##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2005                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             



Commission File Number: 001-32586





DRESSER-RAND GROUP INC.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|Delaware                                                           |  | 20-1780492                          
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer Identification No.)

1200 West Sam Houston Parkway, No.


Houston, Texas 77043


(Address Of Principal Executive Offices)


(713) 467-2221


(Registrants Telephone Number, Including Area Code)




|                              |  |                                           |  | 
|----------------------------- |  | ----------------------------------------- |  | 
|Title of Each Class           |  | Name of Each Exchange on Which Registered | 
|                              |  |                                           | 
|Common Stock, $0.01 par value |  | New York Stock Exchange                  


















o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


o o þ


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












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TABLE OF CONTENTS


|                                               |  |                                                                                                                      |  |      |    | 
|---------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                               |  |                                                                                                                      |  | Page |   
|                                               |  |                                                                                                                      |  |      |   
|PART I                                        
|Item 1.                                        |  | Business                                                                                                             |  |      | 3  | 
|Item 1A.                                       |  | Risk Factors                                                                                                         |  |      | 12 | 
|Item 2.                                        |  | Properties                                                                                                           |  |      | 23 | 
|Item 3.                                        |  | Legal Proceedings                                                                                                    |  |      | 23 | 
|Item 4.                                        |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 24 | 
|                                              
|PART II                                       
|Item 5.                                        |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 25 | 
|Item 6.                                        |  | Selected Financial Data                                                                                              |  |      | 26 | 
|Item 7.                                        |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 27 | 
|Item 7A.                                       |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |      | 45 | 
|Item 8.                                        |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 45 | 
|Item 9.                                        |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |      | 46 | 
|Item 9A.                                       |  | Controls and Procedures                                                                                              |  |      | 46 | 
|Item 9B.                                       |  | Other Information                                                                                                    |  |      | 48 | 
|                                              
|PART III                                      
|Item 10.                                       |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 48 | 
|Item 11.                                       |  | Executive Compensation                                                                                               |  |      | 48 | 
|Item 12.                                       |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 49 | 
|Item 13.                                       |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 49 | 
|Item 14.                                       |  | Principal Accountant Fees and Services                                                                               |  |      | 49 | 
|                                              
|PART IV                                       
|Item 15.                                       |  | Exhibits, Financial Statements and
    Schedules                                                                     |  |      | 49 | 
|EX-23.1: CONSENT OF PRICEWATERHOUSECOOPERS LLP
|EX-31.1: CERTIFICATION                        
|EX-31.2: CERTIFICATION                        
|EX-32.1: CERTIFICATION                        
|EX-32.2: CERTIFICATION                        



2



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|        |         
|------- | --------
|ITEM 1. | BUSINESS

Overview


10-K,


10-K,








| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | lower clients total cost of ownership and improve
    equipment performance;                                                                                                       
|
| |  | lower our and our clients transaction costs;                                                                                                                                       
|
| |  | better forecast our future revenues; and                                                                                                                                            
|
| |  | 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.



3



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| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | the trend to increased outsourcing of equipment maintenance and
    operation;                                                                 
|
| |  | the maturation of producing fields worldwide, which requires
    increasing use of compression equipment to maintain production
    levels;    
|
| |  | the substantial increase in demand for natural gas, which is
    driving growth in gas production, storage and transmission
    infrastructure;
|
| |  | regulatory and environmental initiatives, including clean fuel
    legislation and stricter emissions controls worldwide;                      
|
| |  | the aging installed base of equipment, which is increasing
    demand for aftermarket parts and services, revamps and upgrades;                
|
| |  | increasing construction of natural gas production, storage and
    transportation infrastructure; and                                          
|
| |  | the increased worldwide demand for fuel and feedstock resulting
    from economic growth.                                                      

Recent Developments










Business Strategy




Increase Sales of Aftermarket Parts and Services to Existing
Installed Base. D-R


4



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Expand Aftermarket Parts and Services Business to
Non-Dresser-Rand OEM Equipment.


Grow Alliances.


Expand our Performance-Based Long-Term Service Contracts. Availability+


Introduce New and Innovative Products and Technologies.


Continue to Improve Profitability.


Selectively Pursue Acquisitions.


5



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Services and Products









| |          
| | ---------
| | New Units



Dresser-Rand Major Product Categories


|                          |                      |             |                          |             |   |        |   |        |   |          |   |          |   |            |   |       |  
|------------------------- | -------------------- | ----------- | ------------------------ | ----------- | - | ------ | - | ------ | - | -------- | - | -------- | - | ---------- | - | ----- | -
|                          |                      |             |                          | End Markets
|                          |                      |             |                          |            
|                          |                      | Maximum     |                          | Up          |   | Mid    |   | Down   |   | Petro    |   |         
|Product                   |                      | Performance |                          | Stream      |   | Stream |   | Stream |   | Chemical |   | Chemical |   | Industrial |   | Power
|                          |                      |             |                          |             |   |        |   |        |   |          |   |          |   |            |   |      
|Turbo Products            |                      |             |                          |             |   |        |   |        |   |          |   |          |   |            |   |      
|                          | Compressors          |             | up to 500k CFM           |             | ü |        | ü |        | ü |          | ü |          | ü |            | ü |       |  
|                          | Gas & Power turbines |             | up to 44 MW              |             | ü |        | ü |        | ü |          | ü |          | ü |            | ü |       | ü
|                          | Hot Gas Expanders    |             | Up to 1600°F             |             |   |        |   |        | ü |          | ü |          |   |            |   |       | ü
|                          | Control Systems      |             |                          |             | ü |        | ü |        | ü |          | ü |          | ü |            | ü |       | ü
|Reciprocating Compressors |                      |             |                          |             |   |        |   |        |   |          |   |          |   |            |   |      
|                          | Process              |             | up to 325k lbs. Rod Load |             | ü |        | ü |        | ü |          | ü |          | ü |            | ü |       |  
|                          | Separable            |             | up to 11k HP, 7500 psig  |             | ü |        | ü |        | ü |          |   |          |   |            |   |       |  
|Steam Turbines            |                      | up to 75 MW |                          | ü           |   | ü      |   | ü      |   | ü        |   | ü        |   | ü          |   | ü    

Turbo Products.






6



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Reciprocating Compressors.


Steam Turbines.




| |                              
| | -----------------------------
| | Revamp/ Upgrade Opportunities











| |                        
| | -----------------------
| | New Product Development



7



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first-in






| |                               
| | ------------------------------
| | Aftermarket Parts and Services





| |   |                                         
| | - | ----------------------------------------
| |  | Replacement Parts                       
|
| |  | Equipment Repair & Rerates              
|
| |  | Field Service Turnaround                
|
| |  | Equipment Installation                  
|
| |  | U.S. Navy Service & Repair              
|
| |  | Applied Technology                      
|
| |  | Operation and Maintenance Contracts     
|
| |  | Long-Term Service Agreements            
|
| |  | Rotor Storage                           
|
| |  | Special Coatings/ Weldings              
|
| |  | Condition Monitoring                    
|
| |  | Product Training                        
|
| |  | Controls Retrofit                       
|
| |  | Turnkey Installation/ Project Management
|
| |  | Equipment Technology Upgrades           
|
| |  | Site/ Reliability Audits                



8



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Sales and Marketing




Manufacturing and Engineering Design








9



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Clients






Competition


non-U.S.






Research and Development




10



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Employees




Environmental and Government Regulation












11



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Intellectual Property










Additional Information


www.dresser-rand.com www.sec.gov 1-800-SEC-0330.







|         |             
|-------- | ------------
|ITEM 1A. | RISK FACTORS



| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have identified material weaknesses in our internal
    controls, which could affect our ability to ensure timely and
    reliable financial reports and the ability of our auditors to
    attest to the effectiveness of our internal controls.



12



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | identification by our auditors of misstatements in internal
    drafts of our financial statements that were not initially
    identified by our internal control process, indicating a
    weakness with respect to our ability to properly monitor and
    account for non-routine transactions, and to apply GAAP in
    transactions subject to new or complex accounting pronouncements;                   
|
| |  | the need for a Chief Financial Officer with SEC reporting
    experience, a Director of Financial Reporting with strong
    accounting and SEC reporting experience and additional skilled
    accounting and SEC experienced personnel to enhance the
    accounting department to remedy insufficient experience in
    public company accounting and periodic reporting matters among
    our existing staff;
|
| |  | adequacy of resources at corporate accounting to properly review
    reporting-unit financial information;                                                                                                                                                                                                                                                                                                      
|
| |  | the need to develop a tax department;                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | the need to develop a risk management department;                                                                                                                                                                                                                                                                                                                                                               
|
| |  | the need to establish an internal audit department;                                                                                                                                                                                                                                                                                                                                                             
|
| |  | inconsistent application and documentation of accounting
    policies;                                                                                                                                                                                                                                                                                                                                          
|
| |  | the need to enhance our documentation of our systems and
    controls; and                                                                                                                                                                                                                                                                                                                                      
|
| |  | multiple IT systems across our different operations require
    significant manual intervention to produce consistent
    consolidated financial information.                                                                                                                                                                                                                                                   





| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | hiring an experienced Chief Financial Officer with broad finance
    and SEC reporting experience, a Chief Accounting Officer with
    significant accounting and SEC reporting experience, a Director
    of Risk Management, a Director of Internal Audit and a General
    Counsel;
|
| |  | changing the organizational relationship of the worldwide
    accounting organization so that the Controllers of the operation
    units report directly to our Vice-President, Controller and
    Chief Accounting Officer;                                                          
|
| |  | hiring additional accounting personnel with SEC reporting
    expertise;                                                                                                                                                                                                              
|
| |  | updating and harmonizing our accounting policies and
    documentation;                                                                                                                                                                                                               
|
| |  | dedicating more resources to the review and testing of
    reporting-unit financial information;                                                                                                                                                                                      
|
| |  | approving and commencing the implementation of new IT systems
    across all the companys reporting units;                                                                                                                                                                           
|
| |  | engaging additional outside personnel to assist our internal
    personnel with audit work and SEC reporting;                                                                                                                                                                         
|
| |  | outsourcing a substantial portion of our tax functions to a
    professional service firm; and                                                                                                                                                                                        
|
| |  | engaging external resources to supplement our Section 404
    evaluation and implementation efforts.                                                                                                                                                                                  





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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | During the third quarter of 2003, a management review identified
    an issue relating to
    work-in-process
    inventory at two of our manufacturing locations. It was
    determined that certain
    work-in-process
    inventory had not been properly relieved upon shipment during
    the time period from 1999 through 2003, resulting in an
    overstatement of inventory. Management immediately began an
    extensive, in-depth review of our accounts and records. As a
    consequence of these problems, we implemented an internal review
    of the functions and processes at the two plants that were
    involved, identified gaps in our internal controls and put in
    place remedial measures. At the end of this review and
    remediation process, our auditors determined that we had
    successfully eliminated the weakness in our inventory controls.                                                                                                                      
|
| |  | During June 2004, management uncovered an issue relating to
    payroll fraud at our U.S. Shared Services Unit in Olean,
    NY. It was determined that the payroll supervisor had
    misappropriated funds through the payroll system from February
    1994 to June 2004. A thorough investigation was undertaken
    involving Dresser-Rand Company personnel, Ingersoll-Rand
    Internal Audit and the forensic investigations section of an
    independent accounting firm. The review of past payroll records
    from both Oracle (2/01-6/04) and GEAC (1/90-12/00) systems
    revealed that $1.042 million had been illegally processed
    through payroll and diverted to the payroll supervisors
    bank account. As part of the investigation, steps were taken to
    ensure that proper segregation of duties exist such that no one
    in the payroll, human resources or information technology areas
    has update capability for both the payroll and the human
    resources systems.





| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We recently became subject to financial reporting and
    other requirements for which our accounting and other management
    systems and resources may not be adequately prepared.





| |                                                                                 
| | --------------------------------------------------------------------------------
| | Our operating results could be harmed during economic or
    industry downturns.



14



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| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | We may not be successful in implementing our business
    strategy to increase our aftermarket parts and services
    revenue.





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | We face intense competition that may cause us to lose
    market share and harm our financial performance.





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to complete, or achieve the expected
    benefits from, any future acquisitions, which could adversely
    affect our growth.





| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | use of available cash, new borrowings or borrowings under our
    senior secured credit facility to consummate the acquisition;
|
| |  | demands on management related to the increase in our size after
    an acquisition;                                            
|
| |  | diversion of managements attention from existing
    operations to the integration of acquired companies;                     
|
| |  | integration into our existing systems;                                                                                         
|
| |  | difficulties in the assimilation and retention of
    employees; and                                                           
|
| |  | potential adverse effects on our operating results.                                                                            



15



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| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Economic, political and other risks associated with
    international sales and operations could adversely affect our
    business.





| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | changes in foreign currency exchange rates;                                                                                       
|
| |  | exchange controls;                                                                                                                
|
| |  | changes in a specific countrys or regions political
    or economic conditions, particularly in emerging markets;               
|
| |  | civil unrest in any of the countries in which we operate;                                                                         
|
| |  | tariffs, other trade protection measures and import or export
    licensing requirements;                                         
|
| |  | potentially negative consequences from changes in tax laws;                                                                       
|
| |  | difficulty in staffing and managing widespread operations;                                                                        
|
| |  | differing labor regulations;                                                                                                      
|
| |  | requirements relating to withholding taxes on remittances and
    other payments by subsidiaries;                                 
|
| |  | different regimes controlling the protection of our intellectual
    property;                                                    
|
| |  | restrictions on our ability to own or operate subsidiaries, make
    investments or acquire new businesses in these jurisdictions;
|
| |  | restrictions on our ability to repatriate dividends from our
    subsidiaries;                                                    
|
| |  | difficulty in collecting international accounts receivable;                                                                       
|
| |  | difficulty in enforcement of contractual obligations governed by
    non-U.S. law;                                                
|
| |  | unexpected transportation delays or interruptions;                                                                                
|
| |  | unexpected changes in regulatory requirements; and                                                                                
|
| |  | the burden of complying with multiple and potentially
    conflicting laws.                                                       









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period-to






| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the past, our Brazilian subsidiary has engaged in
    business transactions involving a Cuban entity that could
    subject us to potential sanctions.

non-U.S.


17



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| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | If we lose our senior management, our business may be
    materially adversely affected.





| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | Environmental compliance costs and liabilities could
    affect our financial condition adversely.

clean-up


clean-up


clean-up clean-up




| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Failure to maintain a safety performance that is
    acceptable to our clients could result in the loss of future
    business.



18



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| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Our business could suffer if we are unsuccessful in
    negotiating new collective bargaining agreements.





| |                                                                                       
| | --------------------------------------------------------------------------------------
| | We are controlled by First Reserve, whose interests may
    not be aligned with yours.





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| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we continue to be a controlled company
    within the meaning of the New York Stock Exchange rules, we
    intend to rely on exemptions from certain corporate governance
    requirements.





| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Our historical financial information may not be comparable
    to future periods.

10-K 10-K




| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | We did not have a recent operating history as a
    stand-alone company prior to the Acquisition.





| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | We may be faced with unexpected product claims or
    regulations as a result of the hazardous applications in which
    our products are used.





| |                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



20



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| |                                            
| | -------------------------------------------
| | Our brand name may be subject to confusion.







| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Natural gas operations entail inherent risks that may
    result in substantial liability to us.





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Our substantial indebtedness could adversely affect our
    financial condition and prevent us from fulfilling our debt
    service obligations.







| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | making it more difficult for us to pay interest and satisfy our
    debt obligations;                                                                                                          
|
| |  | making it more difficult to self-insure and obtain surety bonds
    or letters of credit;                                                                                                      
|
| |  | increasing our vulnerability to general adverse economic and
    industry conditions;                                                                                                          
|
| |  | limiting our ability to obtain additional financing to fund
    future working capital, capital expenditures, research and
    development or other general corporate or business requirements;
|
| |  | limiting our flexibility in planning for, or reacting to,
    changes in our business and in our industry; and                                                                                 
|
| |  | placing us at a competitive disadvantage.                                                                                                                                                      



21



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| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | We require a significant amount of cash to service our
    indebtedness. Our ability to generate cash depends on many
    factors beyond our control.





| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The covenants in the senior secured credit facility and
    the indenture governing our senior subordinated notes impose
    restrictions that may limit our operating and financial
    flexibility.





| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | incur liens;                                                                                       
|
| |  | borrow money, guarantee debt and, in the case of restricted
    subsidiaries, sell preferred stock;
|
| |  | issue redeemable preferred stock;                                                                  
|
| |  | pay dividends;                                                                                     
|
| |  | make redemptions and repurchases of certain capital stock;                                         
|
| |  | make capital expenditures and specified types of investments;                                      
|
| |  | prepay, redeem or repurchase subordinated debt;                                                    
|
| |  | sell assets or engage in acquisitions, mergers, consolidations
    and asset dispositions;         
|
| |  | amend material agreements;                                                                         
|
| |  | change the nature of our business;                                                                 
|
| |  | engage in affiliate transactions; and                                                              
|
| |  | restrict dividends or other payments from restricted
    subsidiaries.                             





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| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions in our amended and restated certificate of
    incorporation and amended and restated bylaws and Delaware law
    may discourage a takeover attempt.








|        |           
|------- | ----------
|ITEM 2. | PROPERTIES



|                        |  |        |              |         |             |  |         |      |  |                           
|----------------------- |  | ------ | ------------ | ------- | ----------- |  | ------- | ---- |  | --------------------------
|                        |  |        |              | Approx. |             |  |        
|Location                |  | Status |              |         | Square Feet |  |         | Type
|                        |  |        |              |         |             |  |         |     
|Painted Post, New York  |  |        | Owned/Leased |         |             |  | 840,000 |      |  | Manufacturing and services
|Olean, New York         |  |        | Owned/Leased |         |             |  | 970,000 |      |  | Manufacturing and services
|Wellsville, New York    |  |        | Owned/Leased |         |             |  | 380,000 |      |  | Manufacturing and services
|Burlington, Iowa        |  |        | Owned        |         |             |  | 185,000 |      |  | Manufacturing and services
|Millbury, Massachusetts |  |        | Owned        |         |             |  | 104,000 |      |  | Manufacturing and services
|Campinas, Brazil        |  |        | Owned        |         |             |  | 36,870  |      |  | Manufacturing and services
|Kongsberg, Norway       |  |        | Leased       |         |             |  | 104,000 |      |  | Manufacturing and services
|Le Havre, France        |  |        | Owned/Leased |         |             |  | 866,000 |      |  | Manufacturing and services
|Naroda, India           |  |        | Leased       |         |             |  | 102,000 |      |  | Manufacturing and services
|Oberhausen, Germany     |  |        | Owned        |         |             |  | 75,000  |      |  | Manufacturing and services
|Bielefeld, Germany      |  |        | Owned        |         |             |  | 31,000  |      |  | Manufacturing and services
|Houston, Texas          |  |        | Owned        |         |             |  | 115,800 |      |  | Services                  
|Houston, Texas          |  |        | Owned        |         |             |  | 45,900  |      |  | Controls                  
|Houston, Texas          |  |        | Owned        |         |             |  | 77,800  |      |  | Warehouse and offices     






|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS



Transactions by our Brazilian subsidiary.


