debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.7
|
)
|
Other (expense) income, net
|
|
|
(4.9
|
)
|
|
|
(6.8
|
)
|
|
|
7.3
|
|
|
|
8.9
|
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
311.9
|
|
|
|
301.3
|
|
|
|
167.6
|
|
|
|
137.3
|
|
|
|
52.6
|
|
Provision for income taxes
|
|
|
101.1
|
|
|
|
103.6
|
|
|
|
60.9
|
|
|
|
58.5
|
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
210.8
|
|
|
$
|
197.7
|
|
|
$
|
106.7
|
|
|
$
|
78.8
|
|
|
$
|
37.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.58
|
|
|
$
|
2.36
|
|
|
$
|
1.25
|
|
|
$
|
0.92
|
|
|
$
|
0.56
|
|
Diluted
|
|
$
|
2.57
|
|
|
$
|
2.36
|
|
|
$
|
1.25
|
|
|
$
|
0.92
|
|
|
$
|
0.56
|
|
Cash flow data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating activities
|
|
$
|
129.8
|
|
|
$
|
234.8
|
|
|
$
|
216.0
|
|
|
$
|
164.1
|
|
|
$
|
212.4
|
|
Cash flows used in investing activities
|
|
|
(62.6
|
)
|
|
|
(136.3
|
)
|
|
|
(26.0
|
)
|
|
|
(19.5
|
)
|
|
|
(59.5
|
)
|
Cash flows provided by (used in) financing activities
|
|
|
1.9
|
|
|
|
(148.6
|
)
|
|
|
(140.8
|
)
|
|
|
(100.1
|
)
|
|
|
(160.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
223.2
|
|
|
$
|
147.1
|
|
|
$
|
206.2
|
|
|
$
|
146.8
|
|
|
$
|
98.0
|
|
Total assets
|
|
|
2,150.2
|
|
|
|
2,052.2
|
|
|
|
1,950.9
|
|
|
|
1,771.3
|
|
|
|
1,657.9
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Long-term debt, net of current maturities
|
|
|
370.0
|
|
|
|
370.1
|
|
|
|
370.3
|
|
|
|
505.6
|
|
|
|
598.1
|
|
Total debt
|
|
|
370.1
|
|
|
|
370.3
|
|
|
|
370.5
|
|
|
|
505.7
|
|
|
|
598.2
|
|
Stockholders equity
|
|
|
1,012.6
|
|
|
|
760.2
|
|
|
|
805.2
|
|
|
|
631.9
|
|
|
|
514.7
|
|
|
|
|
(1) |
|
2006 amount includes stock-based compensation
expense exit units of $23.6 as disclosed in our
Annual Report on
form 10-K
for the year ended December 31, 2006. |
|
(2) |
|
See Note 12, Post-retirement Benefits other than
Pensions, in the Notes to Consolidated Financial Statements. |
27
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ($ in millions)
|
Safe
Harbor Statement Under Private Securities Litigation
Reform Act of 1995
This
Form 10-K
includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include statements concerning
our plans, objectives, goals, strategies, future events, future
revenue or performance, capital expenditures, financing needs,
plans or intentions relating to acquisitions, business trends
and other information that is not historical information. When
used in this
Form 10-K,
the words anticipates, believes,
estimates, expects, intends
and similar expressions identify such forward-looking
statements. Although we believe that such statements are based
on reasonable assumptions, these forward-looking statements are
subject to numerous factors, risks and uncertainties that could
cause actual outcomes and results to be materially different
from those projected. These factors, risks and uncertainties
include, among others, the following:
|
|
|
|
|
economic or industry downturns;
|
|
|
|
volatility and disruption of the credit markets;
|
|
|
|
our inability to implement our business strategy to increase our
aftermarket parts and services revenue;
|
|
|
|
our inability to generate cash and access capital on reasonable
terms;
|
|
|
|
competition in our markets;
|
|
|
|
the variability of bookings due to volatile market conditions,
client subjectivity in placing orders, and timing of large
orders;
|
|
|
|
failure to integrate our acquisitions, or achieve the expected
benefits from any future acquisitions;
|
|
|
|
economic, political, currency and other risks associated with
our international sales and operations;
|
|
|
|
fluctuations in currency values and exchange rates;
|
|
|
|
loss of our senior management or other key personnel;
|
|
|
|
environmental compliance costs and liabilities;
|
|
|
|
failure to maintain safety performance acceptable to our clients;
|
|
|
|
failure to negotiate new collective bargaining agreements;
|
|
|
|
unexpected product claims or regulations;
|
|
|
|
infringement of our intellectual property rights or our
infringement of others intellectual property rights;
|
|
|
|
our pension expenses and funding requirements; and
|
|
|
|
other factors described in this
Form 10-K.
|
Our actual results, performance or achievements could differ
materially from those expressed in, or implied by, the
forward-looking statements. We can give no assurances that any
of the events anticipated by the forward-looking statements will
occur or, if any of them does, what the impact would be on our
results of operations and financial condition. We undertake no
obligation to update or revise forward-looking statements which
may be made to reflect events or circumstances that arise after
the date made or to reflect the occurrence of unanticipated
events. Further discussion of these and other risk
considerations is provided in Item 1A, Risk Factors,
in this
Form 10-K.
Overview
We are among the largest global suppliers of custom-engineered
rotating equipment solutions for long-life critical applications
in the worldwide oil, gas, petrochemical and industrial process
industries. Our services and products are used for a wide range
of applications, including oil and gas production, refinery
processes, natural gas processing, pipelines, petrochemical
production, high-pressure field injection and enhanced oil
recovery. We also serve general industrial markets including
paper, steel, sugar, and distributed power and government
markets. In addition, see Item 1, Business, in this
Form 10-K
for a description of the markets we serve.
We operate globally with manufacturing facilities in the United
States, France, United Kingdom, Germany, Norway, China and
India. We provide a wide array of products and services to our
worldwide client base in over 140 countries from our global
locations (65 sales offices, 37 service centers and 12 major
manufacturing locations) in 18
28
U.S. states and 29 countries. For the year ended
December 31, 2009, our revenue by geographic region
consisted of North America 38%, Europe 19%, Asia Pacific 17%,
Middle East and Africa 16% and Latin America 10%. Our total
combined revenues by geographic region for the year ended
December 31, 2008, consisted of North America 41%, Europe
25%, Asia Pacific 12%, Middle East and Africa 11% and Latin
America 11%.
Corporate
History
Dresser-Rand has been serving the energy markets since 1840. For
nearly 170 years, the Company has been able to build on the
legacy of innovation and technology from 18 companies that
include many of the most respected names in the
industry Dresser-Clark, Ingersoll Rand, Worthington,
Turbodyne, Terry, Nadrowski, Coppus, Murray, Gimpel, Peter
Brotherhood, Arrow Industries, Enginuity and Compression Renewal
Services. During that time, we have amassed the largest
installed base of equipment in our class that would be very
difficult for competitors to replicate.
On December 31, 1986, Dresser Industries, Inc. and
Ingersoll Rand (collectively, the partners) entered into a
partnership agreement for the formation of Dresser-Rand Company,
a New York general partnership owned 50% by Dresser Industries,
Inc. and 50% by Ingersoll Rand. The partners contributed
substantially all of the operating assets and certain related
liabilities, which comprised their worldwide reciprocating
compressor, steam turbine and turbo-machinery businesses. The
net assets contributed by the partners were recorded by
Dresser-Rand Company at amounts approximating their historical
values. Dresser-Rand Company commenced operations on
January 1, 1987. On October 1, 1992, Dresser
Industries, Inc. acquired a 1% equity interest from Dresser-Rand
Company to increase its ownership to 51% of Dresser-Rand
Company. In September 1999, Dresser Industries, Inc. merged with
Halliburton Industries. Accordingly, Dresser Industries,
Inc.s ownership interest in Dresser-Rand Company
transferred to Halliburton Industries on that date. On
February 2, 2000, a wholly-owned subsidiary of Ingersoll
Rand purchased Halliburton Industries 51% interest in
Dresser-Rand Company for a net purchase price of approximately
$543.
On August 25, 2004, Dresser-Rand Holdings, LLC, an
affiliate of First Reserve, entered into an equity purchase
agreement with Ingersoll Rand (the Acquisition) to
purchase all of the equity interests in the Dresser-Rand
Entities for $1,130. The Acquisition closed on October 29,
2004. In October 2004, Dresser-Rand Group Inc. a Delaware
corporation was formed.
On August 4, 2005, Dresser-Rand Group Inc. completed its
initial public offering of common stock at $21.00 per share. The
common stock trades on the New York Stock Exchange under the
symbol DRC. During 2006 and 2007, there were three
secondary sales of the Companys stock by D-R Interholding,
LLC, an affiliate of First Reserve Corporation. D-R Interholding
LLC subsequently sold its entire interest in Dresser-Rand Group
Inc.
Basis of
Presentation
The accompanying Consolidated Financial Statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP)
and include the accounts of Dresser-Rand Group Inc. and its
consolidated subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. Unless
the context otherwise indicates, the terms we,
our, us, the Company and
similar terms, refer to Dresser-Rand Group Inc. and its
consolidated subsidiaries.
Effects
of Currency Fluctuations
We conduct operations in over 140 countries. Therefore, our
results of operations are subject to both currency transaction
risk and currency translation risk. We incur currency
transaction risk whenever we or our subsidiaries enter into a
large purchase or a large sales transaction using a currency
other than the functional currency of the transacting entity.
With respect to currency translation risk, our financial
condition and results of operations are measured and recorded in
the relevant functional currency and then translated into
U.S. dollars for inclusion in our consolidated financial
statements. Exchange rates between these currencies and
U.S. dollars in recent years have fluctuated significantly
and may continue to do so in the future. The most significant
component of our revenues and costs are denominated in
U.S. dollars. Euro-related revenues and costs are also
significant. Historically, we have engaged in hedging strategies
from time to time to reduce the effect of currency fluctuations
on specific transactions. However, we have not sought to hedge
currency translation risk. We expect to continue to engage in
hedging strategies going forward, but have not attempted to
qualify for hedge accounting treatment during 2009, 2008 or
2007. Significant declines in the value of the euro relative to
the U.S. dollar could have a material adverse effect on our
financial condition and results of operations.
Included in our cash balance of $223.2 reported at
December 31, 2009, was $22.4 million denominated in
Venezuelan bolivars. The balance is primarily a result of
favorable operating cash flows in Venezuela. Due to
29
government restrictions on transfers of cash out of the country
and control of exchange rates, we can not immediately convert
the cash at the official exchange rate at December 31,
2009. We have various applications to convert bolivars in order
to transfer approximately $17.1 million of such amount out
of the country, but have experienced substantial delays in
obtaining the necessary approvals, and in some cases rejections
of our applications. Consequently, approximately
$3.1 million of our cash in Venezuela has been translated
to U.S. dollars at December 31, 2009, at an effective
exchange rate that is approximately 65% less favorable than the
official rate (Parallel Rate) which resulted in a
foreign exchange loss in our Consolidated Income Statement of
approximately $5.6 million for the year ended
December 31, 2009. Separately, we may from time to time
convert additional cash from Venezuela, but without going
through the application process, would only currently be able to
do so at the Parallel Rate. This would result in us having fewer
U.S. dollars than currently reported as a component of cash
and cash equivalents on our Consolidated Balance Sheet with the
difference recorded as a foreign exchange loss in our
Consolidated Income Statement.
On occasion, the Venezuelan government has also devalued the
bolivar, including a recent devaluation on January 8, 2010.
As a result of this most recent devaluation, the Company
recorded a foreign exchange loss in our Consolidated Income
Statement of approximately $13.6 million and a reduction in
our aftermarket backlog of approximately $1.1 million in
January 2010. It is not possible to estimate the impact on
U.S. dollar backlog resulting from Venezuelan clients
inability to fund previously booked projects as a result of the
devaluation.
Revenues
Our revenues are primarily generated through the sale of new
units and aftermarket parts and services. Revenues are
recognized as described in Note 2, Summary of Significant
Accounting Policies, in our Notes to Consolidated Financial
Statements.
Cost of
Sales
Cost of sales includes raw materials, facility related employee
and overhead costs, freight and warehousing, and product
engineering.
Selling
and Administrative Expenses
Selling expenses consist of costs associated with marketing and
sales. Administrative expenses are primarily management,
accounting, corporate expenses and legal costs.
Research
and Development Expenses
Research and development expenses include payroll, employee
benefits, and other labor related costs, facilities,
workstations and software costs associated with product
development. These costs are expensed as incurred. Expenses for
major projects are carefully evaluated to manage return on
investment requirements. We expect that our research and
development spending will be at least in line with 2009 levels.
Other
(Expense) Income
Other (expense) income includes those items that are
non-operating in nature. Examples of items reported as other
(expense) income are equity in earnings of certain 50% or less
owned affiliates, casualty losses, certain government grants and
the impact of currency exchange fluctuations.
Depreciation
and Amortization
Property, plant and equipment is reported at cost less
accumulated depreciation, which is generally provided using the
straight-line method over the estimated useful lives of the
assets. Expenditures for improvements that extend the life of
the asset are generally capitalized. Intangible assets primarily
consist of amounts allocated to customer relationships, software
and technology, trade names and other intangibles. All of the
intangible assets are generally amortized using the
straight-line method over their estimated useful lives.
Bookings
and Backlog
New
Units
Bookings represent firm orders placed for specific scope of
supply during the period, whether or not filled. The elapsed
time from booking to completion of performance is typically six
to fifteen months (longer for less frequent major projects). The
backlog of unfilled orders includes amounts based on signed
contracts as well as agreed letters of
30
authorization which management has determined are likely to be
performed. Although backlog represents business that is
considered firm, cancellations or scope adjustments may occur.
In certain cases, cancellation of a contract provides us with
the opportunity to bill for certain incurred costs and
penalties. Backlog is adjusted to reflect currency exchange
rates as of the date the backlog is reported. Bookings are
adjusted to reflect cancellations and revised scope.
Aftermarket
Parts and Services
Bookings represent firm orders placed for specific scope of
supply during the period, whether or not filled. Backlog
primarily consists of unfilled parts orders and open repair and
field service orders. The elapsed time from order entry to
completion can be one day to 12 months depending on the
complexity of the order. Backlog is adjusted to reflect currency
exchange rates as of the date the backlog is reported. Bookings
are adjusted to reflect cancellations and revised scope.
Letters
of Credit, Bank Guarantees and Surety Bonds
In the ordinary course of our business, we make use of letters
of credit, bank guarantees and surety bonds. We use both
performance bonds, ensuring the performance of our obligations
under various contracts to which we are a party, and advance
payment bonds, which ensure that clients that place purchase
orders with us and make advance payments under such contracts
are reimbursed to the extent we fail to deliver under the
contract. Under the revolving portion of our amended and
restated senior secured credit facility, we are entitled to have
up to $500 of letters of credit outstanding at any time, subject
to certain conditions.
Results
of Operations
Year
ended December 31, 2009, compared to the year ended
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,289.6
|
|
|
|
100.0
|
%
|
|
$
|
2,194.7
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
1,632.1
|
|
|
|
71.3
|
|
|
|
1,576.1
|
|
|
|
71.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
657.5
|
|
|
|
28.7
|
|
|
|
618.6
|
|
|
|
28.2
|
|
Selling and administrative expenses
|
|
|
287.3
|
|
|
|
12.5
|
|
|
|
273.8
|
|
|
|
12.5
|
|
Research and development expenses
|
|
|
20.3
|
|
|
|
0.9
|
|
|
|
12.7
|
|
|
|
0.6
|
|
Curtailment amendment/partial settlement
|
|
|
1.3
|
|
|
|
0.1
|
|
|
|
(5.4
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
348.6
|
|
|
|
15.2
|
|
|
|
337.5
|
|
|
|
15.3
|
|
Interest expense, net
|
|
|
(31.8
|
)
|
|
|
(1.4
|
)
|
|
|
(29.4
|
)
|
|
|
(1.3
|
)
|
Other expense, net
|
|
|
(4.9
|
)
|
|
|
(0.2
|
)
|
|
|
(6.8
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
311.9
|
|
|
|
13.6
|
|
|
|
301.3
|
|
|
|
13.7
|
|
Provision for income taxes
|
|
|
101.1
|
|
|
|
4.4
|
|
|
|
103.6
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
210.8
|
|
|
|
9.2
|
%
|
|
$
|
197.7
|
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bookings
|
|
$
|
1,661.5
|
|
|
|
|
|
|
$
|
2,523.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog ending
|
|
$
|
1,711.7
|
|
|
|
|
|
|
$
|
2,251.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues. The adverse economic
conditions and the downturn in the oil and gas markets in late
2008 and 2009 adversely affected new unit bookings which is
expected to result in lower new unit sales in 2010. This
downturn, however, did not have a negative impact on 2009 sales
because of significant backlog in the beginning of 2009 and long
lead times in our new unit segment. In addition, our aftermarket
parts and services segment is less cycle sensitive than the new
units segment. Total revenues were $2,289.6 for the year ended
December 31, 2009, compared to $2,194.7 for the year ended
December 31, 2008. This is a $94.9, or 4.3% increase. The
highly engineered nature of our worldwide products and services
does not easily lend itself to measuring the impact of price,
volume and mix on changes in our total revenues from year to
year. Nevertheless, based on factors such as measures of labor
hours and purchases from suppliers, revenues increased as a
result of normal price increases and higher volume in 2009. The
segments remained relatively consistent as a percentage of
revenues when compared to 2008.
Cost of sales. Cost of sales was $1,632.1 for
the year ended December 31, 2009, compared to $1,576.1 for
the year ended December 31, 2008. As a percentage of
revenues, cost of sales decreased to 71.3% for 2009 compared to
71.8% for
31
2008. The decrease in cost of sales as a percentage of revenue
was primarily due to productivity improvements partly mitigated
by an unfavorable mix and a non-recurring accrual related to a
potential pension adjustment in the United Kingdom of $4.9.
Gross profit. Gross profit was $657.5, or
28.7% of revenues for the year ended December 31, 2009,
compared to $618.6, or 28.2% of revenues for the year ended
December 31, 2008. We experienced increased margins due to
the factors discussed above.
Selling and administrative expenses. Selling
and administrative expenses were $287.3 for the year ended
December 31, 2009, compared to $273.8 for the year ended
December 31, 2008. Selling and administrative expenses were
12.5% as a percentage of revenues for both years ended
December 31, 2009, and 2008 respectively.
Research and development expenses. Total
research and development expenses for the year ended
December 31, 2009 were $20.3, compared to $12.7 for the
year ended December 31, 2008. Research and development
expenses increased significantly in 2009 as a result of
executing our strategy to introduce new and innovative products
and technologies. The formation of a Technology and Business
Development organization in January 2009 further accelerated
investment on key new product development initiatives for
Integrated Compression Systems (ICS), Liquid Natural Gas (LNG)
and gas turbines, as well as, expanding the annual portfolio of
projects focused on product enhancements. We expect our research
and development spending to be at least in line with 2009 levels.
Curtailment amendment/partial settlement. In
connection with a collective bargaining agreement ratified by
our represented employees at our Olean, NY, facility on
March 31, 2008, certain changes were made to retiree
medical benefits for employees covered by the agreement.
Employees who did not meet certain age and service criteria on
April 1, 2008, were paid a lump sum totaling $6.4 in May
2008 calculated based on years of service in lieu of receiving
future retiree medical benefits, resulting in a curtailment
amendment. The retiree medical benefits for those employees who
met certain age and service criteria were amended to provide
certain additional benefits. The net effect of these amendments
of $3.6 was recognized during the three months ended
March 31, 2008, as a credit to other comprehensive income,
which is being amortized into the statement of income over the
three-year term of the agreement. The above changes were in
addition to the elimination of prescription drug benefits
effective February 1, 2007, for Medicare-eligible
participants for the represented employees at our Olean, NY,
facility. That amendment was recognized during the three months
ended March 31, 2007, in other comprehensive income and
resulted in negative prior service cost. The Company recognized
a $7.2 curtailment amendment in the statement of income for the
three months ended March 31, 2008, representing the
unamortized balance of the 2007 plan amendment at that date,
because no future service is required to be entitled to
benefits. Also, under accounting principles generally accepted
in the United States of America, the payment of the $6.4 lump
sum in May 2008 was considered a partial settlement that
required the Company to recognize approximately $1.8 of net
actuarial losses in the statement of income for the three months
ended June 30, 2008, that were previously included in
accumulated other comprehensive income. The net amounts related
to changes in retiree medical benefits for these represented
employees of $5.4 was recognized in the statement of income for
the year ended December 31, 2008. As a result of this and
other prior amendments, cost of sales in 2008 includes a credit
related to our pension and post-retirement benefits of $6.8
compared to expense of $8.2 in 2009. Additionally, we did not
recognize deferred actuarial losses of $82.3 in 2008 and $2.3 in
2009 in our statement of income. These deferred actuarial losses
have been recorded in accumulated other comprehensive income
(loss).
Operating income. Operating income was $348.6
for the year ended December 31, 2009, compared to $337.5
for the year ended December 31, 2008. The $11.1 increase
was attributed to higher gross profit partially offset by
increased research and development expenses and higher selling
and administrative expenses. As a percentage of revenues,
operating income remained relatively consistent at 15.2% for
2009 compared to 15.3% for 2008.
Interest expense, net. Interest expense, net
was $31.8 for the year ended December 31, 2009, compared to
$29.4 for the year ended December 31, 2008, including $3.2
of amortization of deferred financing costs for 2009 and $3.1
for 2008. We experienced lower interest income in the year ended
December 31, 2009 resulting from lower interest bearing
cash balances and lower interest rates.
Other expense, net. Other expense, net was
$4.9 for the year ended December 31, 2009, compared to $6.8
for the year ended December 31, 2008. Net currency losses
were $3.8 in 2009 and $6.5 in 2008. Due to government
restrictions on transfers of cash out of Venezuela and control
of exchange rates, we can not immediately convert a portion of
the cash at the official exchange rate at December 31,
2009. We have various applications to convert bolivars in order
to transfer approximately $17.1 of such amount out of the
country, but have experienced substantial delays in obtaining
the necessary approvals, and in some cases rejections of our
applications. Consequently, approximately $3.1 of our cash in
Venezuela has been translated to U.S. dollars at the
Parallel Rate, which resulted in a foreign exchange loss in our
Consolidated Income Statement of approximately $5.6 for the year
ended December 31, 2009.
32
On occasion, the Venezuelan government has devalued the bolivar,
including a recent devaluation on January 8, 2010. As a
result of this most recent devaluation, the Company recorded a
foreign exchange loss in our Consolidated Income Statement of
approximately $13.6 million.
Provision for income taxes. Provision for
income taxes was $101.1 for the year ended December 31,
2009, and $103.6 for the year ended December 31, 2008. The
effective tax rate for 2009 was 32.4% compared to 34.4% for
2008. Our estimated income tax provision for the year ended
December 31, 2009 and 2008, results in an effective rate
that differs from the U.S. Federal statutory rate of 35%
principally because of different tax rates in foreign tax
jurisdictions and certain deductions and credits allowable for
income tax purposes partially offset by state and local income
taxes and valuation allowances on net operating loss
carryforwards that more likely than not will not be realized. We
will adjust valuation allowances in the future when it becomes
more likely than not that the benefits of deferred tax assets
will be realized. During the three months ended
September 30, 2009, we executed a corporate restructuring
to facilitate our global cash management. In connection with the
restructuring, we experienced a tax benefit in certain foreign
tax jurisdictions which reduced our effective tax rate by
approximately 2.0 percentage points for the year ended
December 31, 2009. We anticipate that the reorganization
will result in an ongoing reduction in our tax rate of
approximately 1.5%. The previously discussed devaluation of the
bolivar in January 2010 will not result in a tax benefit and is
expected to increase our effective tax rate by approximately
1.9% for the year ended December 31, 2010.
Bookings and backlog. Bookings for the year
ended December 31, 2009, decreased to $1,661.5 from
$2,523.3 for the year ended December 31, 2008. The backlog
decreased to $1,711.7 at December 31, 2009, from $2,251.5
at December 31, 2008. The recent adverse economic
conditions and the downturn in the oil and gas markets in 2009
adversely affected new unit bookings which will result in lower
new unit sales in 2010. These new unit bookings in 2009
reflected the ongoing project delays that we experienced
throughout the first nine months of 2009. At December 31,
2009, approximately 73% of the $1,711.7 backlog was scheduled to
ship in 2010.
The devaluation of the Venezuelan bolivar that occurred on
January 8, 2010, is expected to reduce our aftermarket
backlog by approximately $1.1 in the three months ended
March 31, 2010. It is not possible to estimate the impact
on U.S. dollar backlog resulting from Venezuelan
clients inability to fund previously booked projects as a
result of the devaluation.
Segment
information
We have two reportable segments based on the engineering and
production processes, and the products and services provided by
each segment as follows:
1) New Units are highly engineered solutions to new
customer requests. 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.
Unallocable amounts represent expenses and assets that cannot be
assigned directly to either reportable segment because of their
nature. Unallocable expenses include corporate expenses,
research and development expenses, and curtailment amendment
amortization.
33
Segment
Analysis year ended December 31, 2009, compared
to year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
1,258.8
|
|
|
|
55.0
|
%
|
|
$
|
1,202.7
|
|
|
|
54.8
|
%
|
Aftermarket parts and services
|
|
|
1,030.8
|
|
|
|
45.0
|
%
|
|
|
992.0
|
|
|
|
45.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,289.6
|
|
|
|
100.0
|
%
|
|
$
|
2,194.7
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
262.9
|
|
|
|
|
|
|
$
|
217.2
|
|
|
|
|
|
Aftermarket parts and services
|
|
|
394.6
|
|
|
|
|
|
|
|
401.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
657.5
|
|
|
|
|
|
|
$
|
618.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
169.0
|
|
|
|
|
|
|
$
|
131.9
|
|
|
|
|
|
Aftermarket parts and services
|
|
|
264.7
|
|
|
|
|
|
|
|
276.7
|
|
|
|
|
|
Unallocated corporate expenses
|
|
|
(85.1
|
)
|
|
|
|
|
|
|
(71.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
348.6
|
|
|
|
|
|
|
$
|
337.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bookings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
727.2
|
|
|
|
|
|
|
$
|
1,429.3
|
|
|
|
|
|
Aftermarket parts and services
|
|
|
934.3
|
|
|
|
|
|
|
|
1,094.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bookings
|
|
$
|
1,661.5
|
|
|
|
|
|
|
$
|
2,523.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog ending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
1,370.8
|
|
|
|
|
|
|
$
|
1,830.5
|
|
|
|
|
|
Aftermarket parts and services
|
|
|
340.9
|
|
|
|
|
|
|
|
421.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
1,711.7
|
|
|
|
|
|
|
$
|
2,251.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Units
Revenues. The adverse economic conditions and
the downturn in the oil and gas markets in late 2008 and 2009
adversely affected new unit bookings which is expected to result
in lower new unit sales in 2010. This downturn, however, did not
have a negative impact on 2009 sales. Revenues for this segment
were $1,258.8 for the year ended December 31, 2009,
compared to $1,202.7 for the year ended December 31, 2008.
