DRESSER-RAND GROUP INC.

A Brief Company Profile, Project Impact Analysis and Marketing Strategy Review Performed for Realization Technologies
COMPANY PROFILE
Bus •Dresser-Rand is among the largest global suppliers of custom-engineered rotating equipment
solutions for long-life, critical applications primarily in the oil, gas, petrochemical and
ine process industries. It derives its revenue from the following end-use industries:
•
ss •
• Dresser-Rand Revenue by Industry
Des •
cri •
•
pti •
•
on •

•
•The Company reports in two business segments representing the following revenue share:

Dresser-Rand Business
Segments by Revenue Share
Bus •The Company operates in 18 U.S. states and 29 countries, with the following geographic
distribution of revenue:
ine •
•
ss •
Dresser-Rand Revenue
by Geography
•
Des •
cri •
•
pti •
•
on
(Co
•The Company has approximately 6,100 employees, 64% of which are located in the United
nti States. It operates 65 sales offices, 37 service centers and 12 manufacturing locations
nue •
•Key clients include Chevron, Royal Dutch Shell, ExxonMobil, BP, Statoil, Total, Petrobras,
d) Pemex, PDVSA, Petronas, Saudi Aramco, ConocoPhillips, LUKOIL, Marathon Petroleum
Company, Repsol, and Dow Chemical Company
•
•No single client comprises more than 5% of total revenue
•
•The Company serves clients in over 140 countries
Mar •The Company operates in what it characterizes as a highly fragmented industry, believing the
New Unit market and Aftermarket Parts and Service (“AP&S”) market to be $5 billion and $9
ket billion respectively. By implication, the Company believes it has the following market share:
•
& •
•
Ind • Dresser-Rand New Dresser-Rand Aftermarket Parts
Unit Market Share & Services Market Share
ust •
•
ry •
•
•
•

•Over the last 25 years, the market segments in which the Company competes have recently
experienced consolidation:
•
•The turbo compressor industry has consolidated from more than 15 to 7
competitors
•
•The reciprocating compressor industry has consolidated from more than 12 to 6
competitors
•
•The steam turbine industry has consolidated from more than 18 to 5 competitors
Mar •The largest competitors can be classified by product category:
•
ket •Competitors in the turbo compressor industry include GE Oil and Gas/Nuovo
Pignone, Siemens, Solar Turbines, Inc., Rolls-Royce Group plc, Elliott
& Company, Mitsubishi Heavy Industries and MAN Turbo
•
Ind •Competitors in the reciprocating compressor industry include GE Oil and
ust Gas/Nuovo Pignone, Burckhardt Compression, Neuman & Esser Group, Ariel
Corp., Thomassen and Mitsui & Co., Ltd
ry •
•Competitors in the steam turbine industry include Elliott Company, Siemens, GE
(Co Oil and Gas/Nuovo Pignone, Mitsubishi Heavy Industries and Shin Nippon
Machinery Co. Ltd.
nti
nue •The New Unit business segment is highly exposed to fluctuations in oil and natural gas prices,
d) •
which had peaked in 2007 and experienced a dramatic downturn in 2008 and 2009

•The Company as a result experienced a drop in new unit bookings of 49.1% in

2009, and a fall in aftermarket bookings of 14.6% during the same period
•
•The AP&S business segment, on the other hand, is generally dependent on the rate of
depreciation of capital goods in the oil and natural gas industry, which is relatively
consistent
•
•The Company anticipates that the market will improve going forward, with sales in 2015
projected to reach over $4 billion
Bus •The Company’s business model centers around having a flexible, responsive manufacturing
capacity for New Units that is reliant upon outsourced suppliers
ine •
•In cyclical upswings, the Company can “flex” this capacity to satisfy market
ss demand
•
Str •The Company can rely upon revenues from Aftermarket Parts and Services and
ate •
low fixed cost to work through the nadir of market cycles

gy •The Company states it has “demonstrated an ability to run our business … with
net working capital and capital expenditure requirements of approximately 5%
and 1.5% to 2% of sales, respectively”
•
•The Company has established the following strategic goals in furtherance of its business
model during the current downturn:
•
•Increase Sales of AP&S to Existing Installed Base
•Expand AP&S Business to Non-Dresser-Rand OEM Equipment
•Grow Alliances
•Expand Performance-Based Long-Term Service Contracts
•Introduce New and Innovative Products and Technologies
•Continue to Improve Profitability
•Selectively Pursue Acquisitions
•
PROJECT IMPACT ANALYSIS
Re •Realization’s solution primarily impacts the following at client organizations through
implementation of Theory of Constraints/Critical Chain:
aliz •
•Throughput
ati •Work-in-Process and Inventory
•Lead Times
on’ •On-Time Completion
s •
•Secondarily, clients have also seen a cost impact as a result of increased
Sol •
efficiencies and reduced inventory costs

