The impact of the strike on third quarter operating income is expected to be slightly greater than the high end of the range of $18 million that the Company had previously provided. The Company currently estimates that the impact of the strike on its the fourth quarter results will decline by approximately twenty-five percent from the third quarter impact. This is due to an ongoing reduction in its dependence on the relatively high cost temporary workforce due to hiring of permanent replacement workers and increasing outsourcing of non-critical activities.
The slower recovery in aftermarket sales in the third quarter is related to the relatively flat aftermarket bookings over the previous two quarters. The Company did experience higher aftermarket bookings in the third quarter versus both the second quarter of this year and the previous year's third quarter. The Company expects to recover a portion of the sales in the fourth quarter and, therefore, similar to last year, expects to have a strong fourth quarter performance.
After the affect of the above two issues and the inclusion of a currently expected FAS 106 non-cash curtailment gain of approximately $8 million to $12 million, the Company believes its full year operating income will be within the range of $205 million to $225 million. As a result, the Company expects that its operating income will be up in the range of 16% to 28% versus last year. The curtailment gain is expected to essentially offset previously disclosed costs reported in the first half of the year for a litigation provision, a change in an accounting estimate for workers' compensation, and service unit expenses.
Dresser-Rand's president and chief executive officer Vincent R. Volpe, Jr. said, "As we expect a recovery in aftermarket sales in the fourth quarter, the adjustment to our full year guidance is largely due to the Painted Post strike. While the strike is unfortunate, we have maintained our position that the first priority was to continue to provide our clients with uninterrupted service. We are accomplishing this objective and have received continued strong bookings in reciprocating products since the strike began. Even with the increased costs, it is equally clear that we are doing the right thing for the medium and long-term success of this facility. Looking ahead, we reiterate our belief that the strike, should it continue, will have no material impact on our 2008 results."
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