The $56.1, or 4.7% increase was attributable principally to
significant backlog in the beginning of 2009 and long lead times
as well as the realization of prior period price increases and
increased volume.
Gross profit. Gross profit was $262.9 for the
year ended December 31, 2009, compared to $217.2 for the
year ended December 31, 2008. Gross profit, as a percentage
of segment revenues, was 20.9% for 2009 compared to 18.1% for
2008. Gross profit as a percentage of revenues increased as a
result of cost and productivity improvements, partly mitigated
by unfavorable mix within the new unit segment and the
allocation of a non-recurring accrual related to a potential
pension adjustment in the United Kingdom of $2.8 for the year
ended December 31, 2009.
Operating income. Operating income was $169.0
for the year ended December 31, 2009, compared to $131.9
for the year ended December 31, 2008. As a percentage of
segment revenues, operating income was 13.4% for 2009 compared
to 11.0% for 2008. Both increases were due to the factors
discussed above.
Bookings and Backlog. New unit bookings for
the year ended December 31, 2009, decreased to $727.2,
compared to $1,429.3 for the year ended December 31, 2008.
The adverse economic conditions and the downturn in the oil and
gas markets in 2009 adversely affected new unit bookings which
will result in lower new unit sales in 2010. These new unit
bookings in 2009 reflected the ongoing project delays that we
experienced throughout the first nine months of 2009. While it
is difficult to accurately predict whether the environment will
worsen or improve, we believe that the decline is the result of
a temporary delay in the placement of orders rather than the
cancellation of projects. Backlog was $1,370.8 at
December 31, 2009, compared to $1,830.5 at
December 31, 2008.
34
Aftermarket
Parts and Services
Revenues. Revenues for this segment were
$1,030.8 for the year ended December 31, 2009, compared to
$992.0 for the year ended December 31, 2008. The increase
in revenues was primarily the result of the realization of prior
period price increases and increased volume.
Gross profit. Gross profit was $394.6 for the
year ended December 31, 2009, compared to $401.4 for the
year ended December 31, 2008. Gross profit, as a percentage
of segment revenues was 38.3% for 2009 compared to 40.5% for
2008. Gross profit as a percentage of revenues decreased
primarily due to a less favorable mix within the aftermarket
segment and the allocation of a non-recurring accrual related to
a potential pension adjustment in the United Kingdom of $2.1,
partially offset by improved pricing and cost and productivity
improvements.
Operating income. Operating income was $264.7
for the year ended December 31, 2009, compared to $276.7
for the year ended December 31, 2008. As a percentage of
segment revenues, operating income was 25.7% for 2009 compared
to 27.9% for 2008. The changes in operating income and operating
income as a percentage of segment revenues have resulted
principally for the reasons discussed above.
Bookings and backlog. Bookings for the year
ended December 31, 2009, were $934.3, compared to $1,094.0
for the year ended December 31, 2008. The decline in
bookings in the aftermarket segment for the year ended
December 31, 2009, has principally resulted from a
significant decline in order flow from one national oil company
client, unfavorable foreign exchange and reduced maintenance
spending by our clients worldwide. Backlog was $340.9 for the
year ended December 31, 2009, compared to $421.0 for the
year ended December 31, 2008.
The devaluation of the Venezuelan bolivar that occurred on
January 2010 is expected to reduce our aftermarket backlog by
approximately $1.1 in the three months ended March 31, 2010.
Year
ended December 31, 2008 compared to the year ended
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,194.7
|
|
|
|
100.0
|
%
|
|
$
|
1,665.0
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
1,576.1
|
|
|
|
71.8
|
|
|
|
1,216.1
|
|
|
|
73.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
618.6
|
|
|
|
28.2
|
|
|
|
448.9
|
|
|
|
27.0
|
|
Selling and administrative expenses
|
|
|
273.8
|
|
|
|
14.4
|
|
|
|
239.0
|
|
|
|
14.4
|
|
Research and development expenses
|
|
|
12.7
|
|
|
|
0.6
|
|
|
|
12.8
|
|
|
|
0.8
|
|
Plan settlement/curtailment amendment
|
|
|
(5.4
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
337.5
|
|
|
|
15.3
|
|
|
|
197.1
|
|
|
|
11.8
|
|
Interest expense, net
|
|
|
(29.4
|
)
|
|
|
(1.3
|
)
|
|
|
(36.8
|
)
|
|
|
(2.2
|
)
|
Other (expense) income, net
|
|
|
(6.8
|
)
|
|
|
(0.3
|
)
|
|
|
7.3
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
301.3
|
|
|
|
13.7
|
|
|
|
167.6
|
|
|
|
10.1
|
|
Provision for income taxes
|
|
|
103.6
|
|
|
|
4.7
|
|
|
|
60.9
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
197.7
|
|
|
|
9.0
|
%
|
|
$
|
106.7
|
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bookings
|
|
$
|
2,523.3
|
|
|
|
|
|
|
$
|
2,194.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog ending
|
|
$
|
2,251.5
|
|
|
|
|
|
|
$
|
1,859.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues. During the first half of 2008,
the energy market was very robust as the worldwide demand for
and price of oil and gas was strong, which in turn caused very
strong market conditions for our products and services. The
decline in the oil and gas prices over the latter half of 2008
did not have a negative impact on 2008 revenues because of
significant backlog, continued bookings of legacy projects, and
long lead times in our new unit segment. In addition, our
aftermarket parts and services segment provides us with a steady
stream of recurring revenues. Total revenues were $2,194.7 for
the year ended December 31, 2008, compared to $1,665.0 for
the year ended December 31, 2007. This is a $529.7, or
31.8% increase. The highly engineered nature of our worldwide
products and services does not easily lend itself to measuring
the impact of price, volume and mix on changes in our total
revenues from year to year. Nevertheless, based on factors such
as measures of labor hours and purchases from suppliers, volume
increased significantly during 2008 as we continued to expand in
global markets. The New Units segment increased as a percentage
of revenues while the Aftermarket parts and services segment
decreased.
35
Cost of sales. Cost of sales was $1,576.1 for
the year ended December 31, 2008, compared to $1,216.1 for
the year ended December 31, 2007. As a percentage of
revenues, cost of sales decreased to 71.8% for 2008 compared to
73.0% for 2007. The decrease in cost of sales as a percentage of
revenue was primarily due to the effects of the work stoppage at
our Painted Post facility in 2007 as discussed below.
Gross profit. Gross profit was $618.6, or
28.2% of revenues for the year ended December 31, 2008,
compared to $448.9, or 27.0% of revenues for the year ended
December 31, 2007. We experienced increased margins due to
a variety of factors including higher revenue and a more
favorable mix. In addition, 2007 was negatively impacted because
the represented employees at our Painted Post facility imposed a
work stoppage on August 3, 2007, at the conclusion of the
existing collective bargaining agreement as we were unsuccessful
in reaching a new agreement. The work stoppage continued through
November 29, 2007, when we declared impasse. At that time,
we implemented our last contract offer and the employees agreed
to return to work. We estimate the work stoppage and related
preparation costs reduced our gross profit for the year ended
December 31, 2007, by approximately $34. In November 2009,
the members of IUE-CWA Local 313, representing the workers at
our Painted Post facility ratified a new labor agreement after
working for nearly two years without a contract. The contract is
effective November 9, 2009, through March 1, 2013.
This matter is more fully discussed in Item 3 of
Part I of this
Form 10-K.
Selling and administrative expenses. Selling
and administrative expenses were $273.8 for the year ended
December 31, 2008, compared to $239.0 for the year ended
December 31, 2007. Selling and administrative expenses were
12.5% as a percentage of revenues for the year ended
December 31, 2008, compared to 14.4% for 2007. The dollar
increase in selling and administrative expenses reflects
additional costs to support higher sales activity in 2008.
Research and development expenses. Total
research and development expenses for the year ended
December 31, 2008 were $12.7, compared to $12.8 for the
year ended December 31, 2007. Research and development
expenses have remained consistent with 2007 and our 2008 planned
spending.
Curtailment amendment/partial settlement. In
connection with a new collective bargaining agreement ratified
by our represented employees at our Olean, NY, facility on
March 31, 2008, certain changes were made to retiree
medical benefits for employees covered by the agreement.
Employees who did not meet certain age and service criteria on
April 1, 2008, were paid a lump sum totaling, for all
eligible employees, $6.4 in May 2008 calculated based on years
of service in lieu of receiving future retiree medical benefits,
resulting in a curtailment amendment. The above changes were in
addition to the elimination of prescription drug benefits
effective February 1, 2007, for Medicare eligible
participants for the represented employees at our Olean, NY,
facility. That amendment was recognized during the three months
ended March 31, 2007, in other comprehensive income and
resulted in negative prior service cost. Accounting principles
generally accepted in the United States of America require a
portion of any prior service cost recognized in other
comprehensive income to be recognized in the statement of income
when a curtailment occurs. Accordingly, the Company recognized a
$7.2 curtailment amendment in the statement of income for the
three months ended March 31, 2008, representing the
unamortized balance of the 2007 plan amendment at that date,
because no future service is required to be entitled to
benefits. Also, under accounting principles generally accepted
in the United States of America, the payment of the $6.4 lump
sum in May 2008 was considered a partial settlement that
required the Company to recognize approximately $1.8 of net
actuarial losses included in accumulated other comprehensive
income in the statement of income for the three months ended
June 30, 2008. The net gain related to changes in retiree
medical benefits for these represented employees of $5.4 was
recognized in the statement of income for the year ended
December 31, 2008. As a result of this and other prior
amendments, cost of sales in 2008 includes a credit related to
our pension and post retirement benefits of $6.8 compared to
expense of $6.8 in 2007. Additionally, we did not recognize
deferred actuarial losses of $82.3 in 2008 or deferred actuarial
gains of $39.3 in 2007 in our statement of income. In accordance
with SFAS No. 158, these deferred actuarial gains and
losses have been recorded in accumulated other comprehensive
income (loss).
Operating income. Operating income was $337.5
for the year ended December 31, 2008, compared to $197.1
for the year ended December 31, 2007. The $140.4 increase
was attributed to higher gross profit partially offset by
increased selling and administration expense and the curtailment
amendment/partial settlement as discussed above. As a percentage
of revenues, operating income was 15.3% for 2008 compared to
11.8% for 2007.
Interest expense, net. Interest expense, net
was $29.4 for the year ended December 31, 2008, compared to
$36.8 for the year ended December 31, 2007. Interest
expense, net for 2007 included $6.9 in amortization of deferred
financing costs, of which $3.7 was non-recurring accelerated
amortization due to an early payment of $137.2 in long-term debt
in 2007 and amending and restating our senior secured credit
facility. The early payment resulted in a net decrease in
interest of $1.9 from 2007 to 2008. Non-recurring interest
related to the Maersk litigation totaling $2.2 as described in
Note 15 to the Notes to Consolidated Financial Statements
is also included in the amounts for 2007.
36
Other (expense) income, net. Other expense,
net was $6.8 for the year ended December 31, 2008, compared
to other income, net of $7.3 for the year ended
December 31, 2007. Net currency losses were $6.5 in 2008
and net currency gains were $5.5 in 2007. The 2007 results also
included a $2.3 gain recorded on the sale of a minority
investment in a small electricity generating facility.
Provision for income taxes. Provision for
income taxes was $103.6 for the year ended December 31,
2008, and $60.9 for the year ended December 31, 2007. The
effective tax rate for 2008 was 34.4% compared to 36.3% for
2007. The 2008 rate is slightly lower than the 35%
U.S. statutory rate principally because of lower tax rates
in certain foreign tax jurisdictions and United States
manufacturing and export deductions, partially offset by state
and local income taxes and valuation allowances on net operating
loss carryforwards that, more likely than not, will not be
realized. We will adjust valuation allowances in the future when
it becomes more likely than not that the benefits of deferred
tax assets will be realized.
Bookings and backlog. Bookings for the year
ended December 31, 2008, increased to $2,523.3 from
$2,194.7 for the year ended December 31, 2007. The backlog
increased to $2,251.5 at December 31, 2008, from $1,859.3
at December 31, 2007. These increases were principally in
the New Units segment. This increase reflects the strength of
the markets during most of 2008.
Segment
Analysis year ended December 31, 2008 compared
to year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
1,202.7
|
|
|
|
54.8
|
%
|
|
$
|
813.5
|
|
|
|
48.9
|
%
|
Aftermarket parts and services
|
|
|
992.0
|
|
|
|
45.2
|
%
|
|
|
851.5
|
|
|
|
51.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,194.7
|
|
|
|
100.0
|
%
|
|
$
|
1,665.0
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
217.2
|
|
|
|
|
|
|
$
|
127.2
|
|
|
|
|
|
Aftermarket parts and services
|
|
|
401.4
|
|
|
|
|
|
|
|
321.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
618.6
|
|
|
|
|
|
|
$
|
448.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
131.9
|
|
|
|
|
|
|
$
|
56.4
|
|
|
|
|
|
Aftermarket parts and services
|
|
|
276.7
|
|
|
|
|
|
|
|
213.8
|
|
|
|
|
|
Unallocated corporate expenses
|
|
|
(71.1
|
)
|
|
|
|
|
|
|
(73.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
337.5
|
|
|
|
|
|
|
$
|
197.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bookings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
1,429.3
|
|
|
|
|
|
|
$
|
1,321.5
|
|
|
|
|
|
Aftermarket parts and services
|
|
|
1,094.0
|
|
|
|
|
|
|
|
873.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bookings
|
|
$
|
2,523.3
|
|
|
|
|
|
|
$
|
2,194.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog ending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
1,830.5
|
|
|
|
|
|
|
$
|
1,543.0
|
|
|
|
|
|
Aftermarket parts and services
|
|
|
421.0
|
|
|
|
|
|
|
|
316.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
2,251.5
|
|
|
|
|
|
|
$
|
1,859.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Units
Revenues. Revenues for this segment were
$1,202.7 for the year ended December 31, 2008, compared to
$813.5 for the year ended December 31, 2007. The $389.2, or
47.8% increase was attributable principally to continuing strong
energy markets during most of 2008.
Gross profit. Gross profit was $217.2 for the
year ended December 31, 2008, compared to $127.2 for the
year ended December 31, 2007. Gross profit, as a percentage
of segment revenues, was 18.1% for 2008 compared to 15.6% for
2007. These increases were primarily attributable to lower
margins in 2007. In 2007, the represented employees at our
Painted Post facility imposed a work stoppage on August 3,
2007, at the conclusion of the existing collective bargaining
37
agreement as we were unsuccessful in reaching a new agreement.
The work stoppage continued through November 29, 2007. We
estimate the work stoppage reduced this segments gross
profit for the year ended December 31, 2007, by
approximately $14 to $15. In November 2009, the members of
IUE-CWA Local 313, representing the workers at our Painted Post
facility ratified a new labor agreement after working for nearly
two years without a contract. The contract is effective
November 9, 2009, through March 1, 2013. This matter
is more fully discussed in Item 3 of Part I of this
Form 10-K.
Operating income. Operating income was $131.9
for the year ended December 31, 2008, compared to $56.4 for
the year ended December 31, 2007. As a percentage of
segment revenues, operating income was 11.0% for 2008 compared
to 6.9% for 2007. Both increases were due to the factors cited
above.
Bookings and Backlog. Bookings for the year
ended December 31, 2008, increased to $1,429.3, compared to
$1,321.5 for the year ended December 31, 2007. Backlog
increased to $1,830.5 at December 31, 2008, from $1,543.0
at December 31, 2007. These increases were primarily due to
continued strength in the energy markets during most of 2008.
Aftermarket
Parts and Services
Revenues. Revenues for this segment were
$992.0 for the year ended December 31, 2008, compared to
$851.5 for the year ended December 31, 2007. This segment
was adversely impacted by changes in the procurement process
approval cycle and a delay in the budget appropriations for
certain of our national oil company clients during 2007. The
increase in revenues in 2008 reflected an improvement in these
circumstances.
Gross profit. Gross profit was $401.4 for the
year ended December 31, 2008, compared to $321.7 for the
year ended December 31, 2007. Gross profit, as a percentage
of segment revenues was 40.5% for 2008 compared to 37.8% for
2007. These changes were attributed to a variety of factors
including higher revenues and a more favorable mix. In addition,
2007 was negatively impacted because the represented employees
at our Painted Post facility imposed a work stoppage on
August 3, 2007, at the conclusion of the existing
collective bargaining agreement as we were unsuccessful in
reaching a new agreement. The work stoppage continued through
November 29, 2007. We estimate the work stoppage reduced
this segments gross profit for the year ended
December 31, 2007 by approximately $19 to $20. In November
2009, the members of IUE-CWA Local 313, representing the workers
at our Painted Post ratified a new labor agreement after working
for nearly two years without a contract. The contract is
effective November 9, 2009, through March 1, 2013.
This matter is more fully discussed in Item 3 of
Part I of this
Form 10-K.
Operating income. Operating income was $276.7
for the year ended December 31, 2008, compared to $213.8
for the year ended December 31, 2007. As a percentage of
segment revenues, operating income was 27.9% for 2008 compared
to 25.1% for 2007. The increase in the dollar amount and
increase in percent of sales were due to the factors cited above.
Bookings and Backlog. Bookings for the year
ended December 31, 2008, were $1,094.0, compared to $873.2
for the year ended December 31, 2007. Backlog increased to
$421.0 at December 31, 2008 from $316.3 at
December 31, 2007. Aftermarket parts and services were
adversely impacted in 2007, by changes in the procurement
process approval cycle and a delay in the budget appropriations
for certain national oil company clients. Bookings in 2008
reflect an improvement in this situation.
Liquidity
and Capital Resources
Net cash provided by operating activities in the year ended
December 31, 2009, was $129.8 compared to $234.8 for the
year ended December 31, 2008. Although net income improved
to $210.8 for the year ended December 31, 2009, from $197.7
for the year ended December 31, 2008, cash flows were
negatively impacted by an increased investment in working
capital. Accounts receivable declined in 2009 as a result of
improved collections. The decrease in accounts receivable,
however, was more than offset by lower progress and customer
advance payments and lower accounts payable and accruals, which
have resulted from lower bookings. Additionally, we made $28.0
of additional pension plan contributions in 2009 when compared
to 2008 in accordance with our funding policy.
Net cash used in investing activities was $62.6 for the year
ended December 31, 2009, compared to $136.3 for 2008.
Capital expenditures of $41.1 in 2009 were comparable to capital
expenditures of $40.2 in 2008. In 2009, cash used in investing
activities included $12.7 related to the acquisition of
Compressor Renewal Services Ltd. (CRS). Cash used in
investing activities for the year ended December 31, 2008
included $91.4 related to the acquisitions of Peter Brotherhood
Ltd., Enginuity LLC, and Arrow Industries, Inc., which included
$5.1 of acquisitions costs. Additionally, in 2008, the Company
entered into an agreement by which it acquired a non-controlling
interest in Ramgen Power Systems, LLC (Ramgen), a
privately held development stage company that is developing
compressor technology that applies proven supersonic aircraft
technology to ground-based air and gas compressors. In addition
to receiving a non-controlling interest, the Company received an
option to acquire the business of Ramgen at a price of $25.0 and
a
38
royalty commitment, exercisable at any time through
October 28, 2012. Pursuant to the agreement, an initial
investment of $5.0 was made in November 2008, and our final
contractually obligated investment of $5.0 was made in May 2009.
The Company made an additional optional investment in November
2009 of $5.0. The agreement allows the Company to make
additional optional investments of $9.0 through October 2012.
On January 22, 2010, we paid contingent consideration of
$24.1 to the former owners of Peter Brotherhood Ltd in
accordance with the purchase agreement. The payment has been
accrued in the Consolidated Balance Sheet at December 31,
2009.
Net cash provided by financing activities was $1.9 for the year
ended December 31, 2009, compared to net cash used in
financing activities of $148.6 for 2008. During 2008, we
repurchased 4,110,754 shares of our common stock for
approximately $150 as part of a Board authorized repurchase plan.
As of December 31, 2009, we had cash and cash equivalents
of $223.2 and the ability to borrow $332.2 under our $500
restated senior secured revolving credit facility, as $167.8 was
used for letters of credit. In addition to these letters of
credit, a total of $85.8 of letters of credit and bank
guarantees were outstanding at December 31, 2009, which
were issued by banks offering uncommitted lines of credit.
Although there can be no assurances, based on our current and
anticipated levels of operations and conditions in our markets
and industry, we believe that our cash flow from operations,
available cash and available borrowings under the restated
senior secured revolving credit facility will be adequate to
meet our working capital, capital expenditures, interest
payments and other funding requirements for the next
12 months and our long-term future contractual obligations.
The Venezuelan government has exchange controls and currency
transfer restrictions that limit our ability to convert bolivars
into U.S. dollars and transfer funds out of Venezuela, and
we cannot assure you that our Venezuelan subsidiary will be able
to convert bolivars to U.S. dollars to satisfy intercompany
obligations. Included in our cash balance of $223.2 reported at
December 31, 2009, was $22.4 denominated in Venezuelan
bolívars. The balance is primarily a result of favorable
operating cash flows in Venezuela. Due to the government
restrictions on transfers of cash out of the country and control
of exchange rates, we can not immediately convert a portion of
the cash at the official exchange rate at December 31,
2009. We have applied to convert bolivars in order to transfer
approximately $17.1 of such amount out of the country, but have
experienced substantial delays in obtaining the necessary
approvals, and in some cases, rejections of our applications.
Consequently, approximately $3.1 of our cash in Venezuela has
been translated to U.S. dollars at the Parallel Rate at
December 31, 2009, which resulted in a foreign exchange
loss in our Consolidated Income Statement of approximately $5.6
for the year ended December 31, 2009. Separately, we may
from time to time convert the additional cash from Venezuela,
but without going through the application process, would only
currently be able to do so at the Parallel Rate. This would
result in us having fewer U.S. dollars than currently
reported as a component of cash and cash equivalents on our
Consolidated Balance Sheet with the difference recorded as a
foreign exchange loss in our Consolidated Income Statement.
We provide a range of benefits to employees and retired former
employees, including pensions, postretirement, postemployment
and healthcare benefits. In the aggregate, our pension plans at
December 31, 2009, were underfunded by approximately $95.6.
In order to comply with minimum funding requirements, we
contributed approximately $37.4 to our funded plans worldwide in
2009 and currently project that we will contribute approximately
$6.0 to our funded plans worldwide in 2010.
39
The asset allocations of the Companys pension plans by
asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2.8
|
|
|
$
|
|
|
|
$
|
2.8
|
|
|
$
|
|
|
U.S. equities
|
|
|
6.5
|
|
|
|
|
|
|
|
6.5
|
|
|
|
|
|
U.S. large-cap equities
|
|
|
53.8
|
|
|
|
53.8
|
|
|
|
|
|
|
|
|
|
U.S. small-cap value equities
|
|
|
8.8
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
U.S. small-cap growth equities
|
|
|
8.8
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
International equities
|
|
|
65.9
|
|
|
|
1.8
|
|
|
|
64.1
|
|
|
|
|
|
U.S. fixed income(1)
|
|
|
49.1
|
|
|
|
49.1
|
|
|
|
|
|
|
|
|
|
International fixed income(2)
|
|
|
30.6
|
|
|
|
|
|
|
|
30.6
|
|
|
|
|
|
Global asset allocations(3)
|
|
|
27.9
|
|
|
|
14.1
|
|
|
|
13.8
|
|
|
|
|
|
Insurance contracts(4)
|
|
|
21.7
|
|
|
|
|
|
|
|
|
|
|
|
21.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
275.9
|
|
|
$
|
136.4
|
|
|
$
|
117.8
|
|
|
$
|
21.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
U.S. Fixed Income: Includes investments in the broad fixed
income market such as government and agency bonds, mortgage
bonds, and corporate bonds. Duration of the bonds may range from
short (e.g., three months or less) to very long (e.g.,
12 years or longer). Credit quality of U.S. Fixed Income is
generally high quality in nature (e.g., AAA to BBB) but can also
include lower quality or high yield bonds (e.g., BB or lower).
Common indices are the Barclays Aggregate and Citigroup Broad
Investment Grade Index. |
|
|
|
(2) |
|
International Fixed Income: Includes investments in the broad
fixed income market such as government and corporate bonds.
Duration of the bonds ranges up to 16.8 years. Credit
quality of International Fixed Income is generally high quality
in nature (e.g., AAA to A). Common indices are the FTSE UK Glits
>15 Years, iBoxx £ Non-Gilts ex BBB 15 Year
+ and FTSE A Index-Linked > 5 Years. |
|
|
|
(3) |
|
Global Asset Allocation: Broadly diversified strategy where
investment managers have the capacity to invest in multiple
asset classes and the ability to alter asset class allocations
with agreed tolerances. There is no common index for this asset
class and typically a blended index of equities and fixed income
is utilized, ex. 60% S&P 500/40% Barclays Aggregate. |
|
|
|
(4) |
|
Insurance Contract: Provided by insurance companies that pay
benefits to retirees. |
The Companys investment objectives in managing its defined
benefit plan assets are to provide reasonable assurance that
present and future benefit obligations to all participants and
beneficiaries are met as they become due; to provide a total
return that, over the long-term, maximizes the ratio of the plan
assets to liabilities, while minimizing the present value of
required Company contributions at the appropriate levels of
risk; and to meet any statutory requirements, laws and local
regulatory agencies requirements. Key investment decisions
involving asset allocations, investment manager structure,
investment managers, investment advisors and trustees or
custodians are reviewed regularly. An asset liability modeling
study is used as the basis for aggregated asset allocation
decisions and updated approximately every five years or as
required. The Companys current global asset allocation
strategy for its pension plans is 60% in equity securities and
40% in debt securities and cash excluding those assets in non-US
plans required by regulation to be in insurance contracts or
other similar assets. The Company sets upper limits and lower
limits of plus or minus 5%. The rebalancing strategy is reviewed
quarterly if cash flows are not sufficient to rebalance the
plans and appropriate action is taken to bring the plans within
the strategic allocation ranges.
40
Contractual
Obligations ( in millions)
On December 28, 2007, the Company closed a 23
transaction, including a committed line of credit, that is being
used to fund construction of a test bench facility (the
Facility) at the Port of LeHavre, France for full
load, full power testing of compressors powered by gas turbines
and electric motors.