uti •Looking back at the strategic points outlined by Dresser-Rand, we can see how Realization’s
solution touches almost all of the critical goals expressed by management:
on •
•
Co •Dresser-Rand’s primary business segments represent two categories served by Realization
Technologies’ consulting services and Concerto software:
mp •
•‘New Units’ represents an Engineer-to-Order (“ETO”) segment, characterized by
ara products requiring substantial added engineering value before completion
•
ble •‘AP&S’ represents a Maintenance/Repair/Overhaul (“MRO”) segment,
Pro •
characterized by ongoing maintenance services to existing assets

jec •Realization Technologies’ project experience with a variety of business units with core ETO
and MRO responsibilities allows us to look at the impact of Realization’s product on similar
t clients’ operations, and forecast anticipated benefit to Dresser-Rand
•
Exp •We will look at the impact of comparable projects in the ETO and MRO categories,
and assume analogous results for Dresser-Rand’s business segments
eri •
enc •Combining pro forma ‘New Units’ and ‘AP&S’ segment results, we can then
accurately project the result of a full scale implementation on the entire
e •
Company
Re •Realization Technologies has extensive project experience working in the ETO segment, with
a likely comparable project at Škoda Power :
aliz
ati Engineer-to-Order Project Before
ABB AG, Power Technologies Division Throughput was 300 bays per year.
After
Throughput increased to 430 bays per

on
Electrical Power Transmission, Engineer-to- year.
Order
ABB Córdoba Engineering cycle time was 8 months. On- Engineering cycle time reduced to 3
ET Power Transformers,
Engineer-to-Order
time delivery was 85%. months. On-time delivery improved to
95%. 16% increase in manufacturing

O
throughput (revenues).

Alcan Alesa Technologies Completed an average of 6.9 projects per Completed 10 projects in first 8 months
Pro Material Handling Solutions, Engineer-to-
Order
year. of 2009. 31% increase in throughput-
dollars.

jec
Ismeca Semiconductor 84 days overall cycle time. 24 days 64 days overall cycle time (25%
Engineer-to-Order production cycle time. 15 machines in 8 reduction). 10 days production cycle time
months was highest ever throughput. (60% reduction). 22 machines in 5
ts months (47% higher throughput). 22%
improvement in EBIT.

Škoda Power 20 casings per year. 60% on-time delivery. 27 casings per year (30% increase).
Engineered-to-Order Steam Generators 90% on-time delivery. 20-30% faster
cycle time.
ThyssenKrupp (Johann A. Krause, Inc.) 70% of projects were late. High overtime Lateness reduced by 50%. 63% gains in
Automotive Assembly Systems, Engineer- and outsourcing. productivity. 15% more projects
to-Order completed.
Von Ardenne Revenues of €130 M. Profits of €13 M. Revenues of €170 M. Profits of €22 M.
Equipment for Manufacturing Solar Panels, Cycle time was 17 weeks. On-time delivery Cycle time reduced to 14 weeks. On-
Engineer-to-Order was 80%. time delivery improved to 90%.
Re •Realization Technologies also has extensive project experience working in the MRO segment,
with a comparable project at Delta Airlines:
aliz
Maintenance/Repair/Overhaul Project Before After
ati ABB, Halle 42 projects completed in 2007. 54 projects completed in 2008.
Transformer Repair and Overhaul On-time delivery was 68%. On-time delivery improved to 83%.
on Delta Air Lines, Inc. 476 engines produced per year. 4-8 586 engines produced per year (23%
Aircraft Engine Repair and Overhaul weeks piece-part cycle time. 60 days increase). 30% reduction in engine
MR landing gear turnaround time. turnaround time. 15 days piece-part cycle
time (70% reduction). 25% increase in

O throughput. 30 days landing gear turnaround

time (50% reduction). $60M monetized in
assets from reduced turnaround time. 10
Pro days piece-part turnaround time (30% further
reduction).

jec
ts French Air Force, SIAé Clermont Ferrand 5 aircraft on station. Cycle time of 165 3 aircraft on station, 2 aircraft returned to Air
days. Force, a replacement value of €300 M. 15%
cycle time reduction, 15% increase in output
Transall Production Line with 13% fewer resources; 22% reduction in
Aircraft Upgrade and Repair support shops’ cycle time.