23



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|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



24



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PART II







|        |                                                                          
|------- | -------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
    STOCKHOLDER MATTERS

(a)






|                                 |  |      |       |  |     |   |       | 
|-------------------------------- |  | ---- | ----- |  | --- | - | ----- | 
|                                 |  | High |       |  | Low |  
|                                 |  |      |       |  |     |  
|2005                             |  |      |       |  |     |   |       | 
|Quarter ended September 30, 2005 |  | $    | 26.75 |  |     | $ | 20.10 | 
|Quarter ended December 31, 2005  |  | $    | 25.15 |  |     | $ | 19.05 | 













(b)


S-1 333-124963)


3 8


(c)




25



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|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA



|                                                                  |                |                                                |         |             |             |   |             |              |  |   |              |           |  |      |         |         |      |   |            |         |  |   |           |           | 
|----------------------------------------------------------------- | -------------- | ---------------------------------------------- | ------- | ----------- | ----------- | - | ----------- | ------------ |  | - | ------------ | --------- |  | ---- | ------- | ------- | ---- | - | ---------- | ------- |  | - | --------- | --------- | 
|                                                                  |                | Predecessor                                    |         |             | Successor   |  
|                                                                  |                |                                                |         |             |             |  
|                                                                  |                |                                                |         | Period from |             |   | Period from |              |  |  
|                                                                  |                |                                                |         | January 1   |             |   | October 30  |              |  |  
|                                                                  |                | Year Ended December 31,                        |         |             | through     |   |             | through      |  |   | Year Ended   |          
|                                                                  |                |                                                |         |             | October 29, |   |             | December 31, |  |   | December 31, |          
|                                                                  |                | 2001                                           |         |             | 2002        |   |             | 2003         |  |   | 2004         |           |  | 2004 |         |         | 2005 |  
|                                                                  |                |                                                |         |             |             |   |             |              |  |   |              |           |  |      |         |         |      |  
|                                                                  |                | (In thousands except share and per share data) |        
|Statement of Operations Data:                                     |                |                                                |         |             |             |   |             |              |  |   |              |           |  |      |         |         |      |   |            |         |  |   |           |          
|Net sales, third parties                                          |                | $                                              | 873,885 |             |             | $ | 1,026,753   |              |  | $ | 1,332,242    |           |  | $    | 712,483 |         |      | $ | 199,907    |         |  | $ | 1,206,915 |          
|Net sales to affiliates                                           |                |                                                | 2,837   |             |             |   | 1,841       |              |  |   | 1,439        |           |  |      | 1,845   |         |      |   |           |         |  |   |          |          
|Other operating revenue                                           |                |                                                |        |             |             |   | 2,759       |              |  |   | 1,669        |           |  |      | 1,167   |         |      |   |           |         |  |   | 1,288     |          
|                                                                  |                |                                                |         |             |             |   |             |              |  |   |              |           |  |      |         |         |      |  
|                                                                  | Total revenues |                                                |         | 876,722     |             |   |             | 1,031,353    |  |   |              | 1,335,350 |  |      |         | 715,495 |      |   |            | 199,907 |  |   |           | 1,208,203 | 
|Cost of goods and services sold                                   |                |                                                | 714,093 |             |             |   | 865,858     |              |  |   | 1,132,047    |           |  |      | 538,042 |         |      |   | 149,564    |         |  |   | 920,964   |          
|                                                                  |                |                                                |         |             |             |   |             |              |  |   |              |           |  |      |         |         |      |  
|Gross profit                                                      |                |                                                | 162,629 |             |             |   | 165,495     |              |  |   | 203,303      |           |  |      | 177,453 |         |      |   | 50,343     |         |  |   | 287,239   |          
|Selling and administrative expenses                               |                |                                                | 132,755 |             |             |   | 138,484     |              |  |   | 156,129      |           |  |      | 122,700 |         |      |   | 21,499     |         |  |   | 164,055   |          
|Research and development expenses                                 |                |                                                | 6,969   |             |             |   | 8,044       |              |  |   | 8,107        |           |  |      | 5,670   |         |      |   | 1,040      |         |  |   | 7,058     |          
|Write-off of purchased in-process research and development assets |                |                                                |        |             |             |   |            |              |  |   |             |           |  |      |        |         |      |   | 1,800      |         |  |   |          |          
|Restructuring charges(1)                                          |                |                                                | 2,137   |             |             |   | 5,185       |              |  |   |             |           |  |      |        |         |      |   |           |         |  |   |          |          
|                                                                  |                |                                                |         |             |             |   |             |              |  |   |              |           |  |      |         |         |      |  
|Operating income                                                  |                |                                                | 20,768  |             |             |   | 13,782      |              |  |   | 39,067       |           |  |      | 49,083  |         |      |   | 26,004     |         |  |   | 116,126   |          
|Interest income (expense), net                                    |                |                                                | (302    | )           |             |   | (776        | )            |  |   | 1,938        |           |  |      | 3,156   |         |      |   | (9,654     | )       |  |   | (57,037   | )        
|Early redemption premium on debt                                  |                |                                                |        |             |             |   |             |              |  |   |              |           |  |      |         |         |      |   |            |         |  |   | (3,688    | )        
|Other income (expense), net                                       |                |                                                | 3,150   |             |             |   | 15,000      |              |  |   | (9,202       | )         |  |      | 1,882   |         |      |   | (1,846     | )       |  |   | (2,847    | )        
|                                                                  |                |                                                |         |             |             |   |             |              |  |   |              |           |  |      |         |         |      |  
|Income from continuing operations before income taxes             |                |                                                | 23,616  |             |             |   | 28,006      |              |  |   | 31,803       |           |  |      | 54,121  |         |      |   | 14,504     |         |  |   | 52,554    |          
|Provision (benefit) for income taxes(2)                           |                |                                                | 14,781  |             |             |   | 11,910      |              |  |   | 11,438       |           |  |      | 11,970  |         |      |   | 7,275      |         |  |   | 15,459    |          
|                                                                  |                |                                                |         |             |             |   |             |              |  |   |              |           |  |      |         |         |      |  
|Income from continuing operations                                 |                |                                                | 8,835   |             |             |   | 16,096      |              |  |   | 20,365       |           |  |      | 42,151  |         |      |   | 7,229      |         |  |   | 37,095    |          
|Net income                                                        |                | $                                              | 8,835   |             |             | $ | 16,096      |              |  | $ | 20,365       |           |  | $    | 42,151  |         |      | $ | 7,229      |         |  | $ | 37,095    |          
|                                                                  |                |                                                |         |             |             |   |             |              |  |   |              |           |  |      |         |         |      |  
|Earnings per share, basic and diluted (3) and (4)                 |                |                                                |         |             |             |   |             |              |  |   |              |           |  |      |         |         |      | $ | 0.13       |         |  | $ | 0.56      |          
|Cash flow data:                                                   |                |                                                |         |             |             |   |             |              |  |   |              |           |  |      |         |         |      |   |            |         |  |   |           |          
|Cash flows provided by operating activities                       |                | $                                              | 57,837  |             |             | $ | 42,029      |              |  | $ | 50,963       |           |  | $    | 57,729  |         |      | $ | 17,416     |         |  | $ | 212,422   |          
|Cash flows provided by (used in) investing activities             |                |                                                | (15,896 | )           |             |   | 3,813       |              |  |   | (7,089       | )         |  |      | (4,907  | )       |      |   | (1,126,939 | )       |  |   | (59,483   | )        
|Cash flows provided by (used in) financing activities             |                |                                                | (42,937 | )           |             |   | (18,759     | )            |  |   | (63,487      | )         |  |      | (52,030 | )       |      |   | 1,217,631  |         |  |   | (160,131  | )        

26



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|                          |                                           |                    |           |     |                    |   |           |       |  |   |           |       |  |      |           |         |  |   |           |         | 
|------------------------- | ----------------------------------------- | ------------------ | --------- | --- | ------------------ | - | --------- | ----- |  | - | --------- | ----- |  | ---- | --------- | ------- |  | - | --------- | ------- | 
|                          |                                           | Predecessor        |           |     | Successor          |  
|                          |                                           |                    |           |     |                    |  
|                          |                                           | As of December 31, |           |     | As of December 31, |  
|                          |                                           |                    |           |     |                    |  
|                          |                                           | 2001               |           |     | 2002               |   |           | 2003  |  |   | 2004      |       |  | 2005 |          
|                          |                                           |                    |           |     |                    |   |           |       |  |   |           |       |  |      |          
|                          |                                           | (In thousands)     |          
|Balance Sheet Data:       |                                           |                    |           |     |                    |   |           |       |  |   |           |       |  |      |           |         |  |   |           |        
|Cash and cash equivalents |                                           | $                  | 31,377    |     |                    | $ | 59,619    |       |  | $ | 41,537    |       |  | $    | 111,500   |         |  | $ | 98,036    |        
|Total assets              |                                           |                    | 1,052,741 |     |                    |   | 1,119,464 |       |  |   | 1,063,875 |       |  |      | 1,751,074 |         |  |   | 1,657,871 |        
|Debt:                     |                                           |                    |           |     |                    |   |           |       |  |   |           |       |  |      |           |         |  |   |           |        
|                          | Current portion of debt                   |                    |           | 52  |                    |   |           | 2,631 |  |   |           | 3,716 |  |      |           | 6,749   |  |   |           | 67      | 
|                          | Long-term debt, net of current maturities |                    |           | 260 |                    |   |           | 1,254 |  |   |           | 213   |  |      |           | 816,664 |  |   |           | 598,137 | 
|Total debt                |                                           |                    | 312       |     |                    |   | 3,885     |       |  |   | 3,929     |       |  |      | 823,413   |         |  |   | 598,204   |        
|Partnership interest      |                                           |                    | 588,450   |     |                    |   | 526,710   |       |  |   | 565,035   |       |  |      |          |         |  |   |          |        
|Stockholders equity      |                                           |                    |          |     |                    |   |          |       |  |   |          |       |  |      | 452,897   |         |  |   | 514,660   |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes severance expenses and facility exit costs associated
    with our corporate restructuring activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | The Successor is organized as a corporation while the
    Predecessor was organized in the United States as a partnership.
    The information presented does not give effect to the income
    taxes the Predecessor would have been required to recognize if
    it were organized as a corporation. Pro forma tax expense for
    the year ended December 31, 2004, was $15,997. Pro forma
    tax expense reflects income tax expense that would have been
    required to be recorded as a tax expense if organized as a
    corporation during these periods and also includes other pro
    forma adjustments related to the acquisition of Dresser-Rand
    Company by First Reserve on October 29, 2004.
|   
|(3) | Historical basic and diluted earnings per share data have not
    been presented for the Predecessor because the Predecessor did
    not operate as a separate legal entity from Ingersoll-Rand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(4) | For the Successor, basic and diluted earnings per share is
    calculated by dividing net earnings by the weighted average
    shares outstanding adjusted to reflect the 0.537314-for-one
    reverse stock split effected in August, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATION

Safe Harbor Statement Under Private Securities
Litigation Reform Act of 1995


10-K 10-K,




| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | material weaknesses in our internal control over financial
    reporting;                                   
|
| |  | economic or industry downturns;                                                                             
|
| |  | our inability to implement our business strategy to increase our
    aftermarket parts and services revenue;
|
| |  | competition in our markets;                                                                                 
|
| |  | failure to complete, or achieve the expected benefits from, any
    future acquisitions;                    
|
| |  | economic, political, currency and other risks associated with
    our international sales and operations;   
|
| |  | loss of our senior management;                                                                              
|
| |  | our brand name may be confused with others;                                                                 
|
| |  | environmental compliance costs and liabilities;                                                             
|
| |  | failure to maintain safety performance acceptable to our clients;                                           
|
| |  | failure to negotiate new collective bargaining agreements;                                                  

27



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| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | our ability to operate as a stand-alone company;                                                       
|
| |  | unexpected product claims or regulations;                                                              
|
| |  | infringement on our intellectual property or our infringement on
    others intellectual property; and
|
| |  | other factors described in this
    Form 10-K.                                                         



Overview






Corporate History










28



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##### Table of Contents





Effects of Currency Fluctuations




Revenues




Cost of Sales




Selling and Administrative Expenses




Research and Development Expenses




Other Income (Expense)




Depreciation and Amortization




29



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Income Taxes






Bookings and Backlog




| |          
| | ---------
| | New Units





| |                               
| | ------------------------------
| | Aftermarket Parts and Services



Letters of Credit, Bank Guarantees and Surety Bonds




Basis of Presentation






30



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##### Table of Contents





| |          
| | ---------
| | Successor





| |            
| | -----------
| | Predecessor



Results of Operations




| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Year ended December 31, 2005 (Successor) compared to
    the Period from October 30, 2004 through December 31,
    2004 (Successor) and for the Period from January 1, 2004
    through October 29, 2004 (Predecessor)

|                                    |  |                       |         |             |              |  |             |             |  |   |       |   |  |  |       |   |  |   |       |  |  |  |       |  
|----------------------------------- |  | --------------------- | ------- | ----------- | ------------ |  | ----------- | ----------- |  | - | ----- | - |  |  | ----- | - |  | - | ----- |  |  |  | ----- | -
|                                    |  | Successor             |         |             | Predecessor  | 
|                                    |  |                       |         |             |              | 
|                                    |  |                       |         | Period from |              |  | Period from |            
|                                    |  |                       |         | October 30  |              |  | January 1   |            
|                                    |  | Year Ended            |         |             | through      |  |             | through     | 
|                                    |  | December 31,          |         |             | December 31, |  |             | October 29, | 
|                                    |  | 2005                  |         |             | 2004         |  |             | 2004        | 
|                                    |  |                       |         |             |              |  |             |             | 
|                                    |  | (Dollars in millions) |        
|Statement of Operations Data:       |  |                       |         |             |              |  |             |             |  |   |       |   |  |  |       |   |  |   |       |  |  |  |       |  
|Total revenues                      |  | $                     | 1,208.2 |             |              |  | 100.0       | %           |  | $ | 199.9 |   |  |  | 100.0 | % |  | $ | 715.5 |  |  |  | 100.0 | %
|Cost of goods sold                  |  |                       | 921.0   |             |              |  | 76.2        |             |  |   | 149.6 |   |  |  | 74.8  |   |  |   | 538.0 |  |  |  | 75.2  |  
|                                    |  |                       |         |             |              |  |             |             |  |   |       |   |  |  |       |   |  |  
|Gross profit                        |  |                       | 287.2   |             |              |  | 23.8        |             |  |   | 50.3  |   |  |  | 25.2  |   |  |   | 177.5 |  |  |  | 24.8  |  
|Selling and administrative expenses |  |                       | 164.0   |             |              |  | 13.6        |             |  |   | 21.5  |   |  |  | 10.8  |   |  |   | 122.7 |  |  |  | 17.1  |  
|Research and development expenses   |  |                       | 7.1     |             |              |  | 0.6         |             |  |   | 2.8   |   |  |  | 1.4   |   |  |   | 5.7   |  |  |  | 0.8   |  
|                                    |  |                       |         |             |              |  |             |             |  |   |       |   |  |  |       |   |  |  
|Operating income                    |  |                       | 116.1   |             |              |  | 9.6         |             |  |   | 26.0  |   |  |  | 13.0  |   |  |   | 49.1  |  |  |  | 6.9   |  
|Interest income (expense), net      |  |                       | (57.0   | )           |              |  | (4.8        | )           |  |   | (9.7  | ) |  |  | (4.8  | ) |  |   | 3.1   |  |  |  | 0.4   |  
|Early redemption premium on debt    |  |                       | (3.7    | )           |              |  | (0.3        | )           |  |   |      |   |  |  |      |   |  |   |      |  |  |  |      |  
|Other income (expense), net         |  |                       | (2.8    | )           |              |  | (0.2        | )           |  |   | (1.8  | ) |  |  | (0.9  | ) |  |   | 1.9   |  |  |  | 0.3   |  
|                                    |  |                       |         |             |              |  |             |             |  |   |       |   |  |  |       |   |  |  
|Income before income taxes          |  |                       | 52.6    |             |              |  | 4.3         |             |  |   | 14.5  |   |  |  | 7.3   |   |  |   | 54.1  |  |  |  | 7.6   |  
|Provision for income taxes          |  |                       | 15.5    |             |              |  | 1.2         |             |  |   | 7.3   |   |  |  | 3.7   |   |  |   | 11.9  |  |  |  | 1.7   |  
|                                    |  |                       |         |             |              |  |             |             |  |   |       |   |  |  |       |   |  |  
|Net income                          |  | $                     | 37.1    |             |              |  | 3.1         | %           |  | $ | 7.2   |   |  |  | 3.6   | % |  | $ | 42.2  |  |  |  | 5.9   | %
|                                    |  |                       |         |             |              |  |             |             |  |   |       |   |  |  |       |   |  |  
|Bookings                            |  | $                     | 1,446.2 |             |              |  |             |             |  | $ | 218.0 |   |  |  |       |   |  | $ | 901.2 |  |  |  |       |  
|                                    |  |                       |         |             |              |  |             |             |  |   |       |   |  |  |       |   |  |  
|Backlog  ending                    |  | $                     | 884.7   |             |              |  |             |             |  | $ | 637.6 |   |  |  |       |   |  | $ | 613.4 |  |  |  |       |  
|                                    |  |                       |         |             |              |  |             |             |  |   |       |   |  |  |       |   |  |  



Total revenues.


Cost of goods sold.


31



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Gross profit.


Selling and administrative expenses.


Research and development expenses.


Operating income.


Interest income (expense), net.


Early redemption premium on debt.


Other income (expense), net.


Provision for income taxes.


32



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Bookings and backlog.


Segment information






| |    |                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



|                           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |   |   |       |       |  |  |    |     |  
|-------------------------- | ------------------------------ | ---------------------- | - | ----------- | ------------ |  | ----------- | ----------- | --- | - | - | ----- | ----- |  |  | -- | --- | - | - | ----- | ----- |  |  | -- | --- | -
|                           |                                | Successor              |   |             | Predecessor  | 
|                           |                                |                        |   |             |              | 
|                           |                                |                        |   | Period from |              |  | Period from |            
|                           |                                | Year Ended             |   |             | October 30   |  |             | January 1   |    
|                           |                                | December 31,           |   |             | through      |  |             | through     |    
|                           |                                | 2005                   |   |             | December 31, |  |             | October 29, |    
|                           |                                |                        |   |             | 2004         |  |             | 2004        |    
|                           |                                |                        |   |             |              |  |             |             |     |  
|                           |                                | (Dollars in millions)  |  
|Statement of Segment Data: |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |   |   |       |       |  |  |   
|Revenues                   |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |   |   |       |       |  |  |   
|                           | New units                      |                        | $ | 576.6       |              |  |             | 48          | %   |   | $ | 77.6  |       |  |  | 39 | %   |   | $ | 267.7 |       |  |  | 37 | %  
|                           | Aftermarket parts and services |                        |   | 631.6       |              |  |             | 52          | %   |   |   | 122.3 |       |  |  | 61 | %   |   |   | 447.8 |       |  |  | 63 | %  
|                           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |  
|                           |                                | Total revenues         |   | $           | 1,208.2      |  |             |             | 100 | % |   | $     | 199.9 |  |  |    | 100 | % |   | $     | 715.5 |  |  |    | 100 | %
|                           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |  
|Gross profit               |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |   |   |       |       |  |  |   
|                           | New units                      |                        | $ | 70.9        |              |  |             |             |     |   | $ | 9.8   |       |  |  |    |     |   | $ | 32.3  |       |  |  |    |    
|                           | Aftermarket parts and services |                        |   | 216.3       |              |  |             |             |     |   |   | 40.5  |       |  |  |    |     |   |   | 145.2 |       |  |  |    |    
|                           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |  
|                           |                                | Total gross profit     |   | $           | 287.2        |  |             |             |     |   |   | $     | 50.3  |  |  |    |     |   |   | $     | 177.5 |  |  |    |     |  
|                           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |  
|Operating income           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |   |   |       |       |  |  |   
|                           | New units                      |                        | $ | 20.8        |              |  |             |             |     |   | $ | 3.6   |       |  |  |    |     |   | $ | (0.5  | )     |  |  |    |    
|                           | Aftermarket parts and services |                        |   | 141.4       |              |  |             |             |     |   |   | 30.6  |       |  |  |    |     |   |   | 85.0  |       |  |  |    |    
|                           | Unallocated corporate expense  |                        |   | (46.1       | )            |  |             |             |     |   |   | (8.2  | )     |  |  |    |     |   |   | (35.4 | )     |  |  |    |    
|                           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |  
|                           |                                | Total operating income |   | $           | 116.1        |  |             |             |     |   |   | $     | 26.0  |  |  |    |     |   |   | $     | 49.1  |  |  |    |     |  
|                           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |  
|Bookings                   |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |   |   |       |       |  |  |   
|                           | New units                      |                        | $ | 771.9       |              |  |             |             |     |   | $ | 121.1 |       |  |  |    |     |   | $ | 415.8 |       |  |  |    |    
|                           | Aftermarket parts and services |                        |   | 674.3       |              |  |             |             |     |   |   | 96.9  |       |  |  |    |     |   |   | 485.4 |       |  |  |    |    
|                           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |  
|                           |                                | Total bookings         |   | $           | 1,446.2      |  |             |             |     |   |   | $     | 218.0 |  |  |    |     |   |   | $     | 901.2 |  |  |    |     |  
|                           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |  
|Backlog  ending           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |   |   |       |       |  |  |   
|                           | New units                      |                        | $ | 688.1       |              |  |             |             |     |   | $ | 489.3 |       |  |  |    |     |   | $ | 439.7 |       |  |  |    |    
|                           | Aftermarket parts and services |                        |   | 196.6       |              |  |             |             |     |   |   | 148.3 |       |  |  |    |     |   |   | 173.7 |       |  |  |    |    
|                           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |  
|                           |                                | Total backlog          |   | $           | 884.7        |  |             |             |     |   |   | $     | 637.6 |  |  |    |     |   |   | $     | 613.4 |  |  |    |     |  
|                           |                                |                        |   |             |              |  |             |             |     |   |   |       |       |  |  |    |     |  



| |          
| | ---------
| | New Units

Revenues.


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Gross profit.


Operating income.


Bookings and backlog.




| |                               
| | ------------------------------
| | Aftermarket Parts and Services

Revenues.


Gross profit.


Operating income.


Bookings and backlog.


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| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Period from October 30, 2004 through
    December 31, 2004 (Successor) and the Period from
    January 1, 2004 through October 29, 2004 (Predecessor)
    Compared to the Year Ended December 31, 2003
    (Predecessor)



|                                                           |  |                       |         |             |             |  |             |              |  |   |       |  |  |  |       |   |  |   |       |   |  |  |       |  
|---------------------------------------------------------- |  | --------------------- | ------- | ----------- | ----------- |  | ----------- | ------------ |  | - | ----- |  |  |  | ----- | - |  | - | ----- | - |  |  | ----- | -
|                                                           |  | Predecessor           |         |             | Successor   | 
|                                                           |  |                       |         |             |             | 
|                                                           |  |                       |         | Period from |             |  | Period from |             
|                                                           |  | Year Ended            |         |             | January 1   |  |             | October 30   | 
|                                                           |  | December 31,          |         |             | through     |  |             | through      | 
|                                                           |  | 2003                  |         |             | October 29, |  |             | December 31, | 
|                                                           |  |                       |         |             | 2004        |  |             | 2004         | 
|                                                           |  |                       |         |             |             |  |             |              |  |  
|                                                           |  | (Dollars in millions) |        
|Statement of Operations Data:                              |  |                       |         |             |             |  |             |              |  |   |       |  |  |  |       |   |  |   |       |   |  |  |       |  
|Total revenues                                             |  | $                     | 1,335.4 |             |             |  | 100.0       | %            |  | $ | 715.5 |  |  |  | 100.0 | % |  | $ | 199.9 |   |  |  | 100.0 | %
|Cost of goods sold                                         |  |                       | 1,132.1 |             |             |  | 84.8        |              |  |   | 538.0 |  |  |  | 75.2  |   |  |   | 149.6 |   |  |  | 74.8  |  
|                                                           |  |                       |         |             |             |  |             |              |  |   |       |  |  |  |       |   |  |  
|Gross profit                                               |  |                       | 203.3   |             |             |  | 15.2        |              |  |   | 177.5 |  |  |  | 24.8  |   |  |   | 50.3  |   |  |  | 25.2  |  
|Selling and administrative expenses                        |  |                       | 156.1   |             |             |  | 11.7        |              |  |   | 122.7 |  |  |  | 17.1  |   |  |   | 21.5  |   |  |  | 10.8  |  
|Research and development expenses                          |  |                       | 8.1     |             |             |  | 0.6         |              |  |   | 5.7   |  |  |  | 0.8   |   |  |   | 1.0   |   |  |  | 0.5   |  
|Write-off of purchased in-process research and development |  |                       |        |             |             |  |            |              |  |   |      |  |  |  |      |   |  |   | 1.8   |   |  |  | 0.9   |  
|                                                           |  |                       |         |             |             |  |             |              |  |   |       |  |  |  |       |   |  |  
|Operating income                                           |  |                       | 39.1    |             |             |  | 2.9         |              |  |   | 49.1  |  |  |  | 6.9   |   |  |   | 26.0  |   |  |  | 13.0  |  
|Interest income (expense), net                             |  |                       | 1.9     |             |             |  | 0.1         |              |  |   | 3.1   |  |  |  | 0.4   |   |  |   | (9.7  | ) |  |  | (4.8  | )
|Other income (expense), net                                |  |                       | (9.2    | )           |             |  | (0.6        | )            |  |   | 1.9   |  |  |  | 0.3   |   |  |   | (1.8  | ) |  |  | (0.9  | )
|                                                           |  |                       |         |             |             |  |             |              |  |   |       |  |  |  |       |   |  |  
|Income before income taxes                                 |  |                       | 31.8    |             |             |  | 2.4         |              |  |   | 54.1  |  |  |  | 7.6   |   |  |   | 14.5  |   |  |  | 7.3   |  
|Provision for income taxes                                 |  |                       | 11.4    |             |             |  | 0.9         |              |  |   | 11.9  |  |  |  | 1.7   |   |  |   | 7.3   |   |  |  | 3.7   |  
|                                                           |  |                       |         |             |             |  |             |              |  |   |       |  |  |  |       |   |  |  
|Net income                                                 |  | $                     | 20.4    |             |             |  | 1.5         | %            |  | $ | 42.2  |  |  |  | 5.9   | % |  | $ | 7.2   |   |  |  | 3.6   | %
|                                                           |  |                       |         |             |             |  |             |              |  |   |       |  |  |  |       |   |  |  
|Bookings                                                   |  | $                     | 901.0   |             |             |  |             |              |  | $ | 901.2 |  |  |  |       |   |  | $ | 218.0 |   |  |  |       |  
|                                                           |  |                       |         |             |             |  |             |              |  |   |       |  |  |  |       |   |  |  
|Backlog  ending                                           |  | $                     | 419.9   |             |             |  |             |              |  | $ | 613.4 |  |  |  |       |   |  | $ | 637.6 |   |  |  |       |  
|                                                           |  |                       |         |             |             |  |             |              |  |   |       |  |  |  |       |   |  |  

Total revenues.