The Company is leasing the facility and 14 acres of land
underlying the Facility under a lease (the Lease)
under which the Company agreed to bear certain rights,
obligations, and expenses related to the Facility and land. The
Port of Le Havre owns the land and allows access for
construction of the Facility and occupancy under the terms of a
30-year
ground lease.
The Company is required to pay rent to the lessor during the
initial base term of the Lease after construction is completed
in an amount equal to the total of interest payable by the
lessor on the outstanding principal amount of the debt incurred
to construct the facility. Interest is generally determined by
reference to the EURIBOR rate, plus an applicable margin of
between 125 and 250 basis points.
The initial base term of the Lease expires in February 2015. At
maturity, the Lease may either be terminated or extended subject
to the mutual agreement of the parties. The Company may purchase
the Facility at any time for the amount of the lessors
debt outstanding, including upon maturity of the Lease. If the
Lease is terminated upon maturity, the Company has guaranteed
that the lessor will receive at least 80% of the cost of the
Facility upon the sale of the Facility.
The Lease contains representations, warranties and covenants
typical of such leases. Events of default in the Lease include,
but are not limited to, certain payment defaults, certain
bankruptcy and liquidation proceedings and the failure to
observe or perform any covenants or agreements contained in the
Lease. Any event of default could trigger acceleration of the
Companys payment obligations under the terms of the Lease.
The following is a summary of our significant future contractual
obligations, including amounts relating to the above mentioned
operating lease, by year as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
2010
|
|
|
2011-2012
|
|
|
2013-2014
|
|
|
Thereafter
|
|
|
Debt obligations
|
|
$
|
370.1
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
370.0
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
52.0
|
|
|
|
15.1
|
|
|
|
21.0
|
|
|
|
9.7
|
|
|
|
6.2
|
|
Postemployment benefits
|
|
|
235.2
|
|
|
|
21.0
|
|
|
|
42.2
|
|
|
|
45.0
|
|
|
|
127.0
|
|
Interest
|
|
|
136.4
|
|
|
|
27.3
|
|
|
|
54.6
|
|
|
|
54.5
|
|
|
|
|
|
Acquisition agreement
|
|
|
10.0
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
24.1
|
|
|
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License agreement (trademark)
|
|
|
1.8
|
|
|
|
0.4
|
|
|
|
0.9
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
829.6
|
|
|
$
|
98.0
|
|
|
$
|
118.7
|
|
|
$
|
479.7
|
|
|
$
|
133.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies
Note 2, Summary of Significant Accounting Policies, in the
Notes to Consolidated and Combined Financial Statements included
in this
Form 10-K,
includes a summary of significant accounting policies and
methods used in the preparation of the consolidated financial
statements. The following summarizes what we believe are the
critical accounting policies and methods we use:
Revenue recognition We recognize revenue when
it is realized or realizable and earned. We consider revenue
realized or realizable and earned when we have persuasive
evidence of an arrangement, delivery of the product or service
has occurred, the sales price is fixed or determinable and
collectibility is reasonably assured. Delivery does not occur
until products have been shipped or services have been provided
to the client, risk of loss has transferred to the client and
client acceptance has been obtained, client acceptance
provisions have lapsed, or we have objective evidence that the
criteria specified in the client acceptance provisions have been
satisfied. The amount of revenue related to any contingency is
not recognized until the contingency is resolved.
We enter into multiple-element revenue arrangements or
contracts, which may include any combination of designing,
developing, manufacturing, modifying, erecting and commissioning
complex products to customer specifications and providing
services related to the performance of such products. These
contracts normally take between six and fifteen months to
complete. The criteria described below are applied to determine
whether
and/or
41
how to separate multiple element revenue arrangements into
separate units of accounting and how to allocate the arrangement
consideration among those separate units of accounting:
|
|
|
|
|
The delivered unit(s) has value to the client on a stand-alone
basis.
|
|
|
|
There is objective and reliable evidence of the fair value of
the undelivered unit(s).
|
Our sales arrangements do not include a general right of return
of the delivered unit(s). If the above criteria are not met, the
arrangement is accounted for as one unit of accounting which
results in revenue being recognized when the last undelivered
unit is delivered. If these criteria are met, the arrangement
consideration is allocated to the separate units of accounting
based on each units relative fair value. If, however,
there is objective and reliable evidence of fair value of the
undelivered unit(s) but no such evidence for the delivered
unit(s), the residual method is used to allocate the arrangement
consideration. Under the residual method, the amount of
consideration allocated to the delivered unit(s) equals the
total arrangement consideration less the aggregate fair value of
the undelivered unit(s).
We are required to estimate the future costs that will be
incurred related to sales arrangements to determine whether any
arrangement will result in a loss. These costs include material,
labor and overhead. Factors influencing these future costs
include the availability of materials and skilled laborers.
Inventories We purchase materials for the
manufacture of components for use in both our new units and
aftermarket parts and services segments. The decision to
purchase a set quantity of a particular item is influenced by
several factors including: current and projected cost; future
estimated availability; existing and projected contracts to
produce certain items; and the estimated needs for our
aftermarket parts and services business. We value our inventory
at the lower of cost or market value. We estimate the net
realizable value of our inventories and establish reserves to
reduce the carrying amount of these inventories to the lower of
cost or market (net realizable value) as necessary.
Income Taxes Our effective tax rate is based
on income before income taxes and the tax rates applicable to
that income in the various jurisdictions in which we operate. An
estimated effective tax rate for the year is applied to the
Companys quarterly operating results. In the event that
there is a significant unusual or discrete item recognized, or
expected to be recognized, in the Companys quarterly
operating results, the tax attributable to that item is
separately calculated and recorded at the same time as the
unusual or discrete item. We consider the resolution of prior
tax matters to be such items. Significant judgment is required
in determining our effective tax rate and in evaluating tax
positions. We establish tax accruals for uncertain tax positions
in accordance with ASC
740-10
(formally Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109). ASC
740-10
prescribes a financial statement recognition threshold and
measurement attribute regarding tax positions taken or expected
to be taken in a tax return. A tax position (1) may be
recognized in financial statements only if it is more likely
than not that the position will be sustained upon examination
through any appeals and litigation processes based on the
technical merits of the position and, if recognized, (2) be
measured at the largest amount of benefit that is greater than
50 percent likely of being realized upon ultimate
settlement. We adjust these accruals in light of changing facts
and circumstances.
Tax regulations may require items of income and expense to be
included in the tax return in different periods than items are
reflected in the consolidated financial statements. As a result,
the effective tax rate reflected in the consolidated financial
statements may be different than the tax rate reported in the
income tax return. Some of these differences are permanent, such
as expenses that are not deductible on the tax return, and some
are temporary differences, such as depreciation expense.
Temporary differences create deferred tax assets and
liabilities. Deferred tax assets generally represent items that
can be used as tax deductions or credits in the tax return in
future years for which we have already recorded the tax benefit
in the consolidated financial statements. We establish valuation
allowances for our deferred tax assets when it is more likely
than not that the amount of expected future taxable income will
not support the use of the deduction or credit. Deferred tax
liabilities generally represent tax expense recognized in the
consolidated financial statements for which the related tax
payment has been deferred or an expense which we have already
taken a deduction on the income tax return, but has not yet been
recognized as expense in the consolidated financial statements.
Employee benefit plans We provide a range of
benefits to employees and retired former employees, including
pensions, postretirement, postemployment and healthcare
benefits. Determining the cost associated with such benefits is
dependent on various actuarial assumptions, including discount
rates, expected return on plan assets, compensation increases,
employee mortality and turnover rates, and healthcare cost trend
rates. Independent actuaries perform the required calculations
to determine expense in accordance with accounting principles
generally accepted in the United States of America. Actual
results may differ from the actuarial assumptions and are
generally accumulated and amortized over future periods. We
review our actuarial assumptions at each measurement date and
make modifications to the assumptions based on then current
rates and trends if appropriate to do so. The discount rate, the
rate of compensation increase and the expected long-term rates
of return on plan assets are determined as of the measurement
42
date. The discount rate reflects a rate at which pension
benefits could be effectively settled. The discount rate is
established and based primarily on the yields of high quality
fixed-income investments available and expected to be available
during the period to maturity of the pension and postretirement
benefits. We also review the yields reported by Moodys on
AA corporate bonds as of the measurement date. The rate of
compensation increase is dependent on expected future
compensation levels. The expected long-term rates of return are
projected to be the rates of return to be earned over the period
until the benefits are paid. Accordingly, the long-term rates of
return should reflect the rates of return on present
investments, expected contributions to be received during the
current year and on reinvestments over the period. The rates of
return utilized reflect the expected rates of return during the
periods for which the payment of benefits is deferred. The
expected long-term rate of return on plan assets used is based
on what is realistically achievable based on the types of assets
held by the plans and the plans investment policy. We
review each plan and its returns and asset allocations to
determine the appropriate expected long-term rate of return on
plan assets to be used. We believe that the assumptions utilized
in recording our obligations under our plans are reasonable
based on input from our actuaries, outside investment advisors,
and information as to assumptions used by plan sponsors.
A 1% change in the medical cost trend rate assumed for
postretirement benefits would have the following effects for the
year ended December 31, 2009, and at December 31,
2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
1% Decrease
|
|
Effect on total service and interest cost components
|
|
$
|
0.1
|
|
|
$
|
(0.1
|
)
|
Effect on postretirement benfit obligations
|
|
|
1.5
|
|
|
|
(1.4
|
)
|
Commitments and contingencies We are
involved in various litigations, claims and administrative
proceedings, including environmental matters, arising in the
normal course of business. We have recorded reserves in the
financial statements related to these matters which are
developed based on consultation with legal counsel and internal
and external consultants and engineers, depending on the nature
of the reserve. We provide for environmental accruals when, in
conjunction with our internal and external counsel, we determine
that a liability is both probable and reasonably estimable.
Factors that affect the recorded amount of any liability in the
future include: our participation percentage due to a settlement
by, or bankruptcy of, other potentially responsible parties; a
change in the environmental laws requiring more stringent
requirements; a change in the estimate of future costs that will
be incurred to remediate the site; and changes in technology
related to environmental remediation. We have property and
casualty insurance to cover such liabilities, but there is no
guarantee that the coverage will be sufficient.
We have accrued liabilities for product liability claims,
workers compensation matters and product warranty issues.
We have recorded liabilities in our financial statements related
to these matters, which are developed using input derived from
actuarial estimates and historical, anticipated experience data
and the judgment of counsel depending on the nature of the
accrued liability. We believe our estimated liabilities are
reasonable. If the level of claims changes or if the cost to
provide the benefits related to these claims should change, our
estimate of the underlying liability may change.
Goodwill and other intangible assets We have
significant goodwill and other intangible assets on our balance
sheet. The valuation and classification of these assets and the
assignment of amortization lives involves significant judgments
and the use of estimates. The testing of these intangible assets
under established accounting guidelines for impairment also
requires significant use of judgment and assumptions,
particularly as it relates to the identification of reporting
units and the determination of fair market value. These
estimated fair market values are estimated using market earnings
multiples and estimates of future cash flows of our businesses.
Factors affecting these market multiples and future cash flows
include: the continued market acceptance of the products and
services offered by our businesses; the development of new
products and services by our businesses and the underlying cost
of development; the future cost structure of our businesses; and
future technological changes. Our goodwill and other intangible
assets are tested and reviewed for impairment on an annual basis
or when there is a significant change in circumstances. We
believe that our estimates and assumptions used are reasonable
and comply with accounting principles generally accepted in the
United States of America. Changes in business conditions could
potentially require future adjustments to these valuations.
The preparation of all financial statements includes the use of
estimates and assumptions that affect a number of amounts
included in our financial statements. If actual amounts are
ultimately different from previous estimates, the revisions are
included in our results for the period in which the actual
amounts become known or better estimates can be made.
43
New
Accounting Standards
On January 1, 2009, the Company adopted ASC 810 (formerly
Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of
ARB No. 51). ASC 810 amends Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This standard defines a
noncontrolling interest, sometimes called a minority interest,
as the portion of equity in a subsidiary not attributable,
directly or indirectly, to a parent. ASC 810 requires, among
other items, that a noncontrolling interest be included in the
consolidated statement of financial position within equity
separate from the parents equity; consolidated net income
to be reported on the consolidated statement of income at
amounts inclusive of income attributable to the parent and
noncontrolling interest; and if a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former
subsidiary be measured at fair value and a gain or loss be
recognized in net income based on such fair value.
Non-controlling interests are not material to the Companys
consolidated financial statements.
On January 1, 2009, the Company adopted ASC 805 (formerly
Statement No. 141(R), Business Combinations) which
applies to business combinations entered into after
December 31, 2008. ASC 805 replaces prior guidance on the
subject and requires the acquirer of a business to recognize and
measure the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree at fair
value. Additionally, it also requires transaction costs related
to the business combination to be expensed as incurred. The
adoption of ASC 805 did not have a material impact on the
consolidated financial statements.
On January 1, 2009, the Company adopted ASC
805-20-25-18A
(formerly Staff Position No. 141(R)-1, Assets Acquired
and Liabilities Assumed in a Business Combination That Arise
From Contingencies), which amends and clarifies ASC 805. ASC
805-20-25-18A
provides additional guidance on initial recognition and
measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies
in a business combination. The adoption of ASC
805-20-25-18A
did not have a material impact on the consolidated financial
statements.
On April 1, 2009, the Company adopted ASC 855 (formerly
Statement No. 165, Subsequent Events). ASC 855
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
ASC 855 also requires the disclosure of the date through which
an entity has evaluated subsequent events and the basis for that
date.
In June 2009, the FASB issued ASC
105-10
(formerly Statement No. 168 The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles). Effective for interim and annual
periods ending after September 15, 2009, the Accounting
Standards Codification is the source of all authoritative
U.S. GAAP recognized by the FASB to be applied by
nongovernment entities. ASC
105-10 also
modifies the U.S. GAAP hierarchy to include only two levels
of U.S. GAAP; authoritative and non-authoritative. The
adoption of ASC
105-10 did
not have an impact on Companys consolidated financial
statements.
In October 2009, the FASB issued ASU
2009-13,
Revenue Recognition, which replaces the concept of fair
market value with selling price when determining how to allocate
the total contract sales price in a multiple-deliverable revenue
arrangement. This amendment establishes a hierarchy process for
determining the selling price of a given deliverable to be used
in the allocation. The order of the selling price determination
hierarchy is (a) vendor specific objective evidence;
(b) third party evidence, if vendor specific objective
evidence is not available; (c) or estimated selling price,
if neither vendor specific objective evidence nor third party
evidence is available. This amendment could significantly expand
the disclosures related to the Companys sales arrangements
should it be determined that it results in a material change to
the current practice. ASU
2009-13 will
be effective for the Companys fiscal year beginning
January 1, 2011, unless it selects early adoption of the
amendment with retroactive application to January 1, 2010.
The Company is currently evaluating the impact of the adoption
of ASU
2009-13 on
its consolidated financial statements.
In December 2009, the FASB issued ASU
2009-16,
which codifies Statement No. 166, Accounting for
Transfers of Financial Assets, issued in June 2009 and
revises the former guidance under Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. ASU
2009-16
requires more information about transfers of financial assets,
including securitization transactions, and where companies have
continuing exposure to the risks related to transferred
financial assets. ASU
2009-16 also
eliminates the concept of qualified special-purpose
entity, changes the requirements for derecognizing
financial assets, and requires additional disclosures. ASU
2009-16 is
effective for annual reporting periods beginning after
November 15, 2009. We do not expect the adoption of ASU
2009-16 to
have a material impact on our consolidated financial statements.
44
In December 2009, the FASB issued ASU
2009-17,
which codifies Statement No. 167, Amendments to FASB
Interpretation No. 46(R) issued in June 2009. ASU
2009-17
requires a qualitative approach to identifying a controlling
financial interest in a variable interest entity
(VIE), and requires ongoing assessment of whether an
entity is a VIE and whether an interest in a VIE makes the
holder the primary beneficiary of the VIE. ASU
2009-17 is
effective for annual reporting periods beginning after
November 15, 2009. We do not expect the adoption of ASU
2009-17 to
have a material impact on our consolidated financial statements.
In January 2010, the FASB issued ASU
2010-6,
Improving Disclosures About Fair Value Measurements,
which requires reporting entities to make new disclosures about
recurring or nonrecurring fair-value measurements including
significant transfers into and out of Level 1 and
Level 2 fair-value measurements and information on
purchases, sales, issuances, and settlements on a gross basis of
Level 3 fair-value measurements. ASU
2010-6 is
effective for annual reporting periods beginning after
December 15, 2009, except for Level 3 reconciliation
disclosures which are effective for annual periods beginning
after December 15, 2010. We do not expect the adoption of
ASU 2010-6
to have a material impact on our consolidated financial
statements.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ($ in
Millions)
|
Our results of operations are affected by fluctuations in the
value of local currencies in which we transact business. We
record the effect of
non-U.S. dollar
currency transactions when we translate the
non-U.S. subsidiaries
financial statements into U.S. dollars using exchange rates
as they exist at the end of each month. The effect on our
results of operations of fluctuations in currency exchange rates
depends on various currency exchange rates and the magnitude of
the transactions completed in currencies other than the
U.S. dollar. We enter into financial instruments to
mitigate the impact of changes in currency exchange rates that
may result from long-term customer contracts where we deem
appropriate. These financial instruments are recorded at their
market value with the resulting changes being included in
earnings. Net foreign currency (losses) gains were $(3.8),
$(6.5), $5.5 for the years ended December 31, 2009, 2008
and 2007, respectively.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The Companys Financial Statements and the accompanying
Notes that are filed as part of this Annual Report are listed
under Part IV, Item 15. Exhibits, Financial
Statements and Schedules and are set forth on pages F-1
through F-43 immediately following the signature pages of this
Form 10-K.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures as defined in
Rules 13a-15(e)
under the Securities and Exchange Act of 1934, as amended (the
Exchange Act) as of December 31, 2009. Based on
that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that, as of December 31, 2009, our
disclosure controls and procedures were effective.
Managements
Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting
as defined in
Rules 13a-15(f)
under the Exchange Act. Under the supervision and with the
participation of our management, we conducted an evaluation of
the effectiveness of our internal control over financial
reporting as of December 31, 2009, based on the criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Because of its
inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Based on the evaluation
performed, we concluded that our internal control over financial
reporting as of December 31, 2009, was effective.
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, has audited the effectiveness of our
45
internal control over financial reporting as of
December 31, 2009, as stated in their report, which appears
in Item 15 of this Annual Report on
Form 10-K.
Changes
in Internal Control Over Financial Reporting
There have been no changes in internal control over financial
reporting during the three months ended December 31, 2009,
that have materially affected or are reasonably likely to
materially affect, the Companys internal control over
financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The sections of our 2010 Proxy Statement entitled Election
of Directors, Executive Officers,
Section 16(a) Beneficial Ownership Reporting
Compliance, Code of Conduct and The
Board of Directors and its Committees are incorporated
herein by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The sections of our 2010 Proxy Statement entitled Director
Compensation, Executive Compensation and
Compensation Discussion and Analysis are
incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
The sections of our 2010 Proxy Statement entitled Equity
Compensation Plan Information and Security Ownership
of Certain Beneficial Owners and Management are
incorporated herein by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The sections of our 2010 Proxy Statement entitled Certain
Related Party Transactions and Director
Independence are incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The section of our 2010 Proxy Statement entitled Fees of
Independent Registered Public Accountants is incorporated
herein by reference.
46
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENTS AND SCHEDULES
|
(a) Documents filed as part of this Annual Report:
The following is an index of the financial statements, schedules
and exhibits included in this
Form 10-K
or incorporated herein by reference.
|
|
|
|
|
(1)
|
|
Consolidated Financial Statements
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
Consolidated Statement of Income for the years ended
December 31, 2009, 2008 and 2007
|
|
F-3
|
|
|
Consolidated Balance Sheet at December 31, 2009 and 2008
|
|
F-4
|
|
|
Consolidated Statement of Cash Flows for the years ended
December 31, 2009, 2008 and 2007
|
|
F-5
|
|
|
Consolidated Statement of Changes in Stockholders Equity
for the years ended December 31, 2009, 2008 and 2007
|
|
F-6
|
|
|
Notes to Consolidated Financial Statements
|
|
F-7 to F-43
|
(2)
|
|
Consolidated Financial Statement Schedules
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
and Reserves For the years ended December 31,
2009, 2008 and 2007
|
|
|
|
|
Schedules not included have been omitted because they are not
applicable or the required information is shown in the
consolidated financial statement or notes.
|
|
|
(3)
|
|
Exhibits
|
|
|
The following exhibits are filed with this report:
|
|
|
|
|
|
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 July 18, 2005, File No. 333-124963).
|
|
3
|
.2
|
|
Amended and Restated By-Laws of Dresser-Rand Group Inc.
(incorporated by reference to Exhibit 3.1 to Dresser-Rand Group
Inc.s Current Report on Form 8-K, filed November 12, 2009,
File No. 001-32586).
|
|
4
|
.1
|
|
Form of certificate of Dresser-Rand Group Inc. common stock
(incorporated by reference to Exhibit 4.1 to Dresser-Rand Group
Inc.s Registration Statement on Form S-1/A, filed July 18,
2005, File No. 333-124963).
|
|
4
|
.2
|
|
Indenture dated as of October 29, 2004 among Dresser-Rand Group
Inc., the guarantors party thereto and Citibank, N.A., as
trustee (incorporated by reference to Exhibit 4.2 to
Dresser-Rand Group Inc.s Registration Statement on Form
S-1, filed May 16, 2005, File No. 333-124963).
|
|
4
|
.3
|
|
First Supplemental Indenture, dated as of December 22, 2005
among Dresser-Rand Group Inc., the guarantors party thereto and
Citibank, N.A., as trustee (incorporated by reference to Exhibit
4.2 to Dresser-Rand Group Inc.s Registration Statement on
Form S-4, filed January 23, 2006, File No. 333-131212).
|
|
10
|
.1
|
|
Equity Purchase Agreement, dated as of August 25, 2004, by and
among FRC Acquisition LLC and Ingersoll-Rand Company Limited
(incorporated by reference to Exhibit 10.1 to Dresser-Rand Group
Inc.s Registration Statement on Form S-1, filed May 16,
2005, File No. 333-124963).
|
|
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 UBC Securities LLC, as Co-Syndication
Agents, Citigroup 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 (incorporated by reference to Exhibit
10.1 to Dresser-Rand Group Inc.s Current Report on Form
8-K, filed August 31, 2007, File No. 001-32586).
|
|
10
|
.3
|
|
Amendment No. 1, dated as of April 24, 2008, to the Amended and
Restated Credit Agreement dated as of August 30, 2007
(incorporated by reference to Exhibit 10.2 to Dresser-Rand Group
Inc.s Quarterly Report on Form 10-Q, filed April 29, 2008,
File No. 001-32586).
|
47
|
|
|
|
|
|
10
|
.4
|
|
Domestic Guarantee and Collateral Agreement, dated and effective
as of October 29, 2004, among D-R Interholding, LLC,
Dresser-Rand Group Inc., the domestic subsidiary loan parties
named therein and Citicorp North America, Inc. as collateral
agent (incorporated by reference to Exhibit 10.4 to Dresser-Rand
Group Inc.s Registration Statement on Form S-1, filed May
16, 2005, File No. 333-124963).
|
|
10
|
.5
|
|
Supplement No. 1 dated as of December 22, 2005, to the Domestic
Guarantee and Collateral Agreement dated and effective as of
October 29, 2004, among D-R Interholding, LLC, Dresser-Rand
Group Inc., the domestic subsidiary loan parties named therein
and Citicorp North America, Inc. as collateral agent
(incorporated by reference to Exhibit 10.7 to Dresser-Rand Group
Inc.s Registration Statement on Form S-4, filed January
23, 2006, File No. 333-131212).
|
|
10
|
.6
|
|
License Agreement, dated as of October 26, 2004, by and between
Dresser, Inc. and Dresser-Rand Group Inc. (incorporated by
reference to Exhibit 10.7 to Dresser-Rand Group Inc.s
Registration Statement on Form S-1, filed May 16, 2005, File No.
333-124963).
|
|
10
|
.7
|
|
License Agreement, dated as of October 29, 2004, by and between
Dresser-Rand Company, Dresser-Rand A.S., Ingersoll-Rand Energy
Systems Corporation and the Energy Systems Division of
Ingersoll-Rand Company (incorporated by reference to Exhibit
10.8 to Dresser-Rand Group Inc.s Registration Statement on
Form S-1, filed May 16, 2005, File No. 333-124963).
|
|
10
|
.8
|
|
Amended and Restated Employment Agreement, dated June 11, 2008,
by and among Vincent R. Volpe and Dresser-Rand Group Inc.
(incorporated by reference to Exhibit 10.1 to Dresser-Rand Group
Inc.s Current Report on Form 8-K, filed June 12, 2008,
File No. 001-32586).*
|
|
10
|
.9
|
|
Employment Agreement, dated July 25, 1990, by and between
Jean-Francois Chevrier and Dresser-Rand S.A. (incorporated by
reference to Exhibit 10.11 to Dresser-Rand Group Inc.s
Registration Statement on Form S-1, filed May 16, 2005, File No.
333-124963).*
|
|
10
|
.10
|
|
Amended and Restated Stockholder Agreement, effective as of July
15, 2005, by and among Dresser-Rand Group Inc., D-R
Interholding, LLC, Dresser-Rand Holdings, LLC and certain
management employees, together with any other stockholder who
may be made party to this agreement (incorporated by reference
to Exhibit 10.12 to Dresser-Rand Group Inc.s Registration
Statement on Form S-1/A, filed July 18, 2005, File No.
333-124963).*
|
|
10
|
.11
|
|
Dresser-Rand Group Inc. Stock Incentive Plan (incorporated by
reference to Exhibit 10.13 to Dresser-Rand Group Inc.s
Registration Statement on Form S-1, filed May 16, 2005, File No.
333-124963).*
|
|
10
|
.12
|
|
Dresser-Rand Group Inc. 2005 Stock Incentive Plan (incorporated
by reference to Exhibit 10.16 to Dresser-Rand Group Inc.s
Registration Statement on Form S-1/A, filed July 18, 2005, File
No. 333-124963).*
|
|
10
|
.13
|
|
First Amendment to Dresser-Rand Group Inc. 2005 Stock Incentive
Plan, dated October 28, 2008 (incorporated by reference to
Exhibit 10.1 to Dresser-Rand Group Inc.s Quarterly Report
on Form 10-Q, filed October 30, 2008, File No. 001-32586).*
|
|
10
|
.14
|
|
Dresser-Rand Group Inc. 2005 Directors Stock Incentive Plan
(incorporated by reference to Exhibit 10.18 to Dresser-Rand
Group Inc.s Registration Statement on Form S-1/A, filed
July 18, 2005, File No. 333-124963).*
|
|
10
|
.15
|
|
Amendment No. 1 to the Dresser-Rand Group Inc.