Railcare Wolverton, UK 16 month delay in delivery of last order. 100% on-time delivery on all orders. 3 orders
Train Maintenance, Repair, and Overhaul 1 order executed at a time. executed in the same timeframe.

US Marine Corps Logistics Base,
Barstow
Army Vehicles Maintenance and Repair
Repair cycle time for MK48 was 168
days. Repair cycle time for LAV25 was
180 days. Repair cycle time for MK14
was 152 days. Repair cycle time for
LAVAT was 182 days.
Repair cycle time for MK48 reduced to 82
days. Repair cycle time for LAV25 reduced to
124 days. Repair cycle time for MK14
reduced to 59 days. Repair cycle time for
LAVAT reduced to 122 days.
Thr •Realization has previously achieved increases in throughput of 30% in ETO projects focused
on steam turbine producer Škoda Power, and increases of 23% for MRO throughput with
oug engine repair operations at Delta Airlines
•
hpu •While it is reasonable to assume similar increases to throughput capacity for Dresser-Rand, it
is unlikely given the current depressed state of the ETO segment that such capacity would
t translate to sales immediately
•
•As such, it is more appropriate to assume that the capacity generated translates to
revenue only in the AP&S segment for purposes of projecting pro forma
financials
•
•While it may be true that increased capacity wouldn’t translate into immediate
revenue, it would increase the value of the business model by generating
additional “flex” capability to capture value during the next cyclical upturn
•
•Increasing throughput by 20+% would also enable Dresser-Rand to enter the marketplace at
lower price points, putting pressure on competitors in an already consolidating industry and
generating opportunities to increase market share
•
•At cyclical highpoints, Realization’s product generates significant increased revenue; at
cyclical downturns it allows clients to go on the offensive and grab market share
Wo •Theory of Constraints/Critical Chain methodology is very useful for decreasing Work-in-
Process (“WIP”) and Inventory, as shown by Realization’s product helping Delta Airlines
rk- reduce its piece part WIP by 60%
•
in- •Realization also demonstrated inventory cutbacks in a MRO project with the U.S. Navy Fleet
Readyness Center SE, which saw a 14% reduction in WIP
Pro •
ces •While we do not have direct data, it is reasonable to assume that a 14% reduction
in WIP corresponds to a 14% reduction in overall inventory
s& •
•Minimizing inventory has two major impacts, the first of which is an immediate release of cash
Inv as the inventory is liquidated, boosting cash on hand
•
ent •This increase in cash on hand will likely go towards paying down debt, as most
inventory is funded by revolvers that charge interest on outstanding loans –
ory meaning that reduced inventory can reduce interest expense
•
•The second impact is a reduction of inventory carrying costs, which as a rule of thumb are
roughly 25% of total inventory value, assuming:
•
•15% Capital Cost
•6% Risk Cost
•2% Storage Space Cost
•2% Service Cost
•
•A 14% MRO inventory reduction and commensurate reduction in carrying cost, is assumed in
the pro forma case together with an increase in cash on hand
Lea •Realization’s implementation of TOC/Critical Chain saw a 20-30% decrease in cycle time, and
a jump from 60% to 90% on-time delivery with Škoda Power in an ETO application
d •
•On-time delivery is not just important for relationship management and marketing
Tim purposes in ETO applications – it directly impacts revenue through early delivery
incentives and late penalties built into booked contracts
es •
& •Delta Airlines’ MRO implementation of TOC/Critical Chain resulted in an 80% overall reduction
in piece part cycle time, a 50% reduction in landing gear cycle time, and a 30% reduction in
On- •
engine cycle time