Cost of goods sold.


35



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Gross profit.


Selling and administrative expenses.


Research and development expenses.


Write-off of purchased in-process research and development
assets.


Operating income.


Interest income (expense), net.


Other income (expense), net.


36



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|                                  |  |                       |      |   |                   |   |      |                    |  |   |      |  
|--------------------------------- |  | --------------------- | ---- | - | ----------------- | - | ---- | ------------------ |  | - | ---- | -
|                                  |  | Predecessor           |      |   | Successor         |  
|                                  |  |                       |      |   |                   |  
|                                  |  | Year Ended            |      |   | Period from       |   |      | Period from        | 
|                                  |  | December 31,          |      |   | January 1 through |   |      | October 30 through | 
|                                  |  | 2003                  |      |   | October 29, 2004  |   |      | December 31, 2004  | 
|                                  |  |                       |      |   |                   |   |      |                    | 
|                                  |  | (Dollars in millions) |     
|Foreign currency gains (losses)   |  | $                     | (4.4 | ) |                   | $ | 2.1  |                    |  | $ | (1.0 | )
|Equity earnings                   |  |                       | (0.1 | ) |                   |   | (1.0 | )                  |  |   | 0.2  |  
|Casualty losses                   |  |                       | (2.8 | ) |                   |   |     |                    |  |   |     |  
|New York State Grant              |  |                       | (1.3 | ) |                   |   |     |                    |  |   |     |  
|All other                         |  |                       | (0.6 | ) |                   |   | 0.8  |                    |  |   | (1.0 | )
|                                  |  |                       |      |   |                   |   |      |                    | 
|Total other income (expense), net |  | $                     | (9.2 | ) |                   | $ | 1.9  |                    |  | $ | (1.8 | )
|                                  |  |                       |      |   |                   |   |      |                    | 

Provision for income taxes.


Bookings and backlog.


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Segment Information




|                        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |   |   |       |       |  |  |      |       |  
|----------------------- | ------------------------------ | ---------------------- | - | ----------- | ----------- |  | ----------- | ------------ | ----- | - | - | ----- | ----- |  |  | ---- | ----- | - | - | ----- | ----- |  |  | ---- | ----- | -
|                        |                                | Predecessor            |   |             | Successor   | 
|                        |                                |                        |   |             |             | 
|                        |                                |                        |   | Period from |             |  | Period from |             
|                        |                                |                        |   | January 1   |             |  | October 30  |             
|                        |                                | Year Ended             |   |             | through     |  |             | through      |      
|                        |                                | December 31,           |   |             | October 29, |  |             | December 31, |      
|                        |                                | 2003                   |   |             | 2004        |  |             | 2004         |      
|                        |                                |                        |   |             |             |  |             |              |      
|                        |                                | (Dollars in millions)  |  
|Revenues                |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |   |   |       |       |  |  |     
|                        | New units                      |                        | $ | 793.0       |             |  |             | 59.4         | %     |   | $ | 267.7 |       |  |  | 37.4 | %     |   | $ | 77.6  |       |  |  | 38.8 | %    
|                        | Aftermarket parts and services |                        |   | 542.4       |             |  |             | 40.6         | %     |   |   | 447.8 |       |  |  | 62.6 | %     |   |   | 122.3 |       |  |  | 61.2 | %    
|                        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |  
|                        |                                | Total revenues         |   | $           | 1,335.4     |  |             |              | 100.0 | % |   | $     | 715.5 |  |  |      | 100.0 | % |   | $     | 199.9 |  |  |      | 100.0 | %
|                        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |  
|Gross profit            |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |   |   |       |       |  |  |     
|                        | New units                      |                        | $ | 39.4        |             |  |             |              |       |   | $ | 32.3  |       |  |  |      |       |   | $ | 9.8   |       |  |  |      |      
|                        | Aftermarket parts and services |                        |   | 163.9       |             |  |             |              |       |   |   | 145.2 |       |  |  |      |       |   |   | 40.5  |       |  |  |      |      
|                        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |  
|                        |                                | Total gross profit     |   | $           | 203.3       |  |             |              |       |   |   | $     | 177.5 |  |  |      |       |   |   | $     | 50.3  |  |  |      |       |  
|                        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |  
|Operating income (loss) |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |   |   |       |       |  |  |     
|                        | New units                      |                        | $ | (11.4       | )           |  |             |              |       |   | $ | (0.5  | )     |  |  |      |       |   | $ | 3.6   |       |  |  |      |      
|                        | Aftermarket parts and services |                        |   | 98.1        |             |  |             |              |       |   |   | 85.0  |       |  |  |      |       |   |   | 30.6  |       |  |  |      |      
|                        | Unallocated corporate expense  |                        |   | (47.6       | )           |  |             |              |       |   |   | (35.4 | )     |  |  |      |       |   |   | (8.2  | )     |  |  |      |      
|                        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |  
|                        |                                | Total operating income |   | $           | 39.1        |  |             |              |       |   |   | $     | 49.1  |  |  |      |       |   |   | $     | 26.0  |  |  |      |       |  
|                        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |  
|Bookings                |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |   |   |       |       |  |  |     
|                        | New units                      |                        | $ | 388.5       |             |  |             |              |       |   | $ | 415.8 |       |  |  |      |       |   | $ | 121.1 |       |  |  |      |      
|                        | Aftermarket parts and services |                        |   | 512.5       |             |  |             |              |       |   |   | 485.4 |       |  |  |      |       |   |   | 96.9  |       |  |  |      |      
|                        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |  
|                        |                                | Total bookings         |   | $           | 901.0       |  |             |              |       |   |   | $     | 901.2 |  |  |      |       |   |   | $     | 218.0 |  |  |      |       |  
|                        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |  
|Backlog  ending        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |   |   |       |       |  |  |     
|                        | New units                      |                        | $ | 287.7       |             |  |             |              |       |   | $ | 439.7 |       |  |  |      |       |   | $ | 489.3 |       |  |  |      |      
|                        | Aftermarket parts and services |                        |   | 132.2       |             |  |             |              |       |   |   | 173.7 |       |  |  |      |       |   |   | 148.3 |       |  |  |      |      
|                        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |  
|                        |                                | Total backlog          |   | $           | 419.9       |  |             |              |       |   |   | $     | 613.4 |  |  |      |       |   |   | $     | 637.6 |  |  |      |       |  
|                        |                                |                        |   |             |             |  |             |              |       |   |   |       |       |  |  |      |       |  

New Units


Revenues.


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Gross profit.


Operating income.


Bookings and backlog.




| |                             
| | ----------------------------
| | Aftermarket Parts & Services

Revenues.


Gross profit.


Operating income.


Bookings and backlog.


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Liquidity and Capital Resources




non-cash work-in






|                                          |  |                       |      | 
|----------------------------------------- |  | --------------------- | ---- | 
|                                          |  | (Dollars in millions) |     
|Accounts receivable                       |  | $                     | 12.5 | 
|Inventory  net                           |  |                       | 7.7  | 
|Prepaid expenses and other current assets |  |                       | 0.5  | 
|                                          |  |                       |     
|Total current assets                      |  |                       | 20.7 | 
|Property, plant and equipment, net        |  |                       | 19.8 | 
|Intangible assets and goodwill            |  |                       | 25.5 | 
|                                          |  |                       |     
|Total assets acquired                     |  |                       | 66.0 | 
|                                          |  |                       |     
|Accounts payable and accruals             |  |                       | 9.4  | 
|Other liabilities                         |  |                       | 2.0  | 
|                                          |  |                       |     
|Total liabilities assumed                 |  |                       | 11.4 | 
|                                          |  |                       |     
|Cash paid  net                           |  | $                     | 54.6 | 
|                                          |  |                       |     



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work-in


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Contractual Obligations




|                            |  |                        |         |           |        |   |       |       |  |     |       |  |           |         |       |  |  |   |         | 
|--------------------------- |  | ---------------------- | ------- | --------- | ------ | - | ----- | ----- |  | --- | ----- |  | --------- | ------- | ----- |  |  | - | ------- | 
|                            |  | Payments Due by Period |        
|                            |  |                        |        
|                            |  |                        |         | Less Than |        |   | 1-3   |       |  | 3-5 |       |  | More Than |        
|                            |  | Total                  |         |           | 1 Year |   |       | Years |  |     | Years |  |           | 5 Years |      
|                            |  |                        |         |           |        |   |       |       |  |     |       |  |           |         |      
|                            |  | (In thousands)         |        
|Long-term debt obligations  |  | $                      | 598,023 |           |        | $ |      |       |  | $   |      |  |           | $       |      |  |  | $ | 598,023 | 
|Operating lease obligations |  |                        | 6,670   |           |        |   | 1,696 |       |  |     | 4,248 |  |           |         | 726   |  |  |   |        | 
|Loans payable               |  |                        | 114     |           |        |   | 0     |       |  |     | 114   |  |           |         |      |  |  |   |        | 
|License agreement           |  |                        | 3,556   |           |        |   | 444   |       |  |     | 889   |  |           |         | 889   |  |  |   | 1,334   | 
|                            |  |                        |         |           |        |   |       |       |  |     |       |  |           |         |      
|Total                       |  | $                      | 608,363 |           |        | $ | 2,140 |       |  | $   | 5,251 |  |           | $       | 1,615 |  |  | $ | 599,357 | 
|                            |  |                        |         |           |        |   |       |       |  |     |       |  |           |         |      



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Critical Accounting Policies






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenue recognition  We use the completed
    contract method for recognizing revenue for our long-term
    contracts. This method recognizes revenue when the contract is
    substantially completed as opposed to the
    percentage-of-completion
    method which recognizes revenue as the contract progresses. If
    we use the
    percentage-of-completion
    method to recognize revenue, revenue would be recognized in
    periods prior to substantial completion of the contract.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |   | The completed contract method requires the use of estimates as
    to the future costs that will be incurred related to the
    contract. 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 our contracts and for use
    by our aftermarket parts and services business. 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
    aftermarkets 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 as necessary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Employee benefit plans  We provide a range of
    benefits to employees and retired employees, including pensions,
    postretirement, postemployment and health care 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 health care cost trend rates.
    Independent actuaries perform the required calculations to
    determine expense in accordance with U.S. generally
    accepted accounting principles. 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 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 Moodys 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
    plans 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. At
    the end of 2002, we believed a revision to our long-term
    expectations for returns was necessary based upon the market
    performance experienced in 2001 and 2002. 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 trend rate assumed for postretirement
    benefits would have the following effects for the year ended
    December 31, 2005, and at December 31, 2005,
    respectively:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                                     |  |                           |        |  |             |   |        |  
|---------------------------------------------------- |  | ------------------------- | ------ |  | ----------- | - | ------ | -
|                                                     |  | 1% Increase               |        |  | 1% Decrease |  
|                                                     |  |                           |        |  |             |  
|                                                     |  | (In thousands of dollars) |       
|Effect on total service and interest cost components |  | $                         | 1,000  |  |             | $ | (800   | )
|Effect of postretirement benefit obligations         |  | $                         | 10,900 |  |             | $ | (8,700 | )



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | environmental reserves when, in conjunction with our internal
    and external counsel, we determine that a liability is both
    probable and estimable. In many cases, the liability is not
    fixed or capped when we first record a liability for a
    particular site. Factors that affect the recorded amount of the
    liability in future years 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,
    including workers compensation matters and product
    warranty issues. We have recorded reserves in the financial
    statements related to these matters, which are developed using
    input derived from actuarial estimates and historical and
    anticipated experience data depending on the nature of the
    reserve. We believe our estimated reserves 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 based on estimates of future
    cash flows of our businesses. Factors affecting these 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 use of estimates and
    assumptions are reasonable and comply with generally accepted
    accounting principles. Changes in business conditions could
    potentially require future adjustments to these valuations.



New Accounting Standards








44



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|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK

non-U.S. non-U.S.











|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



45



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Disclosure Controls and Procedures


13a-15(e) 15d-15(e)


10-K


10-K, 10-K


Material Weaknesses in Internal Control Over Financial
Reporting


13a-15(f) 15d-15(f)


10-K


46



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##### Table of Contents







| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | 1. We did not have an effective control environment because
    of the following material weaknesses.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) We did not have a sufficient complement of personnel to
    have an appropriate accounting and financial reporting
    organizational structure to support the activities of the
    Company. Specifically, we did not have personnel with an
    appropriate level of accounting knowledge, experience and
    training in the selection, application and implementation of
    GAAP commensurate with our financial reporting requirements.                                                                                                                                                                                                                                                                                              
|
| | b) We did not have an appropriate level of control
    consciousness as it relates to the establishment and maintenance
    of policies and procedures with respect to the primary
    components of information technology general controls. This
    resulted in either not having appropriate controls designed and
    in place or not achieving operating effectiveness over systems
    development, software change management, computer operations and
    security, which are referred to as information technology
    general controls. Additionally, we lacked a sufficient
    complement of personnel with a level of knowledge and experience
    to have an appropriate information technology organizational
    structure.



| |                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The control environment sets the tone of an organization,
    influences the control consciousness of its people, and is the
    foundation of all other components of internal control over
    financial reporting. These control environment material
    weaknesses contributed to the material weaknesses discussed in 2
    and 3 below.



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | 2. We did not have effective controls over certain of our
    accounts and disclosures because of the following material
    weaknesses.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) We did not have effective controls over the preparation
    and review of the interim and annual consolidated financial
    statements and disclosures. Specifically, effective controls
    were not designed and in place over the process related to
    identifying and accumulating all required supporting information
    to ensure the completeness and accuracy of the consolidated
    financial statements and disclosures including the required
    guarantor subsidiary financial statement disclosures as required
    by Rule 3-10 of
    Regulation S-X.
    This control deficiency resulted in audit adjustments to our
    2005 annual consolidated financial statements.
|
| | b) We did not have effective controls over the completeness
    and accuracy of foreign currency translations related to our
    foreign affiliates. Specifically, our controls over the
    translation of the
    step-up basis in
    property, plant and equipment recorded as a result of the
    acquisition of certain foreign subsidiaries and the related
    cumulative translation adjustment were not effectively designed
    to ensure that the translated amounts were determined in
    accordance with generally accepted accounting principles. This
    control deficiency resulted in audit adjustments to our 2005
    annual consolidated financial statements.           
|
| | c) We did not have effective controls over the valuation of
    accounts receivable. Specifically, effective controls were not
    in place to ensure the proper determination and review of the
    allowance for doubtful accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | d) We did not have effective controls over the valuation of
    inventory. Specifically, effective controls were not designed
    and in place to ensure the proper determination and review of
    the obsolete and slow-moving inventory reserve at period-end.                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | e) We did not have effective controls over the timely
    preparation, review and approval of certain account analyses and
    reconciliations. Specifically, we did not have effective
    controls over the completeness and accuracy of supporting
    schedules and underlying data supporting account reconciliations
    prepared for certain accounts related to accounts receivable,
    payroll, inventory, property, plant and equipment and accruals.
    This control deficiency resulted in audit adjustments to our
    2005 annual consolidated financial statements.                                                                                                            
|
| | f) We did not have effective controls over intercompany
    accounts. Specifically, we did not have effective controls to
    ensure that intercompany account balances were reconciled timely
    and properly eliminated in consolidation in accordance with
    generally accepted accounting principles. This control
    deficiency resulted in audit adjustments to our 2005 annual
    consolidated financial statements.                                                                                                                                                                                                                                                                
|
| | g) We did not have effective controls over revenue
    recognition. Specifically, our controls were not adequate to
    ensure the completeness and accuracy of revenues recorded for
    contracts with non-standard terms and conditions. This control
    deficiency resulted in audit adjustments to our 2005 annual
    consolidated financial statements.                                                                                                                                                                                                                                                                                                                                 

47



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##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3. We did not design or have effective controls over
    segregation of duties, including access to financial
    applications and data. Specifically, certain financial
    accounting and information technology personnel had unrestricted
    and unmonitored access to critical financial applications and
    data, which are significant to the financial statements, and
    that could lead to the creation, approval or processing of
    financial transactions, changes to financial data or changes to
    application controls and processing, without appropriate review
    and authorization.



Remediation of Material Weaknesses








Change in Internal Control Over Financial Reporting









|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION






PART III







|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT








|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION



48



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##### Table of Contents








|         |                                                                   
|-------- | ------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT








|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES






PART IV







|         |                                             
|-------- | --------------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES





| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | 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        
|       |  | Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                            |  | F-3        
|       |  | Consolidated Financial Statements and Predecessor Combined
    Financial Statements                                                                                                                                                                                                                                                                                                                                |  |            
|       |  | Consolidated Statement of Operations (Successor) for the year
    ended December 31, 2005, and the period from
    October 30, 2004 through December 31, 2004, and
    Combined Statements of Operations (Predecessor) for the period
    from January 1, 2004 through October 29, 2004, and for
    the year ended December 31, 2003                                                                              |  | F-4        
|       |  | Consolidated Balance Sheet (Successor) at December 31, 2005
    and 2004                                                                                                                                                                                                                                                                                                                                           |  | F-5        
|       |  | Consolidated Statement of Cash Flows (Successor) for the year
    ended December 31, 2005, and the period from
    October 30, 2004 through December 31, 2004, and
    Combined Statements of Cash Flows (Predecessor) for the period
    from January 1, 2004 through October 29, 2004, and for
    the year ended December 31, 2003                                                                              |  | F-6        
|       |  | Consolidated Statement of Changes in Stockholders Equity
    (Successor) for the year ended December 31, 2005, and the
    period from October 30, 2004 through December 31,
    2004, and Combined Statements of Changes in Ingersoll-Rand
    Company Limited Partnership Interest (Predecessor) for the
    period from January 1, 2004 through October 29, 2004,
    and for the year ended December 31, 2003 |  | F-7        
|       |  | Notes to Consolidated and Combined Financial Statements                                                                                                                                                                                                                                                                                                                                                            |  | F-8 to F-48
|      
|(2)    |  | Consolidated Financial Statement Schedules                                                                                                                                                                                                                                                                                                                                                                         |  |            
|       |  | Schedule II  Valuation and Qualifying Accounts
    and Reserves  For the year ended December 31,
    2003, the period from January 1, 2004 through
    October 29, 2004, the period from October 30, 2004
    through December 31, 2004, and the year ended
    December 31, 2004.                                                                                                                              
|       |  | Schedules not included have been omitted because they are not
    applicable or the required information is shown in the
    consolidated financial statement or notes.                                                                                                                                                                                                                                           
|       |  | Separate financial statements of subsidiaries not consolidated
    and 50 percent or less owned persons accounted for by the
    equity method have been omitted because, considered in the
    aggregate as a single subsidiary, they do not constitute a
    significant subsidiary.                                                                                                                            
|      
|(3)    |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                           |  |            
|      
|3.1(a) |  | Amended and Restated Certificate of Incorporation of
    Dresser-Rand Group Inc.                                                                                                                                                                                                                                                                                                                                  
|3.2(a) |  | Amended and Restated By-Laws of Dresser-Rand Group Inc.                                                                                                                                                                                                                                                                                                                                                           
|4.1(a) |  | Form of certificate of Dresser-Rand Group Inc. common stock                                                                                                                                                                                                                                                                                                                                                       