2005 Directors Stock Incentive Plan, effective January 1,
2007 (incorporated by reference to Exhibit 10.29 to Dresser-Rand
Group Inc.s Annual Report on Form 10-K, filed February 26,
2008, File No. 001-32586).*
|
|
10
|
.16
|
|
Amendment No. 2 to the Dresser-Rand Group Inc.
2005 Directors Stock Incentive Plan, dated February 12,
2008 (incorporated by reference to Exhibit 10.30 to Dresser-Rand
Group Inc.s Annual Report on Form 10-K, filed February 26,
2008, File No. 001-32586).*
|
|
10
|
.17
|
|
Third Amendment to the Dresser-Rand Group Inc.
2005 Directors Stock Incentive Plan, dated October 28, 2008
(incorporated by reference to Exhibit 10.2 to Dresser-Rand Group
Inc.s Quarterly Report on Form 10-Q, filed October 30,
2008, File No. 001-32586).*
|
|
10
|
.18
|
|
Dresser-Rand Group Inc. 2008 Stock Incentive Plan (incorporated
by reference to Exhibit 4.4 to Dresser-Rand Group Inc.s
Registration Statement on Form S-8, filed May 14, 2008, File No.
333-150894).*
|
|
10
|
.19
|
|
First Amendment to the Dresser-Rand Group Inc. 2008 Stock
Incentive Plan.*
|
48
|
|
|
|
|
|
10
|
.20
|
|
Form of Grant Notice for 2008 Stock Incentive Plan Nonqualified
Stock Options (incorporated by reference to Exhibit 10.2 to
Dresser-Rand Group Inc.s Current Report on Form 8-K, filed
May 14, 2008, File No. 001-32586).*
|
|
10
|
.21
|
|
Form of Grant Notice for 2008 Stock Incentive Plan Restricted
Stock (incorporated by reference to Exhibit 10.3 to Dresser-Rand
Group Inc.s Current Report on Form 8-K, filed May 14,
2008, File No. 001-32586).*
|
|
10
|
.22
|
|
Form of Grant Notice for 2008 Stock Incentive Plan Restricted
Stock Units (incorporated by reference to Exhibit 10.4 to
Dresser-Rand Group Inc.s Current Report on Form 8-K, filed
May 14, 2008, File No. 001-32586).*
|
|
10
|
.23
|
|
Form of Grant Notice for 2008 Stock Incentive Plan Stock
Appreciation Rights (incorporated by reference to Exhibit 10.5
to Dresser-Rand Group Inc.s Current Report on Form 8-K,
filed May 14, 2008, File No. 001-32586).*
|
|
10
|
.24
|
|
Form of Grant Notice for 2008 Stock Incentive Plan Restricted
Stock for Non-Employee Directors (incorporated by reference to
Exhibit 10.49 to Dresser-Rand Group Inc.s Annual Report on
Form 10-K, filed February 23, 2009, File No. 001-32586).
|
|
10
|
.25
|
|
Form of Grant Notice for 2008 Stock Incentive Plan Restricted
Stock Units for Non-Employee Directors (incorporated by
reference to Exhibit 10.50 to Dresser-Rand Group Inc.s
Annual Report on Form 10-K, filed February 23, 2009, File No.
001-32586).
|
|
10
|
.26
|
|
Dresser-Rand Group Inc. Standard Terms and Conditions for
Restricted Stock.*
|
|
10
|
.27
|
|
Dresser-Rand Group Inc. Standard Terms and Conditions for Stock
Appreciation Rights.*
|
|
10
|
.28
|
|
Dresser-Rand Group Inc. Standard Terms and Conditions for
Restricted Stock Units.*
|
|
10
|
.29
|
|
Dresser-Rand Group Inc. Standard Terms and Conditions for
Employee Nonqualified Stock Options.*
|
|
10
|
.30
|
|
Annual Incentive Plan (incorporated by reference to Exhibit
10.17 to Dresser-Rand Group Inc.s Registration Statement
on Form S-1/A, filed July 18, 2005, File No. 333-124963).*
|
|
10
|
.31
|
|
Form of Indemnification Agreement between Dresser-Rand Group
Inc. and each of its directors and certain other executive
officers (incorporated by reference to Exhibit 10.2 to
Dresser-Rand Group Inc.s Current Report on Form 8-K, filed
June 12, 2008, File No. 001-32586).*
|
|
10
|
.32
|
|
Offer Letter, dated July 15, 2007, from Dresser-Rand Group Inc.
to Mark Baldwin (incorporated by reference to Exhibit 10.1 to
Dresser-Rand Group Inc.s Current Report on Form 8-K, filed
July 19, 2007, File No. 001-32586).*
|
|
10
|
.33
|
|
Offer Letter, dated August 27, 2007, from Dresser-Rand Group
Inc. to Mark Mai (incorporated by reference to Exhibit 10.3 to
Dresser-Rand Group Inc.s Quarterly Report on Form 10-Q,
filed October 31, 2007, File No. 001-32586).*
|
|
10
|
.34
|
|
Offer Letter, dated July 7, 2008, from Dresser-Rand Group Inc.
to Raymond L. Carney (incorporated by reference to Exhibit 10.1
to Dresser-Rand Group Inc.s Current Report on Form 8-K,
filed November 4, 2008, File No. 001-32586).*
|
|
10
|
.35
|
|
Participation Agreement, dated as of December 20, 2007, by and
among Dresser-Rand S.A. (France), as Construction Agent and
Lessee, Citibank International plc (Paris Branch), as Lessor,
the Persons named therein as Note Holders, and Citibank
International plc (Paris Branch) as Agent (incorporated by
reference to Exhibit 10.1 to Dresser-Rand Group Inc.s
Current Report on Form 8-K, filed December 31, 2007, File No.
001-32586).
|
|
10
|
.36
|
|
Lease Agreement, dated as of December 28, 2007 by and between
Citibank International plc (Paris Branch), as Lessor, and
Dresser-Rand S.A. (France), as Lessee (incorporated by reference
to Exhibit 10.2 to Dresser-Rand Group Inc.s Current Report
on Form 8-K, filed December 31, 2007, File No. 001-32586).
|
|
10
|
.37
|
|
Parent Guaranty, dated as of December 28, 2007 by Dresser-Rand
Group Inc. (incorporated by reference to Exhibit 10.3 to
Dresser-Rand Group Inc.s Current Report on Form 8-K, filed
December 31, 2007, File No. 001-32586).
|
|
10
|
.38
|
|
The Dresser-Rand Company Non-Qualified Retirement Plan restated
effective as of January 1, 2009 (incorporated by reference to
Exhibit 10.42 to Dresser-Rand Group Inc.s Annual Report on
Form 10-K, filed February 23, 2009, File No. 001-32586).*
|
|
10
|
.39
|
|
Dresser-Rand Non-Employee Director Fee Deferral Plan, which was
effective as of January 1, 2009 (incorporated by reference to
Exhibit 10.43 to Dresser-Rand Group Inc.s Annual Report on
Form 10-K, filed February 23, 2009, File No. 001-32586).
|
49
|
|
|
|
|
|
10
|
.40
|
|
Offer Letter, dated August 22, 2008, from Dresser-Rand Company
to Jerry Walker (incorporated by reference to Exhibit 10.44 to
Dresser-Rand Group Inc.s Annual Report on Form 10-K, filed
February 23, 2009, File No. 001-32586).*
|
|
10
|
.41
|
|
Offer Letter, dated October 29, 2008, from Dresser-Rand Company
to Luciano Mozzato (incorporated by reference to Exhibit 10.45
to Dresser-Rand Group Inc.s Annual Report on Form 10-K,
filed February 23, 2009, File No. 001-32586).*
|
|
10
|
.42
|
|
English translation of letter agreement, dated December 29,
2008, between Dresser-Rand S.A. and Nicoletta Giadrossi
(incorporated by reference to Exhibit 10.46 to Dresser-Rand
Group Inc.s Annual Report on Form 10-K, filed February 23,
2009, File No. 001-32586).*
|
|
10
|
.43
|
|
Letter of Assignment, dated February 5, 2007, from Dresser-Rand
Company to Jean-Francois Chevrier (incorporated by reference to
Exhibit 10.47 to Dresser-Rand Group Inc.s Annual Report on
Form 10-K, filed February 23, 2009, File No. 001-32586).*
|
|
10
|
.44
|
|
Letter of Agreement, dated January 24, 2009, from Dresser-Rand
S.A. to Jean-Francois Chevrier (incorporated by reference to
Exhibit 10.48 to Dresser-Rand Group Inc.s Annual Report on
Form 10-K, filed February 23, 2009, File No. 001-32586).*
|
|
10
|
.45
|
|
Offer Letter, dated December 14, 2008, from Dresser-Rand Company
to Nicoletta Giadrossi (incorporated by reference to Exhibit
10.51 to Dresser-Rand Group Inc.s Annual Report on Form
10-K, filed February 23, 2009, File No. 001-32586).*
|
|
10
|
.46
|
|
Offer Letter, dated May 12, 2009, from Dresser-Rand Group Inc.
to James Garman (incorporated by reference to Exhibit 10.1 to
Dresser-Rand Group Inc.s Quarterly Report on Form 10-Q,
filed July 29, 2009, File No. 001-32586).*
|
|
10
|
.47
|
|
Form of Confidentiality, Non-Compete, Severance and Change in
Control Agreement with U.S. named executive officers
(incorporated by reference to Exhibit 10.1 to Dresser-Rand Group
Inc.s Current Report on Form 8-K, filed December 8, 2009,
File No. 001-32586).*
|
|
10
|
.48
|
|
Form of Confidentiality, Non-Compete, Severance and Change in
Control Agreement with named executive officers residing in
France (incorporated by reference to Exhibit 10.2 to
Dresser-Rand Group Inc.s Current Report on Form 8-K, filed
December 8, 2009, File No. 001-32586).*
|
|
10
|
.49
|
|
Cash Bonus Retention Agreement, dated December 4, 2009, between
James Garman and Dresser-Rand Company.*
|
|
10
|
.50
|
|
Dresser-Rand Annual Incentive Program, adopted February 12, 2010
(incorporated by reference to Exhibit 10.1 to Dresser-Rand Group
Inc.s Current Report on Form 8-K, filed February 17, 2010,
File No. 001-32586).*
|
|
10
|
.51
|
|
Dresser-Rand Group Inc. Standard Terms and Conditions for
Restricted Stock (for Non-Employee Directors)
|
|
10
|
.52
|
|
Dresser-Rand Group Inc. Standard Terms and Conditions for
Restricted Stock Units (for Non-Employee Directors)
|
|
21
|
.1
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP
|
|
24
|
.1
|
|
Powers of Attorney (included in signature page of this Form 10-K)
|
|
31
|
.1
|
|
Certification of the President and Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of the Executive Vice President and Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32
|
.1
|
|
Certification of the President and Chief Executive Officer
pursuant to Title 18, United States Code, Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (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.)
|
|
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.)
|
|
|
|
* |
|
Executive Compensation Plans and Arrangements. |
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Annual report to be signed on its behalf by the
undersigned, thereunto duly authorized, on February 25, 2010
DRESSER-RAND GROUP INC.
|
|
|
|
By:
|
/s/ VINCENT
R. VOLPE JR.
|
Name: Vincent R. Volpe Jr.
|
|
|
|
Title:
|
President, Chief Executive
|
Officer and Director
Each person whose signature appears below authorizes Raymond L.
Carney Jr. and Mark F. Mai and each of them, as his or her
attorney-in-fact and agent, with full power of substitution and
resubstitution, to execute, in his or her name and on his or her
behalf, in any and all capacities, this
Form 10-K
and any and all amendments thereto necessary or advisable to
enable the registrant to comply with the Securities Exchange Act
of 1934, and any rules, regulations and requirements of the
Securities and Exchange Commission, in respect thereof, which
amendments may make such changes in such
Form 10-K
as such attorney-in-fact may deem appropriate, and with full
power and authority to perform and do any and all acts and
things whatsoever which any such attorney-in-fact or substitute
may deem necessary or advisable to be performed or done in
connection with any or all of the above-described matters, as
fully as each of the undersigned could do if personally present
and acting, hereby ratifying and approving all acts of any such
attorney-in-fact or substitute.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ VINCENT
R. VOLPE JR.
Vincent
R. Volpe Jr.
|
|
President, Chief Executive
Officer and Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ MARK
E. BALDWIN
Mark
E. Baldwin
|
|
Executive Vice President
and Chief Financial Officer
|
|
February 25, 2010
|
|
|
|
|
|
/s/ RAYMOND
L. CARNEY JR.
Raymond
L. Carney Jr.
|
|
Vice President, Controller and
Chief Accounting Officer
|
|
February 25, 2010
|
|
|
|
|
|
/s/ WILLIAM
E. MACAULAY
William
E. Macaulay
|
|
Chairman of the Board of Directors
|
|
February 25, 2010
|
|
|
|
|
|
/s/ RITA
V. FOLEY
Rita
V. Foley
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ LOUIS
A. RASPINO
Louis
A. Raspino
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ PHILIP
R. ROTH
Philip
R. Roth
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ STEPHEN
A. SNIDER
Stephen
A. Snider
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ MICHAEL
L. UNDERWOOD
Michael
L. Underwood
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ JOSEPH
C. WINKLER
Joseph
C. Winkler
|
|
Director
|
|
February 25, 2010
|
51
DRESSER-RAND
GROUP INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
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Page
|
|
|
|
F-2
|
Consolidated Financial Statements
|
|
|
|
|
F-3
|
|
|
F-4
|
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F-5
|
|
|
F-6
|
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|
F-7 to F-43
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dresser-Rand Group Inc:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Dresser-Rand
Group Inc. and its subsidiaries at December 31, 2009 and
2008, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
index appearing under Item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and
on the Companys internal control over financial reporting
based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Houston, Texas
February 25, 2010
F-2
DRESSER-RAND
GROUP INC.
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|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in millions, except per share amounts)
|
|
|
Net sales of products
|
|
$
|
1,840.8
|
|
|
$
|
1,805.1
|
|
|
$
|
1,339.5
|
|
Net sales of services
|
|
|
448.8
|
|
|
|
389.6
|
|
|
|
325.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,289.6
|
|
|
|
2,194.7
|
|
|
|
1,665.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
1,324.4
|
|
|
|
1,307.2
|
|
|
|
989.5
|
|
Cost of services sold
|
|
|
307.7
|
|
|
|
268.9
|
|
|
|
226.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
1,632.1
|
|
|
|
1,576.1
|
|
|
|
1,216.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
657.5
|
|
|
|
618.6
|
|
|
|
448.9
|
|
Selling and administrative expenses
|
|
|
287.3
|
|
|
|
273.8
|
|
|
|
239.0
|
|
Research and development expenses
|
|
|
20.3
|
|
|
|
12.7
|
|
|
|
12.8
|
|
Plan settlement/curtailment amendment
|
|
|
1.3
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
348.6
|
|
|
|
337.5
|
|
|
|
197.1
|
|
Interest expense, net
|
|
|
(31.8
|
)
|
|
|
(29.4
|
)
|
|
|
(36.8
|
)
|
Other (expense) income, net
|
|
|
(4.9
|
)
|
|
|
(6.8
|
)
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
311.9
|
|
|
|
301.3
|
|
|
|
167.6
|
|
Provision for income taxes
|
|
|
101.1
|
|
|
|
103.6
|
|
|
|
60.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
210.8
|
|
|
$
|
197.7
|
|
|
$
|
106.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.58
|
|
|
$
|
2.36
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
2.57
|
|
|
$
|
2.36
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
81,662
|
|
|
|
83,678
|
|
|
|
85,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
81,876
|
|
|
|
83,837
|
|
|
|
85,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
DRESSER-RAND
GROUP INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in millions, except
|
|
|
|
per share amounts)
|
|
|
Assets
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
223.2
|
|
|
$
|
147.1
|
|
Accounts receivable, less allowance for losses of $14.4 at 2009
and $11.6 at 2008
|
|
|
289.8
|
|
|
|
366.3
|
|
Inventories, net
|
|
|
353.0
|
|
|
|
328.5
|
|
Prepaid expenses
|
|
|
24.9
|
|
|
|
43.4
|
|
Deferred income taxes, net
|
|
|
45.4
|
|
|
|
22.5
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
936.3
|
|
|
|
907.8
|
|
Property, plant and equipment, net
|
|
|
268.9
|
|
|
|
250.3
|
|
Goodwill
|
|
|
486.0
|
|
|
|
429.1
|
|
Intangible assets, net
|
|
|
430.9
|
|
|
|
441.6
|
|
Other assets
|
|
|
28.1
|
|
|
|
23.4
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,150.2
|
|
|
$
|
2,052.2
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accruals
|
|
$
|
412.0
|
|
|
$
|
430.9
|
|
Customer advance payments
|
|
|
165.2
|
|
|
|
275.0
|
|
Accrued income taxes payable
|
|
|
8.1
|
|
|
|
30.2
|
|
Loans payable
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
585.4
|
|
|
|
736.3
|
|
Deferred income taxes, net
|
|
|
38.5
|
|
|
|
22.9
|
|
Postemployment and other employee benefit liabilities
|
|
|
109.9
|
|
|
|
135.3
|
|
Long-term debt
|
|
|
370.0
|
|
|
|
370.1
|
|
Other noncurrent liabilities
|
|
|
33.8
|
|
|
|
27.4
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,137.6
|
|
|
|
1,292.0
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 9, 11 through 18)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 250,000,000 shares
authorized;
|
|
|
|
|
|
|
|
|
and, 82,513,744 and 81,958,846 shares issued and
|
|
|
|
|
|
|
|
|
outstanding, respectively
|
|
|
0.8
|
|
|
|
0.8
|
|
Additional paid-in capital
|
|
|
396.6
|
|
|
|
384.6
|
|
Retained earnings
|
|
|
638.1
|
|
|
|
427.3
|
|
Accumulated other comprehensive loss
|
|
|
(22.9
|
)
|
|
|
(52.5
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,012.6
|
|
|
|
760.2
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,150.2
|
|
|
$
|
2,052.2
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
DRESSER-RAND
GROUP INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in millions)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
210.8
|
|
|
$
|
197.7
|
|
|
$
|
106.7
|
|
Adjustments to arrive at net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
51.5
|
|
|
|
48.8
|
|
|
|
49.3
|
|
Deferred income taxes
|
|
|
(7.0
|
)
|
|
|
(2.6
|
)
|
|
|
(1.7
|
)
|
Stock-based compensation
|
|
|
11.0
|
|
|
|
6.0
|
|
|
|
8.1
|
|
Excess tax benefits from share-based compensation
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
Amortization of debt financing costs
|
|
|
3.2
|
|
|
|
3.1
|
|
|
|
6.9
|
|
Provision for losses on inventory
|
|
|
6.7
|
|
|
|
3.3
|
|
|
|
0.4
|
|
Plan settlement / curtailment amendment
|
|
|
(0.2
|
)
|
|
|
(11.8
|
)
|
|
|
|
|
Loss (gain) on sale of property, plant and equipment
|
|
|
2.2
|
|
|
|
|
|
|
|
(0.6
|
)
|
Net loss from equity investment
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
Working capital and other, net of acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
82.1
|
|
|
|
(57.9
|
)
|
|
|
2.4
|
|
Inventories
|
|
|
(20.7
|
)
|
|
|
(51.2
|
)
|
|
|
(71.6
|
)
|
Accounts payable and accruals
|
|
|
(55.3
|
)
|
|
|
77.7
|
|
|
|
40.6
|
|
Customer advances
|
|
|
(121.5
|
)
|
|
|
25.4
|
|
|
|
93.9
|
|
Other
|
|
|
(34.2
|
)
|
|
|
(3.3
|
)
|
|
|
(18.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
129.8
|
|
|
|
234.8
|
|
|
|
216.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(41.1
|
)
|
|
|
(40.2
|
)
|
|
|
(23.7
|
)
|
Proceeds from sales of property, plant and equipment
|
|
|
1.2
|
|
|
|
0.3
|
|
|
|
5.8
|
|
Acquisitions, net of cash acquired
|
|
|
(12.7
|
)
|
|
|
(91.4
|
)
|
|
|
(8.1
|
)
|
Other investments
|
|
|
(10.0
|
)
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(62.6
|
)
|
|
|
(136.3
|
)
|
|
|
(26.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
2.1
|
|
|
|
1.4
|
|
|
|
0.4
|
|
Excess tax benefits from share-based compensation
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(150.2
|
)
|
|
|
|
|
Payments for debt financing costs
|
|
|
|
|
|
|
|
|
|
|
(4.5
|
)
|
Proceeds of long-term debt
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
Payments of long-term debt
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(137.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1.9
|
|
|
|
(148.6
|
)
|
|
|
(140.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
7.0
|
|
|
|
(9.0
|
)
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
76.1
|
|
|
|
(59.1
|
)
|
|
|
59.4
|
|
Cash and cash equivalents, beginning of the period
|
|
|
147.1
|
|
|
|
206.2
|
|
|
|
146.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
223.2
|
|
|
$
|
147.1
|
|
|
$
|
206.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
DRESSER-RAND
GROUP INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
At December 31, 2006
|
|
$
|
0.9
|
|
|
$
|
518.8
|
|
|
$
|
123.1
|
|
|
$
|
(10.9
|
)
|
|
|
|
|
|
$
|
631.9
|
|
Stock-based compensation
|
|
|
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.5
|
|
Adoption of FASB Interpretation No. 48
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
106.7
|
|
|
|
|
|
|
$
|
106.7
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.2
|
|
|
|
34.2
|
|
|
|
|
|
Pension and other post retirement benefit plans net
of $15.3 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit included in net periodic
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
Benefit plan amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
4.8
|
|
|
|
|
|
Net actuarial gain arising during year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
8.1
|
|
|
|
|
|
Curtailment amendment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.4
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
164.9
|
|
|
|
164.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
$
|
0.9
|
|
|
$
|
527.3
|
|
|
$
|
229.7
|
|
|
$
|
47.3
|
|
|
|
|
|
|
$
|
805.2
|
|
Stock-based compensation
|
|
|
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.4
|
|
Stock repurchase
|
|
|
(0.1
|
)
|
|
|
(150.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150.2
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
197.7
|
|
|
|
|
|
|
$
|
197.7
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48.3
|
)
|
|
|
(48.3
|
)
|
|
|
|
|
Pension and other postretirement benefit plans net
of $30.8 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of FASB Statement No. 158
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
(0.1
|
)
|
Amortization of prior service cost and net actuarial loss
included in net periodic costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.4
|
)
|
|
|
(4.4
|
)
|
|
|
|
|
Benefit plan amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2
|
|
|
|
2.2
|
|
|
|
|
|
Net actuarial loss arising during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45.7
|
)
|
|
|
(45.7
|
)
|
|
|
|
|
Curtailment amendment/partial settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.3
|
)
|
|
|
(3.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
97.9
|
|
|
|
97.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
$
|
0.8
|
|
|
$
|
384.6
|
|
|
$
|
427.3
|
|
|
$
|
(52.5
|
)
|
|
|
|
|
|
$
|
760.2
|
|
Stock-based compensation
|
|
|
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.0
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
210.8
|
|
|
|
|
|
|
$
|
210.8
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.0
|
|
|
|
32.0
|
|
|
|
|
|
Pension and other postretirement benefit plans net
of $0.1 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost and net actuarial loss
included in net periodic costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
(1.4
|
)
|
|
|
|
|
Benefit plan amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
|
|
Net actuarial loss arising during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
Plan settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
240.4
|
|
|
|
240.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
$
|
0.8
|
|
|
$
|
396.6
|
|
|
$
|
638.1
|
|
|
$
|
(22.9
|
)
|
|
|
|
|
|
$
|
1,012.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share amounts)
|
|
1.
|
Business
Activities and Certain Related Party Transactions
|
Dresser-Rand Group Inc., a company incorporated in the State of
Delaware (together with its subsidiaries, the
Company), commenced operations on October 30,
2004, when it acquired Dresser-Rand Company and the operations
of Dresser-Rand Canada, Inc. and Dresser-Rand GmbH (the
Acquisition) from Ingersoll Rand Company Limited
(Ingersoll Rand). The Company is engaged in the
design, manufacture, sale and servicing of centrifugal and
reciprocating compressors, gas and steam turbines, gas expanders
and associated control panels.
From inception (October 29, 2004) through
August 10, 2005, the Company was a wholly-owned subsidiary
of D-R Interholding, LLC, which was a wholly-owned subsidiary of
Dresser-Rand Holdings, LLC, (Holdings). During the
period from August 11, 2005, through March 9, 2007,
D-R Interholding, LLC sold all of its ownership of the common
stock of the Company. Dresser-Rand Holdings, LLC was owned by
First Reserve Fund IX, L.P., and First Reserve Fund X,
L.P. (collectively First Reserve), funds managed by
First Reserve Corporation, and certain members of management.
Dresser-Rand
Name
The Companys name and principal trademark is a combination
of the names of the Companys founder companies, Dresser
Industries, Inc. and Ingersoll Rand. The Company acquired rights
to use the Rand portion of our principal mark from
Ingersoll Rand as part of the Acquisition. The rights to use the
Dresser portion of the name were acquired from
Dresser, Inc. (the successor company to Dresser Industries,
Inc.), an affiliate of First Reserve, in October 2004. Total
consideration was $5.0 of which $1.0 was paid in October 2004
with the remaining balance to be paid in equal annual
installments of approximately $0.4 through October 2013. The
total cost is being amortized to expense ratably through October
2013.
|
|
2.
|
Summary
of Significant Accounting Policies
|
A summary of significant accounting policies used in the
preparation of these consolidated financial statements follows:
Principles
of Consolidation
The consolidated financial statements include the accounts and
activities of the Company and its controlled subsidiaries or
variable interest entities for which the Company has determined
that it is the primary beneficiary. Fifty percent or less owned
companies for which the Company exercises significant influence
but does not control, are accounted for under the equity method.
All material intercompany transactions among entities included
in the consolidated financial statements have been eliminated.
Use of
Estimates
In conformity with accounting principles generally accepted in
the United States of America (U.S. GAAP), management
has used estimates and assumptions that affect the reported
amount of assets, liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities. Significant
estimates include allowance for losses on receivables,
depreciation and amortization, inventory adjustments related to
lower of cost or market, valuation of assets including goodwill
and other intangible assets, product warranties, sales
allowances, taxes, pensions, postemployment benefits, contract
losses, penalties, environmental contingencies, product
liability, self insurance programs and other contingencies.
Actual results could differ from those estimates.