Tim •Decreased cycle times directly influence revenue on performance-based MRO contracts as
well
e •
•One of Dresser-Rand’s key strategic goals is to increase the amount of long term,
Co performance-based MRO contracts it books
mpl •
•While the throughput aspect of falling cycle times has already been addressed, there are
eti substantial strategic benefits to be gained from the associated shorter lead times and
increased on-time deliveries that come with it
on •
•On-time completion of projects builds client relationships, acting as a bulwark
against external competition, and providing a wedge between late competitors
and their clients
•
•Shorter lead times allow clients greater flexibility and capacity to handle
emergencies
•
•
Pro •Pro Forma Income Statements have been provided below, where FY 2009 financial results
have been adjusted for the anticipated impact of a Realization Technologies
jec implementation:

ted
Dresser-Rand Income Statement                
Pro
Forma
Assumptions:  

Fin  
FY 2007 FY 2008 FY 2009 FY 2009
New Units $813.5 $1,202.7 $1,258.8 $1,258.8 1) Assumes 23% increase in AP&S revenue due to throughput 
Aftermarket Parts & Service 851.5 992.0 1,030.8 1,267.9 increases
 
anc Revenue $1,665.0 $2,194.7 $2,289.6 $2,526.7
2) Assumes no increase in New Unit revenue from increased  
throughput
 
ial
New Units COGS $686.3 $985.5 $995.9 $995.9
AP&S COGS 529.8 590.6 636.2 759.1 3) AP&S COGS was increased by 23% to account for increased
COGS $1,216.1 $1,576.1 $1,632.1 $1,755.0 volumes; assumes pure variable cost

Imp Gross Profit

Margin
$448.9
27.0%
$618.6
28.2%
$657.5
28.7%
$771.7
30.5%  
4) AP&S COGS was then reduced by 3% to account for comparable
 

Delta MRO savings

act Selling and Administrative $239.0 $273.8 $287.3 $287.3
 
5) New Unit COGS remains the same, as increased capacity is
 

- IS
R&D Expense 12.8 12.7 20.3 20.3 assumed unused
Inventory Reduction Gain - - - (49.4)  
Inventory Carrying Cost Reduction - - - (12.4)   three
6) Corporate Tax Rate is assumed to be the average of the past
Curtailment Amend./Settlement - (5.4) 1.3 1.3 years, or 34.4%
 
Operating Income $197.1 $337.5 $348.6 $524.6
Margin 11.8% 15.4% 15.2% 20.8%
  7) Assumes a one-time gain from reduction of 14% of total inventory;
assumes ETO & MRO both gain
   
Interest Expense ($36.8) ($29.4) ($31.8) ($31.8)   8) Assumes ongoing gains from reduced inventory carrying cost of
Other Expense, net 7.3 (6.8) (4.9) (4.9) 25% of reduced inventory cost
EBT $167.6 $301.3 $311.9 $487.9
   
  9) Assumes no reduction in outstanding revolver from inventory
liquidation, same interest expense
Provision for Income Taxes $60.9 $103.6 $101.1 $167.8
Net Income $106.7 $197.7 $210.8 $320.1
Pro •Pro Forma Balance Sheets have been provided below, where FY 2009 financial results have
been adjusted for the anticipated impact of a Realization Technologies implementation:
jec
ted
Dresser-Rand Balance Sheet                
Pro Forma
Assumptions:  

Fin  
FY 2007 FY 2008 FY 2009 FY 2009
Cash and Equivalents $206.2 $147.1 $223.2 $285.0
Accounts Receivable 311.9 366.3 289.8 289.8
1) Assumes an increase in cash balance from the liquidation of 14%   of
inventory
anc Inventories, Net
Prepaid Expenses
265.3
23.0
328.5
43.4
353.0
24.9
303.6
24.9
 
  2) Assumes an increase in cash from lower carrying cost of
 
inventory

ial
Deferred Income Taxes, Net 19.3 22.5 45.4 45.4 gains (25% of liquidated value)
Total Current Assets $825.7 $907.8 $936.3 $948.7
   
  3) Assumes a decrease of 14% for inventory as a result of liquidation
 
Imp Property, Plant & Equipment
Goodwill
$216.7
447.5
$250.3
429.1
$268.9
486.0
$268.9
486.0
   
  4) Assumes an increase to retained earnings from reduced    cost
carrying

act
Intangible Assets, Net 440.0 441.6 430.9 430.9
of inventory
Other Assets 21.0 23.4 28.1 28.1
Total Assets $1,950.9 $2,052.2 $2,150.2 $2,162.6

- Accounts Payable and Accruals $358.4 $430.9 $412.0 $412.0

BS
Customer Advance Payments 239.9 275.0 165.2 165.2
Accrued Income Taxes Payable 22.0 30.2 8.1 8.1
Loans Payable 0.2 0.2 0.1 0.1
Total Current Liabilities $620.5 $736.3 $585.4 $585.4