49



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|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | 
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|4.2(a)   |  | Indenture dated as of October 29, 2004 among Dresser-Rand
    Group Inc., the guarantors party thereto and Citibank, N.A., as
    trustee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.3(b)   |  | First Supplemental Indenture, dated as of December 22, 2005
    among Dresser-Rand Group Inc., the guarantors party thereto and
    Citibank, N.A., as trustee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4.4(a)   |  | Registration Rights Agreement, dated as of October 29,
    2004, among Dresser-Rand Group Inc., Dresser-Rand LLC,
    Dresser-Rand Company, Dresser-Rand Power LLC, Dresser-Rand
    Global Services, LLC and Morgan Stanley & Co.
    Incorporated, Citigroup Global Markets Inc., UBS Securities LLC,
    Bear, Stearns & Co. Inc., Natexis Bleichroeder Inc.,
    Sovereign Securities Corporation, LLC and Daiwa Securities
    America Inc. as representatives of the placement agents                                                                                                                                                                                                    
|10.1(a)  |  | Equity Purchase Agreement, dated as of August 25, 2004, by
    and among FRC Acquisition LLC and Ingersoll-Rand Company Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.2(a)  |  | Credit Agreement dated as of October 29, 2004, among D-R
    Interholding, LLC, Dresser-Rand Group Inc., D-R Holdings
    (UK) LTD, D-R Holdings S.A.S., the lenders party thereto,
    Citicorp North America, Inc. as administrative agent and
    collateral agent, Morgan Stanley Senior Funding, Inc. and UBS
    Securities LLC, each as co-syndication agent, Citigroup Global
    Markets Inc., Morgan Stanley Senior Fundings, Inc. and UBS
    Securities LLC, as joint lead arrangers and joint book managers
    and Bear Stearns Corporate Lending Inc. and Natexis Banques
    Populaires as co-documentation agents                                                             
|10.3(a)  |  | Amendment No. 1 and Consent to the Credit Agreement, dated
    as of January 4, 2005, among D-R Interholding, LLC,
    Dresser-Rand Group Inc., D-R Holdings (UK) Limited, D-R
    Holdings (France) S.A.S. and the lenders party thereto                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.4(a)  |  | Form of Amendment No. 2 and Consent to the Credit Agreement
    and Amendment No. 1 to the Domestic Guarantee and
    Collateral Agreement among D-R Interholding, LLC, Dresser Rand
    Group Inc., D-R Holdings (UK) Limited, D-R Holdings
    (France) S.A.S. and the lenders party thereto                                                                                                                                                                                                                                                                                                                                                                                                 
|10.5(c)  |  | Commitment Increase Supplement dated as of August 26, 2005,
    to the Credit Agreement dated as of October 29, 2004, among
    Dresser-Rand Group Inc., the Foreign Borrowers party thereto
    from time to time, the lenders party thereto, Citicorp North
    America, Inc. as administrative agent and collateral agent,
    Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, each
    as co-syndication agent, Citigroup Global Markets Inc., Morgan
    Stanley Senior Fundings, Inc. and UBS Securities LLC, as joint
    lead arrangers and joint book managers, and Natexis Banques
    Populaires and Bear Stearns Corporate Lending Inc., as
    co-documentation agents
|10.6(a)  |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.7(b)  |  | 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                                                                                                                                                                                                                                                                                                                                                               
|10.8(a)  |  | Supply Agreement, dated October 31, 2004, by and between
    Dresser-Rand Company and Ingersoll-Rand Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.9(a)  |  | License Agreement, dated as of October 26, 2004, by and
    between Dresser, Inc. and Dresser-Rand Group Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.10(a) |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.11(a) |  | Amended and Restated Limited Liability Company Agreement of
    Dresser-Rand Holdings, LLC, effective as of October 29, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.12(a) |  | Amendment to the Amended and Restated Limited Liability Company
    Agreement of Dresser-Rand Holdings, LLC, effective as of
    June 24, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.13(a) |  | Employment Agreement, dated October 27, 2004, by and among
    Vincent R. Volpe, Dresser-Rand Holdings, LLC and Dresser-Rand
    Group Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.14(a) |  | Employment Agreement, dated July 25, 1990, by and between
    Jean-Francois Chevrier and Dresser-Rand S.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.15(a) |  | 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                                                                                                                                                                                                                                                                                                                                                                                               
|10.16(a) |  | Dresser-Rand Group Inc. Stock Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

50



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|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|10.17(a) |  | Dresser-Rand Group Inc. 2005 Stock Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.18(a) |  | Dresser-Rand Group Inc. 2005 Directors Stock Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.19(a) |  | Form of Subscription Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.20(a) |  | Form of Management Stock Subscription Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.21(a) |  | Annual Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | 
|10.22(d) |  | Form of Indemnification Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.23(e) |  | Stock Option Agreement between Dresser-Rand Group Inc. and
    Lonnie A. Arnett                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.24(e) |  | Performance Stock Option Agreement between Dresser-Rand Group
    Inc. and Lonnie A. Arnett                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.25(e) |  | Restricted Shares Agreement between Dresser-Rand Group Inc. and
    Lonnie A. Arnett                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|21.1(e)  |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|23.1     |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|24       |  | 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.)






|    |  |                                                                                                                                                  
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Incorporated by reference to the Registration Statement on
    Form S-1 of
    Dresser-Rand Group Inc.
    (File
    No. 333-124963)             
|   
|(b) |  | Incorporated by reference to the Registration Statement on
    Form S-4 of
    Dresser-Rand Group Inc.
    filed with the SEC on January 23, 2006
|   
|(c) |  | Incorporated by reference to the Quarterly Report on
    Form 10-Q of
    Dresser-Rand Group Inc.
    filed with the SEC on November 14, 2005    
|   
|(d) |  | Incorporated by reference to the Current Report on
    Form 8-K of
    Dresser-Rand Group Inc.
    filed with the SEC on December 9, 2005        
|   
|(e) |  | Incorporated by reference to the Registration Statement on
    Form S-1 of
    Dresser-Rand Group Inc.
    (File
    No. 333-131300)             

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##### Table of Contents



SIGNATURES


10-K




| |                        
| | -----------------------
| | DRESSER-RAND GROUP INC.



| |     |                          
| | --- | -------------------------
| | By: | /s/ VINCENT R. VOLPE, JR.

| |                           
| | --------------------------
| |                           
| | Name: Vincent R. Volpe Jr.

| |        |                           
| | ------ | --------------------------
| | Title: | President, Chief Executive

| |                     
| | --------------------
| | Officer and Director

attorney-in 10-K 10-K attorney-in attorney-in attorney-in


10-K


|                                             |  |                                                             |  |               |  | 
|-------------------------------------------- |  | ----------------------------------------------------------- |  | ------------- |  | 
|Signature                                    |  | Title                                                       |  | Date         
|                                             |  |                                                             |  |              
|                                            
|/s/ VINCENT R. VOLPE JR.Vincent R. Volpe Jr. |  | President, Chief Executive
    Officer and Director         |  | April 4, 2006
|                                            
|/s/ LEONARD M. ANTHONYLeonard M. Anthony     |  | Executive Vice President
    and Chief Financial Officer    |  | April 4, 2006
|                                            
|/s/ LONNIE A. ARNETTLonnie A. Arnett         |  | Vice President, Controller and
    Chief Accounting Officer |  | April 4, 2006
|                                            
|/s/ WILLIAM E. MACAULAYWilliam E. Macaulay   |  | Chairman of the Board of
    Directors                      |  | April 4, 2006
|                                            
|/s/ THOMAS J. SIKORSKIThomas J. Sikorski     |  | Director                                                    |  | April 4, 2006
|                                            
|/s/ MARK A. MCCOMISKEYMark A. McComiskey     |  | Director                                                    |  | April 4, 2006
|                                            
|/s/ KENNETH W. MOOREKenneth W. Moore         |  | Director                                                    |  | April 4, 2006
|                                            
|/s/ MICHAEL L. UNDERWOODMichael L. Underwood |  | Director                                                    |  | April 4, 2006
|                                            
|/s/ PHILIP R. ROTHPhilip R. Roth             |  | Director                                                    |  | April 4, 2006
|                                            
|/s/ LOUIS A. RASPINOLouis A. Raspino         |  | Director                                                    |  | April 4, 2006

52



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DRESSER-RAND GROUP INC.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR)


|                                                                                                                                                                                                                                                                                                                                                                                                                       |  |            
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Page       
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  |            
|Report of Independent Registered Public
    Accounting Firm                                                                                                                                                                                                                                                                                                                                                            |  | F-2        
|Report of Independent Registered Public
    Accounting Firm                                                                                                                                                                                                                                                                                                                                                            |  | F-3        
|Consolidated Financial Statements and Predecessor Combined
    Financial Statements                                                                                                                                                                                                                                                                                                                                    |  |            
|Consolidated Statement of Operations
    (Successor) for the year ended December 31, 2005, and the
    period from October 30, 2004 through December 31,
    2004, and Combined Statements of Operations (Predecessor) for
    the period from January 1, 2004 through October 29,
    2004, and for the year ended December 31, 2003                                                                                  |  | F-4        
|Consolidated Balance Sheet (Successor) at
    December 31, 2005 and 2004                                                                                                                                                                                                                                                                                                                                               |  | F-5        
|Consolidated Statement of Cash Flows
    (Successor) for the year ended December 31, 2005, and the
    period from October 30, 2004 through December 31,
    2004, and Combined Statements of Cash Flows (Predecessor) for
    the period from January 1, 2004 through October 29,
    2004, and for the year ended December 31, 2003                                                                                  |  | F-6        
|Consolidated Statement of Changes in
    Stockholders Equity (Successor) for the year ended
    December 31, 2005, and the period from October 30,
    2004 through December 31, 2004, and Combined Statements of
    Changes in Ingersoll-Rand Company Limited
    Partnership Interest (Predecessor) for the period from
    January 1, 2004 through October 29, 2004, and for the
    year ended December 31, 2003 |  | F-7        
|Notes to Consolidated and Combined
    Financial Statements                                                                                                                                                                                                                                                                                                                                                            |  | F-8 to F-48

F-1



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














F-2



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















F-3



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##### Table of Contents






DRESSER-RAND GROUP INC.


CONSOLIDATED STATEMENT OF OPERATIONS (SUCCESSOR)


AND COMBINED STATEMENTS OF OPERATIONS (PREDECESSOR)


|                                                                  |                            |                                                         |         |             |              |             |         |             |             |  |   |              |         |  |   |           |           | 
|----------------------------------------------------------------- | -------------------------- | ------------------------------------------------------- | ------- | ----------- | ------------ | ----------- | ------- | ----------- | ----------- |  | - | ------------ | ------- |  | - | --------- | --------- | 
|                                                                  |                            | Successor                                               |         |             |              | Predecessor |        
|                                                                  |                            |                                                         |         |             |              |             |        
|                                                                  |                            |                                                         |         | Period from |              |             |         | Period from |             |  |  
|                                                                  |                            |                                                         |         | October 30  |              |             |         | January 1   |             |  |  
|                                                                  |                            | Year Ended                                              |         |             | through      |             |         |             | through     |  |   | Year Ended   |        
|                                                                  |                            | December 31,                                            |         |             | December 31, |             |         |             | October 29, |  |   | December 31, |        
|                                                                  |                            | 2005                                                    |         |             | 2004         |             |         |             | 2004        |  |   | 2003         |        
|                                                                  |                            |                                                         |         |             |              |             |         |             |             |  |   |              |        
|                                                                  |                            | (In thousands of dollars, except per share information) |        
|Net sales of products                                             |                            | $                                                       | 974,679 |             |              | $           | 155,993 |             |             |  | $ | 544,794      |         |  | $ | 1,124,267 |          
|Net sales of services                                             |                            |                                                         | 232,236 |             |              |             | 43,914  |             |             |  |   | 167,689      |         |  |   | 207,975   |          
|Net sales to affiliates                                           |                            |                                                         |        |             |              |             |        |             |             |  |   | 1,845        |         |  |   | 1,439     |          
|Other operating revenue                                           |                            |                                                         | 1,288   |             |              |             |        |             |             |  |   | 1,167        |         |  |   | 1,669     |          
|                                                                  |                            |                                                         |         |             |              |             |         |             |             |  |   |              |        
|                                                                  | Total revenues             |                                                         |         | 1,208,203   |              |             |         | 199,907     |             |  |   |              | 715,495 |  |   |           | 1,335,350 | 
|                                                                  |                            |                                                         |         |             |              |             |         |             |             |  |   |              |        
|Cost of products sold                                             |                            |                                                         | 749,678 |             |              |             | 117,991 |             |             |  |   | 411,665      |         |  |   | 971,893   |          
|Cost of services sold                                             |                            |                                                         | 171,286 |             |              |             | 31,573  |             |             |  |   | 125,088      |         |  |   | 159,236   |          
|Cost of products sold to affiliates                               |                            |                                                         |        |             |              |             |        |             |             |  |   | 1,289        |         |  |   | 918       |          
|                                                                  |                            |                                                         |         |             |              |             |         |             |             |  |   |              |        
|Total cost of products and services sold                          |                            |                                                         | 920,964 |             |              |             | 149,564 |             |             |  |   | 538,042      |         |  |   | 1,132,047 |          
|                                                                  |                            |                                                         |         |             |              |             |         |             |             |  |   |              |        
|Gross profit                                                      |                            |                                                         | 287,239 |             |              |             | 50,343  |             |             |  |   | 177,453      |         |  |   | 203,303   |          
|Selling and administrative expenses                               |                            |                                                         | 164,055 |             |              |             | 21,499  |             |             |  |   | 122,700      |         |  |   | 156,129   |          
|Research and development expenses                                 |                            |                                                         | 7,058   |             |              |             | 1,040   |             |             |  |   | 5,670        |         |  |   | 8,107     |          
|Write-off of purchased in-process research and development assets |                            |                                                         |        |             |              |             | 1,800   |             |             |  |   |             |         |  |   |          |          
|                                                                  |                            |                                                         |         |             |              |             |         |             |             |  |   |              |        
|                                                                  | Income from operations     |                                                         |         | 116,126     |              |             |         | 26,004      |             |  |   |              | 49,083  |  |   |           | 39,067    | 
|Interest income (expense), net                                    |                            |                                                         | (57,037 | )           |              |             | (9,654  | )           |             |  |   | 3,156        |         |  |   | 1,938     |          
|Early redemption premium on debt                                  |                            |                                                         | (3,688  | )           |              |             |        |             |             |  |   |             |         |  |   |          |          
|Other income (expense), net                                       |                            |                                                         | (2,847  | )           |              |             | (1,846  | )           |             |  |   | 1,882        |         |  |   | (9,202    | )        
|                                                                  |                            |                                                         |         |             |              |             |         |             |             |  |   |              |        
|                                                                  | Income before income taxes |                                                         |         | 52,554      |              |             |         | 14,504      |             |  |   |              | 54,121  |  |   |           | 31,803    | 
|Provision for income taxes                                        |                            |                                                         | 15,459  |             |              |             | 7,275   |             |             |  |   | 11,970       |         |  |   | 11,438    |          
|                                                                  |                            |                                                         |         |             |              |             |         |             |             |  |   |              |        
|                                                                  | Net income                 |                                                         | $       | 37,095      |              |             | $       | 7,229       |             |  |   | $            | 42,151  |  |   | $         | 20,365    | 
|                                                                  |                            |                                                         |         |             |              |             |         |             |             |  |   |              |        
|Net income per common share  basic and diluted                   |                            | $                                                       | 0.56    |             |              | $           | 0.13    |             |             |  |   |              |         |  |   |           |          
|                                                                  |                            |                                                         |         |             |              |             |         |             |             |  |   |              |        



F-4



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##### Table of Contents






DRESSER-RAND GROUP INC.


CONSOLIDATED BALANCE SHEET (SUCCESSOR)


|                                                            |                                                                                                                                                             |                                            |         |         |              |  |         |         |           | 
|----------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------------ |  | ------- | ------- | --------- | 
|                                                            |                                                                                                                                                             | December 31,                               |         |         | December 31, | 
|                                                            |                                                                                                                                                             | 2005                                       |         |         | 2004         | 
|                                                            |                                                                                                                                                             |                                            |         |         |              | 
|                                                            |                                                                                                                                                             | (In thousands of dollars)                  |        
|Assets                                                     
|Current assets                                              |                                                                                                                                                             |                                            |         |         |              |  |         |        
|                                                            | Cash and cash equivalents                                                                                                                                   |                                            | $       | 98,036  |              |  | $       | 111,500 |          
|                                                            | Accounts receivable, less allowance for doubtful accounts of
    $8,649 and $14,569 at 2005 and 2004                                                        |                                            |         | 268,831 |              |  |         | 265,479 |          
|                                                            | Inventories, net                                                                                                                                            |                                            |         | 145,762 |              |  |         | 175,873 |          
|                                                            | Prepaid expenses                                                                                                                                            |                                            |         | 25,887  |              |  |         | 14,256  |          
|                                                            | Deferred income taxes, net                                                                                                                                  |                                            |         | 10,899  |              |  |         | 7,445   |          
|                                                            |                                                                                                                                                             |                                            |         |         |              | 
|                                                            |                                                                                                                                                             | Total current assets                       |         |         | 549,415      |  |         |         | 574,553   | 
|Investments in and advances to equity companies             |                                                                                                                                                             |                                            |        |         |              |  | 12,448  |        
|Property, plant and equipment, net                          |                                                                                                                                                             |                                            | 228,671 |         |              |  | 226,764 |        
|Goodwill                                                    |                                                                                                                                                             |                                            | 393,300 |         |              |  | 423,330 |        
|Intangible assets, net                                      |                                                                                                                                                             |                                            | 460,919 |         |              |  | 479,587 |        
|Other assets                                                |                                                                                                                                                             |                                            | 25,566  |         |              |  | 34,392  |        
|                                                            |                                                                                                                                                             |                                            |         |         |              | 
|                                                            |                                                                                                                                                             | Total assets                               |         | $       | 1,657,871    |  |         | $       | 1,751,074 | 
|                                                            |                                                                                                                                                             |                                            |         |         |              | 
|                                                           
|Liabilities and Stockholders Equity                       
|Current liabilities                                         |                                                                                                                                                             |                                            |         |         |              |  |         |        
|                                                            | Accounts payable and accruals                                                                                                                               |                                            | $       | 303,430 |              |  | $       | 271,275 |          
|                                                            | Customer advance payments                                                                                                                                   |                                            |         | 84,695  |              |  |         | 38,661  |          
|                                                            | Accrued income taxes payable                                                                                                                                |                                            |         | 4,988   |              |  |         | 12,977  |          
|                                                            | Loans payable                                                                                                                                               |                                            |         | 67      |              |  |         | 2,734   |          
|                                                            | Current maturities of long-term debt                                                                                                                        |                                            |         |        |              |  |         | 4,015   |          
|                                                            |                                                                                                                                                             |                                            |         |         |              | 
|                                                            |                                                                                                                                                             | Total current liabilities                  |         |         | 393,180      |  |         |         | 329,662   | 
|Deferred income taxes                                       |                                                                                                                                                             |                                            | 22,586  |         |              |  | 27,287  |        
|Postemployment and other employee benefit liabilities       |                                                                                                                                                             |                                            | 113,861 |         |              |  | 111,640 |        
|Long-term debt                                              |                                                                                                                                                             |                                            | 598,137 |         |              |  | 816,664 |        
|Other noncurrent liabilities                                |                                                                                                                                                             |                                            | 15,447  |         |              |  | 12,924  |        
|                                                            |                                                                                                                                                             |                                            |         |         |              | 
|                                                            |                                                                                                                                                             | Total liabilities                          |         |         | 1,143,211    |  |         |         | 1,298,177 | 
|                                                            |                                                                                                                                                             |                                            |         |         |              | 
|Commitments and contingencies (Notes 12, 14 through
    20) |                                                                                                                                                             |                                            |         |         |              |  |         |        
|Stockholders Equity                                        |                                                                                                                                                             |                                            |         |         |              |  |         |        
|                                                            | Common stock, $0.01 par value, 250,000,000 and
    101,200,000 shares authorized, 85,476,283 and
    54,219,297 shares issued and outstanding, respectively |                                            |         | 855     |              |  |         | 542     |          
|                                                            | Additional paid-in capital                                                                                                                                  |                                            |         | 493,163 |              |  |         | 436,642 |          
|                                                            | Retained earnings                                                                                                                                           |                                            |         | 44,324  |              |  |         | 7,229   |          
|                                                            | Accumulated other comprehensive income (loss)                                                                                                               |                                            |         | (23,682 | )            |  |         | 8,484   |          
|                                                            |                                                                                                                                                             |                                            |         |         |              | 
|                                                            |                                                                                                                                                             | Total stockholders equity                 |         |         | 514,660      |  |         |         | 452,897   | 
|                                                            |                                                                                                                                                             |                                            |         |         |              | 
|                                                            |                                                                                                                                                             | Total liabilities and stockholders equity |         | $       | 1,657,871    |  |         | $       | 1,751,074 | 
|                                                            |                                                                                                                                                             |                                            |         |         |              | 



F-5



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##### Table of Contents






DRESSER-RAND GROUP INC.