Fair
Value Measurements
Accounting Standards Codification (ASC) 820
(formally Statement No. 157, Fair Value Measurements and
Disclosures) defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date (exit price). ASC 820 classifies the inputs
used to measure fair value into the following hierarchy:
Level 1 Unadjusted quoted prices in active
markets for identical assets or liabilities
|
|
|
|
Level 2
|
Unadjusted quoted prices in active markets for similar assets or
liabilities, or unadjusted quoted prices for identical or
similar assets or liabilities in markets that are not
active, or inputs other than quoted prices that are
observable for the asset or liability
|
Level 3 Unobservable inputs for the asset or
liability
F-7
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
Input levels used for fair value measurements are as follows:
|
|
|
|
|
|
|
Description
|
|
Disclosure
|
|
Input Level
|
|
Level 3 Inputs
|
|
Goodwill and intangible asset impairment testing
|
|
Note 2
|
|
Level 3
|
|
Estimated by independent third party appraisal firms
|
Acquired assets and liabilities
|
|
Notes 2 and 3
|
|
Level 3
|
|
Estimated by independent third party appraisal firms
|
Pension plan assets
|
|
Note 11
|
|
Levels 1, 2 and 3
|
|
Valued by insurance companies and estimated by certified
actuaries
|
Long-term debt (note disclosure only)
|
|
Note 10
|
|
Level 1
|
|
Not applicable
|
Foreign currency derivatives
|
|
Note 14
|
|
Level 2
|
|
Not applicable
|
Cash
and Cash Equivalents
The Company considers all highly liquid investments with a
remaining maturity of three months or less at the time of
purchase to be cash equivalents. These cash equivalents consist
principally of money market accounts.
Allowance
for Losses on Receivables
The Company establishes an allowance for losses on receivables
by applying specified percentages to the adjusted receivable
aging categories. The percentage applied against the aging
categories increases as the accounts become further past due so
that accounts in excess of 360 days past due are fully
reserved. In addition, the allowance is adjusted for specific
customer accounts that have aged but collection is reasonably
assured and accounts that have not aged but collection is
doubtful due to insolvency, disputes or other collection issues.
Inventories
Inventories are stated at the lower of cost (generally FIFO or
average) or market (estimated net realizable value). Cost
includes labor, materials and facility overhead. A provision is
also recorded for slow-moving, obsolete or unusable inventory.
Customer progress payments are credited to inventory and any
payments in excess of our related investment in inventory are
recorded as customer advance payments in current liabilities.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost, less
accumulated depreciation. Depreciation expense is computed
principally using the straight-line method over the estimated
useful lives of the assets. The useful lives of buildings range
from 5 years to 40 years; the useful lives of
machinery and equipment range from 3 years to
10 years. Maintenance and repairs are expensed as incurred.
Capitalized
Software
The Company capitalizes computer software for internal use
following the guidelines established in ASC
350-40
(formerly Statement of Position
No. 98-1
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use). The amounts capitalized were
$4.7, $3.0 and $4.8 for the years ended December 31, 2009,
2008 and 2007, respectively.
Impairment
of Long-Lived Assets
The Company accounts for impairments in accordance with ASC
360-10
(formerly Statement No. 144, Accounting for the
Impairment or Disposal of Long Lived Assets). This standard
requires that long-lived assets, such as property and equipment
and purchased intangibles subject to amortization, be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets is measured by comparing
the carrying amount of an asset group to the estimated
undiscounted future cash flows expected to be generated by the
asset group. If the carrying amount of an asset group exceeds
its estimated future cash
F-8
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
flows, an impairment charge is recognized in the amount by which
the carrying amount of the asset group exceeds the fair value of
the asset group.
Intangible
Assets
Under the requirements of ASC
350-20
(formerly Statement No. 142, Goodwill and Other
Intangible Assets), goodwill and intangible assets deemed to
have indefinite lives are not subject to amortization but are
tested for impairment at least annually. ASC
350-20
requires a two-step goodwill impairment test whereby the first
step, used to identify potential impairment, compares the fair
value of a reporting unit with its carrying amount including
goodwill. If the fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered
not impaired and the second test is not performed. The second
step of the impairment test is performed when required and
compares the implied fair value of the reporting unit goodwill
with the carrying amount of that goodwill. If the carrying
amount of the reporting unit goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an
amount equal to that excess. ASC
350-20
requires the carrying value of
non-amortizable
intangible assets to be compared to their fair value, with any
excess of carrying value over fair value to be recognized as an
impairment loss in continuing operations. If circumstances
indicate a change of fair value after the annual testing period,
impairment testing would be re-performed to assess impairment.
The Company amortizes its intangible assets with finite lives
over their estimated useful lives. See Note 7 for
additional details regarding the components and estimated useful
lives of intangible assets.
Income
Taxes
The Company determines the consolidated provision for income
taxes for its operations on a legal entity,
country-by-country
basis. Deferred taxes are provided for operating loss and credit
carry forwards and temporary differences between the tax bases
of assets and liabilities and the amounts included in these
consolidated financial statements as measured by enacted tax
rates expected to apply when temporary differences are settled
or realized. A valuation allowance is established for deferred
tax assets when it is more likely than not that a portion or all
of the asset will not be realized.
Uncertain tax positions (1) are recognized in financial
statements only if it is more likely than not that the position
will be sustained upon examination through any appeal and
litigation processes based on the technical merits of the
position and, if recognized, (2) are measured at the
largest amount of benefit that is greater than 50 percent
likely of being realized upon ultimate settlement.
Product
Warranty
Warranty accruals are recorded at the time the products are sold
and are estimated based upon product warranty terms and
historical experience. Warranty accruals are adjusted for known
or anticipated warranty claims as new information becomes
available.
Environmental
Costs
Environmental expenditures relating to current operations are
expensed or capitalized as appropriate. Expenditures relating to
existing conditions caused by past operations, that have no
significant future economic benefit, are expensed. Costs to
prepare environmental site evaluations and feasibility studies
are accrued when the Company commits to perform them.
Liabilities for remediation costs are recorded when they are
probable and reasonably estimable, generally no later than the
completion of feasibility studies or the Companys
commitment to a plan of action. The Company determines any
required liability based on existing technology without
reflecting any offset for possible recoveries from insurance
companies and discounting. Expenditures that prevent or mitigate
environmental contamination that is yet to occur are
capitalized. The Company currently has not recorded any
significant accrued environmental liabilities.
Revenue
Recognition
We recognize revenue when it is realized or realizable and
earned. We consider revenue realized or realizable and earned
when we have persuasive evidence of an arrangement, delivery of
the product or service has occurred, the sales
F-9
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
price is fixed or determinable and collectibility is reasonably
assured. Delivery does not occur until products have been
shipped or services have been provided to the client, risk of
loss has transferred to the client and client acceptance has
been obtained, client acceptance provisions have lapsed, or we
have objective evidence that the criteria specified in the
client acceptance provisions have been satisfied. The amount of
revenue related to any contingency is not recognized until the
contingency is resolved.
We enter into multiple-element revenue arrangements or
contracts, which may include any combination of designing,
developing, manufacturing, modifying, erecting and commissioning
complex products to customer specifications and providing
services related to the performance of such products. These
contracts normally take up to fifteen months to complete. The
criteria described below are applied to determine whether
and/or how
to separate multiple element revenue arrangements into separate
units of accounting and how to allocate the arrangement
consideration among those separate units of accounting:
|
|
|
|
|
The delivered unit(s) has value to the client on a stand-alone
basis.
|
|
|
|
There is objective and reliable evidence of the fair value of
the undelivered unit(s).
|
Our sales arrangements do not include a general right of return
of the delivered unit(s). If the above criteria are not met, the
arrangement is accounted for as one unit of accounting which
results in revenue being recognized when the last undelivered
unit is delivered. If these criteria are met, the arrangement
consideration is allocated to the separate units of accounting
based on each units relative fair value. If, however,
there is objective and reliable evidence of fair value of the
undelivered unit(s) but no such evidence for the delivered
unit(s), the residual method is used to allocate the arrangement
consideration. Under the residual method, the amount of
consideration allocated to the delivered unit(s) equals the
total arrangement consideration less the aggregate fair value of
the undelivered unit(s).
We are required to estimate the future costs that will be
incurred related to sales arrangements to determine whether any
arrangement will result in a loss. These costs include material,
labor and overhead. Factors influencing these future costs
include the availability of materials and skilled laborers.
Taxes
Imposed on Revenue Transactions
The Company accounts for taxes imposed on specific revenue
transactions, e.g., sales and value added taxes, on a net basis
as such taxes are excluded from revenue and costs.
Shipping
and Handling Costs
Amounts billed to clients for shipping and handling are
classified as sales of products with the related costs incurred
included in cost of sales.
Research
and Development Costs
Research and development expenditures are comprised of salaries,
qualifying engineering costs, and an allocation of related
overhead costs, and are expensed when incurred.
Comprehensive
Income (Loss)
Comprehensive income (loss) includes net income and other
comprehensive income (loss). Other comprehensive income (loss)
includes foreign currency translation adjustments and
post-retirement benefit plan liability adjustments, net of tax,
as applicable.
Foreign
Currency
Assets and liabilities of
non-U.S. consolidated
entities that use the local currency as the functional currency
are translated at year-end exchange rates while income and
expenses are translated using a weighted
average-for-the-year
exchange rates. Adjustments resulting from translation are
recorded in other comprehensive income (loss) and are included
in net income only upon sale or liquidation of the underlying
foreign investment. The Company recognizes transaction gains and
losses arising from fluctuations in currency exchange rates on
transactions denominated in
F-10
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
currencies other than the functional currency in earnings as
incurred, except for those intercompany balances which are
designated as long-term investments.
Inventory and property balances and related income statement
accounts of
non-U.S. entities
that use the U.S. dollar as the functional currency, are
translated using historical exchange rates. The resulting gains
and losses are credited or charged to the Statement of Income.
Included in our cash balance of $223.2 million reported at
December 31, 2009 was $22.4 million denominated in
Venezuelan bolívars. Due to government restrictions on
transfers of cash out of the country and control of exchange
rates, we can not immediately convert the cash at the official
exchange rate at December 31, 2009. We have various
applications to convert bolivars in order to transfer
approximately $17.1 million of such amount out of the
country, but have experienced substantial delays in obtaining
the necessary approvals, and in some cases, rejections of our
applications. Consequently, approximately $3.1 million of
our cash in Venezuela has been translated to U.S. dollars
at December 31, 2009, at an effective exchange rate that
was approximately 65% less favorable than the official rate
(Parallel Rate) which resulted in a foreign exchange
loss in our Consolidated Income Statement of approximately
$5.6 million for the year ended December 31, 2009.
Financial
Instruments
The Company manages exposure to changes in foreign currency
exchange rates through its normal operating and financing
activities, as well as through the use of financial instruments,
principally forward exchange contracts.
The purpose of the Companys currency hedging activities is
to mitigate the economic impact of changes in foreign currency
exchange rates. The Company attempts to hedge transaction
exposures through natural offsets. To the extent that this is
not practicable, the Company may enter into forward exchange
contracts. Major exposure areas considered for hedging include
foreign currency denominated receivables and payables, firm
committed transactions and forecasted sales and purchases.
The Company accounts for derivatives used in hedging activities
in accordance with ASC
815-10
(formerly Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, and its
amendments). ASC
815-10
requires all derivatives to be recognized as assets or
liabilities on the balance sheet and measured at fair value.
Under ASC
815-10, any
properly documented effective portion of a cash flow hedging
instruments gain or loss is reported as a component of
Other Comprehensive Income in Stockholders Equity and is
reclassified to earnings in the period during which the
transaction being hedged affects income. Gains or losses
subsequently reclassified from Stockholders Equity are
classified in accordance with income statement treatment of the
hedged transaction. Any ineffective portion of a cash flow
hedging instruments fair value change is recorded in the
Consolidated Statement of Income. Classification in the
Statement of Income of the effective portion of the hedging
instruments gain or loss is based on the income statement
classification of the transaction being hedged. If a cash flow
hedging instrument does not qualify as a hedge under ASC
815-10, the
change in the fair value of the derivative is immediately
recognized in the Consolidated Statement of Income as foreign
currency income (loss) in other income (expense). The derivative
financial instruments in existence at December 31, 2009 and
2008, were not designated as hedges for accounting purposes
under ASC
815-10.
Stock-based
Compensation
The Company recognizes compensation cost for stock-based
compensation awards in accordance with ASC
718-10
(formerly Statement No. 123(R), Share-Based Payment
and Staff Accounting Bulletin No. 107). The
amount of compensation cost recognized at any date is at least
equal to the portion of the grant-date value of the award that
has vested at that date.
Conditional
Asset Retirement Obligations
The Company accounts for conditional asset retirement
obligations in accordance with ASC
410-20
(formerly Interpretation No. 47, an interpretation of
Statement No. 143, Accounting for Conditional Asset
Retirement Obligations). ASC
410-20
requires that any legal obligation to perform an asset
retirement activity in which the timing and (or) method of
settlement are conditional on a future event that may not be
within our control be recognized as a liability at the fair
value of the conditional asset retirement obligation, if the
fair value of the liability can be reasonably estimated.
F-11
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
ASC 410-20
acknowledges that in some cases, sufficient information may not
be available to reasonably estimate the fair value of an asset
retirement obligation. The fair value of the obligation can be
reasonably estimated if (a) it is evident that the fair
value of the obligation is embodied in the acquisition of an
asset, (b) an active market exists for the transfer of the
obligation or, (c) sufficient information is available to
reasonably estimate (1) the settlement date or the range of
settlement dates, (2) the method of settlement or potential
methods of settlement and, (3) the probabilities associated
with the range of potential settlement dates and potential
settlement methods. The Company has not recorded any conditional
asset retirement obligations because there is no current active
market in which the obligations could be transferred and we do
not have sufficient information to reasonably estimate the range
of settlement dates and their related probabilities.
New
Accounting Standards
On January 1, 2009, the Company adopted ASC 810 (formerly
Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of
ARB No. 51). ASC 810 amends Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This standard defines a
noncontrolling interest, sometimes called a minority interest,
as the portion of equity in a subsidiary not attributable,
directly or indirectly, to a parent. ASC 810 requires, among
other items, that a noncontrolling interest be included in the
consolidated statement of financial position within equity
separate from the parents equity; consolidated net income
to be reported on the consolidated statement of income at
amounts inclusive of income attributable to the parent and
noncontrolling interest; and if a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former
subsidiary be measured at fair value and a gain or loss be
recognized in net income based on such fair value.
Non-controlling interests are not material to the Companys
consolidated financial statements.
On January 1, 2009, the Company adopted ASC 805 (formerly
Statement No. 141(R), Business Combinations) which
applies to business combinations entered into after
December 31, 2008. ASC 805 replaces prior guidance on the
subject and requires the acquirer of a business to recognize and
measure the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree at fair
value. Additionally, it also requires transaction costs related
to the business combination to be expensed as incurred. The
adoption of ASC 805 did not have a material impact on the
consolidated financial statements.
On January 1, 2009, the Company adopted ASC
805-20-25-18A
(formerly Staff Position No. 141(R)-1, Assets Acquired
and Liabilities Assumed in a Business Combination That Arise
From Contingencies), which amends and clarifies ASC 805. ASC
805-20-25-18A
provides additional guidance on initial recognition and
measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies
in a business combination. The adoption of ASC
805-20-25-18A
did not have a material impact on the consolidated financial
statements.
On April 1, 2009, the Company adopted ASC 855 (formerly
Statement No. 165, Subsequent Events). ASC 855
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
ASC 855 also requires the disclosure of the date through which
an entity has evaluated subsequent events and the basis for that
date.
In June 2009, the FASB issued ASC
105-10
(formerly Statement No. 168 The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles). Effective for interim and annual
periods ending after September 15, 2009, the Accounting
Standards Codification is the source of all authoritative
U.S. GAAP recognized by the FASB to be applied by
nongovernment entities. ASC
105-10 also
modifies the U.S. GAAP hierarchy to include only two levels
of U.S. GAAP; authoritative and non-authoritative. The
adoption of ASC
105-10 did
not have an impact on Companys consolidated financial
statements.
In October 2009, the FASB issued ASU
2009-13,
Revenue Recognition, which replaces the concept of fair
market value with selling price when determining how to allocate
the total contract sales price in a multiple-deliverable revenue
arrangement. This amendment establishes a hierarchy process for
determining the selling price of a given deliverable to be used
in the allocation. The order of the selling price determination
hierarchy is (a) vendor specific objective evidence;
(b) third party evidence, if vendor specific objective
evidence is not available; (c) or estimated selling price,
if neither vendor specific objective evidence nor third party
evidence is available. This amendment could
F-12
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
significantly expand the disclosures related to the
Companys sales arrangements should it be determined that
it results in a material change to the current practice. ASU
2009-13 will
be effective for the Companys fiscal year beginning
January 1, 2011, unless it selects early adoption of the
amendment with retroactive application to January 1, 2010.
The Company is currently evaluating the impact of the adoption
of ASU
2009-13 on
its consolidated financial statements.
In December 2009, the FASB issued ASU
2009-16,
which codifies Statement No. 166, Accounting for
Transfers of Financial Assets, issued in June 2009 and
revises the former guidance under Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. ASU
2009-16
requires more information about transfers of financial assets,
including securitization transactions, and where companies have
continuing exposure to the risks related to transferred
financial assets. ASU
2009-16 also
eliminates the concept of qualified special-purpose
entity, changes the requirements for derecognizing
financial assets, and requires additional disclosures. ASU
2009-16 is
effective for annual reporting periods beginning after
November 15, 2009. We do not expect the adoption of ASU
2009-16 to
have a material impact on our consolidated financial statements.
In December 2009, the FASB issued ASU
2009-17,
which codifies Statement No. 167, Amendments to FASB
Interpretation No. 46(R) issued in June 2009. ASU
2009-17
requires a qualitative approach to identifying a controlling
financial interest in a variable interest entity
(VIE), and requires ongoing assessment of whether an
entity is a VIE and whether an interest in a VIE makes the
holder the primary beneficiary of the VIE. ASU
2009-17 is
effective for annual reporting periods beginning after
November 15, 2009. We do not expect the adoption of ASU
2009-17 to
have a material impact on our consolidated financial statements.
In January, 2010 the FASB issued ASU
2010-6,
Improving Disclosures About Fair Value Measurements,
which requires reporting entities to make new disclosures about
recurring or nonrecurring fair-value measurements including
significant transfers into and out of Level 1 and
Level 2 fair-value measurements and information on
purchases, sales, issuances, and settlements on a gross basis of
Level 3 fair-value measurements. ASU
2010-6 is
effective for annual reporting periods beginning after
December 15, 2009, except for Level 3 reconciliation
disclosures which are effective for annual periods beginning
after December 15, 2010. We do not expect the adoption of
ASU 2010-6
to have a material impact on our consolidated financial
statements.
Reclassification
Certain amounts in previously issued financial statements have
been reclassified to conform to the 2009 presentation.
|
|
3.
|
Acquisitions
and other investments
|
On September 1, 2009, the Company acquired the assets of
Compressor Renewal Services Ltd. (CRS) located in
Odessa, Texas for $12.7. CRS services separable, process and
integral-engine reciprocating compressors primarily in the North
American natural gas transmission market. The purchase agreement
includes the potential for additional cash consideration based
on achieving certain earnings targets over a five-year period
beginning on October 1, 2009. The additional consideration
is up to a maximum of $3.7 depending upon the achievement of
such targets.
The estimated fair value of the additional consideration for the
CRS acquisition has been included as a liability in the
financial statements. Changes in the fair value will be
recognized immediately in the consolidated statement of income
at each reporting date until the contingency is resolved.
On December 11, 2009, the Company signed an agreement to
acquire the assets of a company to service its Middle East and
Africa region for approximately $10.0. The acquisition is
expected to close in March, 2010.
In 2008, the Company acquired three businesses and paid net
total cash of $91.4, including $5.1 of acquisition costs.
On July 1, 2008, the Company acquired certain assets and
assumed certain liabilities of Peter Brotherhood Ltd. (the
business hereafter being referred to as PBL) in the
United Kingdom. PBL specializes in the design and manufacture of
steam turbines, reciprocating gas compressors, gas engine
packaged combined heat and power systems, and gearboxes.
PBLs primary clients are in the worldwide oil and gas
industry, specifically marine and floating production, storage
and offloading facilities, refinery, petrochemical, combined
cycle/co-generation, and renewable energy industries. The
purchase agreement included the potential for additional cash
consideration based on Earnings Before
F-13
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
Interest, Tax, Depreciation, and Amortization (EBITDA) for
PBLs fiscal year ended November 30, 2008. On
January 22, 2010, the Company paid $24.1 in accordance with
this provision of the contract. This amount is not included in
the total cash paid of $91.4 discussed above.
On August 8, 2008, the Company acquired the assets of
Enginuity LLC (Enginuity), a private,
U.S. based provider of combustion and catalytic emissions
technology solutions, controls and automation, and aftermarket
services for reciprocating gas engines used in the gas
transmission market. Focused on the North American gas
transmission market, Enginuity is a technology solutions leader
for reducing gas-fired engine emissions and for engine and
compressor controls and monitoring.
On August 29, 2008, the Company acquired all the stock of
Arrow Industries, Inc. (Arrow). Arrow is a premier
provider of foundation and mechanical services for reciprocating
engines and compressors used in the North American pipeline
industry. Arrow is experienced in implementing and servicing
Dresser-Rand and similar OEM equipment.
On April 5, 2007, the Company acquired the Gimpel Valve
business from Tyco Flow Control, a reporting unit of Tyco
International, for approximately $8.1 including about $0.1 of
acquisition costs. Gimpel products include a line of trip, trip
and throttle, and non-return valves to protect steam turbines
and related equipment in industrial and marine applications, and
have been integrated into our steam new unit and aftermarket
parts and services businesses.
All acquisitions have been integrated into the Companys
existing new units and aftermarket parts and services operating
segments. The amount of goodwill deductible for tax purposes was
$1.6 and $1.1 at December 31, 2009 and 2008, respectively.
The acquisition prices were allocated to the fair values of
assets acquired and liabilities assumed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Accounts receivable, net
|
|
$
|
0.8
|
|
|
$
|
11.6
|
|
|
$
|
|
|
Inventory, net
|
|
|
0.5
|
|
|
|
29.4
|
|
|
|
4.6
|
|
Prepaid expenses
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1.3
|
|
|
|
42.1
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
6.6
|
|
|
|
39.6
|
|
|
|
0.5
|
|
Amortizable intangible assets
|
|
|
2.4
|
|
|
|
33.4
|
|
|
|
3.0
|
|
Goodwill
|
|
|
4.0
|
|
|
|
24.2
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
14.3
|
|
|
|
139.6
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accruals
|
|
|
0.4
|
|
|
|
18.4
|
|
|
|
|
|
Customer advance payments
|
|
|
|
|
|
|
26.0
|
|
|
|
|
|
Other liabilities
|
|
|
1.2
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
1.6
|
|
|
|
48.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid net of $18.6 cash acquired in 2008
|
|
$
|
12.7
|
|
|
$
|
91.4
|
|
|
$
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma financial information, assuming these acquisitions
occurred at the beginning of each income statement period, has
not been presented because the effect on our results for each of
those periods was not considered material. The results of each
acquisition have been included in our consolidated financial
results since the date of such acquisition, and were not
material to the results of operations for the years ended
December 31, 2009, 2008 and 2007.
Other
Investments
In 2008, the Company entered into an agreement by which it
acquired a non-controlling interest in Ramgen Power Systems, LLC
(Ramgen), a privately held development stage company
that is developing compressor technology that applies proven
supersonic aircraft technology to ground-based air and gas
compressors. In addition to receiving a non-controlling
interest, the Company received an option to acquire the business
of Ramgen at a price of $25.0 and a
F-14
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
royalty commitment, exercisable at any time through
October 28, 2012. Pursuant to the agreement, an initial
investment of $5.0 was made in November 2008, and our final
contractually obligated investment of $5.0 was made in May 2009.
The Company also made an optional investment in November 2009 of
$5.0 which resulted in an aggregate non-controlling interest of
23.7%. The agreement allows the Company to make additional
optional investments of $9.0 through October 2012. The
Companys maximum exposure to loss on its investment in
Ramgen is limited to the amounts invested. In determining
whether the Company should consolidate Ramgen, the Company
considered that its ownership, coupled with the probability of
exercising the option, would not absorb a majority of the
expected losses or residual returns of Ramgen, and consequently,
would not result in the Company being the primary beneficiary.
The investment in Ramgen is being accounted for under the equity
method of accounting.
In April, 2009, an affiliate of the Company and Al Rushaid
Petroleum Investment Company (ARPIC) executed and
delivered a Business Venture Agreement to form a joint venture,
Dresser-Rand Arabia LLC (D-R Arabia). D-R Arabia
will be a center of excellence in the Kingdom of Saudi Arabia
for manufacturing, repairs, service, technical expertise and
training. The affiliate will own approximately 50% of D-R
Arabia. The affiliate is making a cash contribution of
approximately $0.3 and will license D-R Arabia to use certain
intellectual property. ARPIC will own approximately 50% of the
Company and is making a cash contribution of approximately $0.3.
In determining whether the Company should consolidate D-R
Arabia, the Company considered that its ownership would absorb a
majority of the expected losses or residual returns of D-R
Arabia which would result in the Company being the primary
beneficiary. Consequently, D-R Arabia is consolidated in the
financial results of the Company.
