Business News

Dresser-Rand Reports Record Fourth Quarter and Year 2008 Results

Tuesday 24. February 2009 - -- Revenues for the fourth quarter and year 2008 were $745.8 million and $2,194.7 million, respectively, up 43.4% and 31.8% compared with the corresponding periods in 2007

— Operating income for the fourth quarter and year 2008 were $132.3 million and $337.5 million, respectively, up 70.3% and 71.2% compared with the corresponding periods in 2007
— Net cash provided by operating activities was $234.8 million for 2008, an increase of 8.7% compared with 2007
— Bookings for 2008 of $2,523.3 million increased 15.0% compared with bookings for 2007
— Backlog as of December 31, 2008, increased 21.1% from December 31, 2007, to $2,251.5 million

Dresser-Rand Group Inc. (“Dresser-Rand” or the “Company”) (NYSE:DRC), a global supplier of rotating equipment and aftermarket parts and services, reported net income of $77.0 million, or $0.94 per diluted share, for the fourth quarter 2008. Net income was $43.8 million, or $0.51 per diluted share, for the fourth quarter 2007. Net income was $197.7 million, or $2.36 per diluted share, for 2008 compared with net income of $106.7 million, or $1.25 per diluted share, for 2007. Net income for the fourth quarter and year 2008 increased 75.8% and 85.3%, respectively, compared with the corresponding periods in 2007.

Vincent R. Volpe Jr., President and Chief Executive Officer of Dresser-Rand, said, “2008 was an outstanding year for Dresser-Rand. The 2008 results created new records in many important categories. Bookings totaled an unprecedented $2.5 billion, sales grew to a record $2.2 billion, and our operating income increased 71%.”

“As we enter 2009, the market for new unit orders is changing, as end users, for tactical reasons, are choosing to delay purchase decisions on some major projects. Based on comments from several key clients, we believe this to be more of a delay in demand, rather than a definitive move to cancel their investment programs. Indeed we continue to experience a high level of activity in our new unit inquiries. While it is not possible at present to accurately forecast the length of the delays, we currently expect new unit bookings to be in the range of approximately $700 million to $1.1 billion for 2009.”

“This is not the first slowdown we have faced, and we have been planning our manufacturing strategy over the past eight years to be ready when this occurred. It is difficult to accurately predict when the economy will begin to improve; hence we will be prudent about how we manage in this environment. However, we are fortunate to have a strong backlog of new unit orders, a historically dependable aftermarket segment, a strong supply chain management program focused on material productivity, a flexible manufacturing model which will allow us to flex capacity down if necessary without major restructuring, and the proper leadership in place to ensure continued good execution.”

Total revenues for the fourth quarter 2008 of $745.8 million increased $225.7 million or 43.4% compared with $520.1 million for the fourth quarter 2007. Total revenues for 2008 of $2,194.7 million increased $529.7 million or 31.8% compared with revenues of $1,665.0 million for 2007.

Operating income for the fourth quarter 2008 was $132.3 million. This compares to operating income of $77.7 million for the fourth quarter 2007. Fourth quarter 2008 operating income increased from the year ago quarter primarily due to higher sales. In addition, results for the fourth quarter 2007 were adversely impacted by a work stoppage at the Painted Post facility. The Company estimates the work stoppage reduced its operating income for the fourth quarter 2007 by approximately $14 million.

Operating income for 2008 was $337.5 million compared with $197.1 million for 2007. Operating income increased from the year ago period primarily due to higher sales. In addition, results for 2007 were adversely impacted by the work stoppage at the Painted Post facility and several unusual items. The Company estimates the work stoppage reduced its operating income for 2007 by approximately $34 million. As previously disclosed, in 2007, the Company also incurred several unusual items totaling $10.1 million.

Bookings for the fourth quarter 2008 were $710.8 million, which was $97.1 million or 15.8% higher than the fourth quarter 2007 of $613.7 million. Bookings for 2008 of $2,523.3 million were $328.6 million or 15.0% higher than bookings for 2007 of $2,194.7 million.

The backlog at the end of December 2008 of $2,251.5 million was 21.1% higher than the backlog at the end of December 2007 of $1,859.3 million.

New Units Segment

New unit revenues for the fourth quarter 2008 of $447.3 million increased 63.9% compared with $272.9 million for the fourth quarter 2007. New unit revenues for 2008 of $1,202.7 million increased 47.8% compared with $813.5 million for 2007.