CONSOLIDATED STATEMENT OF CASH FLOW (SUCCESSOR) AND


COMBINED STATEMENTS OF CASH FLOW (PREDECESSOR)


|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |         |        |         |         |         |        |         |  
|------------------------------------------------------------ | ----------------------------------------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------------- | -------- | ------------------ | ----------- | ------- | ---------- | ----------------- | ---------- | - | ------------ | ------- | ------ | ------- | ------- | ------- | ------ | ------- | -
|                                                             |                                                                         | Successor                                                         |                                                     |          |                    | Predecessor |        
|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |        
|                                                             |                                                                         | Year Ended                                                        |                                                     |          | Period from        |             |         |            | Period from       |            |   | Year Ended   |        
|                                                             |                                                                         | December 31,                                                      |                                                     |          | October 30 through |             |         |            | January 1 through |            |   | December 31, |        
|                                                             |                                                                         | 2005                                                              |                                                     |          | December 31, 2004  |             |         |            | October 29, 2004  |            |   | 2003         |        
|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |        
|                                                             |                                                                         | (In thousands of dollars)                                         |                                                    
|Cash flows from operating activities                         |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |         |        |         |         |        
|                                                             | Net income                                                              |                                                                   | $                                                   | 37,095   |                    |             | $       | 7,229      |                   |            |   | $            | 42,151  |        |         | $       | 20,365  |       
|                                                             | Adjustments to arrive at net cash provided by operating
    activities: |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |         |        |         |         |         |       
|                                                             |                                                                         | Depreciation and amortization                                     |                                                     |          | 61,435             |             |         |            | 16,269            |            |   |              |         | 22,715 |         |         |         | 29,109 |        
|                                                             |                                                                         | (Gain) loss on sale of property, plant and equipment              |                                                     |          | (10                | )           |         |            |                   |            |   |              |         | (1,031 | )       |         |         | (31    | )      
|                                                             |                                                                         | Amortization of debt financing costs                              |                                                     |          | 9,545              |             |         |            | 738               |            |   |              |         |       |         |         |         |       |        
|                                                             |                                                                         | Employee stock compensation                                       |                                                     |          | 4,076              |             |         |            | 75                |            |   |              |         |       |         |         |         |       |        
|                                                             |                                                                         | Provision for losses on inventory                                 |                                                     |          | 920                |             |         |            | 1,780             |            |   |              |         | 6,953  |         |         |         | 5,581  |        
|                                                             |                                                                         | Write off of purchased in-process research and development assets |                                                     |          |                   |             |         |            | 1,800             |            |   |              |         |       |         |         |         |       |        
|                                                             |                                                                         | Minority interest, net of dividends                               |                                                     |          | (513               | )           |         |            | 51                |            |   |              |         | (1,247 | )       |         |         | (110   | )      
|                                                             |                                                                         | Equity in undistributed (earnings) losses                         |                                                     |          | 325                |             |         |            | (194              | )          |   |              |         | 1,013  |         |         |         | (1,150 | )      
|                                                             |                                                                         | Deferred income taxes                                             |                                                     |          | (2,199             | )           |         |            | (974              | )          |   |              |         | 633    |         |         |         | (4,901 | )      
|                                                             |                                                                         | Other                                                             |                                                     |          | 1,989              |             |         |            | 377               |            |   |              |         |       |         |         |         |       |        
|                                                             |                                                                         | Working capital and other                                         |                                                     |          |                    |             |         |            |                   |            |   |              |         |        |         |         |         |        |        
|                                                             |                                                                         |                                                                   | Accounts receivable                                 |          |                    | (183        | )       |            |                   | (30,050    | ) |              |         |        | 54,213  |         |         |        | (12,323 | )
|                                                             |                                                                         |                                                                   | Inventories                                         |          |                    | 28,682      |         |            |                   | 600        |   |              |         |        | (37,818 | )       |         |        | 127,410 |  
|                                                             |                                                                         |                                                                   | Accounts payable                                    |          |                    | 20,310      |         |            |                   | 4,664      |   |              |         |        | (12,976 | )       |         |        | (36,835 | )
|                                                             |                                                                         |                                                                   | Customer advances                                   |          |                    | 49,904      |         |            |                   | 8,461      |   |              |         |        | 11,048  |         |         |        | (82,097 | )
|                                                             |                                                                         |                                                                   | Other                                               |          |                    | 1,046       |         |            |                   | 6,590      |   |              |         |        | (27,925 | )       |         |        | 5,945   |  
|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |        
|                                                             |                                                                         |                                                                   | Net cash provided by operating activities           |          |                    | 212,422     |         |            |                   | 17,416     |   |              |         |        | 57,729  |         |         |        | 50,963  |  
|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |        
|Cash flows from investing activities                         |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |         |        |         |         |        
|                                                             | Capital expenditures                                                    |                                                                   |                                                     | (15,534  | )                  |             |         | (1,791     | )                 |            |   |              | (7,701  | )      |         |         | (7,590  | )     
|                                                             | Acquisitions                                                            |                                                                   |                                                     | (54,970  | )                  |             |         | (1,125,148 | )                 |            |   |              |         |        |         |         |         |       
|                                                             | Proceeds from equity investment dispositions                            |                                                                   |                                                     | 10,000   |                    |             |         |           |                   |            |   |              |        |        |         |         |        |       
|                                                             | Proceeds from sales of property, plant and equipment                    |                                                                   |                                                     | 1,021    |                    |             |         |           |                   |            |   |              | 1,757   |        |         |         | 560     |       
|                                                             | (Increase) decrease in marketable securities                            |                                                                   |                                                     |         |                    |             |         |           |                   |            |   |              | 1,037   |        |         |         | (59     | )     
|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |        
|                                                             |                                                                         |                                                                   | Net cash provided by (used in) investing activities |          |                    | (59,483     | )       |            |                   | (1,126,939 | ) |              |         |        | (4,907  | )       |         |        | (7,089  | )
|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |        
|Cash flows from financing activities                         |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |         |        |         |         |        
|                                                             | Proceeds from short-term borrowings                                     |                                                                   |                                                     |         |                    |             |         |           |                   |            |   |              |        |        |         |         | 462     |       
|                                                             | Payments of short-term borrowings                                       |                                                                   |                                                     | (1,627   | )                  |             |         |           |                   |            |   |              | (993    | )      |         |         |        |       
|                                                             | Proceeds from long-term debt                                            |                                                                   |                                                     |         |                    |             |         | 815,033    |                   |            |   |              | 43      |        |         |         |        |       
|                                                             | Cash paid for debt issuance costs                                       |                                                                   |                                                     |         |                    |             |         | (33,498    | )                 |            |   |              |        |        |         |         |        |       
|                                                             | Proceeds from revolver                                                  |                                                                   |                                                     |         |                    |             |         | 5,000      |                   |            |   |              |        |        |         |         |        |       
|                                                             | Payments of revolver                                                    |                                                                   |                                                     |         |                    |             |         | (5,000     | )                 |            |   |              |        |        |         |         |        |       
|                                                             | Payments of long-term debt                                              |                                                                   |                                                     | (211,162 | )                  |             |         | (1,013     | )                 |            |   |              | (65     | )      |         |         | (520    | )     
|                                                             | Issuance of common stock                                                |                                                                   |                                                     | 1,419    |                    |             |         | 437,109    |                   |            |   |              |        |        |         |         |        |       
|                                                             | Change in due to (from) unconsolidated affiliates                       |                                                                   |                                                     |         |                    |             |         |           |                   |            |   |              | (45,918 | )      |         |         | (63,429 | )     
|                                                             | Proceeds from initial public offering, net                              |                                                                   |                                                     | 608,925  |                    |             |         |           |                   |            |   |              |        |        |         |         |        |       
|                                                             | Dividends paid                                                          |                                                                   |                                                     | (557,686 | )                  |             |         |           |                   |            |   |              | (5,097  | )      |         |         |        |       
|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |        
|                                                             |                                                                         |                                                                   | Net cash provided by (used in) financing activities |          |                    | (160,131    | )       |            |                   | 1,217,631  |   |              |         |        | (52,030 | )       |         |        | (63,487 | )
|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                         |                                                                   | (6,272                                              | )        |                    |             | 3,392   |            |                   |            |   | 1,930        |         |        |         | 1,531   |        
|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |        
|Net increase (decrease) in cash and cash equivalents         |                                                                         |                                                                   | (13,464                                             | )        |                    |             | 111,500 |            |                   |            |   | 2,722        |         |        |         | (18,082 | )      
|Cash and cash equivalents, beginning of the period           |                                                                         |                                                                   | 111,500                                             |          |                    |             |        |            |                   |            |   | 41,537       |         |        |         | 59,619  |        
|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |        
|Cash and cash equivalents, end of period                     |                                                                         | $                                                                 | 98,036                                              |          |                    | $           | 111,500 |            |                   |            | $ | 44,259       |         |        | $       | 41,537  |        
|                                                             |                                                                         |                                                                   |                                                     |          |                    |             |         |            |                   |            |   |              |        



F-6



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##### Table of Contents






DRESSER-RAND GROUP INC.


CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS
EQUITY (SUCCESSOR)


AND COMBINED STATEMENTS OF CHANGES IN INGERSOLL-RAND COMPANY
LIMITED


PARTNERSHIP INTEREST (PREDECESSOR)


|                                                                                   |                      |                           |     |            |         |   |          |             |       |   |               |       |  |               |         |         |       |   |        |         |   |   |          |   | 
|---------------------------------------------------------------------------------- | -------------------- | ------------------------- | --- | ---------- | ------- | - | -------- | ----------- | ----- | - | ------------- | ----- |  | ------------- | ------- | ------- | ----- | - | ------ | ------- | - | - | -------- | - | 
|                                                                                   |                      |                           |     |            |         |   |          | Accumulated |       |   |               |       | 
|                                                                                   |                      |                           |     | Additional |         |   |          |             | Other |   |               | Total |  |               |        
|                                                                                   |                      | Common                    |     |            | Paid-In |   |          | Retained    |       |   | Comprehensive |       |  | Comprehensive |         |         |      
|                                                                                   |                      | Stock                     |     |            | Capital |   |          | Earnings    |       |   | Income (Loss) |       |  | Income (Loss) |         |         | Total |  
|                                                                                   |                      |                           |     |            |         |   |          |             |       |   |               |       |  |               |         |         |       |  
|                                                                                   |                      | (In thousands of dollars) |    
|Successor                                                                          |                      |                           |     |            |         |   |          |             |       |   |               |       |  |               |         |         |       |   |        |         |   |   |          |  
|At October 30, 2004                                                                |                      |                           |    |            |         |   |         |             |       |   |              |       |  |               |        |         |       |   |       |         |   |   |         |  
|Sale of common stock to D-R Interholdings LLC                                      |                      | $                         | 540 |            |         | $ | 435,273  |             |       |   |              |       |  |               |        |         |       |   |       |         |   | $ | 435,813  |  
|Sale of common stock to employees                                                  |                      |                           | 2   |            |         |   | 1,294    |             |       |   |              |       |  |               |        |         |       |   |       |         |   |   | 1,296    |  
|Stock based employee compensation                                                  |                      |                           |    |            |         |   | 75       |             |       |   |              |       |  |               |        |         |       |   |       |         |   |   | 75       |  
|Net income                                                                         |                      |                           |    |            |         |   |         |             |       | $ | 7,229         |       |  |               |        |         |       | $ | 7,229  |         |   |   |         |  
|Other comprehensive income (loss)
    Minimum pension liability, net of $590 tax   |                      |                           |    |            |         |   |         |             |       |   |              |       |  |               | (922    | )       |       |   | (922   | )       |   |   |         |  
|                                                                                   | Currency translation |                           |     |           |         |   |          |            |       |   |               |      |  |               |         | 9,406   |       |   |        | 9,406   |   |   |          |  | 
|                                                                                   |                      |                           |     |            |         |   |          |             |       |   |               |       |  |               |         |         |       |  
|Total comprehensive income                                                         |                      |                           |     |            |         |   |          |             |       |   |               |       |  |               |         |         |       | $ | 15,713 |         |   |   | 15,713   |  
|                                                                                   |                      |                           |     |            |         |   |          |             |       |   |               |       |  |               |         |         |       |  
|At December 31, 2004                                                               |                      |                           | 542 |            |         |   | 436,642  |             |       |   | 7,229         |       |  |               | 8,484   |         |       |   |        |         |   |   | 452,897  |  
|Stock based employee compensation                                                  |                      |                           | 3   |            |         |   | 5,592    |             |       |   |              |       |  |               |        |         |       |   |       |         |   |   | 5,595    |  
|Initial public offering net proceeds                                               |                      |                           | 310 |            |         |   | 608,615  |             |       |   |              |       |  |               |        |         |       |   |       |         |   |   | 608,925  |  
|Cash dividends                                                                     |                      |                           |    |            |         |   | (557,686 | )           |       |   |              |       |  |               |        |         |       |   |       |         |   |   | (557,686 | )
|Net income                                                                         |                      |                           |    |            |         |   |         |             |       |   | 37,095        |       |  |               |        |         |       | $ | 37,095 |         |   |   |         |  
|Other comprehensive income (loss)
    Minimum pension liability, net of $2,665 tax |                      |                           |    |            |         |   |         |             |       |   |              |       |  |               | (5,080  | )       |       |   | (5,080 | )       |   |   |         |  
|                                                                                   | Currency translation |                           |     |           |         |   |          |            |       |   |               |      |  |               |         | (27,086 | )     |   |        | (27,086 | ) |   |          |  | 
|                                                                                   |                      |                           |     |            |         |   |          |             |       |   |               |       |  |               |         |         |       |  
|Total comprehensive income                                                         |                      |                           |     |            |         |   |          |             |       |   |               |       |  |               |         |         |       | $ | 4,929  |         |   |   | 4,929    |  
|                                                                                   |                      |                           |     |            |         |   |          |             |       |   |               |       |  |               |         |         |       |  
|At December 31, 2005                                                               |                      | $                         | 855 |            |         | $ | 493,163  |             |       | $ | 44,324        |       |  | $             | (23,682 | )       |       |   |        |         |   | $ | 514,660  |  
|                                                                                   |                      |                           |     |            |         |   |          |             |       |   |               |       |  |               |         |         |       |  




|                                  |                                                                |                           |         |             |               |   |         |               |   |   |        |        |   |   |         |   | 
|--------------------------------- | -------------------------------------------------------------- | ------------------------- | ------- | ----------- | ------------- | - | ------- | ------------- | - | - | ------ | ------ | - | - | ------- | - | 
|                                  |                                                                |                           |         | Accumulated |               |   |         |               |  
|                                  |                                                                |                           |         | Other       |               |   | Total   |               |   |  
|                                  |                                                                | Partnership               |         |             | Comprehensive |   |         | Comprehensive |   |   |       
|                                  |                                                                | Interest                  |         |             | Income (Loss) |   |         | Income (Loss) |   |   | Total  |       
|                                  |                                                                |                           |         |             |               |   |         |               |   |   |        |       
|                                  |                                                                | (In thousands of dollars) |        
|Predecessor                       |                                                                |                           |         |             |               |   |         |               |   |   |        |        |   |   |         |  
|Balances at January 1, 2003       |                                                                | $                         | 611,275 |             |               | $ | (84,565 | )             |   |   |       |        |   | $ | 526,710 |  
|Net income                        |                                                                |                           | 20,365  |             |               |   |        |               |   | $ | 20,365 |        |   |   |        |  
|Other comprehensive income (loss) |                                                                |                           |         |             |               |   |         |               |   |   |        |        |   |   |         |  
|                                  | Minimum pension liability, net of tax of $1,199                |                           |         |            |               |   |         | 939           |   |   |        | 939    |   |   |         |  | 
|                                  | Currency translation                                           |                           |         |            |               |   |         | 17,074        |   |   |        | 17,074 |   |   |         |  | 
|                                  | Derivatives qualifying as cash flow hedges, net of tax of $16  |                           |         |            |               |   |         | (53           | ) |   |        | (53    | ) |   |         |  | 
|                                  |                                                                |                           |         |             |               |   |         |               |   |   |        |       
|Total comprehensive income        |                                                                |                           |        |             |               |   |        |               |   | $ | 38,325 |        |   |   | 38,325  |  
|                                  |                                                                |                           |         |             |               |   |         |               |   |   |        |       
|Balances at December 31, 2003     |                                                                |                           | 631,640 |             |               |   | (66,605 | )             |   |   |       |        |   |   | 565,035 |  
|Dividends                         |                                                                |                           | (5,097  | )           |               |   |         |               |   |   |        |        |   |   | (5,097  | )
|Net income                        |                                                                |                           | 42,151  |             |               |   |        |               |   | $ | 42,151 |        |   |   |        |  
|Other comprehensive income (loss) |                                                                |                           |         |             |               |   |         |               |   |   |        |        |   |   |         |  
|                                  | Minimum pension liability, net of tax of $577                  |                           |         |            |               |   |         | (4,973        | ) |   |        | (4,973 | ) |   |         |  | 
|                                  | Currency translation                                           |                           |         |            |               |   |         | 11,582        |   |   |        | 11,582 |   |   |         |  | 
|                                  | Derivatives qualifying as cash flow hedges, net of tax of $230 |                           |         |            |               |   |         | (694          | ) |   |        | (694   | ) |   |         |  | 
|                                  |                                                                |                           |         |             |               |   |         |               |   |   |        |       
|Total comprehensive income        |                                                                |                           |        |             |               |   |        |               |   | $ | 48,066 |        |   |   | 48,066  |  
|                                  |                                                                |                           |         |             |               |   |         |               |   |   |        |       
|Balances at October 29, 2004      |                                                                | $                         | 668,694 |             |               | $ | (60,690 | )             |   |   |        |        |   | $ | 608,004 |  
|                                  |                                                                |                           |         |             |               |   |         |               |   |   |        |       



F-7



---



##### Table of Contents






DRESSER-RAND GROUP INC.


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS




|   |                                              
|-- | ---------------------------------------------
|1. | Business Activities and Basis of Presentation



| |          
| | ---------
| | Successor







| |            
| | -----------
| | Predecessor





| |                
| | ---------------
| | The Acquisition





F-8



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|                                          |                           |               |           |           | 
|----------------------------------------- | ------------------------- | ------------- | --------- | --------- | 
|                                          |                           | (In thousands |          
|                                          |                           | of dollars)   |          
|Assets acquired:                          |                           |               |           |          
|Accounts receivable, net                  |                           | $             | 193,944   |          
|Accounts receivable, trade  other        |                           |               | 32,863    |          
|Inventories                               |                           |               | 173,313   |          
|Prepaid expenses and other current assets |                           |               | 14,387    |          
|Property, plant and equipment             |                           |               | 225,654   |          
|Goodwill                                  |                           |               | 408,424   |          
|Intangible assets                         |                           |               | 490,519   |          
|Other assets                              |                           |               | 14,156    |          
|                                          |                           |               |          
|                                          | Total assets acquired     |               |           | 1,553,260 | 
|                                          |                           |               |          
|                                         
|Liabilities assumed:                     
|Accounts payable                          |                           |               | 94,898    |          
|Other current liabilities                 |                           |               | 159,984   |          
|Short term loans                          |                           |               | 2,731     |          
|Tax liabilities                           |                           |               | 44,920    |          
|Other non-current liabilities             |                           |               | 125,579   |          
|                                          |                           |               |          
|                                          | Total liabilities assumed |               |           | 428,112   | 
|                                          |                           |               |          
|Cash paid for Acquisition                 |                           | $             | 1,125,148 |          
|                                          |                           |               |          







F-9



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)






| |                                 
| | --------------------------------
| | IR Transition Services Agreement





| |                 
| | ----------------
| | Supply Agreement





| |                  
| | -----------------
| | License Agreement





| |                      
| | ---------------------
| | Basis of Presentation





|                                         |  |                         
|---------------------------------------- |  | ------------------------
|Legal Entities                           |  | Jurisdiction            
|                                         |  |                         
|D-R Central Service GmbH & Co. KG        |  | Germany                 
|D-R Holdings (France) S.A.S.             |  | France                  
|D-R Holdings (Germany) GmbH              |  | Germany                 
|D-R Holdings (Netherlands) B.V.          |  | Netherlands             
|D-R Holdings Norway AS                   |  | Norway                  
|D-R Management GmbH                      |  | Germany                 
|D-R Nadrowski Holdings GmbH              |  | Germany                 
|D-R Steam LLC                            |  | United States of America
|Dresser-Rand & Enserv Services Sdn. Bhd. |  | Malaysia                
|Dresser-Rand (Nigeria) Ltd.              |  | Nigeria                 
|Dresser-Rand (SEA) Pte. Ltd.             |  | Singapore               
|Dresser-Rand (SEA) Pte. Ltd.             |  | Australia               
|Dresser-Rand (U.K.) Ltd.                 |  | United Kingdom          
|Dresser-Rand AS                          |  | Norway                  
|Dresser-Rand Asia Pacific Sdn. Bhd.      |  | Malaysia                
|Dresser-Rand Asia Pacific Sdn. Bhd.      |  | Singapore               

F-10



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


|                                                       |  |                         
|------------------------------------------------------ |  | ------------------------
|Legal Entities                                         |  | Jurisdiction            
|                                                       |  |                         
|Dresser-Rand B.V.                                      |  | Netherlands             
|Dresser-Rand Canada, Inc.                              |  | Canada                  
|Dresser-Rand CIS                                       |  | Moscow                  
|Dresser-Rand Comercio e Industria Ltda.                |  | Brazil                  
|Dresser-Rand Company                                   |  | United States of America
|Dresser-Rand Company Ltd.                              |  | United Kingdom          
|Dresser-Rand Compressor (Suzhou) Ltd.                  |  | China                   
|Dresser-Rand Compressor Co., Ltd. Shanghai (60% owned) |  | China                   
|Dresser-Rand de Mexico S.A. de C.V.                    |  | Mexico                  
|Dresser-Rand de Venezuela, S.A.                        |  | Venezuela               
|Dresser-Rand do Brasil, Ltda. (75% owned)              |  | Brazil                  
|Dresser-Rand Global Services, LLC                      |  | United States of America
|Dresser-Rand GmbH                                      |  | Germany                 
|Dresser-Rand Holding (Delaware) LLC                    |  | United States of America
|Dresser-Rand Holding Company                           |  | Venezuela               
|Dresser-Rand Holdings (U.K.) Ltd.                      |  | United Kingdom          
|Dresser-Rand India Private Limited                     |  | India                   
|Dresser-Rand International B.V.                        |  | Netherlands             
|Dresser-Rand Italia S.r.1                              |  | Italy                   
|Dresser-Rand Japan Ltd.                                |  | Japan                   
|Dresser-Rand LLC                                       |  | United States of America
|Dresser-Rand Machinery Repair Belgie N.V.              |  | Belgium                 
|Dresser-Rand Nadrowski Turbinen GmbH                   |  | Germany                 
|Dresser-Rand Overseas Sales Company Ltd.               |  | United States of America
|Dresser-Rand Power LLC                                 |  | United States of America
|Dresser-Rand S.A.                                      |  | France                  
|Dresser-Rand S.A. Representative Office (Moscow)       |  | Moscow                  
|Dresser-Rand S.A. Representative Office (Uzbekistan)   |  | Uzbekistan              
|Dresser-Rand s.r.o.                                    |  | Czech Republic          
|Dresser-Rand Sales Company S.A.                        |  | Switzerland             
|Dresser-Rand Services B.V.                             |  | Netherlands             
|Dresser-Rand Services, S. de R.L. de C.V.              |  | Mexico                  
|Dresser-Rand Services, S.a.r.1                         |  | Switzerland             
|Multiphase Power and Processing Technologies, LLC      |  | United States of America
|Paragon Engineers Services, Inc.                       |  | United States of America
|PT Dresser-Rand Services Indonesia                     |  | Indonesia               
|Turbodyne Electric Power Corporation                   |  | United States of America
|UZ-DR Service Center (51% owned)                       |  | Uzbekistan              



F-11



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




| |            
| | -----------
| | Predecessor



|                                                       |  |                         
|------------------------------------------------------ |  | ------------------------
|Legal Entities                                         |  | Jurisdiction            
|                                                       |  |                         
|Dresser-Rand Company                                   |  | United States of America
|Dresser-Rand Canada, Inc.                              |  | Canada                  
|Dresser-Rand Compressor Co., Ltd. Shanghai (60% owned) |  | China                   
|Dresser-Rand de Mexico, S.A.                           |  | Mexico                  
|Dresser-Rand Global Services, LLC                      |  | United States of America
|Dresser-Rand Holding Company                           |  | United States of America
|Dresser-Rand Asia Pacific Sdn. Bhd.                    |  | Malaysia                
|Dresser-Rand B.V.                                      |  | Netherlands             
|Dresser-Rand Compressor (Suzhou) Ltd.                  |  | China                   
|Dresser-Rand de Venezuela, S.A.                        |  | Venezuela               
|Dresser-Rand Japan, Ltd.                               |  | Japan                   
|Dresser-Rand Overseas Sales Company                    |  | United States of America
|Dresser-Rand Company Ltd.-UK                           |  | United Kingdom          
|Dresser-Rand (UK) Ltd.                                 |  | United Kingdom          
|Dresser-Rand Sales Company S.A.                        |  | Switzerland             
|Dresser-Rand Services, S.a.r.l.                        |  | Switzerland             
|Turbodyne Electric Power Corporation                   |  | United States of America
|Dresser-Rand India Private Limited                     |  | India                   
|Dresser-Rand International B.V.                        |  | Netherlands             
|Dresser-Rand Italia S.r.l.                             |  | Italy                   
|Dresser-Rand Machinery Repair Belgie N.V.              |  | Belgium                 
|Dresser-Rand Power, Inc.                               |  | United States of America
|Dresser-Rand A/ S                                      |  | Norway                  
|Dresser-Rand Comercio e Industria Ltda.                |  | Brazil                  
|Dresser-Rand (SEA) Pte. Ltd.                           |  | Singapore               
|Dresser-Rand S.A.-France                               |  | France                  
|Dresser-Rand Services B.V.                             |  | Netherlands             
|Dresser-Rand s.r.o.                                    |  | Czech Republic          
|PT Dresser-Rand Services Indonesia                     |  | Indonesia               
|Dresser-Rand Services S.de R.L.                        |  | Mexico                  
|Dresser-Rand do Brasil, Ltda. (75% owned)              |  | Brazil                  
|Dresser-Rand Ltd.                                      |  | Nigeria                 
|UZ-DR Service Center Uzneftegazmash (51% owned)        |  | Uzbekistan              
|Dresser-Rand GmbH                                      |  | Germany                 



F-12



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies





| |                            
| | ---------------------------
| | Principles of Consolidation





| |                          
| | -------------------------
| | Principles of Combination





| |                 
| | ----------------
| | Use of Estimates





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |            
| | -----------
| | Inventories





| |                              
| | -----------------------------
| | Property, Plant and Equipment





| |                     
| | --------------------
| | Capitalized Software



F-13



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets





| |                  
| | -----------------
| | Intangible Assets







| |             
| | ------------
| | Income Taxes



| |           
| | ----------
| | Successor:





| |             
| | ------------
| | Predecessor:





| |                 
| | ----------------
| | Product Warranty



F-14



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




| |                    
| | -------------------
| | Environmental Costs





| |                    
| | -------------------
| | Revenue Recognition











| |                               
| | ------------------------------
| | Research and Development Costs





| |                                
| | -------------------------------
| | Distribution and Shipping Costs





| |                            
| | ---------------------------
| | Comprehensive Income (Loss)





| |                 
| | ----------------
| | Foreign Currency

non-U.S. -for-the


non-U.S.