We calculate basic income per share of common stock by dividing
net income by the weighted-average number of common shares
outstanding for the period. We exclude non-vested shares of
common stock issued in connection with our stock compensation
plans from the calculation of the weighted-average common shares
outstanding basic until those shares vest. The
calculation of income per share of common stock-diluted reflects
the potential dilution under the treasury stock method that
would occur if options issued under our stock compensation plans
are exercised and the effect of the exercise would be dilutive
and any dilutive effect of non-vested shares of common stock
issued. Following is a reconciliation of net income and
weighted-average common shares outstanding for purposes of
calculating basic and diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
210.8
|
|
|
$
|
197.7
|
|
|
$
|
106.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted -average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
81,662
|
|
|
|
83,678
|
|
|
|
85,470
|
|
Dilutive effect of stock compensation awards
|
|
|
214
|
|
|
|
159
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
81,876
|
|
|
|
83,837
|
|
|
|
85,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.58
|
|
|
$
|
2.36
|
|
|
$
|
1.25
|
|
Diluted
|
|
$
|
2.57
|
|
|
$
|
2.36
|
|
|
$
|
1.25
|
|
Inventories were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials and supplies
|
|
$
|
132.6
|
|
|
$
|
141.7
|
|
Work-in-process
and finished goods
|
|
|
485.0
|
|
|
|
496.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617.6
|
|
|
|
638.1
|
|
Less: Progress payments
|
|
|
(264.6
|
)
|
|
|
(309.6
|
)
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
353.0
|
|
|
$
|
328.5
|
|
|
|
|
|
|
|
|
|
|
F-15
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
Progress payments represent payments from clients based on
milestone completion schedules. Any payments received in excess
of inventory investment are classified as Customer Advance
Payments in the current liabilities section of the balance
sheet.
|
|
6.
|
Property,
Plant and Equipment
|
Property, plant and equipment were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
15.3
|
|
|
$
|
14.7
|
|
Buildings and improvements
|
|
|
113.9
|
|
|
|
102.2
|
|
Machinery and equipment
|
|
|
285.3
|
|
|
|
252.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414.5
|
|
|
|
369.0
|
|
Less: Accumulated depreciation
|
|
|
(145.6
|
)
|
|
|
(118.7
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
268.9
|
|
|
$
|
250.3
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $32.0 for the year ended
December 31, 2009, $30.6 for 2008 and $32.1 for 2007.
|
|
7.
|
Intangible
Assets and Goodwill
|
The following table sets forth the weighted average useful life,
gross amount and accumulated amortization of intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Weighted
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Accumulated
|
|
|
Average
|
|
|
|
|
|
Accumulated
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Useful Lives
|
|
|
Cost
|
|
|
Amortization
|
|
|
Trade names
|
|
$
|
93.1
|
|
|
$
|
11.6
|
|
|
|
39 years
|
|
|
$
|
92.8
|
|
|
$
|
9.2
|
|
Customer relationships
|
|
|
258.6
|
|
|
|
34.5
|
|
|
|
37 years
|
|
|
|
250.5
|
|
|
|
26.5
|
|
Software
|
|
|
30.6
|
|
|
|
15.8
|
|
|
|
10 years
|
|
|
|
30.6
|
|
|
|
12.7
|
|
Existing technology
|
|
|
137.1
|
|
|
|
27.9
|
|
|
|
24 years
|
|
|
|
136.3
|
|
|
|
22.1
|
|
Non-compete agreement
|
|
|
2.1
|
|
|
|
0.8
|
|
|
|
4 years
|
|
|
|
2.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
$
|
521.5
|
|
|
$
|
90.6
|
|
|
|
|
|
|
$
|
512.3
|
|
|
$
|
70.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization expense was $19.5 for the year
ended December 31, 2009, $18.2 for 2008 and $17.2 for 2007.
Amortization expense for these intangible assets is expected to
be approximately $18.1 for each year from 2010 through 2014.
The Company had no goodwill impairments for the years ended
December 31, 2009 and 2008. The following table represents
the changes in goodwill in total and by segment (see
note 20):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aftermarket
|
|
|
|
|
|
|
New units
|
|
|
parts and services
|
|
|
Total
|
|
|
Balance, December 31, 2007
|
|
$
|
131.6
|
|
|
$
|
315.9
|
|
|
$
|
447.5
|
|
Acquisitions
|
|
|
10.8
|
|
|
|
13.4
|
|
|
|
24.2
|
|
Adjustments
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
(0.6
|
)
|
Foreign currency adjustments
|
|
|
(8.7
|
)
|
|
|
(33.3
|
)
|
|
|
(42.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
133.7
|
|
|
|
295.4
|
|
|
|
429.1
|
|
Acquisitions
|
|
|
0.1
|
|
|
|
3.9
|
|
|
|
4.0
|
|
Adjustments
|
|
|
21.2
|
|
|
|
7.1
|
|
|
|
28.3
|
|
Foreign currency adjustments
|
|
|
2.0
|
|
|
|
22.6
|
|
|
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
157.0
|
|
|
$
|
329.0
|
|
|
$
|
486.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
|
|
8.
|
Accounts
Payable and Accruals
|
Accounts payable and accruals were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accounts payable
|
|
$
|
178.1
|
|
|
$
|
221.3
|
|
Accruals:
|
|
|
|
|
|
|
|
|
Payroll and benefits
|
|
|
68.0
|
|
|
|
62.2
|
|
Warranties
|
|
|
39.2
|
|
|
|
37.0
|
|
Taxes other than income
|
|
|
24.9
|
|
|
|
24.2
|
|
Third party commissions
|
|
|
16.5
|
|
|
|
15.2
|
|
Interest
|
|
|
6.5
|
|
|
|
5.7
|
|
Insurance and claims
|
|
|
8.4
|
|
|
|
8.7
|
|
Legal, audit and consulting
|
|
|
6.5
|
|
|
|
4.0
|
|
Pension and postretirement benefits
|
|
|
4.9
|
|
|
|
4.1
|
|
Forward exchange contracts
|
|
|
7.2
|
|
|
|
17.1
|
|
Repairs and maintanence
|
|
|
3.1
|
|
|
|
6.8
|
|
Accrued contingent consideration
|
|
|
24.1
|
|
|
|
|
|
Other
|
|
|
24.6
|
|
|
|
24.6
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable and accruals
|
|
$
|
412.0
|
|
|
$
|
430.9
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes was generated within the following
jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
161.2
|
|
|
$
|
158.6
|
|
|
$
|
78.6
|
|
Foreign
|
|
|
150.7
|
|
|
|
142.7
|
|
|
|
89.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
311.9
|
|
|
$
|
301.3
|
|
|
$
|
167.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
51.6
|
|
|
$
|
55.3
|
|
|
$
|
27.0
|
|
Foreign
|
|
|
56.5
|
|
|
|
50.9
|
|
|
|
35.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
108.1
|
|
|
|
106.2
|
|
|
|
62.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (benefit) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
(0.5
|
)
|
|
|
1.1
|
|
|
|
1.6
|
|
Foreign
|
|
|
(6.5
|
)
|
|
|
(3.7
|
)
|
|
|
(3.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(7.0
|
)
|
|
|
(2.6
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
101.1
|
|
|
$
|
103.6
|
|
|
$
|
60.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
The provision for income taxes differs from the amount
determined by applying the U.S. statutory income tax rate
to income before income taxes as a result of the following
differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
(Decrease) increase in rates resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign operations
|
|
|
(4.1
|
)%
|
|
|
(1.3
|
)%
|
|
|
0.3
|
%
|
State and local income taxes, net of U.S. tax
|
|
|
0.4
|
%
|
|
|
0.4
|
%
|
|
|
1.2
|
%
|
Valuation allowances
|
|
|
1.2
|
%
|
|
|
0.9
|
%
|
|
|
0.2
|
%
|
Export/manufacturing deductions
|
|
|
(0.5
|
)%
|
|
|
(0.8
|
)%
|
|
|
(1.0
|
)%
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
0.8
|
%
|
Other
|
|
|
0.4
|
%
|
|
|
0.2
|
%
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
32.4
|
%
|
|
|
34.4
|
%
|
|
|
36.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2009, we executed a
corporate restructuring to facilitate our global cash
management. In connection with the restructuring, we experienced
a benefit in certain of our foreign tax jurisdictions, which
reduced our effective tax rate by approximately
2.0 percentage points for the year ended December 31,
2009.
The Company adopted the provisions of ASC
740-10
(formally Interpretation No. 48, Accounting for
Uncertainty in Income Taxes), on January 1, 2007. A
reconciliation of the beginning and ending amount of
unrecognized tax benefits follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
2.4
|
|
|
$
|
2.2
|
|
|
$
|
2.1
|
|
Additions based on tax positions related to current year
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
0.2
|
|
Settlements
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
Foreign currency adjustments
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2.8
|
|
|
$
|
2.4
|
|
|
$
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the balance at December 31, 2009, is $0.5 of
unrecognized tax benefits that, if recognized, would not affect
the annual effective tax rate due to indemnification by our
former parent company, Ingersoll Rand. These amounts are not
expected to increase or decrease significantly during 2010. The
Companys policy is to recognize accrued interest on
estimated future required tax payments on unrecognized tax
benefits as interest expense and any estimated tax penalties as
operating expenses. Such amounts accrued at December 31,
2009, were not significant. Tax years that remain subject to
examination by major tax jurisdiction follow:
|
|
|
|
|
Jurisdiction
|
|
Open Years
|
|
|
Brazil
|
|
|
2004 - 2008
|
|
Canada
|
|
|
2003 - 2008
|
|
France
|
|
|
2006 - 2008
|
|
Germany
|
|
|
2003 - 2008
|
|
India
|
|
|
2005 - 2008
|
|
Italy
|
|
|
2004 - 2008
|
|
Malaysia
|
|
|
2004 - 2008
|
|
Netherlands
|
|
|
2004 - 2008
|
|
Norway
|
|
|
2004 - 2008
|
|
United Kingdom
|
|
|
2005 - 2008
|
|
United States
|
|
|
2004 - 2008
|
|
Venezuela
|
|
|
2004 - 2008
|
|
F-18
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
Any material tax amounts due from examination of tax periods
prior to October 2004 are subject to indemnification under an
agreement with our former owner, Ingersoll Rand.
A summary of the tax effect of temporary differences that create
the deferred tax accounts follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
67.0
|
|
|
$
|
65.8
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Inventories and receivables
|
|
$
|
(9.0
|
)
|
|
$
|
(6.7
|
)
|
Foreign tax credit carryforward
|
|
|
(1.5
|
)
|
|
|
|
|
Other accrued expenses
|
|
|
(22.9
|
)
|
|
|
(12.2
|
)
|
Tax net operating loss carryforwards
|
|
|
(12.3
|
)
|
|
|
(7.2
|
)
|
Pension and employee benefits
|
|
|
(39.6
|
)
|
|
|
(45.8
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
(85.3
|
)
|
|
|
(71.9
|
)
|
Valuation allowances
|
|
|
11.4
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
(73.9
|
)
|
|
|
(65.4
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax (assets) liabilities
|
|
$
|
(6.9
|
)
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Presented in the balance sheet as:
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
$
|
(45.4
|
)
|
|
$
|
(22.5
|
)
|
Non-current deferred tax liabilities
|
|
|
38.5
|
|
|
|
22.9
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax (assets) liabilities
|
|
$
|
(6.9
|
)
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, net operating loss carry forwards
(NOLs) of approximately $37.0 were available to offset future
taxable income in certain foreign subsidiaries. If not utilized,
a portion of the foreign NOLs will begin to expire in 2010.
Valuation allowances as of December 31, 2009, and
December 31, 2008, of $11.4 and $6.5, respectively, have
been recorded for NOLs and certain other deferred tax assets,
for which it is more likely than not that the tax benefit will
not be realized.
Management has decided to continue to permanently reinvest the
unremitted earnings of its foreign subsidiaries and, therefore,
no provision for U.S. federal or state income taxes has
been provided on those foreign earnings. If any foreign earnings
were distributed, in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes (subject
to an adjustment for foreign tax credits) and withholding taxes
payable to the various foreign countries. As of
December 31, 2009, accumulated undistributed foreign
earnings amounted to $246.4.
We operate in numerous countries and tax jurisdictions around
the world and no tax authority has audited any income tax return
producing any significant tax adjustment since the Acquisition.
However, there is no assurance that future tax audits will
produce the same results. Management believes that it has
provided adequate estimated liabilities for taxes based on its
understanding of the tax laws and regulations in those countries.
Senior
Secured Credit Facility
On August 30, 2007, the Company and certain of its foreign
subsidiaries entered into an Amended and Restated Senior Secured
Credit Facility with a syndicate of lenders (the Senior
Secured Credit Facility). The obligations of the Company
under the Senior Secured Credit Facility are collateralized by
mortgages on certain real and other property and have been
guaranteed by the direct material domestic subsidiaries of the
Company. The obligations of each foreign subsidiary borrower
under the Senior Secured Credit Facility have been guaranteed by
the Company, the direct material subsidiaries of such foreign
subsidiary borrower and the direct material domestic
subsidiaries of the Company.
F-19
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
The Senior Secured Credit Facility is a $500.0 revolving credit
facility. Any principal amount outstanding under the revolving
credit facility is due and payable in full at maturity on
August 30, 2012. There were no borrowings outstanding and
the Company had issued $167.8 million of letters of credit
under the revolving credit facility at December 31, 2009.
Dollar-denominated revolving borrowings under the Senior Secured
Credit Facility bear interest, at the Companys election,
at either (a) a rate equal to an applicable margin ranging
from 1.25% to 2.5%, depending on the Companys leverage
ratio, plus a LIBOR rate determined by reference to the costs of
funds for deposits in U.S. dollars for the interest period
relevant to such borrowing adjusted for certain additional costs
or (b) a rate equal to an applicable margin ranging from
0.25% to 1.5%, depending on the Companys leverage ratio
plus a base rate determined by reference to the highest of
(1) the rate that the administrative agent announces from
time to time as its prime or base commercial lending rate,
(2) the three month certificate of deposit rate plus
1/2
of 1% and (3) the federal funds rate plus
1/2
of 1%. Euro-denominated revolving borrowings under the Senior
Secured Credit Facility bear interest at a rate equal to the
applicable margin ranging from 1.25% to 2.5%, depending on the
Companys leverage ratio, plus a EURIBOR rate determined by
reference to the costs of funds for deposits in the currency of
such borrowings for the interest period relevant to such
borrowings adjusted for certain additional costs.
In addition to paying interest on outstanding principal under
the Senior Secured Credit Facility, the Company is required to
pay a commitment fee to the lenders under the revolving credit
facility in respect of the unutilized commitments at a rate
ranging from 0.25% to 0.375% per annum depending on the
Companys leverage ratio. The Company will also pay letter
of credit fees equal to the applicable margin then in effect
with respect to LIBOR loans under the revolving credit facility
on the face amount of each such letter of credit.
In general, the Senior Secured Credit Facility requires that
certain net proceeds related to asset sales, incurrence of
additional debt, casualty settlements and condemnation awards be
used to pay down the outstanding balance. The Company may
voluntarily prepay outstanding loans under the Senior Secured
Credit Facility at any time without premium or penalty, other
than customary brokerage costs. The Senior Secured Credit
Facility contains normal and customary covenants including the
provision of periodic financial information, financial tests
(including maximum net leverage and a minimum interest coverage
ratio), and certain other limitations governing, among others,
such matters as the Companys ability to incur additional
debt, grant liens on assets, make investments, acquisitions or
mergers, dispose of assets, make capital expenditures, engage in
transactions with affiliates, make amendments to corporate
documents that would be materially adverse to lenders, and pay
dividends and distributions or repurchase capital stock. The
Senior Secured Credit Facility also provides for customary
events of default.
Senior
Subordinated Notes
The Senior Subordinated Notes mature on November 1, 2014,
and bear interest at a rate of
73/8%
per annum, which is payable semi-annually in arrears on May 1
and November 1 of each year. The Company may redeem any of the
notes beginning on November 1, 2009, at a redemption price
of 103.688% of their principal amount, plus accrued interest.
The redemption price will decline each year after 2009 and will
be 100% of their principal amount, plus accrued interest,
beginning on November 1, 2012.
The Senior Subordinated Notes are general unsecured obligations
and are guaranteed on a senior subordinated basis by the
Companys direct material domestic subsidiaries and rank
secondary to the Companys Senior Secured Credit Facility.
The Senior Subordinated Notes contain customary covenants
including certain limitations and restrictions on the
Companys ability to incur additional indebtedness, create
liens, pay dividends and make distributions in respect of
capital stock, redeem capital stock, make investments or certain
other restricted payments, sell assets, issue or sell stock of
restricted subsidiaries, enter into transactions with affiliates
and effect consolidations or mergers.
The more restrictive covenant under the Senior Secured Credit
Facility and the indenture governing the Senior Subordinated
Notes allows dividends to be paid in any calendar year only to
the extent of 5% of the proceeds from any public offering of
stock since October 29, 2004. The Company may also
repurchase and redeem its common stock in an aggregate amount
not to exceed fifty percent of net income of the preceding year.
Except during 2008 and 2009, repurchases and redemptions of
common stock shall not exceed the sum of 50 percent of net
income of the immediately preceding year plus $100 in each of
those years.
F-20
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Senior subordinated notes
|
|
$
|
370.0
|
|
|
$
|
370.0
|
|
Other debt
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
370.1
|
|
|
|
370.3
|
|
Less: current maturity
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
370.0
|
|
|
$
|
370.1
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the Companys total long-term
debt principal maturities were $0.1 in 2010 and
$370.0 in 2014.
The U.S. defined benefit plan covering salaried and
non-union hourly employees was frozen effective March 31,
1998. The plan was replaced with a defined contribution plan.
The benefits for certain bargaining unit employees included in
the defined benefit plan were not frozen. The Companys
U.S. salaried plans generally provide benefits based on a
final average earnings formula. The Companys
U.S. hourly pension plans provide benefits under flat
formulas.
Non-U.S. plans
provide benefits based on earnings and years of service.
Information regarding our pension plans follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Change in projected benefit obligations
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of the period
|
|
$
|
334.6
|
|
|
$
|
350.6
|
|
Service cost
|
|
|
6.4
|
|
|
|
7.5
|
|
Interest cost
|
|
|
20.1
|
|
|
|
22.2
|
|
Employee contributions
|
|
|
0.3
|
|
|
|
0.3
|
|
Expenses paid
|
|
|
(0.9
|
)
|
|
|
(0.9
|
)
|
Actuarial loss (gain)
|
|
|
23.2
|
|
|
|
(6.3
|
)
|
Plan amendments
|
|
|
1.6
|
|
|
|
3.1
|
|
Settlements
|
|
|
(6.1
|
)
|
|
|
|
|
Acquistions
|
|
|
|
|
|
|
12.1
|
|
Benefits paid
|
|
|
(20.7
|
)
|
|
|
(20.2
|
)
|
Foreign currency adjustments
|
|
|
13.0
|
|
|
|
(33.8
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of the period
|
|
$
|
371.5
|
|
|
$
|
334.6
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value at beginning of the period
|
|
$
|
215.1
|
|
|
$
|
298.7
|
|
Actual return on assets
|
|
|
40.8
|
|
|
|
(57.1
|
)
|
Settlements
|
|
|
(6.1
|
)
|
|
|
|
|
Acquistions
|
|
|
|
|
|
|
12.9
|
|
Company contributions
|
|
|
37.4
|
|
|
|
9.4
|
|
Employee contributions
|
|
|
0.3
|
|
|
|
0.3
|
|
Expenses paid
|
|
|
(0.9
|
)
|
|
|
(0.9
|
)
|
Benefits paid
|
|
|
(20.7
|
)
|
|
|
(20.2
|
)
|
Foreign currency adjustments
|
|
|
10.0
|
|
|
|
(28.0
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of assets at end of the period
|
|
$
|
275.9
|
|
|
$
|
215.1
|
|
|
|
|
|
|
|
|
|
|
F-21
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Amounts recognized in the balance sheet consist of:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
2.6
|
|
|
$
|
2.5
|
|
Noncurrent liabilities
|
|
|
93.0
|
|
|
|
117.0
|
|
|
|
|
|
|
|
|
|
|
Total balance sheet liability
|
|
$
|
95.6
|
|
|
$
|
119.5
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other
|
|
|
|
|
|
|
|
|
comprehensive loss (income) consists of:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
65.0
|
|
|
$
|
68.9
|
|
Prior service cost
|
|
|
3.7
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68.7
|
|
|
$
|
71.9
|
|
|
|
|
|
|
|
|
|
|
In 2008, the Company amended its Canadian defined benefit
pension plan to discontinue the benefits. Accounting principles
generally accepted in the United States of America require a
portion of any prior service cost recognized in comprehensive
income to be recognized in the statement of income when a
curtailment occurs. These amounts were not material to the
consolidated financial statements in 2008. During the three
months ended March 31, 2009, the Company converted the plan
to a defined contribution plan which was considered a plan
settlement. The plan settlement required the Company to
recognize a $1.3 settlement charge in the consolidated statement
of income for the three months ended March 31, 2009. The
settlement charge included approximately $0.4 of net actuarial
losses previously recorded in accumulated other comprehensive
income. The cash payment required to effect the plan conversion
was $1.5.
Included in service cost and interest cost in the change in
projected benefit obligations for 2008 is $0.6 and $1.7,
respectively, associated with adjusting the measurement date of
the benefit obligations to the date of our fiscal year end
statement of financial position in accordance with ASC
715-10
(formerly FASB Statement No. 158).
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Weighted-average assumptions used for benefit obligations
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
|
|
|
|
|
|
U.S. plans
|
|
|
5.80
|
%
|
|
|
6.10
|
%
|
Non-U.S.
plans
|
|
|
5.64
|
%
|
|
|
6.28
|
%
|
Rate of compensation increase
|
|
|
|
|
|
|
|
|
U.S. plans
|
|
|
N/A
|
|
|
|
N/A
|
|
Non-U.S.
plans
|
|
|
4.25
|
%
|
|
|
3.73
|
%
|
F-22
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
The components of the net pension expense and amounts recognized
in other comprehensive (income) loss include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net pension expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
6.4
|
|
|
$
|
6.9
|
|
|
$
|
6.9
|
|
Interest cost
|
|
|
20.1
|
|
|
|
20.5
|
|
|
|
18.6
|
|
Expected return on plan assets
|
|
|
(18.3
|
)
|
|
|
(23.2
|
)
|
|
|
(21.9
|
)
|
Amortization of net actuarial loss
|
|
|
3.9
|
|
|
|
0.3
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
0.8
|
|
|
|
0.1
|
|
|
|
|
|
Plan Settlement
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension expense
|
|
|
14.2
|
|
|
|
4.6
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in other
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive (income) loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
|
0.8
|
|
|
|
74.1
|
|
|
|
(15.8
|
)
|
Prior service cost
|
|
|
2.0
|
|
|
|
2.4
|
|
|
|
0.2
|
|
Amortization of net actuarial loss
|
|
|
(5.2
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
Amortization of prior service cost
|
|
|
(0.8
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive (income) loss
|
|
|
(3.2
|
)
|
|
|
76.1
|
|
|
|
(15.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized
|
|
$
|
11.0
|
|
|
$
|
80.7
|
|
|
$
|
(12.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used for net
|
|
|
|
|
|
|
|
|
|
|
|
|
periodic pension cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans
|
|
|
6.10
|
%
|
|
|
6.10
|
%
|
|
|
5.60
|
%
|
Non-U.S.
plans
|
|
|
6.28
|
%
|
|
|
5.82
|
%
|
|
|
4.94
|
%
|
Rate of compensation increase
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Non-U.S.
plans
|
|
|
3.73
|
%
|
|
|
4.27
|
%
|
|
|
3.88
|
%
|
Expected return on plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
Non-U.S.
plans
|
|
|
6.77
|
%
|
|
|
6.53
|
%
|
|
|
6.87
|
%
|
The Company develops the assumed discount rate using available
high quality bonds with maturities that approximately match the
forecasted cash flow requirements of the pension plan.
The net actuarial loss and prior service cost for the defined
benefit pension plans that will be amortized from accumulated
other comprehensive income into net pension expense over the
next fiscal year is estimated to be $4.3.
Information for pension plans with an accumulated benefit
obligation in excess of plan assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Projected benefit obligation
|
|
$
|
359.9
|
|
|
$
|
263.4
|
|
Accumulated benefit obligation
|
|
|
337.4
|
|
|
|
256.9
|
|
Fair value of plan assets
|
|
|
264.6
|
|
|
|
151.6
|
|
F-23
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
Upon the adoption of ASC
715-10
(formerly FASB Statement No. 158) in 2008, the Company
used an annual measurement date of December 31. The
expected long-term rates of return on plan assets are determined
as of the measurement date. The expected long-term rates of
return are projected to be the rates of return to be earned over
the period until the benefits are paid. Accordingly, the
long-term rates of return should reflect the rates of return on
present investments and expected contributions to be received
during the current year and on reinvestments over the period.
The rates of return utilized reflect the expected rates of
return during the periods for which the payment of benefits is
deferred. The expected long-term rate of return on plan assets
used is based on what is realistically achievable based on the
types of assets held by the plans and the plans investment
policy. Historical asset return trends for the larger plans are
reviewed over fifteen, ten and five years. The Company reviews
each plan and its historical returns and asset allocations to
determine the appropriate expected long-term rate of return on
plan assets to be used.
The asset allocations of the Companys pension plans by
asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2.8
|
|
|
$
|
|
|
|
$
|
2.8
|
|
|
$
|
|
|
U.S. equities
|
|
|
6.5
|
|
|
|
|
|
|
|
6.5
|
|
|
|
|
|
U.S. large-cap equities
|
|
|
53.8
|
|
|
|
53.8
|
|
|
|
|
|
|
|
|
|
U.S. small-cap value equities
|
|
|
8.8
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
U.S. small-cap growth equities
|
|
|
8.8
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
International equities
|
|
|
65.9
|
|
|
|
1.8
|
|
|
|
64.1
|
|
|
|
|
|
U.S. fixed income(1)
|
|
|
49.1
|
|
|
|
49.1
|
|
|
|
|
|
|
|
|
|
International fixed income(2)
|
|
|
30.6
|
|
|
|
|
|
|
|
30.6
|
|
|
|
|
|
Global asset allocations(3)
|
|
|
27.9
|
|
|
|
14.1
|
|
|
|
13.8
|
|
|
|
|
|
Insurance contracts(4)
|
|
|
21.7
|
|
|
|
|
|
|
|
|
|
|
|
21.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
275.9
|
|
|
$
|
136.4
|
|
|
$
|
117.8
|
|
|
$
|
21.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
U.S. Fixed Income: Includes investments in the broad fixed
income market such as government and agency bonds, mortgage
bonds, and corporate bonds. Duration of the bonds may range from
short (e.g., three months or less) to very long (e.g.,
12 years or longer). Credit quality of U.S. Fixed Income is
generally high quality in nature (e.g., AAA to BBB) but can also
include lower quality or high yield bonds (e.g., BB or lower).
Common indices are the Barclays Aggregate and Citigroup Broad
Investment Grade Index. |
|
(2) |
|
International Fixed Income: Includes investments in the broad
fixed income market such as government and corporate bonds.