Deferred Income Taxes, Net $48.4 $22.9 $38.5 $38.5

Employee Benefit Liabilities 80.6 135.3 109.9 109.9
Long-Term Debt 370.3 370.1 370.0 370.0
Other Non-Current Liabilities 25.9 27.4 33.8 33.8
Total Liabilities $1,145.7 $1,292.0 $1,137.6 $1,137.6

Common Stock, Par $0.9 $0.8 $0.8 $0.8

Additional Paid-In Capital 527.3 384.6 396.6 396.6
Retained Earnings 229.7 427.3 638.1 650.5
AOCI 47.3 (52.5) (22.9) (22.9)
Total Stockholders' Equity $805.2 $760.2 $1,012.6 $1,025.0
Total Liabilities & Equity $1,950.9 $2,052.2 $2,150.2 $2,162.6
Pro •Pro Forma Cash Flows have been provided below, where FY 2009 financial results have been
adjusted for the anticipated impact of a Realization Technologies implementation:
jec
ted
Fin
anc
ial
Imp
act
-
CF
STRATEGY
Wh •Realization’s product has both a tested core and additional value layered into the software
and processes that specifically address both of Dresser-Rand’s operating segments:
ole •
•
Pro •
•
duc •
t •
•
Sol •
•
uti •
•
on •
•
•

•Remaining gaps in capability are likely minimal given Realization’s past work in:
•
•ETO
•MRO
•Rotating Equipment
•Oil & Gas Vertical
•
•Realization’s role as a TOC/Critical Chain implementer focusing on energy infrastructure
would ensure that Dresser-Rand would have the dedicated resources necessary to close
any small remaining gaps
•
Mar •Realization Technologies has emerged as a leader in TOC/Critical Chain implementation and
enterprise software, as demonstrated by the accolades it is receiving from industry leaders:
ket •
•“"We've learned new tools that we didn't even have with Lean … our cycle time will
Lea be very competitive compared to the industry.”
•Tony Charaf, President,
der Delta TechOps (Delta
Pos •
Airlines)

itio •“We could build them [satellites] faster, and build more of them … It made a
dramatic improvement on our performance.”
nin •Charles Toups, VP of
Engineering, Boeing
g Integrated Defense
Systems
•
•“It enabled us to finish the year in better profitability than the previous year,
although it was a declining environment … We found ourselves in much better
control. We have better mastery of the project.”
•Shalom Passy, SVP and
Head of Delivery
Group and
Operations, Amdocs
•
•Realization has been featured in business publications such as Fast Company, Reuters, The
Telegraph, FinanzNachrichten and MSN Money
•
•Oil & Gas industry publications have also written about Realization Technologies,
including Pipeline & Gas Journal, Today’s Energy Solutions, and Oil & Gas
Financial Journal
•
•Partners like IBM and Goldratt Consulting help provide whole product solutions of the highest
Dre •Dresser-Rand provides an opportunity to push Realization from a pre-Chasm to post-Chasm
enterprise due to a confluence of several factors:
sse •
•Realization is in a position given its prior experience to provide a whole product
r- solution to Dresser-Rand, due to the equipment manufacturer’s reliance on ETO
and MRO activities as core business
Ra •
nd’ •ETO and MRO are two categories that provide optimal responses to TOC/Critical
Chain, and therefore Dresser-Rand is likely to have significant gains from
s •
Realization’s product

Bo •Dresser-Rand is a large supplier of one of the largest vertical markets in the world,
and provides many opportunities for conquering adjacent niches:
wli
ng
Chemicals Clean Tech Oil & Gas
All Rotat. Power Eng.
ey Equip. Equip. Struct.

Clean Tech Oil & Gas

Rotat. Power
Equip. Equip.

Oil & Gas

Rotat.
Equip.
Dre
sse •Many of the adjacent niches to Dresser-Rand’s are industries in which Realization
has some pre-existing project experience, easing the way for future growth in
r- the oil and gas/energy vertical
•
Ra •Realization has already completed projects with companies working in
the rig building, petrochemical, nuclear power engineering, power
nd’ transmission, electric generator engineering, rotating equipment, and
s solar power industries

Bo
wli
ng
All
ey
(Co
nti
nue
d)
THANK YOU