F-15



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




| |                      
| | ---------------------
| | Financial Instruments









| |                         
| | ------------------------
| | Stock-based Compensation







F-16



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                          |  |                           |        |   |              |   |        |  
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ------------ | - | ------ | -
|                                                                                                                          |  | Predecessor               |       
|                                                                                                                          |  |                           |       
|                                                                                                                          |  | Period from               |        |   |             
|                                                                                                                          |  | January 1 through         |        |   | Year Ended   |  
|                                                                                                                          |  | October 29,               |        |   | December 31, |  
|                                                                                                                          |  | 2004                      |        |   | 2003         |  
|                                                                                                                          |  |                           |        |   |              |  
|                                                                                                                          |  | (In thousands of dollars) |       
|Net income, as reported                                                                                                   |  | $                         | 42,151 |   |              | $ | 20,365 |  
|Add: Stock-based employee compensation expense included in
    reported net income, net of tax                            |  |                           | 446    |   |              |   | 1,502  |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value method for all awards, net of tax |  |                           | (4,640 | ) |              |   | (4,885 | )
|                                                                                                                          |  |                           |        |   |              |  
|Pro forma net income                                                                                                      |  | $                         | 37,957 |   |              | $ | 16,982 |  
|                                                                                                                          |  |                           |        |   |              |  



| |                         
| | ------------------------
| | New Accounting Standards









F-17



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)










|   |                           
|-- | --------------------------
|3. | Related Party Transactions



| |          
| | ---------
| | Successor



| |                  
| | -----------------
| | Dresser-Rand Name





| |            
| | -----------
| | Predecessor



| |                        
| | -----------------------
| | Intercompany Activities







F-18



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)






| |                                
| | -------------------------------
| | Employee Benefit Administration





| |                                 
| | --------------------------------
| | Other Related Party Transactions





|   |             
|-- | ------------
|4. | Acquisitions



|                                          |  |               |        | 
|----------------------------------------- |  | ------------- | ------ | 
|                                          |  | (In thousands |       
|                                          |  | of dollars)   |       
|Accounts receivable                       |  | $             | 12,454 | 
|Inventory                                 |  |               | 7,691  | 
|Prepaid expenses and other current assets |  |               | 515    | 
|                                          |  |               |       
|Total current assets                      |  |               | 20,660 | 
|                                          |  |               |       
|Property, plant and equipment, net        |  |               | 19,833 | 
|Amortizable intangible assets             |  |               | 19,600 | 
|Goodwill                                  |  |               | 5,933  | 
|                                          |  |               |       
|Total assets acquired                     |  |               | 66,026 | 
|                                          |  |               |       
|Accounts payable and accruals             |  |               | 9,435  | 
|Other liabilities                         |  |               | 2,016  | 
|                                          |  |               |       
|Total liabilities assumed                 |  |               | 11,451 | 
|                                          |  |               |       
|Cash paid  net                           |  | $             | 54,575 | 
|                                          |  |               |       





F-19



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)








|                       |       |               |       |        |  |  |           |  | 
|---------------------- | ----- | ------------- | ----- | ------ |  |  | --------- |  | 
|                       |       | (In thousands |       |        | 
|                       |       | of dollars)   |       |        | 
|Customer relationships |       | $             | 9,100 |        |  |  | 15  years | 
|Trade names            |       |               | 4,900 |        |  |  | 40  years | 
|Technology             |       |               | 4,200 |        |  |  | 25  years | 
|Backlog                |       |               | 1,400 |        |  |  | 0.5  year | 
|                       |       |               |       |        |  | 
|                       | Total |               | $     | 19,600 |  |  |           |  | 
|                       |       |               |       |        |  | 





|   |                     
|-- | --------------------
|5. | Sale of common stock

3 8






|   |                   
|-- | ------------------
|6. | Earnings per share



| |          
| | ---------
| | Successor





| |            
| | -----------
| | Predecessor



F-20



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|   |            
|-- | -----------
|7. | Inventories



|                                   |                   |                           |         |          |         |   |         |         |         | 
|---------------------------------- | ----------------- | ------------------------- | ------- | -------- | ------- | - | ------- | ------- | ------- | 
|                                   |                   | Successor                 |        
|                                   |                   |                           |        
|                                   |                   | December 31,              |        
|                                   |                   |                           |        
|                                   |                   | 2005                      |         |          | 2004    |  
|                                   |                   |                           |         |          |         |  
|                                   |                   | (In thousands of dollars) |        
|Raw materials and supplies         |                   | $                         | 83,355  |          |         | $ | 60,728  |        
|Work-in-process and finished goods |                   |                           | 257,488 |          |         |   | 209,247 |        
|                                   |                   |                           |         |          |         |  
|                                   |                   |                           | 340,843 |          |         |   | 269,975 |        
|Less:                              |                   |                           |         |          |         |   |         |        
|                                   | Progress payments |                           |         | (195,081 | )       |   |         | (94,102 | )      
|                                   |                   |                           |         |          |         |  
|                                   |                   | Total                     |         | $        | 145,762 |   |         | $       | 175,873 | 
|                                   |                   |                           |         |          |         |  





|   |                                                
|-- | -----------------------------------------------
|8. | Investments In Partially Owned Equity Companies





|                  |  |                           |        |  |                   |   |        |              |  |   |        | 
|----------------- |  | ------------------------- | ------ |  | ----------------- | - | ------ | ------------ |  | - | ------ | 
|                  |  | Successor                 |        |  | Predecessor       |  
|                  |  |                           |        |  |                   |  
|                  |  | Period from               |        |  | Period from       |   |        |             
|                  |  | October 30 through        |        |  | January 1 through |   |        | Year Ended   | 
|                  |  | December 31,              |        |  | October 29,       |   |        | December 31, | 
|                  |  | 2004                      |        |  | 2004              |   |        | 2003         | 
|                  |  |                           |        |  |                   |   |        |              | 
|                  |  | (In thousands of dollars) |       
|Net sales         |  | $                         | 13,460 |  |                   | $ | 56,271 |              |  | $ | 53,337 | 
|Gross profit      |  |                           | 3,725  |  |                   |   | 17,857 |              |  |   | 18,890 | 
|Net income/(loss) |  |                           | 596    |  |                   |   | (1,849 | )            |  |   | 310    | 





|   |                              
|-- | -----------------------------
|9. | Property, Plant and Equipment



|      |                                   |                           |         |         |      |  |         |         |  
|----- | --------------------------------- | ------------------------- | ------- | ------- | ---- |  | ------- | ------- | -
|      |                                   | Successor                 |        
|      |                                   |                           |        
|      |                                   | December 31,              |        
|      |                                   |                           |        
|      |                                   | 2005                      |         |         | 2004 | 
|      |                                   |                           |         |         |      | 
|      |                                   | (In thousands of dollars) |        
|Cost: |                                   |                           |         |         |      |  |         |        
|      | Land                              |                           | $       | 9,645   |      |  | $       | 8,156   |  
|      | Buildings and improvements        |                           |         | 70,698  |      |  |         | 64,599  |  
|      | Machinery and equipment           |                           |         | 174,300 |      |  |         | 157,969 |  
|      |                                   |                           |         |         |      | 
|      |                                   |                           | 254,643 |         |      |  | 230,724 |        
|      | Less: Accumulated depreciation    |                           |         | (25,972 | )    |  |         | (3,960  | )
|      |                                   |                           |         |         |      | 
|      | Property plant and equipment, net |                           | $       | 228,671 |      |  | $       | 226,764 |  
|      |                                   |                           |         |         |      | 

F-21



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)






|    |                               
|--- | ------------------------------
|10. | Intangible Assets and Goodwill



|                                    |  |                           |         |             |              |   |                   |              |  |  |           |             |  |              |         |  |  |   |        | 
|----------------------------------- |  | ------------------------- | ------- | ----------- | ------------ | - | ----------------- | ------------ |  |  | --------- | ----------- |  | ------------ | ------- |  |  | - | ------ | 
|                                    |  | Successor                 |        
|                                    |  |                           |        
|                                    |  | December 31, 2005         |         |             |              |   | December 31, 2004 |             
|                                    |  |                           |         |             | Weighted     |   |                   |              | 
|                                    |  |                           |         | Accumulated |              |   | Average           |              |  |  |           | Accumulated | 
|                                    |  | Cost                      |         |             | Amortization |   |                   | Useful Lives |  |  | Cost      |             |  | Amortization |        
|                                    |  |                           |         |             |              |   |                   |              |  |  |           |             |  |              |        
|                                    |  | (In thousands of dollars) |        
|Trade names                         |  | $                         | 87,600  |             |              | $ | 2,448             |              |  |  | 40 years  |             |  | $            | 82,700  |  |  | $ | 344    | 
|Customer Relationships              |  |                           | 232,219 |             |              |   | 6,806             |              |  |  | 40 years  |             |  |              | 227,746 |  |  |   | 936    | 
|Software                            |  |                           | 30,553  |             |              |   | 3,571             |              |  |  | 10 years  |             |  |              | 30,553  |  |  |   | 510    | 
|Existing technology                 |  |                           | 126,577 |             |              |   | 5,800             |              |  |  | 25 years  |             |  |              | 119,100 |  |  |   | 794    | 
|Order backlog                       |  |                           | 26,325  |             |              |   | 25,561            |              |  |  | 15 months |             |  |              | 25,095  |  |  |   | 8,824  | 
|Non-compete agreement               |  |                           | 4,382   |             |              |   | 2,551             |              |  |  | 2 years   |             |  |              | 4,413   |  |  |   | 366    | 
|Royalty agreement                   |  |                           | 2,320   |             |              |   | 2,320             |              |  |  | 14 months |             |  |              | 2,320   |  |  |   | 566    | 
|                                    |  |                           |         |             |              |   |                   |              |  |  |           |             |  |              |        
|Total amortizable intangible assets |  | $                         | 509,976 |             |              | $ | 49,057            |              |  |  |           |             |  | $            | 491,927 |  |  | $ | 12,340 | 
|                                    |  |                           |         |             |              |   |                   |              |  |  |           |             |  |              |        





|                        |  |                           |         |                    |              |   |                   |             |  |   |        | 
|----------------------- |  | ------------------------- | ------- | ------------------ | ------------ | - | ----------------- | ----------- |  | - | ------ | 
|                        |  | Successor                 |         |                    | Predecessor  |  
|                        |  |                           |         |                    |              |  
|                        |  |                           |         | Period from        |              |   | Period from       |            
|                        |  |                           |         | October 30 through |              |   | January 1 through |            
|                        |  | December 31,              |         |                    | December 31, |   |                   | October 29, | 
|                        |  | 2005                      |         |                    | 2004         |   |                   | 2004        | 
|                        |  |                           |         |                    |              |   |                   |             | 
|                        |  | (In thousands of dollars) |        
|Beginning balance       |  | $                         | 423,330 |                    |              | $ | 408,424           |             |  | $ | 10,214 | 
|Additions               |  |                           |        |                    |              |   |                  |             |  |   |       | 
|Dispositions            |  |                           | (1,989  | )                  |              |   | (377              | )           |  |   |       | 
|TES acquisition         |  |                           | 5,933   |                    |              |   |                  |             |  |   |       | 
|Translation adjustments |  |                           | (33,974 | )                  |              |   | 15,283            |             |  |   |       | 
|                        |  |                           |         |                    |              |   |                   |             | 
|Ending balance          |  | $                         | 393,300 |                    |              | $ | 423,330           |             |  | $ | 10,214 | 
|                        |  |                           |         |                    |              |   |                   |             | 



F-22



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|    |                              
|--- | -----------------------------
|11. | Accounts Payable and Accruals



|                                    |                                     |                  |         |        |      |   |         |        | 
|----------------------------------- | ----------------------------------- | ---------------- | ------- | ------ | ---- | - | ------- | ------ | 
|                                    |                                     | Successor        |        
|                                    |                                     |                  |        
|                                    |                                     | December 31,     |        
|                                    |                                     | 2005             |         |        | 2004 |  
|                                    |                                     |                  |         |        |      |  
|                                    |                                     | (In thousands of |        
|                                    |                                     | dollars)         |        
|Accounts payable                    |                                     | $                | 128,414 |        |      | $ | 103,822 |       
|Accruals:                           |                                     |                  |         |        |      |   |         |       
|                                    | Payroll and benefits                |                  |         | 34,980 |      |   |         | 31,289 | 
|                                    | Pension and postretirement benefits |                  |         | 9,735  |      |   |         | 9,706  | 
|                                    | Contract reserves                   |                  |         | 26,309 |      |   |         | 30,702 | 
|                                    | Warranties                          |                  |         | 21,511 |      |   |         | 21,078 | 
|                                    | Taxes other than income             |                  |         | 20,485 |      |   |         | 25,749 | 
|                                    | Legal, audit and consulting         |                  |         | 5,257  |      |   |         | 3,718  | 
|                                    | Interest                            |                  |         | 6,789  |      |   |         | 6,216  | 
|                                    | Third party commissions             |                  |         | 9,961  |      |   |         | 7,961  | 
|                                    | Insurance and claims                |                  |         | 8,631  |      |   |         | 7,679  | 
|                                    | Other                               |                  |         | 31,358 |      |   |         | 23,355 | 
|                                    |                                     |                  |         |        |      |  
|Total accounts payable and accruals |                                     | $                | 303,430 |        |      | $ | 271,275 |       
|                                    |                                     |                  |         |        |      |  



|    |             
|--- | ------------
|12. | Income Taxes



|              |       |                           |        |             |                    |   |             |                   |  |   |              |        |  |   |        |        | 
|------------- | ----- | ------------------------- | ------ | ----------- | ------------------ | - | ----------- | ----------------- |  | - | ------------ | ------ |  | - | ------ | ------ | 
|              |       | Successor                 |        |             | Predecessor        |  
|              |       |                           |        |             |                    |  
|              |       |                           |        | Period from |                    |   | Period from |                   |  |  
|              |       | Year Ended                |        |             | October 30 through |   |             | January 1 through |  |   | Year Ended   |       
|              |       | December 31,              |        |             | December 31,       |   |             | October 29,       |  |   | December 31, |       
|              |       | 2005                      |        |             | 2004               |   |             | 2004              |  |   | 2003         |       
|              |       |                           |        |             |                    |   |             |                   |  |   |              |       
|              |       | (In thousands of dollars) |       
|United States |       | $                         | 4,884  |             |                    | $ | (3,562      | )                 |  | $ | 34,058       |        |  | $ | (7,619 | )     
|Foreign       |       |                           | 47,670 |             |                    |   | 18,066      |                   |  |   | 20,063       |        |  |   | 39,422 |       
|              |       |                           |        |             |                    |   |             |                   |  |   |              |       
|              | Total |                           | $      | 52,554      |                    |   | $           | 14,504            |  |   | $            | 54,121 |  |   | $      | 31,803 | 
|              |       |                           |        |             |                    |   |             |                   |  |   |              |       



|                               |               |                                  |   |             |                    |   |             |                   |       |   |              |        |        |  |   |        |        |  
|------------------------------ | ------------- | -------------------------------- | - | ----------- | ------------------ | - | ----------- | ----------------- | ----- | - | ------------ | ------ | ------ |  | - | ------ | ------ | -
|                               |               | Successor                        |   |             | Predecessor        |  
|                               |               |                                  |   |             |                    |  
|                               |               |                                  |   | Period from |                    |   | Period from |                   |       |  
|                               |               | Year Ended                       |   |             | October 30 through |   |             | January 1 through |       |   | Year Ended   |       
|                               |               | December 31,                     |   |             | December 31,       |   |             | October 29,       |       |   | December 31, |       
|                               |               | 2005                             |   |             | 2004               |   |             | 2004              |       |   | 2003         |       
|                               |               |                                  |   |             |                    |   |             |                   |       |   |              |       
|                               |               | (In thousands of dollars)        |  
|Current tax expense (benefit)  |               |                                  |   |             |                    |   |             |                   |       |   |              |        |        |  |   |       
|                               | United States |                                  | $ |            |                    |   | $           | 883               |       |   | $            | (933   | )      |  | $ | 1,314  |       
|                               | Foreign       |                                  |   | 17,658      |                    |   |             | 7,366             |       |   |              | 12,270 |        |  |   | 15,025 |       
|                               |               |                                  |   |             |                    |   |             |                   |       |   |              |       
|                               |               | Total current                    |   |             | 17,658             |   |             |                   | 8,249 |   |              |        | 11,337 |  |   |        | 16,339 |  
|                               |               |                                  |   |             |                    |   |             |                   |       |   |              |       
|Deferred tax expense (benefit) |               |                                  |   |             |                    |   |             |                   |       |   |              |        |        |  |   |       
|                               | United States |                                  |   | 2,083       |                    |   |             |                  |       |   |              | (2,707 | )      |  |   | (404   | )     
|                               | Foreign       |                                  |   | (4,282      | )                  |   |             | (974              | )     |   |              | 3,340  |        |  |   | (4,497 | )     
|                               |               |                                  |   |             |                    |   |             |                   |       |   |              |       
|                               |               | Total deferred                   |   |             | (2,199             | ) |             |                   | (974  | ) |              |        | 633    |  |   |        | (4,901 | )
|                               |               |                                  |   |             |                    |   |             |                   |       |   |              |       
|                               |               | Total provision for income taxes |   | $           | 15,459             |   |             | $                 | 7,275 |   |              | $      | 11,970 |  |   | $      | 11,438 |  
|                               |               |                                  |   |             |                    |   |             |                   |       |   |              |       

F-23



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|                                            |                                               |                           |      |             |                    |  |             |                   |    |  |              |       |    |  |      |       |   
|------------------------------------------- | --------------------------------------------- | ------------------------- | ---- | ----------- | ------------------ |  | ----------- | ----------------- | -- |  | ------------ | ----- | -- |  | ---- | ----- | --
|                                            |                                               | Successor                 |      |             | Predecessor        | 
|                                            |                                               |                           |      |             |                    | 
|                                            |                                               |                           |      | Period from |                    |  | Period from |                   |    | 
|                                            |                                               | Year Ended                |      |             | October 30 through |  |             | January 1 through |    |  | Year Ended   |      
|                                            |                                               | December 31,              |      |             | December 31,       |  |             | October 29,       |    |  | December 31, |      
|                                            |                                               | 2005                      |      |             | 2004               |  |             | 2004              |    |  | 2003         |      
|                                            |                                               |                           |      |             |                    |  |             |                   |    |  |              |      
|                                            |                                               | (In thousands of dollars) |     
|Statutory U.S. rate                         |                                               |                           | 35.0 | %           |                    |  | 35.0        | %                 |    |  | 35.0         | %     |    |  | 35.0 | %    
|Increase (decrease) in rate resulting from: |                                               |                           |      |             |                    |  |             |                   |    |  |              |       |    |  |      |      
|                                            | Foreign operations                            |                           |      | 0.8         | %                  |  |             | 3.5               | %  |  |              | 9.9   | %  |  |      | 5.5   | % 
|                                            | State and local income taxes, net of U.S. tax |                           |      | 0.6         | %                  |  |             | 6.0               | %  |  |              | (0.2  | )% |  |      | 1.1   | % 
|                                            | Valuation allowances                          |                           |      | (1.8        | )%                 |  |             | 11.0              | %  |  |              | 7.2   | %  |  |      | (10.7 | )%
|                                            | Extraterritorial income exclusion             |                           |      | (7.7        | )%                 |  |             | (4.8              | )% |  |              |      |    |  |      |      |   
|                                            | Stock-based compensation                      |                           |      | 2.6         | %                  |  |             |                  |    |  |              |      |    |  |      |      |   
|                                            | Nontaxable partnership income                 |                           |      |            |                    |  |             |                  |    |  |              | (18.7 | )% |  |      | 9.6   | % 
|                                            | Other                                         |                           |      | (0.1        | )%                 |  |             | (0.5              | )% |  |              | (11.1 | )% |  |      | (4.5  | )%
|                                            |                                               |                           |      |             |                    |  |             |                   |    |  |              |      
|Effective tax rate                          |                                               |                           | 29.4 | %           |                    |  | 50.2        | %                 |    |  | 22.1         | %     |    |  | 36.0 | %    
|                                            |                                               |                           |      |             |                    |  |             |                   |    |  |              |      



|                                   |                                      |                                      |   |         |         |   |   |         |         |  
|---------------------------------- | ------------------------------------ | ------------------------------------ | - | ------- | ------- | - | - | ------- | ------- | -
|                                   |                                      | Successor                            |  
|                                   |                                      |                                      |  
|                                   |                                      | December 31,                         |  
|                                   |                                      | 2005                                 |   |         | 2004    |  
|                                   |                                      |                                      |   |         |         |  
|                                   |                                      | (In thousands                        |  
|                                   |                                      | of dollars)                          |  
|Deferred tax liabilities           |                                      |                                      |   |         |         |   |   |        
|                                   | Depreciation and amortization        |                                      | $ | 45,733  |         |   | $ | 37,343  |        
|                                   |                                      |                                      |   |         |         |  
|Deferred tax (assets)              |                                      |                                      |   |         |         |   |   |        
|                                   | Inventories and receivables          |                                      |   | (2,052  | )       |   |   | (3,199  | )      
|                                   | Other accrued expenses               |                                      |   | (11,594 | )       |   |   | (4,246  | )      
|                                   | Tax net operating loss carryforwards |                                      |   | (12,877 | )       |   |   | (9,216  | )      
|                                   | Pension contributions                |                                      |   | (15,719 | )       |   |   | (12,833 | )      
|                                   |                                      |                                      |   |         |         |  
|                                   |                                      | Total deferred tax assets            |   |         | (42,242 | ) |   |         | (29,494 | )
|                                   | Valuation allowances                 |                                      |   | 8,196   |         |   |   | 11,993  |        
|                                   |                                      |                                      |   |         |         |  
|                                   |                                      | Net deferred tax assets              |   |         | (34,046 | ) |   |         | (17,501 | )
|                                   |                                      |                                      |   |         |         |  
|                                   |                                      | Total net deferred tax liabilities   |   | $       | 11,687  |   |   | $       | 19,842  |  
|                                   |                                      |                                      |   |         |         |  
|Presented in the balance sheet as: |                                      |                                      |   |         |         |   |   |        
|                                   |                                      | Current deferred tax (assets)        |   | $       | (10,899 | ) |   | $       | (7,445  | )
|                                   |                                      | Non-current deferred tax liabilities |   |         | 22,586  |   |   |         | 27,287  |  
|                                   |                                      |                                      |   |         |         |  
|                                   |                                      | Total net deferred tax liability     |   | $       | 11,687  |   |   | $       | 19,842  |  
|                                   |                                      |                                      |   |         |         |  