Duration of the bonds ranges up to 16.8 years. Credit
quality of International Fixed Income is generally high quality
in nature (e.g., AAA to A). Common indices are the FTSE UK Glits
>15 Years, iBoxx £ Non-Gilts ex BBB 15 Year
+ and FTSE A Index-Linked > 5 Years. |
|
(3) |
|
Global Asset Allocation: Broadly diversified strategy where
investment managers have the capacity to invest in multiple
asset classes and the ability to alter asset class allocations
with agreed tolerances. There is no common index for this asset
class and typically a blended index of equities and fixed income
is utilized, ex. 60% S&P 500/40% Barclays Aggregate. |
|
|
|
(4) |
|
Insurance Contract: Provided by insurance companies that pay
benefits to retirees. |
F-24
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
A reconciliation of the fair values measurements of plan assets
using significant unobservable inputs from the beginning of the
year to the end of the year is as follows:
|
|
|
|
|
|
|
Insurance
|
|
|
|
Contracts
|
|
|
Balance, December 31, 2008
|
|
$
|
17.0
|
|
Actual return on assets
|
|
|
1.0
|
|
Company contributions
|
|
|
1.9
|
|
Foreign exchange
|
|
|
3.2
|
|
Benefit payments
|
|
|
(0.7
|
)
|
Settlements
|
|
|
(0.7
|
)
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
21.7
|
|
|
|
|
|
|
The Companys investment objectives in managing its defined
benefit plan assets are to provide reasonable assurance that
present and future benefit obligations to all participants and
beneficiaries are met as they become due; to provide a total
return that, over the long-term, maximizes the ratio of the plan
assets to liabilities, while minimizing the present value of
required Company contributions at the appropriate levels of
risk; and to meet any statutory requirements, laws and local
regulatory agencies requirements. Key investment decisions
involving asset allocations, investment manager structure,
investment managers, investment advisors and trustees or
custodians are reviewed regularly. An asset liability modeling
study is used as the basis for aggregated asset allocation
decisions and updated approximately every five years or as
required. The Companys current global asset allocation
strategy for its pension plans is 60% in equity securities and
40% in debt securities and cash excluding those assets in non-US
plans required by regulation to be in insurance contracts or
other similar assets. The Company sets upper limits and lower
limits of plus or minus 5%. The rebalancing strategy is reviewed
quarterly if cash flows are not sufficient to rebalance the
plans and appropriate action is taken to bring the plans within
the strategic allocation ranges.
The Companys policy is to contribute the amount necessary
to maintain benefits under the Pension Protection Act of 2006,
and additional amounts in our discretion up to the limitations
imposed by the applicable tax codes. The Company currently
projects that it will contribute approximately $6.0 to its
funded plans worldwide in 2010.
Pension benefit payments, which reflect future service, as
appropriate, are expected to be paid as follows: $20.1 in 2010,
$19.4 in 2011, $21.0 in 2012, $22.0 in 2013, $23.0 in 2014 and
$127.0 for the years 2015 to 2019.
Defined
Contribution Plans
Most of the Companys U.S. employees are covered by
savings and other defined contribution plans. Employer
contributions and costs are determined based on criteria
specific to the individual plans and were $13.6 for the year
ended December 31, 2009, $12.9 for 2008, and $12.1 for
2007. The Companys costs relating to
non-U.S. defined
contribution plans, insured plans and other
non-U.S. benefit
plans were approximately $3.2 for the year ended
December 31, 2009, $1.7 for 2008, and $0.8 for 2007.
|
|
12.
|
Post-retirement
Benefits other than Pensions
|
The Company sponsors post-retirement plans that cover certain
eligible U.S. employees that provide for certain healthcare
and life insurance benefits. Post-retirement health plans
generally are contributory and the amounts are adjusted
annually. An eligible retirees healthcare benefit coverage
is coordinated with Medicare. The Company funds the
post-retirement benefit costs principally on a pay-as-you-go
basis. Post-retirement life insurance plans are
non-contributory. In 1997, post-retirement benefit plans for
salaried and non-union hourly employees were amended to
eliminate medical and life benefit coverage for all future
retirees except for grandfathered employees.
In connection with a new collective bargaining agreement
ratified by our represented employees at our Olean, NY, facility
on March 31, 2008, certain changes were made to retiree
medical benefits for employees covered by the agreement.
Employees who did not meet certain age and service criteria on
April 1, 2008, were paid a lump sum totaling $6.4 in May
2008 calculated based on years of service in lieu of receiving
future retiree medical benefits, resulting in a curtailment
amendment. The retiree medical benefits for those employees who
met certain age and service criteria were amended to
F-25
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
provide certain additional benefits. The net effect of these
amendments of $3.6 was recognized during the three months ended
March 31, 2008, as a credit to other comprehensive income,
which is being amortized into the statement of income over the
three year term of the agreement. The above changes were in
addition to the elimination of prescription drug benefits
effective February 1, 2007, for Medicare eligible
participants for the represented employees at our Olean, NY,
facility. That amendment was recognized during the three months
ended March 31, 2007, in other comprehensive income and
resulted in negative prior service cost. Accounting principles
generally accepted in the United States of America require a
portion of any prior service cost recognized in other
comprehensive income to be recognized in the statement of income
when a curtailment occurs. Accordingly, the Company recognized a
$7.2 curtailment amendment in the statement of income for the
three months ended March 31, 2008, representing the
unamortized balance of the 2007 plan amendment at that date,
because no future service is required to be entitled to
benefits. Also, under accounting principles generally accepted
in the United States of America, the payment of the $6.4 lump
sum in May 2008 was considered a partial settlement that
required the Company to recognize approximately $1.8 of net
actuarial losses included in accumulated other comprehensive
income in the statement of income for the three months ended
June 30, 2008. The net amounts related to changes in
retiree medical benefits for these represented employees of $5.4
was recognized in the statement of income for the year ended
December 31, 2008.
Summary information on the Companys plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Change in benefit obligations
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of the period
|
|
$
|
17.2
|
|
|
$
|
29.4
|
|
Service cost
|
|
|
|
|
|
|
0.3
|
|
Interest cost
|
|
|
1.0
|
|
|
|
1.4
|
|
Benefits paid
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
Actuarial losses (gains)
|
|
|
1.1
|
|
|
|
(1.7
|
)
|
Plan amendments
|
|
|
(2.6
|
)
|
|
|
(5.4
|
)
|
Settlement payment
|
|
|
|
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
Unfunded benefit obligation at end of the period
|
|
|
|
|
|
|
|
|
and balance sheet liability
|
|
$
|
16.2
|
|
|
$
|
17.2
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the balance sheet:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
0.9
|
|
|
$
|
0.6
|
|
Noncurrent liabilities
|
|
|
15.3
|
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
Total balance sheet liability
|
|
$
|
16.2
|
|
|
$
|
17.2
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other
|
|
|
|
|
|
|
|
|
comprehensive income:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
5.0
|
|
|
$
|
4.9
|
|
Net prior service credit
|
|
|
(11.6
|
)
|
|
|
(17.0
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(6.6
|
)
|
|
$
|
(12.1
|
)
|
|
|
|
|
|
|
|
|
|
The net actuarial loss and prior service credit for the
post-retirement benefit plans other than pensions that will be
amortized from accumulated other comprehensive income into net
post-retirement benefit income over the next fiscal year is
estimated to be $7.9.
Benefit payments for post-retirement benefits, which reflect
future service and are net of expected Medicare Part D
subsidy, as appropriate, are expected to be paid as follows:
$0.9 in 2010, $0.9 in 2011, $1.1 in 2012, $1.3 in 2013, $1.6 in
2014 and $6.5 in the aggregate for the years 2015 to 2019. As a
result of the Medicare Part D subsidy, we expect our 2015
to 2018 retiree medical benefit payments to be approximately
$0.2 lower than they otherwise would have been as a result of
the Medicare Act.
For 2007, the Company used an annual measurement date of
November 30 for all of its post-retirement benefit plans. Upon
the adoption of ASC
715-10
(formerly FASB Statement No. 158) in 2008, the Company
began using an annual measurement date of December 31.
F-26
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
The components of the net post-retirement benefit (income) cost
and amounts recognized in other comprehensive loss (income) were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net post-retirement benefits (income) cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
1.4
|
|
Interest cost
|
|
|
1.0
|
|
|
|
1.3
|
|
|
|
2.4
|
|
Amortization of
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service credit
|
|
|
(8.0
|
)
|
|
|
(7.4
|
)
|
|
|
(0.7
|
)
|
Net actuarial loss (gain)
|
|
|
1.0
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
Curtailment amendment/partial settlement
|
|
|
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total post-retirement benefits (income) cost
|
|
|
(6.0
|
)
|
|
|
(11.4
|
)
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized as other comprehensive loss (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASC
715-10
(formerly, FASB Statement No. 158)
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
|
1.1
|
|
|
|
(1.7
|
)
|
|
|
2.5
|
|
Curtailment amendment/partial settlement
|
|
|
|
|
|
|
5.4
|
|
|
|
(18.6
|
)
|
Plan amendments
|
|
|
(2.6
|
)
|
|
|
(5.4
|
)
|
|
|
(8.2
|
)
|
Amortization of
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service credit
|
|
|
8.0
|
|
|
|
7.4
|
|
|
|
0.7
|
|
Net actuarial (loss) gain
|
|
|
(1.0
|
)
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in comprehensive loss (income)
|
|
|
5.5
|
|
|
|
6.2
|
|
|
|
(23.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized
|
|
$
|
(0.5
|
)
|
|
$
|
(5.2
|
)
|
|
$
|
(20.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted-average assumptions used to determine
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligations at December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.70
|
%
|
|
|
6.10
|
%
|
|
|
6.20
|
%
|
Measurement date
|
|
|
12/31/09
|
|
|
|
12/31/08
|
|
|
|
11/30/07
|
|
Weighted-average assumptions used to determine
|
|
|
|
|
|
|
|
|
|
|
|
|
net periodic benefit cost (income) for years
|
|
|
|
|
|
|
|
|
|
|
|
|
ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.10
|
%
|
|
|
6.20
|
%
|
|
|
5.70
|
%
|
Discount rate at remeasurement date
|
|
|
N/A
|
|
|
|
6.60
|
%
|
|
|
N/A
|
|
Measurement date
|
|
|
12/31/08
|
|
|
|
11/30/2007
|
|
|
|
11/30/06
|
|
Remeasurement date
|
|
|
N/A
|
|
|
|
04/01/08
|
|
|
|
N/A
|
|
Assumed health care cost trend rates
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year trend rate
|
|
|
9.00
|
%
|
|
|
9.00
|
%
|
|
|
10.00
|
%
|
Ultimate trend rate
|
|
|
4.75
|
%
|
|
|
4.75
|
%
|
|
|
5.00
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at end of period
|
|
|
2031
|
|
|
|
2031
|
|
|
|
2013
|
|
Net periodic benefit cost for the year
|
|
|
2031
|
|
|
|
2013
|
|
|
|
2012
|
|
The Company selects the assumed discount rate using available
high quality bonds with maturities that match the forecasted
cash flow of the plan.
F-27
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
A 1% change in the medical trend rate assumed for
post-retirement benefits would have the following effects as of
and for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
1%
|
|
1%
|
|
|
Increase
|
|
Decrease
|
|
Effect on total service and interest cost components
|
|
$
|
0.1
|
|
|
$
|
(0.1
|
)
|
Effect on postretirement benfit obligations
|
|
|
1.5
|
|
|
|
(1.4
|
)
|
On April 8, 2008, the Companys Board of Directors
authorized the repurchase of up to $150.0 of the Companys
common stock which was approximately five percent of the
Companys outstanding shares. During the year ended
December 31, 2008, the Company purchased
4,110,754 shares at an average price of $36.51 per share
for a total purchase price of approximately $150.
|
|
14.
|
Financial
Instruments
|
Financial assets accounted for at fair value are included in
other current assets and financial liabilities accounted for at
fair value are included in accounts payable and accruals on the
consolidated balance sheet. The following table sets forth the
Companys financial assets and liabilities that were
accounted for at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Foreign currency exchange contracts assets
|
|
$
|
5.9
|
|
|
$
|
25.4
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts liabilities
|
|
$
|
7.2
|
|
|
$
|
17.1
|
|
|
|
|
|
|
|
|
|
|
The net foreign currency (losses) gains recognized for forward
currency contracts were $(11.1), $9.1, and $(1.4) for the years
ended December 31, 2009, 2008 and 2007, respectively, and
were included in other income (expense), net.
The carrying value of cash, accounts receivable, short-term
borrowings and accounts payable are a reasonable estimate of
their fair value due to the short-term nature of these
instruments. The fair value of debt obligations as determined by
quoted market prices as of December 31, 2009, was
approximately $367.9.
|
|
15.
|
Commitments
and Contingencies ( in millions)
|
Dresser-Rand (UK) Limited, one of our wholly-owned indirect
subsidiaries, was involved in litigation initiated on
June 1, 2004, in the High Court of Justice, Queens Bench
Division, Technology and Construction Court in London, England,
(the Court) with Maersk Oil UK Limited over alleged defects in
performance of certain compressor equipment sold by Dresser-Rand
(UK) Limited in 1998. The claimant sought damages of
approximately $16.0. Witness testimony concluded in December
2006 and a decision was issued at the end of March 2007. In that
decision, the Court awarded Maersk approximately $3.5 or $0.3 in
excess of amounts the Company previously recorded as an accrued
liability for this litigation, including, $1.1 recorded as
operating expense during 2006. In addition, the award exceeded
the amount previously offered by Maersk to settle the
litigation. As a result, under U.K. laws, Maersk requested
reimbursement of certain costs of $4.5 plus interest thereon and
interest on the award. The Company reached full and final
settlement of all costs and interests with Maersk Oil UK Limited
during 2007. The settlement resulted in additional charges being
recorded during 2007 related to resolving this litigation of
$6.6, of which $4.4 was recorded as operating expense and $2.2
was recorded as interest expense.
We are involved in various litigation, claims and administrative
proceedings, arising in the normal course of business. Amounts
recorded for identified contingent liabilities are estimates,
which are regularly reviewed and adjusted to reflect additional
information when it becomes available. We are indemnified by our
former owner, Ingersoll Rand Company Limited, for certain of
these matters as part of Ingersoll Rands sale of the
Company. While adverse decisions in certain of these litigation
matters, claims and administrative proceedings could have a
material effect on a particular periods results of
operations, subject to the uncertainties inherent in estimating
future costs for contingent liabilities and the benefit of the
indemnity from Ingersoll Rand, management believes that any
future
F-28
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
accruals, with respect to these currently known contingencies,
would not have a material effect on the financial condition,
liquidity or cash flows of the Company.
Of the litigation pending, two separate tort claims have been
brought against the Company and others in 2008, with one brought
in the Court of Queens Bench Alberta, Judicial District of
Calgary, Canada by Talisman Energy Inc. and others and one
brought in the Prakhanong Provincial court, Thailand by Kaona
Power Supply Co. Ltd., alleging, among other matters, defects
and negligence in connection with the manufacture, testing,
installation and commissioning of certain new units and claiming
damages in the aggregate of approximately $30.0 plus
pre-judgment interest and costs, although the evidence currently
does not support damage claims in excess of $16.0. While damages
are a possibility, the Company shall vigorously defend these
lawsuits, including by asserting its contractual limitation of
liability and agreement to exclude consequential damages.
Moreover, the Company is asserting rights it believes it has to
insurance coverage with respect to these two claims.
In November of 2007, Local 313 of IUE-CWA, the union that
represents certain employees at the Companys Painted Post
facility (the IUE) made an offer to have its
striking members return to work under the terms of the
previously expired union agreement. The Company rejected that
offer and a lockout of the represented employees commenced.
Approximately one week later, after reaching an impasse in
negotiations, the Company exercised its right to implement the
terms of its last contract offer, ended the lockout, and the
employees represented by the IUE agreed to return to work under
the implemented terms. Subsequently, the IUE filed several
unfair labor practice (ULP) charges against the
Company with Region 3 of the National Labor Relations Board
(NLRB), asserting multiple allegations arising from
the protracted labor dispute, its termination, contract
negotiations and related matters.
Region 3 of the NLRB decided to proceed to complaint on only
one-third of the ULP allegations asserted by the IUE, while the
remaining claims were dismissed. Notably, the NLRB found that
many of the critical aspects of the Companys negotiations
with the IUE were handled appropriately, including, the
NLRBs findings that the Unions strike was not an
unfair labor practice strike and the Companys declaration
of impasse and its unilateral implementation of its last offer
were lawful.
The claims that proceeded to complaint before the NLRB included
the Companys handling of the one week lockout, the
negotiation of the recall process used to return employees to
the facility after reaching impasse and lifting the lockout, and
the termination of two employees who engaged in misconduct on
the picket line during the strike. The trial of this matter took
place before a NLRB Administrative Law Judge (the
ALJ) in Elmira and Painted Post, N.Y. during the
summer of 2009. On January 29, 2010, the ALJ issued a
decision in an administrative hearing which found in favor of
the union on some issues and upheld the Companys position
on others. The Company continues to believe it complied with the
law with respect to these allegations. While management believes
it should ultimately prevail with respect to these ULP
allegations, several levels of appeal may be necessary. The
Company anticipates that any impact arising from the ULPs will
not have a material adverse effect on the Companys
financial condition. The litigation process, including appeals
if elected by either party, could reasonably take 3 to
5 years and potentially even longer to resolve with
finality.
During the three months ended September 30, 2009, the
Company received notification from the current plan trustees of
one of its subsidiaries pension plans in the United
Kingdom that sex equalization under the plan may have been
achieved later than originally expected. The third-party trustee
at the time action was taken believes that it had taken the
appropriate steps to properly amend the plan as originally
expected. The Company has accrued $4.9 to address contingent
exposure regarding this dispute related to a period in the
1990s over potential unequal treatment of men and women
under the pension plan and is exploring its rights against
others.
On December 28, 2007, the Company closed a lease
transaction including a committed line of credit of up to
23 (approximately $33) that is being used to fund
construction of a new compressor testing facility (the
Facility) in close proximity to the Companys
operation in France. The Company began leasing the Facility in
January 2010 and is required to pay rent during the initial base
term of the lease in an amount equal to the aggregate amount of
interest payable by the lessor on the outstanding principal
amount of the debt incurred by the lessor. Interest is generally
determined by reference to the EURIBOR Rate plus an applicable
margin of between 1.25% and 2.50% .
The initial base term of the lease expires in February 2015. At
maturity, the Company may either terminate or, subject to the
mutual agreement, extend the lease. The Company may purchase the
Facility at any time for the amount
F-29
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
of the lessors debt outstanding, including upon maturity
of the lease. If the lease is terminated, the Company has
guaranteed that the lessor will receive at least 80% of the cost
of the Facility upon the sale of the Facility. The Company
anticipates that the lease will mature in 2015.
The operating lease contains representations, warranties and
covenants typical of such leases. Any event of default could
accelerate the Companys payment obligations under the
terms of the lease.
Certain office and warehouse facilities, transportation vehicles
and data processing equipment are leased. Total rental expense
relating to these leases was approximately $18.1, $17.5 and
$16.5 for the years ended December 31, 2009, 2008 and 2007,
respectively. Minimum lease payments required under
non-cancelable operating leases at December 31, 2009, with
terms in excess of one year for the next five years and
thereafter are as follows: $15.1 in 2010, $12.1 in 2011, $8.9 in
2012, $5.7 in 2013, $4.0 in 2014, and $6.2 in 2015 and
thereafter.
We maintain a product warranty liability that represents
estimated future claims for equipment, parts and services
covered during a warranty period. A warranty liability is
provided at the time of revenue recognition based on historical
experience and is adjusted as required.
The following table represents the changes in the product
warranty liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
37.0
|
|
|
$
|
28.5
|
|
|
$
|
23.4
|
|
Acquisitions
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
Provision for warranties issued during period
|
|
|
21.2
|
|
|
|
29.1
|
|
|
|
18.9
|
|
Adjustments to warranties issued in prior periods
|
|
|
(0.5
|
)
|
|
|
4.1
|
|
|
|
2.6
|
|
Payments during the period
|
|
|
(19.6
|
)
|
|
|
(23.1
|
)
|
|
|
(17.9
|
)
|
Foreign currency adjustments
|
|
|
1.1
|
|
|
|
(2.7
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
39.2
|
|
|
$
|
37.0
|
|
|
$
|
28.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.
|
Incentive
Stock-Based Compensation Plans
|
On May 13, 2008, the Companys stockholders approved
the 2008 Stock Incentive Plan (the 2008 Plan). The
Plan enables the Compensation Committee of the Board of
Directors to award incentive and non qualified stock options,
stock appreciation rights, shares of common stock, restricted
stock, restricted stock units and incentive bonuses (which may
be paid in cash or stock or a combination thereof), any of which
may be performance-based, with vesting and other award
provisions, to Company employees (including officers) and other
service providers. The Nominating and Governance Committee has
similar rights with respect to non-employee directors. The
maximum number of shares that may be issued under the Plan is
6,000,000. The 2008 Plan replaces all prior plans and is the
sole plan for providing future grants of equity-based incentive
compensation to eligible employees, non-employee directors and
service providers. Expense for grants to employees under the
2005 Stock Incentive Plan, as amended, the 2005 Directors
Stock Incentive Plan, as amended, and the 2008 plan as
applicable was $12.0 for 2009, $6.9 for 2008 and $4.5 for 2007.
At December 31, 2009, 4,866,230 shares were available
for future grants and total unrecognized deferred stock
compensation expected to be recognized over the remaining
weighted average vesting periods of 2.3 years for
outstanding employee grants was $26.1. The Company currently
expects to issue new shares upon exercise of options and vesting
of restricted stock units.
F-30
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
The following table summarizes option and stock appreciation
right activity during 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Balance, December 31, 2007
|
|
|
1,097,059
|
|
|
$
|
25.47
|
|
Granted
|
|
|
158,194
|
|
|
$
|
30.94
|
|
Excercised
|
|
|
(64,955
|
)
|
|
$
|
21.94
|
|
Forfeited
|
|
|
(15,765
|
)
|
|
$
|
26.94
|
|
Expired
|
|
|
(2,225
|
)
|
|
$
|
25.18
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
1,172,308
|
|
|
$
|
26.37
|
|
Granted
|
|
|
517,152
|
|
|
$
|
21.98
|
|
Excercised
|
|
|
(112,232
|
)
|
|
$
|
23.18
|
|
Forfeited
|
|
|
(48,563
|
)
|
|
$
|
25.57
|
|
Expired
|
|
|
(12,037
|
)
|
|
$
|
25.40
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
1,516,628
|
|
|
$
|
25.16
|
|
|
|
|
|
|
|
|
|
|
Excerisable December 31, 2007
|
|
|
139,184
|
|
|
$
|
22.34
|
|
Excerisable December 31, 2008
|
|
|
248,814
|
|
|
$
|
24.82
|
|
Excerisable December 31, 2009
|
|
|
400,123
|
|
|
$
|
26.56
|
|
The weighted-average grant date fair value per share of options
and stock appreciation rights granted to employees during the
year ended December 31, 2009, 2008 and 2007, was $12.40,
$12.06, and $10.74, respectively. The total intrinsic value of
options exercised during the year ended December 31, 2009,
was approximately $0.8. The total intrinsic value of options and
stock appreciation rights outstanding at December 31, 2009
was $10.4.
The options and stock appreciation rights granted have a
10 year contract term. Those granted in 2009 and 2008 vest
over a four year period.
The Company estimates the fair value of stock options and stock
appreciation rights using a Black-Scholes option valuation
model, consistent with ASC
718-10
(formally Statement No. 123(R) and SEC Staff Accounting
Bulletin No. 107). Key inputs and assumptions used
to estimate the fair value of stock options and stock
appreciation rights include the grant price of the award, the
expected option term, volatility of the Companys stock,
the risk-free rate and the Companys dividend yield.
Estimates of fair value are not intended to predict actual
future events or the value ultimately realized by employees who
receive equity awards, and subsequent events are not indicative
of the reasonableness of the original estimates of fair value
made by the Company. The following table presents the
weighted-average grant date assumptions used to estimate the
fair value of options and stock appreciation rights granted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Option term (years)
|
|
|
5.4
|
|
|
|
5.5
|
|
|
|
5.7
|
|
Volatility
|
|
|
57.7
|
%
|
|
|
39.9
|
%
|
|
|
34.5
|
%
|
Risk-free interest rate (zero coupon US Treasury note)
|
|
|
2.07
|
%
|
|
|
0.88
|
%
|
|
|
4.75
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
The option term is the number of years that the company
estimates that options will be outstanding prior to exercise
after vesting. Volatility is based on the estimated daily price
changes of the Companys stock over the expected option
term. Both of these estimates are based on similarly situated
companies since the Company does not have sufficient actual
experience on which to base such estimates.
F-31
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
The following table summarizes employee shares and share
units activity during 2009, 2008 and 2007 and grant date
fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Shares
|
|
|
Grant Price
|
|
|
Nonvested at December 31, 2007
|
|
|
401,357
|
|
|
$
|
25.92
|
|
Granted
|
|
|
246,662
|
|
|
$
|
33.42
|
|
Vested
|
|
|
(109,327
|
)
|
|
$
|
25.09
|
|
Forfeited
|
|
|
(17,093
|
)
|
|
$
|
28.97
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008
|
|
|
521,599
|
|
|
$
|
29.40
|
|
Granted
|
|
|
579,570
|
|
|
$
|
21.81
|
|
Vested
|
|
|
(158,964
|
)
|
|
$
|
29.16
|
|
Forfeited
|
|
|
(33,371
|
)
|
|
$
|
25.37
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
908,834
|
|
|
$
|
24.77
|
|
|
|
|
|
|
|
|
|
|
The Company also grants shares and share units to Directors.
Those granted in 2009 vest after a one year period. Those
granted in 2008 and 2007 vest over three years. The total fair
value of the 35,186 shares granted in 2009 at the grant
dates was $0.7, the 21,661 shares granted in 2008 at the
grant dates was $0.8, and the 17,340 shares and units
granted in 2007 was $0.5. At December 31, 2009, the total
intrinsic value of 35,437 unvested shares was $0.5.
|
|
18.
|
Significant
Clients and Concentration of Credit Risk
|
The Company supplies equipment and services to the oil and gas
industry, which is comprised of a relatively small number of
consumers. Within any given year, sales can vary greatly due to
the large projects that might be underway with any given oil and
gas producer. During the years ended December 31, 2009,
2008, and 2007, no one customer comprised more than 10% of sales.
The Company has operations and or does business in various
countries outside the United States. It is possible that
political instability, foreign currency devaluations or other
unanticipated adverse events could materially affect the
operations of the Company.
|
|
19.
|
Other
(Expense) Income
|
Other (expense) income includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Foreign currency gains (losses)
|
|
$
|
7.3
|
|
|
$
|
(15.6
|
)
|
|
$
|
6.9
|
|
(Loss) gain on forward exchange contracts
|
|
|
(11.1
|
)
|
|
|
9.1
|
|
|
|
(1.4
|
)
|
Gain on sale of investment
|
|
|
|
|
|
|
|
|
|
|
2.3
|
|
Net loss from equity investment
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
0.1
|
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income, net
|
|
$
|
(4.9
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have two reportable segments based on the engineering and
production processes, and the products and services provided by
each segment as follows:
1) New units are highly engineered solutions to new
requests from clients. 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.