New unit operating income for the fourth quarter 2008 of $59.2 million compares favorably with operating income of $22.4 million for the fourth quarter 2007. This segment’s operating margin was 13.2% compared with 8.2% for the fourth quarter 2007. The increase in this segment’s operating results was primarily attributable to higher sales. In addition the Company estimates the work stoppage at the Painted Post facility reduced this segment’s fourth quarter 2007 operating income by approximately $6 million to $7 million and its operating margin by approximately 200 to 220 basis points.

New unit operating income was $131.9 million for 2008, an increase of 134% compared with operating income of $56.4 million for 2007. This segment’s operating margin for 2008 was 11.0% compared with 6.9% for 2007. The increase from 2007 was principally attributable to higher sales. In addition the Company estimates the work stoppage at the Painted Post facility and the previously mentioned unusual items reduced this segment’s 2007 operating income by approximately $19 million to $20 million and its operating margin by approximately 200 to 220 basis points for the year 2007.

New unit bookings for the fourth quarter 2008 of $415.9 million were 19.3% higher than bookings for the corresponding period in 2007 of $348.5 million. New unit bookings included an order to supply DATUM compressors for Gazprom’s Portovaya Station for approximately $108 million and an order from Petrobras to supply four power generation packages for their P-55 vessel for approximately $78 million. New unit bookings for 2008 of $1,429.3 million were 8.2% higher than the bookings for 2007 of $1,321.5 million.

The backlog at December 31, 2008 of $1,830.5 million was 18.6% above the $1,543.0 million backlog at December 31, 2007.

Aftermarket Parts and Services Segment

Aftermarket parts and services revenues for the fourth quarter 2008 of $298.5 million increased 20.8% compared with $247.2 million for the fourth quarter 2007. Aftermarket parts and services revenues for 2008 of $992.0 million increased 16.5% compared with $851.5 million for 2007.

Aftermarket operating income for fourth quarter 2008 of $92.1 million compares favorably with $70.6 million for the fourth quarter 2007. This segment’s operating margin for the fourth quarter of 2008 was approximately 30.8% and compares with 28.6% for the fourth quarter 2007. The increase in this segment’s operating results was principally due to higher sales. In addition the Company estimates the work stoppage at the Painted Post facility reduced this segment’s fourth quarter 2007 operating income by approximately $7 million to $8 million and its operating margin by approximately 240 to 260 basis points.

Aftermarket operating income for 2008 of $276.7 million compares favorably with $213.8 million for 2007. This segment’s operating margin for 2008 was approximately 27.9% and compares with 25.1% for 2007. The increase in operating income from 2007 was principally attributable to higher sales for parts and services. In addition the Company estimates the work stoppage at the Painted Post facility and the unusual items reduced this segment’s 2007 operating income by approximately $24 million to $25 million and its operating margin by approximately 220 to 240 basis points for the year 2007.

Aftermarket bookings for the fourth quarter 2008 of $294.9 million were 11.2% above bookings for the corresponding period in 2007 of $265.2 million. Bookings for 2008 of $1,094.0 million were 25.3% above bookings for 2007 of $873.2 million. As previously disclosed, bookings for 2007 were affected adversely by changes in the procurement process and a delay in budget appropriations for certain of the Company’s national oil company clients. However, the bookings recovered in the latter half of the year and into 2008.

The backlog at December 31, 2008 was $421.0 million and compares with a backlog of $316.3 million at December 31, 2007.

Liquidity and Capital Resources

As of December 31, 2008, cash and cash equivalents totaled $147.1 million and borrowing availability under the Company’s $500.0 million senior secured credit facility was $228.9 million, as $271.1 million was used for outstanding letters of credit.

In 2008, cash provided by operating activities was $234.8 million, which compares with $216.0 million in 2007. The increase of $18.8 million in net cash provided by operating activities was principally from improved operating results partially offset by a higher investment in working capital. Principal uses of cash in 2008 include capital expenditures of $40.2 million, the repurchase of the Company’s common stock totaling $150.2 million and three acquisitions amounting to $91.4 million. As of December 31, 2008, total debt was $370.3 million and total debt net of cash and cash equivalents was approximately $223.2 million.

Outlook

At December 31, 2008, 77.8% of the backlog of $2,251.5 million was scheduled to ship in 2009.

Consistent with previous guidance, the Company expects 2009 operating income to be in the range of $320 million to $360 million, with both segment margins consistent with those achieved in 2008. The Company expects its full year 2009 interest expense to be in the range of $28 million to $32 million and its effective tax rate to be approximately 35 percent.

The Company expects first quarter 2009 operating income to be in the range of 11% to 13% of the total year.