F-24



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)














|    |               
|--- | --------------
|13. | Long-Term Debt



| |                               
| | ------------------------------
| | Senior Secured Credit Facility




F-25



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




1 2 1 2




30-day






| |                          
| | -------------------------
| | Senior Subordinated Notes

3 8 3 8


F-26



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




90-day




|                                 |  |                  |         |  |      |   |         |  
|-------------------------------- |  | ---------------- | ------- |  | ---- | - | ------- | -
|                                 |  | Successor        |        
|                                 |  |                  |        
|                                 |  | December 31,     |        
|                                 |  |                  |        
|                                 |  | 2005             |         |  | 2004 |  
|                                 |  |                  |         |  |      |  
|                                 |  | (In thousands of |        
|                                 |  | dollars)         |        
|Senior Subordinated Notes        |  | $                | 370,000 |  |      | $ | 420,000 |  
|Senior Secured Credit Facility   |  |                  | 228,023 |  |      |   | 400,474 |  
|Other Debt                       |  |                  | 114     |  |      |   | 205     |  
|                                 |  |                  |         |  |      |  
|Total long term debt             |  |                  | 598,137 |  |      |   | 820,679 |  
|Less: current maturities         |  |                  |        |  |      |   | (4,015  | )
|                                 |  |                  |         |  |      |  
|Total non current long term debt |  | $                | 598,137 |  |      | $ | 816,664 |  
|                                 |  |                  |         |  |      |  



|               |  |                           |         |  |                 |   |         |            |  |   |       |  |  |   |         | 
|-------------- |  | ------------------------- | ------- |  | --------------- | - | ------- | ---------- |  | - | ----- |  |  | - | ------- | 
|               |  | Senior                    |         |  | Senior Secured  |   |         |            |  |  
|               |  | Subordinated              |         |  | Credit Facility |   |         |            |  |  
|               |  | Notes                     |         |  | and Other Debt  |   |         | Other Debt |  |   | Total | 
|               |  |                           |         |  |                 |   |         |            |  |   |       | 
|               |  | (In thousands of dollars) |        
|2006           |  | $                         |        |  |                 | $ |        |            |  | $ |      |  |  | $ |        | 
|2007           |  |                           |        |  |                 |   |        |            |  |   | 114   |  |  |   | 114     | 
|2008           |  |                           |        |  |                 |   |        |            |  |   |      |  |  |   |        | 
|2009           |  |                           |        |  |                 |   |        |            |  |   |      |  |  |   |        | 
|2010           |  |                           |        |  |                 |   |        |            |  |   |      |  |  |   |        | 
|2011 and after |  |                           | 370,000 |  |                 |   | 228,023 |            |  |   |      |  |  |   | 598,023 | 
|               |  |                           |         |  |                 |   |         |            |  |   |       | 
|               |  | $                         | 370,000 |  |                 | $ | 228,023 |            |  | $ | 114   |  |  | $ | 598,137 | 
|               |  |                           |         |  |                 |   |         |            |  |   |       | 





|    |              
|--- | -------------
|14. | Pension Plans



F-27



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


Non-U.S. non-U.S.




|                                        |                                               |                                           |   |         |         |  |   |         |         | 
|--------------------------------------- | --------------------------------------------- | ----------------------------------------- | - | ------- | ------- |  | - | ------- | ------- | 
|                                        |                                               | Successor                                 |  
|                                        |                                               |                                           |  
|                                        |                                               | December 31,                              |  
|                                        |                                               |                                           |  
|                                        |                                               | 2005                                      |   |         | 2004    | 
|                                        |                                               |                                           |   |         |         | 
|                                        |                                               | (In thousands of                          |  
|                                        |                                               | dollars)                                  |  
|Change in projected benefit obligations |                                               |                                           |   |         |         |  |   |        
|                                        | Benefit obligation at beginning of the period |                                           | $ | 317,498 |         |  | $ | 308,712 |        
|                                        | Service cost                                  |                                           |   | 5,112   |         |  |   | 870     |        
|                                        | Interest cost                                 |                                           |   | 17,119  |         |  |   | 2,884   |        
|                                        | Employee contributions                        |                                           |   | 221     |         |  |   | 62      |        
|                                        | Expenses paid                                 |                                           |   | (395    | )       |  |   |        |        
|                                        | Actuarial losses                              |                                           |   | 12,132  |         |  |   | 3,035   |        
|                                        | Benefits paid                                 |                                           |   | (13,831 | )       |  |   | (2,464  | )      
|                                        | Foreign exchange impact                       |                                           |   | (11,072 | )       |  |   | 4,399   |        
|                                        |                                               |                                           |   |         |         | 
|                                        |                                               | Benefit obligation at end of the period   |   | $       | 326,784 |  |   | $       | 317,498 | 
|                                        |                                               |                                           |   |         |         | 
|Change in plan assets                   |                                               |                                           |   |         |         |  |   |        
|                                        | Fair value at beginning of the period         |                                           | $ | 243,132 |         |  | $ | 240,025 |        
|                                        | Actual return on assets                       |                                           |   | 20,433  |         |  |   | 2,460   |        
|                                        | Company contributions                         |                                           |   | 10,155  |         |  |   | 495     |        
|                                        | Employee contributions                        |                                           |   | 221     |         |  |   | 62      |        
|                                        | Expenses paid                                 |                                           |   | (395    | )       |  |   |        |        
|                                        | Benefits paid                                 |                                           |   | (13,831 | )       |  |   | (2,464  | )      
|                                        | Foreign exchange impact                       |                                           |   | (6,858  | )       |  |   | 2,554   |        
|                                        |                                               |                                           |   |         |         | 
|                                        |                                               | Fair value of assets at end of the period |   | $       | 252,857 |  |   | $       | 243,132 | 
|                                        |                                               |                                           |   |         |         | 

|                                    |                                           |                       |   |         |         |   |   |         |         |  
|----------------------------------- | ----------------------------------------- | --------------------- | - | ------- | ------- | - | - | ------- | ------- | -
|                                    |                                           | Successor             |  
|                                    |                                           |                       |  
|                                    |                                           | December 31,          |  
|                                    |                                           |                       |  
|                                    |                                           | 2005                  |   |         | 2004    |  
|                                    |                                           |                       |   |         |         |  
|                                    |                                           | (In thousands of      |  
|                                    |                                           | dollars)              |  
|Funded status                       |                                           |                       |   |         |         |   |   |        
|                                    | Plan assets less than benefit obligations |                       | $ | (73,927 | )       |   | $ | (74,366 | )      
|Unrecognized                        |                                           |                       |   |         |         |   |   |        
|                                    | Net transition obligation                 |                       |   |        |         |   |   |        |        
|                                    | Prior service costs                       |                       |   |        |         |   |   |        |        
|                                    | Plan net losses (gains)                   |                       |   | 14,276  |         |   |   | 3,816   |        
|                                    | Contributions after measurement date      |                       |   | 108     |         |   |   |        |        
|                                    |                                           |                       |   |         |         |  
|                                    |                                           | Net amount recognized |   | $       | (59,543 | ) |   | $       | (70,550 | )
|                                    |                                           |                       |   |         |         |  
|Costs included in the balance sheet |                                           |                       |   |         |         |   |   |        
|                                    | Prepaid benefit cost                      |                       | $ |        |         |   | $ |        |        
|                                    | Accrued benefit liability                 |                       |   | (68,908 | )       |   |   | (72,062 | )      
|                                    | Accumulated other comprehensive income    |                       |   | 9,257   |         |   |   | 1,512   |        
|                                    | Contributions after measurement date      |                       |   | 108     |         |   |   |        |        
|                                    |                                           |                       |   |         |         |  
|                                    |                                           | Net amount recognized |   | $       | (59,543 | ) |   | $       | (70,550 | )
|                                    |                                           |                       |   |         |         |  

F-28



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|                                                       |                               |                |  |  |      |   |  |  |      |  
|------------------------------------------------------ | ----------------------------- | -------------- |  |  | ---- | - |  |  | ---- | -
|                                                       |                               | Successor      | 
|                                                       |                               |                | 
|                                                       |                               | December 31,   | 
|                                                       |                               |                | 
|                                                       |                               | 2005           |  |  | 2004 |  
|                                                       |                               |                |  |  |      |  
|Weighted-average assumptions used, benefit obligations |                               |                |  |  |      |   |  | 
|                                                       | Discount rate                 |                |  |  |      |   |  |  |     
|                                                       |                               | U.S. plans     |  |  | 5.65 | % |  |  | 5.75 | %
|                                                       |                               | Non-U.S. plans |  |  | 4.89 | % |  |  | 5.31 | %
|                                                       | Rate of compensation increase |                |  |  |      |   |  |  |     
|                                                       |                               | U.S. plans     |  |  | N/A  |   |  |  | N/A  |  
|                                                       |                               | Non-U.S. plans |  |  | 3.66 | % |  |  | 3.75 | %





|                                 |                    |                           |         |             |              |   |             |             |  |   |              |       |  |   |         |       | 
|-------------------------------- | ------------------ | ------------------------- | ------- | ----------- | ------------ | - | ----------- | ----------- |  | - | ------------ | ----- |  | - | ------- | ----- | 
|                                 |                    | Successor                 |         |             | Predecessor  |  
|                                 |                    |                           |         |             |              |  
|                                 |                    |                           |         | Period from |              |   | Period from |             |  |  
|                                 |                    |                           |         | October 30  |              |   | January 1   |             |  |  
|                                 |                    | Year Ended                |         |             | through      |   |             | through     |  |   | Year Ended   |      
|                                 |                    | December 31,              |         |             | December 31, |   |             | October 29, |  |   | December 31, |      
|                                 |                    | 2005                      |         |             | 2004         |   |             | 2004        |  |   | 2003         |      
|                                 |                    |                           |         |             |              |   |             |             |  |   |              |      
|                                 |                    | (In thousands of dollars) |        
|Service cost                     |                    | $                         | 5,112   |             |              | $ | 870         |             |  | $ | 3,801        |       |  | $ | 4,643   |      
|Interest cost                    |                    |                           | 17,119  |             |              |   | 2,884       |             |  |   | 16,903       |       |  |   | 19,704  |      
|Expected return on plan assets   |                    |                           | (19,377 | )           |              |   | (3,207      | )           |  |   | (21,173      | )     |  |   | (19,329 | )    
|Net amortization of unrecognized |                    |                           |         |             |              |   |             |             |  |   |              |       |  |   |         |      
|                                 | Transition amount  |                           |         |            |              |   |             |            |  |   |              | 1     |  |   |         |      | 
|                                 | Prior Service Cost |                           |         |            |              |   |             |            |  |   |              | 453   |  |   |         | 1     | 
|                                 | Plan net losses    |                           |         |            |              |   |             |            |  |   |              | 3,375 |  |   |         | 5,257 | 
|                                 |                    |                           |         |             |              |   |             |             |  |   |              |      
|Net pension expense (income)     |                    | $                         | 2,854   |             |              | $ | 547         |             |  | $ | 3,360        |       |  | $ | 10,276  |      
|                                 |                    |                           |         |             |              |   |             |             |  |   |              |      

|                                                             |                |              |  |             |              |  |             |             |   |  |              |      |   |  |  |      |  
|------------------------------------------------------------ | -------------- | ------------ |  | ----------- | ------------ |  | ----------- | ----------- | - |  | ------------ | ---- | - |  |  | ---- | -
|                                                             |                | Successor    |  |             | Predecessor  | 
|                                                             |                |              |  |             |              | 
|                                                             |                |              |  | Period from |              |  | Period from |             |   | 
|                                                             |                |              |  | October 30  |              |  | January 1   |             |   | 
|                                                             |                | Year Ended   |  |             | through      |  |             | through     |   |  | Year Ended   |     
|                                                             |                | December 31, |  |             | December 31, |  |             | October 29, |   |  | December 31, |     
|                                                             |                | 2005         |  |             | 2004         |  |             | 2004        |   |  | 2003         |     
|                                                             |                |              |  |             |              |  |             |             |   |  |              |     
|Weighted-average assumptions used, net periodic pension cost |                |              |  |             |              |  |             |             |   |  |              |      |   |  |  |     
|Discount rate                                                |                |              |  |             |              |  |             |             |   |  |              |      |   |  |  |     
|                                                             | U.S. plans     |              |  | 5.75        | %            |  |             | 5.75        | % |  |              | 6.00 | % |  |  | 6.75 | %
|                                                             | Non-U.S. plans |              |  | 5.31        | %            |  |             | 5.31        | % |  |              | 5.75 | % |  |  | 5.75 | %
|Rate of compensation increase                                |                |              |  |             |              |  |             |             |   |  |              |      |   |  |  |     
|                                                             | U.S. plans     |              |  | N/A         |              |  |             | N/A         |   |  |              | N/A  |   |  |  | 4.00 | %
|                                                             | Non-U.S. plans |              |  | 3.75        | %            |  |             | 3.75        | % |  |              | 3.75 | % |  |  | 3.00 | %
|Expected return on plan assets                               |                |              |  |             |              |  |             |             |   |  |              |      |   |  |  |     
|                                                             | U.S. plans     |              |  | 8.50        | %            |  |             | 8.50        | % |  |              | 8.75 | % |  |  | 8.75 | %
|                                                             | Non-U.S. plans |              |  | 7.09        | %            |  |             | 7.09        | % |  |              | 7.50 | % |  |  | 7.50 | %

F-29



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)








|                |                        |              |  |      |       |   |  |      |       |  
|--------------- | ---------------------- | ------------ |  | ---- | ----- | - |  | ---- | ----- | -
|                |                        | Successor    | 
|                |                        |              | 
|                |                        | December 31, | 
|                |                        |              | 
|                |                        | 2005         |  |      | 2004  |  
|                |                        |              |  |      |       |  
|Asset category* |                        |              |  |      |       |   |  |     
|                | Equity securities      |              |  | 62.6 | %     |   |  | 58.1 | %    
|                | Debt securities        |              |  | 36.1 | %     |   |  | 35.0 | %    
|                | Other (including cash) |              |  | 1.3  | %     |   |  | 6.9  | %    
|                |                        |              |  |      |       |  
|                |                        | Total        |  |      | 100.0 | % |  |      | 100.0 | %
|                |                        |              |  |      |       |  






|  |                                                                                 
|- | --------------------------------------------------------------------------------
|* | Reflects weighted average percentage allocations of U.S. and
    non-U.S. plans.



non-U.S.






| |                           
| | --------------------------
| | Defined Contribution Plans

non-U.S.


F-30



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


non-U.S.




|    |                                            
|--- | -------------------------------------------
|15. | Postretirement Benefits other than Pensions





|                              |                                               |                                         |   |         |         |   |   |         |         |  
|----------------------------- | --------------------------------------------- | --------------------------------------- | - | ------- | ------- | - | - | ------- | ------- | -
|                              |                                               | Successor                               |  
|                              |                                               |                                         |  
|                              |                                               | December 31,                            |  
|                              |                                               |                                         |  
|                              |                                               | 2005                                    |   |         | 2004    |  
|                              |                                               |                                         |   |         |         |  
|                              |                                               | (In thousands of                        |  
|                              |                                               | dollars)                                |  
|Change in benefit obligations |                                               |                                         |   |         |         |   |   |        
|                              | Benefit obligation at beginning of the period |                                         | $ | 47,568  |         |   | $ | 46,818  |        
|                              | Service cost                                  |                                         |   | 1,998   |         |   |   | 301     |        
|                              | Interest cost                                 |                                         |   | 2,735   |         |   |   | 449     |        
|                              | Actuarial losses (gains)                      |                                         |   | 1,828   |         |   |   |        |        
|                              | Acquisitions                                  |                                         |   | 786     |         |   |   |        |        
|                              | Benefits paid                                 |                                         |   | (11     | )       |   |   |        |        
|                              |                                               |                                         |   |         |         |  
|                              |                                               | Benefit obligation at end of the period |   | $       | 54,904  |   |   | $       | 47,568  |  
|                              |                                               |                                         |   |         |         |  
|Funded status                 |                                               |                                         |   |         |         |   |   |        
|                              | Plan assets less than benefit obligations     |                                         | $ | (54,904 | )       |   | $ | (47,568 | )      
|Unrecognized                  |                                               |                                         |   |         |         |   |   |        
|                              | Plan net losses                               |                                         |   | 1,828   |         |   |   |        |        
|                              | Contributions after measurement date          |                                         |   | 4       |         |   |   |        |        
|                              |                                               |                                         |   |         |         |  
|                              |                                               | Accrued costs in the balance sheet      |   | $       | (53,072 | ) |   | $       | (47,568 | )
|                              |                                               |                                         |   |         |         |  



|                                                     |  |                           |       |             |                    |   |             |                   |  |   |              |   |  |   |        |  
|---------------------------------------------------- |  | ------------------------- | ----- | ----------- | ------------------ | - | ----------- | ----------------- |  | - | ------------ | - |  | - | ------ | -
|                                                     |  | Successor                 |       |             | Predecessor        |  
|                                                     |  |                           |       |             |                    |  
|                                                     |  |                           |       | Period from |                    |   | Period from |                   |  |  
|                                                     |  | Year Ended                |       |             | October 30 through |   |             | January 1 through |  |   | Year Ended   |  
|                                                     |  | December 31,              |       |             | December 31,       |   |             | October 29,       |  |   | December 31, |  
|                                                     |  | 2005                      |       |             | 2004               |   |             | 2004              |  |   | 2003         |  
|                                                     |  |                           |       |             |                    |   |             |                   |  |   |              |  
|                                                     |  | (In thousands of dollars) |      
|Service cost                                         |  | $                         | 1,998 |             |                    | $ | 301         |                   |  | $ | 1,599        |   |  | $ | 1,935  |  
|Interest cost                                        |  |                           | 2,735 |             |                    |   | 449         |                   |  |   | 9,323        |   |  |   | 11,907 |  
|Net amortization of unrecognized prior service gains |  |                           |      |             |                    |   |            |                   |  |   | (861         | ) |  |   | (258   | )
|Net amortization of loss                             |  |                           |      |             |                    |   |            |                   |  |   | 3,011        |   |  |   | 949    |  
|                                                     |  |                           |       |             |                    |   |             |                   |  |   |              |  
|Net periodic postretirement benefits cost            |  | $                         | 4,733 |             |                    | $ | 750         |                   |  | $ | 13,072       |   |  | $ | 14,533 |  
|                                                     |  |                           |       |             |                    |   |             |                   |  |   |              |  



F-31



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)






|                                                            |                                                                      |              |  |             |                    |  |             |                   |   |  |              |       |   |  |  |       |  
|----------------------------------------------------------- | -------------------------------------------------------------------- | ------------ |  | ----------- | ------------------ |  | ----------- | ----------------- | - |  | ------------ | ----- | - |  |  | ----- | -
|                                                            |                                                                      | Successor    |  |             | Predecessor        | 
|                                                            |                                                                      |              |  |             |                    | 
|                                                            |                                                                      |              |  | Period from |                    |  | Period from |                   |   | 
|                                                            |                                                                      | Year Ended   |  |             | October 30 through |  |             | January 1 through |   |  | Year Ended   |      
|                                                            |                                                                      | December 31, |  |             | December 31,       |  |             | October 29,       |   |  | December 31, |      
|                                                            |                                                                      | 2005         |  |             | 2004               |  |             | 2004              |   |  | 2003         |      
|                                                            |                                                                      |              |  |             |                    |  |             |                   |   |  |              |      
|Weighted-average discount rate assumption used to determine |                                                                      |              |  |             |                    |  |             |                   |   |  |              |       |   |  |  |      
|                                                            | Benefit obligations at end of period                                 |              |  | 5.80        | %                  |  |             | 5.75              | % |  |              | 6.00  | % |  |  | 6.00  | %
|                                                            | Net periodic benefit cost for the period ended February 15,
    2003 |              |  | N/A         |                    |  |             | N/A               |   |  |              | N/A   |   |  |  | 6.75  | %
|                                                            | Net periodic benefit cost for the remaining period                   |              |  | 5.75        | %                  |  |             | 5.75              | % |  |              | 6.00  | % |  |  | 6.50  | %
|Assumed health care cost trend rates                        |                                                                      |              |  |             |                    |  |             |                   |   |  |              |       |   |  |  |      
|                                                            | Current year trend rate                                              |              |  | 10.00       | %                  |  |             | 11.00             | % |  |              | 11.00 | % |  |  | 11.00 | %
|                                                            | Ultimate trend rate                                                  |              |  | 5.00        | %                  |  |             | 5.00              | % |  |              | 5.25  | % |  |  | 5.25  | %
|                                                            | Year that the rate reaches the ultimate trend rate                   |              |  | 2011        |                    |  |             | 2010              |   |  |              | 2010  |   |  |  | 2010  |  





|                                                     |  |               |        |  |          |   |        |  
|---------------------------------------------------- |  | ------------- | ------ |  | -------- | - | ------ | -
|                                                     |  | 1%            |        |  | 1%       |  
|                                                     |  | Increase      |        |  | Decrease |  
|                                                     |  |               |        |  |          |  
|                                                     |  | (In thousands |       
|                                                     |  | of dollars)   |       
|Effect on total service and interest cost components |  | $             | 1,000  |  |          | $ | (800   | )
|Effect of postretirement benefit obligations         |  |               | 10,900 |  |          |   | (8,700 | )



|    |                      
|--- | ---------------------
|16. | Financial Instruments







|    |                              
|--- | -----------------------------
|17. | Commitments and Contingencies