F-32
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
Unallocated amounts represent expenses and assets that cannot be
assigned directly to either reportable segment because of their
nature. Unallocated net expenses include certain corporate
expenses, research and development expenses and the curtailment
amendment / partial settlement. Assets that are
directly assigned to the two reportable segments are trade
accounts receivable, net inventories, and goodwill. Unallocated
assets include cash, prepaid expenses, deferred taxes, property,
plant and equipment, and intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
1,258.8
|
|
|
$
|
1,202.7
|
|
|
$
|
813.5
|
|
Aftermarket parts and services
|
|
|
1,030.8
|
|
|
|
992.0
|
|
|
|
851.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,289.6
|
|
|
$
|
2,194.7
|
|
|
$
|
1,665.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
169.0
|
|
|
$
|
131.9
|
|
|
$
|
56.4
|
|
Aftermarket parts and services
|
|
|
264.7
|
|
|
|
276.7
|
|
|
|
213.8
|
|
Unallocable
|
|
|
(85.1
|
)
|
|
|
(71.1
|
)
|
|
|
(73.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
348.6
|
|
|
$
|
337.5
|
|
|
$
|
197.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
27.7
|
|
|
$
|
28.2
|
|
|
$
|
26.4
|
|
Aftermarket parts and services
|
|
|
23.8
|
|
|
|
20.6
|
|
|
|
22.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
51.5
|
|
|
$
|
48.8
|
|
|
$
|
49.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
157.0
|
|
|
$
|
133.7
|
|
|
$
|
131.6
|
|
Aftermarket parts and services
|
|
|
329.0
|
|
|
|
295.4
|
|
|
|
315.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
486.0
|
|
|
$
|
429.1
|
|
|
$
|
447.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (including goodwill)
|
|
|
|
|
|
|
|
|
|
|
|
|
New units
|
|
$
|
356.0
|
|
|
$
|
352.4
|
|
|
$
|
315.0
|
|
Aftermarket parts and services
|
|
|
767.7
|
|
|
|
765.8
|
|
|
|
697.8
|
|
Unallocable
|
|
|
1,026.5
|
|
|
|
934.0
|
|
|
|
938.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,150.2
|
|
|
$
|
2,052.2
|
|
|
$
|
1,950.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by destination
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
865.2
|
|
|
$
|
901.1
|
|
|
$
|
693.0
|
|
Latin America
|
|
|
239.4
|
|
|
|
251.3
|
|
|
|
218.6
|
|
Europe
|
|
|
430.1
|
|
|
|
538.4
|
|
|
|
300.2
|
|
Asia-Pacific
|
|
|
380.3
|
|
|
|
263.0
|
|
|
|
202.9
|
|
Middle East, Africa
|
|
|
374.6
|
|
|
|
240.9
|
|
|
|
250.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,289.6
|
|
|
$
|
2,194.7
|
|
|
$
|
1,665.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets by geographic area
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
178.9
|
|
|
$
|
166.3
|
|
|
$
|
149.3
|
|
Latin America
|
|
|
4.6
|
|
|
|
3.6
|
|
|
|
3.7
|
|
Europe
|
|
|
75.7
|
|
|
|
72.0
|
|
|
|
54.7
|
|
Asia-Pacific
|
|
|
9.7
|
|
|
|
8.4
|
|
|
|
9.0
|
|
Middle East, Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
268.9
|
|
|
$
|
250.3
|
|
|
$
|
216.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, there were no sales
to clients in countries outside the U.S. that exceeded 5.0%
of total revenues. For the year ended December 31, 2008,
sales to clients in Norway were 11.0% of total revenues.
F-33
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
For the year ended December 31, 2007, sales to clients in
Brazil were 5.1% of total revenues. No other sales to clients
within individual countries outside the United States exceeded
5% of the total revenues in any year presented.
|
|
21.
|
Selected
Unaudited Quarterly Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
Total revenues
|
|
$
|
508.9
|
|
|
$
|
606.1
|
|
|
$
|
612.1
|
|
|
$
|
562.5
|
|
|
|
|
|
Gross profit
|
|
|
137.1
|
|
|
|
170.0
|
|
|
|
182.2
|
|
|
|
168.2
|
|
|
|
|
|
Net income
|
|
|
34.5
|
|
|
|
60.3
|
|
|
|
74.6
|
|
|
|
41.4
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.42
|
|
|
|
0.74
|
|
|
|
0.91
|
|
|
|
0.51
|
|
|
|
|
|
Diluted
|
|
|
0.42
|
|
|
|
0.74
|
|
|
|
0.91
|
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
Total revenues
|
|
$
|
363.8
|
|
|
$
|
541.2
|
|
|
$
|
543.9
|
|
|
$
|
745.8
|
|
|
|
|
|
Gross profit
|
|
|
105.7
|
|
|
|
150.0
|
|
|
|
157.4
|
|
|
|
205.5
|
|
|
|
|
|
Net income
|
|
|
27.2
|
|
|
|
46.7
|
|
|
|
46.8
|
|
|
|
77.0
|
|
|
|
|
|
Net income per share-basic and diluted
|
|
|
0.32
|
|
|
|
0.55
|
|
|
|
0.57
|
|
|
|
0.94
|
|
|
|
|
|
|
|
22.
|
Supplemental
Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash paid for interest, net of amounts capitalized
|
|
$
|
30.0
|
|
|
$
|
33.0
|
|
|
$
|
36.8
|
|
Cash paid for income taxes, net of refunds
|
|
|
122.4
|
|
|
|
100.4
|
|
|
|
71.1
|
|
|
|
23.
|
Supplemental
guarantor financial information:
|
The following wholly owned subsidiaries guaranteed the
Companys senior subordinated notes on a full,
unconditional and joint and several basis: Dresser-Rand LLC,
Dresser-Rand Power LLC, Dresser-Rand Company, Dresser-Rand Steam
LLC and Dresser-Rand Global Services, LLC (collectively, the
Subsidiary Guarantors).
The following condensed consolidating and combining financial
information of the Issuer, Subsidiary Guarantors and Subsidiary
Non-Guarantors presents the balance sheets as of
December 31, 2009 and 2008 and statements of operations and
cash flows, for the years ended December 31, 2009, 2008 and
2007. The condensed consolidating financial information presents
investments in consolidated subsidiaries using the equity method
of accounting.
F-34
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF INCOME
For the year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
1,354.1
|
|
|
$
|
1,105.6
|
|
|
$
|
(170.1
|
)
|
|
$
|
2,289.6
|
|
Cost of sales
|
|
|
|
|
|
|
962.7
|
|
|
|
804.0
|
|
|
|
(134.6
|
)
|
|
|
1,632.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
391.4
|
|
|
|
301.6
|
|
|
|
(35.5
|
)
|
|
|
657.5
|
|
Selling and administrative expenses
|
|
|
139.2
|
|
|
|
60.5
|
|
|
|
121.9
|
|
|
|
(34.3
|
)
|
|
|
287.3
|
|
Research and development expenses
|
|
|
|
|
|
|
17.7
|
|
|
|
2.6
|
|
|
|
|
|
|
|
20.3
|
|
Plan settlement/curtailment amendment
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(139.2
|
)
|
|
|
313.2
|
|
|
|
175.8
|
|
|
|
(1.2
|
)
|
|
|
348.6
|
|
Equity earnings in affiliates
|
|
|
285.4
|
|
|
|
14.8
|
|
|
|
|
|
|
|
(300.2
|
)
|
|
|
|
|
Interest expense, net
|
|
|
(31.0
|
)
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
(31.8
|
)
|
Intercompany interest and fees
|
|
|
23.7
|
|
|
|
(7.0
|
)
|
|
|
(16.7
|
)
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
2.7
|
|
|
|
(0.4
|
)
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
141.6
|
|
|
|
320.6
|
|
|
|
151.1
|
|
|
|
(301.4
|
)
|
|
|
311.9
|
|
(Benefit) provision for income taxes
|
|
|
(69.2
|
)
|
|
|
120.1
|
|
|
|
50.2
|
|
|
|
|
|
|
|
101.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
210.8
|
|
|
$
|
200.5
|
|
|
$
|
100.9
|
|
|
$
|
(301.4
|
)
|
|
$
|
210.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF INCOME
For the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
1,320.1
|
|
|
$
|
1,029.8
|
|
|
$
|
(155.2
|
)
|
|
$
|
2,194.7
|
|
Cost of sales
|
|
|
|
|
|
|
960.4
|
|
|
|
747.1
|
|
|
|
(131.4
|
)
|
|
|
1,576.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
359.7
|
|
|
|
282.7
|
|
|
|
(23.8
|
)
|
|
|
618.6
|
|
Selling and administrative expenses
|
|
|
125.9
|
|
|
|
59.2
|
|
|
|
110.6
|
|
|
|
(21.9
|
)
|
|
|
273.8
|
|
Research and development expenses
|
|
|
|
|
|
|
11.7
|
|
|
|
1.0
|
|
|
|
|
|
|
|
12.7
|
|
Curtailment amendment/partial settlement
|
|
|
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(125.9
|
)
|
|
|
294.2
|
|
|
|
171.1
|
|
|
|
(1.9
|
)
|
|
|
337.5
|
|
Equity earnings in affiliates
|
|
|
280.1
|
|
|
|
6.7
|
|
|
|
|
|
|
|
(286.8
|
)
|
|
|
|
|
Interest (expense) income, net
|
|
|
(31.4
|
)
|
|
|
0.2
|
|
|
|
1.8
|
|
|
|
|
|
|
|
(29.4
|
)
|
Intercompany interest and fees
|
|
|
18.4
|
|
|
|
4.0
|
|
|
|
(22.4
|
)
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
2.2
|
|
|
|
(2.9
|
)
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
(6.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
143.4
|
|
|
|
302.2
|
|
|
|
144.4
|
|
|
|
(288.7
|
)
|
|
|
301.3
|
|
(Benefit) provision for income taxes
|
|
|
(54.3
|
)
|
|
|
110.3
|
|
|
|
47.6
|
|
|
|
|
|
|
|
103.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
197.7
|
|
|
$
|
191.9
|
|
|
$
|
96.8
|
|
|
$
|
(288.7
|
)
|
|
$
|
197.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF INCOME
For the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
1,115.9
|
|
|
$
|
679.9
|
|
|
$
|
(130.8
|
)
|
|
$
|
1,665.0
|
|
Cost of sales
|
|
|
|
|
|
|
860.7
|
|
|
|
471.6
|
|
|
|
(116.2
|
)
|
|
|
1,216.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
255.2
|
|
|
|
208.3
|
|
|
|
(14.6
|
)
|
|
|
448.9
|
|
Selling and administrative expenses
|
|
|
114.0
|
|
|
|
52.3
|
|
|
|
90.4
|
|
|
|
(17.7
|
)
|
|
|
239.0
|
|
Research and development expenses
|
|
|
|
|
|
|
12.6
|
|
|
|
0.2
|
|
|
|
|
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(114.0
|
)
|
|
|
190.3
|
|
|
|
117.7
|
|
|
|
3.1
|
|
|
|
197.1
|
|
Equity earnings in affiliates
|
|
|
174.8
|
|
|
|
1.5
|
|
|
|
|
|
|
|
(176.3
|
)
|
|
|
|
|
Interest expense, net
|
|
|
(35.1
|
)
|
|
|
(0.4
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
(36.8
|
)
|
Intercompany interest and fees
|
|
|
28.0
|
|
|
|
(1.7
|
)
|
|
|
(26.3
|
)
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
7.6
|
|
|
|
(1.7
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
61.3
|
|
|
|
188.0
|
|
|
|
91.5
|
|
|
|
(173.2
|
)
|
|
|
167.6
|
|
(Benefit) provision for income taxes
|
|
|
(45.4
|
)
|
|
|
72.9
|
|
|
|
33.4
|
|
|
|
|
|
|
|
60.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
106.7
|
|
|
$
|
115.1
|
|
|
$
|
58.1
|
|
|
$
|
(173.2
|
)
|
|
$
|
106.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
CONDENSED
CONSOLIDATING BALANCE SHEET
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Assets
|
Cash and cash equivalents
|
|
$
|
57.6
|
|
|
$
|
|
|
|
$
|
165.6
|
|
|
$
|
|
|
|
$
|
223.2
|
|
Accounts receivables, net
|
|
|
|
|
|
|
126.4
|
|
|
|
163.4
|
|
|
|
|
|
|
|
289.8
|
|
Inventories, net
|
|
|
|
|
|
|
215.0
|
|
|
|
147.0
|
|
|
|
(9.0
|
)
|
|
|
353.0
|
|
Prepaid expenses and deferred income taxes
|
|
|
33.4
|
|
|
|
2.2
|
|
|
|
34.7
|
|
|
|
|
|
|
|
70.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
91.0
|
|
|
|
343.6
|
|
|
|
510.7
|
|
|
|
(9.0
|
)
|
|
|
936.3
|
|
Investment in affiliates
|
|
|
1,911.9
|
|
|
|
64.6
|
|
|
|
|
|
|
|
(1,976.5
|
)
|
|
|
|
|
Property, plant, and equipment, net
|
|
|
|
|
|
|
171.2
|
|
|
|
97.7
|
|
|
|
|
|
|
|
268.9
|
|
Intangible assets, net
|
|
|
|
|
|
|
436.5
|
|
|
|
480.4
|
|
|
|
|
|
|
|
916.9
|
|
Other assets
|
|
|
26.1
|
|
|
|
0.7
|
|
|
|
1.3
|
|
|
|
|
|
|
|
28.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,029.0
|
|
|
$
|
1,016.6
|
|
|
$
|
1,090.1
|
|
|
$
|
(1,985.5
|
)
|
|
$
|
2,150.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
Accounts payable and accruals
|
|
$
|
(90.9
|
)
|
|
$
|
306.3
|
|
|
$
|
369.9
|
|
|
$
|
|
|
|
$
|
585.3
|
|
Loans payable
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(90.9
|
)
|
|
|
306.4
|
|
|
|
369.9
|
|
|
|
|
|
|
|
585.4
|
|
Long-term debt
|
|
|
370.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
370.0
|
|
Intercompany accounts
|
|
|
717.0
|
|
|
|
(756.7
|
)
|
|
|
39.7
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
20.3
|
|
|
|
86.5
|
|
|
|
75.4
|
|
|
|
|
|
|
|
182.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,016.4
|
|
|
|
(363.8
|
)
|
|
|
485.0
|
|
|
|
|
|
|
|
1,137.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
Other stockholders equity
|
|
|
1,011.8
|
|
|
|
1,380.4
|
|
|
|
605.1
|
|
|
|
(1,985.5
|
)
|
|
|
1,011.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,012.6
|
|
|
|
1,380.4
|
|
|
|
605.1
|
|
|
|
(1,985.5
|
)
|
|
|
1,012.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,029.0
|
|
|
$
|
1,016.6
|
|
|
$
|
1,090.1
|
|
|
$
|
(1,985.5
|
)
|
|
$
|
2,150.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
CONDENSED
CONSOLIDATING BALANCE SHEET
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Assets
|
Cash and cash equivalents
|
|
$
|
26.5
|
|
|
$
|
|
|
|
$
|
120.6
|
|
|
$
|
|
|
|
$
|
147.1
|
|
Accounts receivable, net
|
|
|
|
|
|
|
166.8
|
|
|
|
199.4
|
|
|
|
0.1
|
|
|
|
366.3
|
|
Inventories, net
|
|
|
|
|
|
|
233.7
|
|
|
|
102.5
|
|
|
|
(7.7
|
)
|
|
|
328.5
|
|
Prepaid expenses and deferred income taxes
|
|
|
23.1
|
|
|
|
3.7
|
|
|
|
39.3
|
|
|
|
(0.2
|
)
|
|
|
65.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
49.6
|
|
|
|
404.2
|
|
|
|
461.8
|
|
|
|
(7.8
|
)
|
|
|
907.8
|
|
Investment in affiliates
|
|
|
1,668.3
|
|
|
|
65.6
|
|
|
|
|
|
|
|
(1,733.9
|
)
|
|
|
|
|
Property, plant, and equipment, net
|
|
|
|
|
|
|
159.8
|
|
|
|
90.5
|
|
|
|
|
|
|
|
250.3
|
|
Intangible assets, net
|
|
|
|
|
|
|
445.3
|
|
|
|
425.4
|
|
|
|
|
|
|
|
870.7
|
|
Other assets
|
|
|
20.4
|
|
|
|
1.2
|
|
|
|
1.8
|
|
|
|
|
|
|
|
23.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,738.3
|
|
|
$
|
1,076.1
|
|
|
$
|
979.5
|
|
|
$
|
(1,741.7
|
)
|
|
$
|
2,052.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
Accounts payable and accruals
|
|
$
|
(55.9
|
)
|
|
$
|
416.9
|
|
|
$
|
375.1
|
|
|
$
|
|
|
|
$
|
736.1
|
|
Loans payable
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(55.9
|
)
|
|
|
417.1
|
|
|
|
375.1
|
|
|
|
|
|
|
|
736.3
|
|
Long-term debt
|
|
|
370.0
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
370.1
|
|
Intercompany accounts
|
|
|
660.7
|
|
|
|
(712.4
|
)
|
|
|
51.7
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
3.3
|
|
|
|
125.9
|
|
|
|
56.4
|
|
|
|
|
|
|
|
185.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
978.1
|
|
|
|
(169.3
|
)
|
|
|
483.2
|
|
|
|
|
|
|
|
1,292.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
Other stockholders equity
|
|
|
759.4
|
|
|
|
1,245.4
|
|
|
|
496.3
|
|
|
|
(1,741.7
|
)
|
|
|
759.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
760.2
|
|
|
|
1,245.4
|
|
|
|
496.3
|
|
|
|
(1,741.7
|
)
|
|
|
760.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,738.3
|
|
|
$
|
1,076.1
|
|
|
$
|
979.5
|
|
|
$
|
(1,741.7
|
)
|
|
$
|
2,052.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(88.5
|
)
|
|
$
|
138.4
|
|
|
$
|
79.9
|
|
|
$
|
|
|
|
$
|
129.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(27.4
|
)
|
|
|
(13.7
|
)
|
|
|
|
|
|
|
(41.1
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
Acquisitions
|
|
|
(12.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.7
|
)
|
Other investments
|
|
|
(10.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(22.7
|
)
|
|
|
(26.2
|
)
|
|
|
(13.7
|
)
|
|
|
|
|
|
|
(62.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Payments of long-term debt
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
Change in intercompany accounts
|
|
|
140.2
|
|
|
|
(112.0
|
)
|
|
|
(28.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
142.3
|
|
|
|
(112.2
|
)
|
|
|
(28.2
|
)
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
7.0
|
|
|
|
|
|
|
|
7.0
|
|
Net increase in cash and equivalents
|
|
|
31.1
|
|
|
|
|
|
|
|
45.0
|
|
|
|
|
|
|
|
76.1
|
|
Cash and cash equivalents, beginning of period
|
|
|
26.5
|
|
|
|
|
|
|
|
120.6
|
|
|
|
|
|
|
|
147.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
57.6
|
|
|
$
|
|
|
|
$
|
165.6
|
|
|
$
|
|
|
|
$
|
223.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(121.3
|
)
|
|
$
|
273.8
|
|
|
$
|
82.3
|
|
|
$
|
|
|
|
$
|
234.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(32.8
|
)
|
|
|
(7.4
|
)
|
|
|
|
|
|
|
(40.2
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.3
|
|
Other Investment
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.0
|
)
|
Acquisitions
|
|
|
(91.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(96.4
|
)
|
|
|
(32.7
|
)
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
(136.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
Payments of long-term debt
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
Repurchase of common stock
|
|
|
(150.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150.2
|
)
|
Excess tax benefits from share-based compensation
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Change in intercompany accounts
|
|
|
322.3
|
|
|
|
(241.3
|
)
|
|
|
(81.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
173.5
|
|
|
|
(241.1
|
)
|
|
|
(81.0
|
)
|
|
|
|
|
|
|
(148.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
(9.0
|
)
|
|
|
|
|
|
|
(9.0
|
)
|
Net decrease in cash and equivalents
|
|
|
(44.2
|
)
|
|
|
|
|
|
|
(14.9
|
)
|
|
|
|
|
|
|
(59.1
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
70.7
|
|
|
|
|
|
|
|
135.5
|
|
|
|
|
|
|
|
206.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
26.5
|
|
|
$
|
|
|
|
$
|
120.6
|
|
|
$
|
|
|
|
$
|
147.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(110.5
|
)
|
|
$
|
187.0
|
|
|
$
|
139.6
|
|
|
$
|
(0.1
|
)
|
|
$
|
216.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(18.6
|
)
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
(23.7
|
)
|
Acquisitions
|
|
|
|
|
|
|
(8.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(8.1
|
)
|
Proceeds from the sale of equity investment
|
|
|
|
|
|
|
5.1
|
|
|
|
0.7
|
|
|
|
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(21.6
|
)
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
(26.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in debt
|
|
|
(62.2
|
)
|
|
|
0.5
|
|
|
|
(75.0
|
)
|
|
|
|
|
|
|
(136.7
|
)
|
Proceeds from exercise of stock options
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Cash paid for debt issuance costs
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.5
|
)
|
Change in intercompany accounts
|
|
|
210.6
|
|
|
|
(165.9
|
)
|
|
|
(44.8
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
144.3
|
|
|
|
(165.4
|
)
|
|
|
(119.8
|
)
|
|
|
0.1
|
|
|
|
(140.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
|
|
|
|
|
|
10.2
|
|
Net increase in cash and equivalents
|
|
|
33.8
|
|
|
|
|
|
|
|
25.6
|
|
|
|
|
|
|
|
59.4
|
|
Cash and cash equivalents, beginning of period
|
|
|
36.9
|
|
|
|
|
|
|
|
109.9
|
|
|
|
|
|
|
|
146.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
70.7
|
|
|
$
|
|
|
|
$
|
135.5
|
|
|
$
|
|
|
|
$
|
206.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
DRESSER-RAND
GROUP INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
millions, except per share amounts)
Subsequent events occurring after the balance sheet date but
before the financial statement issuance date have been evaluated
through February 25, 2010, the date of the filing.
The Venezuelan government has devalued the bolivar a number of
times, including a recent devaluation on January 8, 2010.
As a result of this most recent devaluation, the Company
recorded a foreign exchange loss in our Consolidated Income
Statement of approximately $13.6 million and a reduction in
our aftermarket backlog of approximately $1.1 million in
January 2010.
On January 18, 2010, the Company acquired the assets of
Leading Edge Turbine Technologies, Inc. (LETT),
located in Houston, TX for $35.0. LETT is a provider of turbine
technologies specializing in industrial gas turbines, steam
turbines and compressor repair. The purchase agreement includes
the potential for additional cash consideration based on
achieving certain Revenue and Earnings Before Interest, Tax,
Depreciation, and Amortization (EBITDA) targets over
a three-year period ending on December 31, 2012. The
additional consideration is up to a maximum of $4.6 depending
upon the achievement of such targets.
Pro forma financial information, assuming this acquisition
occurred at the beginning of each income statement period, has
not been presented because the effect on our results for each of
those periods was not considered material. The results of this
acquisition will be included in our consolidated financial
results from the date of such acquisition.
In February 2010 the Companys board of directors
authorized the repurchase of up to $200 million of its
common stock, which is approximately 8 percent of the
Companys outstanding shares. Stock repurchases under this
program may be made through open market or privately negotiated
transactions in accordance with all applicable laws, rules, and
regulations. The transactions may be made from time to time and
in such amounts, as management deems appropriate and will be
funded from operating cash flows or borrowings under the
Companys revolving credit facility.
The number of shares to be repurchased and the timing of
repurchases will be based on several factors. These factors
include the price of the Companys common stock, general
business and market conditions, other investment opportunities
including acquisitions and covenant limitations. The most
restrictive covenant allows shares to be repurchased up to an
annual amount of half the prior years net income.
Presently, without seeking a covenant waiver, this limits the
Company to approximately $100 million in 2010. The stock
repurchase program does not have an expiration date and may be
limited or terminated at any time by the Board of Directors
without prior notice.
F-43
Dresser-Rand
Group Inc.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES
for the years ended December 31, 2009, 2008 and 2007
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Charges to
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance at
|
|
|
Costs and
|
|
|
Charges to
|
|
|
|
|
|
Balance at
|
|
Description
|
|
01/01/09
|
|
|
Expenses
|
|
|
Other Accounts
|
|
|
Deductions
|
|
|
12/31/2009
|
|
|
Allowance for losses on receivables
|
|
$
|
11.6
|
|
|
$
|
4.7
|
|
|
$
|
|
|
|
$
|
1.9(a
|
)
|
|
$
|
14.4
|
|
Valuation allowance for deferred tax asset
|
|
|
6.5
|
|
|
|
3.9
|
|
|
|
1.0(b
|
)
|
|
|
|
|
|
$
|
11.4
|
|
Notes:
|
|
|
(a) |
|
- Impact of foreign exchange of $(0.2) and write-off of bad
debts of $2.1. |
|
|
|
(b) |
|
- Impact of foreign exchange. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Charges to
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance at
|
|
|
Costs and
|
|
|
Charges to
|
|
|
|
|
|
Balance at
|
|
Description
|
|
01/01/08
|
|
|
Expenses
|
|
|
Other Accounts
|
|
|
Deductions
|
|
|
12/31/2008
|
|
|
Allowance for losses on receivables
|
|
$
|
5.9
|
|
|
$
|
7.6
|
|
|
$
|
|
|
|
$
|
1.9(a
|
)
|
|
$
|
11.6
|
|
Valuation allowance for deferred tax asset
|
|
|
5.5
|
|
|
|
1.6
|
|
|
|
(0.6
|
)(b)
|
|
|
|
|
|
|
6.5
|
|
Notes:
|
|
|
|
|
|
|
(a) |
|
- Impact of foreign exchange of $.7 and write-off of bad
debts of $1.2. |
|
|
|
(b) |
|
- Impact of foreign exchange. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Charges to
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance at
|
|
|
Costs and
|
|
|
Charges to
|
|
|
|
|
|
Balance at
|
|
Description
|
|
01/01/07
|
|
|
Expenses
|
|
|
Other Accounts
|
|
|
Deductions
|
|
|
12/31/2007
|
|
|
Allowance for losses on receivables
|
|
$
|
6.1
|
|
|
$
|
1.2
|
|
|
$
|
|
|
|
$
|
1.4
|
(a)
|
|
$
|
5.9
|
|
Valuation allowance for deferred tax asset
|
|
|
4.3
|
|
|
|
0.5
|
|
|
|
0.7
|
(b)
|
|
|
|
|
|
|
5.5
|
|
Notes:
|
|
|
|
|
|
|
(a) |
|
- Impact of foreign exchange of $(0.2) and write-off of bad
debts of $1.6. |
|
|
|
(b) |
|
- Impact of foreign exchange. |
S-1