20-year




F-32



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




non-U.S.










|    |           
|--- | ----------
|18. | Warranties



F-33



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|                                                  |  |                           |         |             |                    |   |             |                   |  |   |         |  
|------------------------------------------------- |  | ------------------------- | ------- | ----------- | ------------------ | - | ----------- | ----------------- |  | - | ------- | -
|                                                  |  | Successor                 |         |             | Predecessor        |  
|                                                  |  |                           |         |             |                    |  
|                                                  |  |                           |         | Period from |                    |   | Period from |                  
|                                                  |  | Year Ended                |         |             | October 30 through |   |             | January 1 through | 
|                                                  |  | December 31,              |         |             | December 31,       |   |             | October 29,       | 
|                                                  |  | 2005                      |         |             | 2004               |   |             | 2004              | 
|                                                  |  |                           |         |             |                    |   |             |                   | 
|                                                  |  | (In thousands of dollars) |        
|Beginning balance                                 |  | $                         | 21,078  |             |                    | $ | 20,319      |                   |  | $ | 23,699  |  
|Provision for warranties issued during period     |  |                           | 13,502  |             |                    |   | 1,194       |                   |  |   | 6,811   |  
|Adjustments to warranties issued in prior periods |  |                           | 1,733   |             |                    |   | 389         |                   |  |   | 1,813   |  
|Payments during period                            |  |                           | (13,131 | )           |                    |   | (1,732      | )                 |  |   | (12,633 | )
|Translation                                       |  |                           | (1,671  | )           |                    |   | 908         |                   |  |   | 629     |  
|                                                  |  |                           |         |             |                    |   |             |                   | 
|Ending balance                                    |  | $                         | 21,511  |             |                    | $ | 21,078      |                   |  | $ | 20,319  |  
|                                                  |  |                           |         |             |                    |   |             |                   | 





|    |                
|--- | ---------------
|19. | Incentive Plans



| |                         
| | ------------------------
| | Successor incentive plan







|                                 |  |      |       |   |      |  |       |  
|-------------------------------- |  | ---- | ----- | - | ---- |  | ----- | -
|                                 |  | 2005 |       |   | 2004 | 
|                                 |  |      |       |   |      | 
|Expected volatility              |  |      | 36.20 | % |      |  | 36.20 | %
|Expected dividend yield          |  |      | 0     | % |      |  | 0     | %
|Expected average term (in years) |  |      | 4.0   |   |      |  | 4.0   |  
|Risk-free interest rate          |  |      | 3.80  | % |      |  | 3.18  | %

F-34



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)






paid-in






| |                                 
| | --------------------------------
| | Predecessor stock incentive plan





|                        |  |                   |         |  |              |  |         | 
|----------------------- |  | ----------------- | ------- |  | ------------ |  | ------- | 
|                        |  | Predecessor       |        
|                        |  |                   |        
|                        |  | Period from       |         |  |             
|                        |  | January 1 through |         |  | Year Ended   | 
|                        |  | October 29,       |         |  | December 31, | 
|                        |  | 2004              |         |  | 2003         | 
|                        |  |                   |         |  |              | 
|Dividend yield          |  |                   | 1.19%   |  |              |  | 1.75%   | 
|Volatility              |  |                   | 39.34%  |  |              |  | 39.83%  | 
|Risk-free interest rate |  |                   | 3.28%   |  |              |  | 3.12%   | 
|Expected life           |  |                   | 5 years |  |              |  | 5 years | 

F-35



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|                  |  |                |          |   |                 |   |               |                  |  |   |       | 
|----------------- |  | -------------- | -------- | - | --------------- | - | ------------- | ---------------- |  | - | ----- | 
|                  |  | Shares Subject |          |   | Option Price    |   |               | Weighted Average | 
|                  |  | to Option      |          |   | Range per Share |   |               | Exercise Price   | 
|                  |  |                |          |   |                 |   |               |                  | 
|January 1, 2003   |  |                | 592,058  |   |                 |   | 33.67 - 53.03 |                  |  |   | 45.04 | 
|Granted           |  |                | 162,220  |   |                 |   | 39.05         |                  |  |   | 39.05 | 
|Exercised         |  |                | (117,634 | ) |                 |   | 33.67 - 53.03 |                  |  |   | 45.35 | 
|Cancelled         |  |                | (23,222  | ) |                 |   | 39.05 - 53.05 |                  |  |   | 42.91 | 
|                  |  |                |          |   |                 |   |               |                  | 
|December 31, 2003 |  |                | 613,422  |   |                 |   | 39.05 - 53.03 |                  |  |   | 44.25 | 
|Granted           |  |                | 136,610  |   |                 |   | 64.37         |                  |  |   | 46.96 | 
|Exercised         |  |                | (82,299  | ) |                 |   | 39.05 - 53.03 |                  |  |   | 46.14 | 
|Cancelled         |  |                | (107,272 | ) |                 |   | 39.05 - 64.37 |                  |  |   | 47.84 | 
|                  |  |                |          |   |                 |   |               |                  | 
|October 29, 2004  |  |                | 560,461  |   |                 | $ | 39.05 - 64.37 |                  |  | $ | 47.77 | 
|                  |  |                |          |   |                 |   |               |                  | 





|    |                                                       
|--- | ------------------------------------------------------
|20. | Significant Customers and Concentration of Credit Risk



non-U.S.




|    |                       
|--- | ----------------------
|21. | Other Income (Expense)



|                                                          |                                   |                           |        |             |                    |   |             |                   |   |   |              |       |  |   |        |        |  
|--------------------------------------------------------- | --------------------------------- | ------------------------- | ------ | ----------- | ------------------ | - | ----------- | ----------------- | - | - | ------------ | ----- |  | - | ------ | ------ | -
|                                                          |                                   | Successor                 |        |             | Predecessor        |  
|                                                          |                                   |                           |        |             |                    |  
|                                                          |                                   |                           |        | Period from |                    |   | Period from |                   |   |  
|                                                          |                                   | Year Ended                |        |             | October 30 through |   |             | January 1 through |   |   | Year Ended   |      
|                                                          |                                   | December 31,              |        |             | December 31,       |   |             | October 29,       |   |   | December 31, |      
|                                                          |                                   | 2005                      |        |             | 2004               |   |             | 2004              |   |   | 2003         |      
|                                                          |                                   |                           |        |             |                    |   |             |                   |   |   |              |      
|                                                          |                                   | (In thousands of dollars) |       
|New York State Grant                                      |                                   | $                         |       |             |                    | $ |            |                   |   | $ |             |       |  | $ | (1,289 | )     
|Equity on earnings (losses) of partially owned affiliates |                                   |                           | (560   | )           |                    |   | 194         |                   |   |   | (1,013       | )     |  |   | (133   | )     
|Foreign currency gains (losses)                           |                                   |                           | (2,165 | )           |                    |   | (1,023      | )                 |   |   | 2,069        |       |  |   | (4,406 | )     
|Casualty losses                                           |                                   |                           |       |             |                    |   |            |                   |   |   |             |       |  |   | (2,750 | )     
|Other                                                     |                                   |                           | (122   | )           |                    |   | (1,017      | )                 |   |   | 826          |       |  |   | (624   | )     
|                                                          |                                   |                           |        |             |                    |   |             |                   |   |   |              |      
|                                                          | Total other income/(expense), net |                           | $      | (2,847      | )                  |   | $           | (1,846            | ) |   | $            | 1,882 |  |   | $      | (9,202 | )
|                                                          |                                   |                           |        |             |                    |   |             |                   |   |   |              |      





F-36



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)






|    |                  
|--- | -----------------
|22. | Royalty Agreement





|    |                     
|--- | --------------------
|23. | Segment Information:





| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





F-37



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |   |  |   |           |  
|------------------------------------ |  | ------------------------- | --------- | ----------- | ------------------ | - | ----------- | ----------------- |  | - | ------------ | - |  | - | --------- | -
|                                     |  | Successor                 |           |             | Predecessor        |  
|                                     |  |                           |           |             |                    |  
|                                     |  |                           |           | Period from |                    |   | Period from |                   |  |  
|                                     |  | Year Ended                |           |             | October 30 through |   |             | January 1 through |  |   | Year Ended   |  
|                                     |  | December 31,              |           |             | December 31,       |   |             | October 29,       |  |   | December 31, |  
|                                     |  | 2005                      |           |             | 2004               |   |             | 2004              |  |   | 2003         |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|                                     |  | (In thousands of dollars) |          
|Revenues                             |  |                           |           |             |                    |   |             |                   |  |   |              |   |  |   |           |  
|New units                            |  | $                         | 576,612   |             |                    | $ | 77,607      |                   |  | $ | 267,691      |   |  | $ | 792,974   |  
|Aftermarket parts and services       |  |                           | 631,591   |             |                    |   | 122,300     |                   |  |   | 447,804      |   |  |   | 542,376   |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Total Revenues                       |  | $                         | 1,208,203 |             |                    | $ | 199,907     |                   |  | $ | 715,495      |   |  | $ | 1,335,350 |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Operating Income                     |  |                           |           |             |                    |   |             |                   |  |   |              |   |  |   |           |  
|New units                            |  | $                         | 20,847    |             |                    | $ | 3,567       |                   |  | $ | (464         | ) |  | $ | (11,445   | )
|Aftermarket parts and services       |  |                           | 141,374   |             |                    |   | 30,571      |                   |  |   | 85,039       |   |  |   | 98,159    |  
|Unallocable                          |  |                           | (46,095   | )           |                    |   | (8,134      | )                 |  |   | (35,492      | ) |  |   | (47,647   | )
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Total Operating Income               |  | $                         | 116,126   |             |                    | $ | 26,004      |                   |  | $ | 49,083       |   |  | $ | 39,067    |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Depreciation and Amortization        |  |                           |           |             |                    |   |             |                   |  |   |              |   |  |   |           |  
|New units                            |  | $                         | 29,496    |             |                    | $ | 5,775       |                   |  | $ | 9,201        |   |  | $ | 16,678    |  
|Aftermarket parts and services       |  |                           | 31,939    |             |                    |   | 10,494      |                   |  |   | 13,514       |   |  |   | 12,431    |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Total Depreciation and Amortization  |  | $                         | 61,435    |             |                    | $ | 16,269      |                   |  | $ | 22,715       |   |  | $ | 29,109    |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Goodwill                             |  |                           |           |             |                    |   |             |                   |  |   |              |   |  |   |           |  
|New units                            |  | $                         | 114,829   |             |                    | $ | 123,831     |                   |  |   |              |   |  | $ | 506       |  
|Aftermarket parts and services       |  |                           | 278,471   |             |                    |   | 299,499     |                   |  |   |              |   |  |   | 9,708     |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Total Goodwill                       |  | $                         | 393,300   |             |                    | $ | 423,330     |                   |  |   |              |   |  | $ | 10,214    |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Total Assets (including Goodwill)    |  |                           |           |             |                    |   |             |                   |  |   |              |   |  |   |           |  
|New units                            |  | $                         | 253,696   |             |                    | $ | 270,563     |                   |  |   |              |   |  | $ | 144,292   |  
|Aftermarket parts and services       |  |                           | 541,605   |             |                    |   | 564,253     |                   |  |   |              |   |  |   | 246,166   |  
|Unallocable                          |  |                           | 862,570   |             |                    |   | 916,258     |                   |  |   |              |   |  |   | 673,417   |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Total Assets                         |  | $                         | 1,657,871 |             |                    | $ | 1,751,074   |                   |  |   |              |   |  | $ | 1,063,875 |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Revenues by Destination(a)           |  |                           |           |             |                    |   |             |                   |  |   |              |   |  |   |           |  
|North America                        |  | $                         | 498,620   |             |                    | $ | 77,700      |                   |  | $ | 275,941      |   |  | $ | 547,777   |  
|Latin America                        |  |                           | 156,923   |             |                    |   | 30,660      |                   |  |   | 139,898      |   |  |   | 106,635   |  
|Europe                               |  |                           | 231,393   |             |                    |   | 26,591      |                   |  |   | 113,461      |   |  |   | 331,366   |  
|Asia-Pacific                         |  |                           | 135,594   |             |                    |   | 21,482      |                   |  |   | 94,291       |   |  |   | 128,945   |  
|Middle East, Africa                  |  |                           | 185,673   |             |                    |   | 43,474      |                   |  |   | 91,904       |   |  |   | 220,627   |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Total Revenues                       |  | $                         | 1,208,203 |             |                    | $ | 199,907     |                   |  | $ | 715,495      |   |  | $ | 1,335,350 |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Long-Lived Assets by Geographic Area |  |                           |           |             |                    |   |             |                   |  |   |              |   |  |   |           |  
|North America                        |  | $                         | 169,031   |             |                    | $ | 159,060     |                   |  |   |              |   |  | $ | 75,783    |  
|Latin America                        |  |                           | 3,065     |             |                    |   | 2,531       |                   |  |   |              |   |  |   | 1,617     |  
|Europe                               |  |                           | 49,681    |             |                    |   | 58,860      |                   |  |   |              |   |  |   | 18,006    |  
|Asia-Pacific                         |  |                           | 6,890     |             |                    |   | 6,313       |                   |  |   |              |   |  |   | 6,028     |  
|Middle East, Africa                  |  |                           | 4         |             |                    |   |            |                   |  |   |              |   |  |   | 4         |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  
|Total Long-Lived Assets              |  | $                         | 228,671   |             |                    | $ | 226,764     |                   |  |   |              |   |  | $ | 101,438   |  
|                                     |  |                           |           |             |                    |   |             |                   |  |   |              |  

F-38



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)






|    |                                             
|--- | --------------------------------------------
|24. | Selected Unaudited Quarterly Financial Data:

|               |  |                           |         |  |             |   |         |               |  |   |                   |  |  |   |        | 
|-------------- |  | ------------------------- | ------- |  | ----------- | - | ------- | ------------- |  | - | ----------------- |  |  | - | ------ | 
|               |  | Predecessor               |        
|               |  |                           |        
|               |  | Three Months Ended        |         |  |            
|               |  |                           |         |  | Period from |  
|               |  | March 31,                 |         |  | June 30,    |   |         | September 30, |  |   | October 1 through | 
|               |  | 2004                      |         |  | 2004        |   |         | 2004          |  |   | October 29, 2004  | 
|               |  |                           |         |  |             |   |         |               |  |   |                   | 
|               |  | (In thousands of dollars) |        
|Total revenues |  | $                         | 170,348 |  |             | $ | 269,883 |               |  | $ | 217,263           |  |  | $ | 58,001 | 
|Gross profit   |  |                           | 47,583  |  |             |   | 53,637  |               |  |   | 57,066            |  |  |   | 19,167 | 
|Net income     |  |                           | 3,310   |  |             |   | 13,370  |               |  |   | 21,052            |  |  |   | 4,419  | 

|                                              |  |                                       |         |                    |           |   |         |          |  |   |               |   |  |              |         |  |  |   |         | 
|--------------------------------------------- |  | ------------------------------------- | ------- | ------------------ | --------- | - | ------- | -------- |  | - | ------------- | - |  | ------------ | ------- |  |  | - | ------- | 
|                                              |  | Successor                             |        
|                                              |  |                                       |        
|                                              |  |                                       |         | Three Months Ended |          
|                                              |  | Period from                           |         |                    |           |  
|                                              |  | October 30 through                    |         |                    | March 31, |   |         | June 30, |  |   | September 30, |   |  | December 31, |        
|                                              |  | December 31, 2004                     |         |                    | 2005      |   |         | 2005     |  |   | 2005          |   |  | 2005         |        
|                                              |  |                                       |         |                    |           |   |         |          |  |   |               |   |  |              |        
|                                              |  | (In thousands, except per share data) |        
|Total revenues                                |  | $                                     | 199,907 |                    |           | $ | 234,000 |          |  | $ | 302,478       |   |  | $            | 309,759 |  |  | $ | 361,966 | 
|Gross profit                                  |  |                                       | 50,343  |                    |           |   | 47,709  |          |  |   | 63,778        |   |  |              | 76,905  |  |  |   | 98,847  | 
|Net income (loss)                             |  |                                       | 7,229   |                    |           |   | (4,018  | )        |  |   | (1,525        | ) |  |              | 10,434  |  |  |   | 32,204  | 
|Net income (loss) per share basic and diluted |  |                                       | 0.13    |                    |           |   | (0.07   | )        |  |   | (0.03         | ) |  |              | 0.15    |  |  |   | 0.38    | 



|    |                                    
|--- | -----------------------------------
|25. | Supplemental Cash Flow Information:

|                                         |  |                           |        |             |                    |   |             |                   |  |   |              |  |  |   |       | 
|---------------------------------------- |  | ------------------------- | ------ | ----------- | ------------------ | - | ----------- | ----------------- |  | - | ------------ |  |  | - | ----- | 
|                                         |  | Successor                 |        |             | Predecessor        |  
|                                         |  |                           |        |             |                    |  
|                                         |  |                           |        | Period from |                    |   | Period from |                   |  |  
|                                         |  | Year Ended                |        |             | October 30 through |   |             | January 1 through |  |   | Year Ended   | 
|                                         |  | December 31,              |        |             | December 31,       |   |             | October 29,       |  |   | December 31, | 
|                                         |  | 2005                      |        |             | 2004               |   |             | 2004              |  |   | 2003         | 
|                                         |  |                           |        |             |                    |   |             |                   |  |   |              | 
|                                         |  | (In thousands of dollars) |       
|Cash paid during the period for interest |  | $                         | 50,475 |             |                    | $ | 2,930       |                   |  | $ | 888          |  |  | $ | 2,195 | 
|Income taxes paid, net of refunds        |  |                           | 26,992 |             |                    |   | 3,337       |                   |  |   | 7,566        |  |  |   | 8,554 | 



F-39



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|    |                                              
|--- | ---------------------------------------------
|26. | Supplemental Guarantor Financial Information:



|                                                       |  |               
|------------------------------------------------------ |  | --------------
|Non-Guarantor Subsidiaries                             |  | Jurisdiction  
|                                                       |  |               
|D-R Central Service GmbH & Co. KG                      |  | Germany       
|D-R Holdings (France) S.A.S.                           |  | France        
|D-R Holdings (Germany) GmbH                            |  | Germany       
|D-R Holdings (Netherlands) B.V.                        |  | Netherlands   
|D-R Holdings Norway AS                                 |  | Norway        
|D-R Management GmbH                                    |  | Germany       
|D-R Nadrowski Holdings GmbH                            |  | Germany       
|Dresser-Rand & Enserv Services Sdn. Bhd.               |  | Malaysia      
|Dresser-Rand (Nigeria) Ltd.                            |  | Nigeria       
|Dresser-Rand (SEA) Pte. Ltd.                           |  | Singapore     
|Dresser-Rand (SEA) Pte. Ltd.                           |  | Australia     
|Dresser-Rand (U.K.) Ltd.                               |  | United Kingdom
|Dresser-Rand AS                                        |  | Norway        
|Dresser-Rand Asia Pacific Sdn. Bhd.                    |  | Malaysia      
|Dresser-Rand Asia Pacific Sdn. Bhd.                    |  | Singapore     
|Dresser-Rand B.V.                                      |  | Netherlands   
|Dresser-Rand Canada, Inc.                              |  | Canada        
|Dresser-Rand CIS                                       |  | Moscow        
|Dresser-Rand Comercio e Industria Ltda.                |  | Brazil        
|Dresser-Rand Company Ltd.                              |  | United Kingdom
|Dresser-Rand Compressor (Suzhou) Ltd.                  |  | China         
|Dresser-Rand Compressor Co., Ltd. Shanghai (60% owned) |  | China         
|Dresser-Rand de Mexico S.A. de C.V.                    |  | Mexico        
|Dresser-Rand de Venezuela, S.A.                        |  | Venezuela     
|Dresser-Rand do Brasil, Ltda. (75% owned)              |  | Brazil        
|Dresser-Rand GmbH                                      |  | Germany       
|Dresser-Rand Holding (Delaware) LLC                    |  | Delaware      
|Dresser-Rand Holding Company                           |  | Venezuela     
|Dresser-Rand Holdings (U.K.) Ltd.                      |  | United Kingdom
|Dresser-Rand India Private Limited                     |  | India         
|Dresser-Rand International B.V.                        |  | Netherlands   
|Dresser-Rand Italia S.r.1.                             |  | Italy         
|Dresser-Rand Japan Ltd.                                |  | Japan         
|Dresser-Rand Machinery Repair Belgie N.V.              |  | Belgium       
|Dresser-Rand Nadrowski Turbinen GmbH                   |  | Germany       
|Dresser-Rand Overseas Sales Company Ltd.               |  | Delaware      
|Dresser-Rand S.A.                                      |  | France        
|Dresser-Rand S.A. Representative Office (Moscow)       |  | Moscow        
|Dresser-Rand S.A. Representative Office (Uzbekistan)   |  | Uzbekistan    
|Dresser-Rand s.r.o.                                    |  | Czech Republic

F-40



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


|                                                  |  |                         
|------------------------------------------------- |  | ------------------------
|Non-Guarantor Subsidiaries                        |  | Jurisdiction            
|                                                  |  |                         
|Dresser-Rand Sales Company S.A.                   |  | Switzerland             
|Dresser-Rand Services B.V.                        |  | Netherlands             
|Dresser-Rand Services, S. de R.L. de C.V.         |  | Mexico                  
|Dresser-Rand Services, S.a.r.1                    |  | Switzerland             
|Multiphase Power and Processing Technologies, LLC |  | Delaware                
|PT Dresser-Rand Services Indonesia                |  | Indonesia               
|Turbodyne Electric Power Corporation              |  | United States of America
|UZ-DR Service Center (51% owned)                  |  | Uzbekistan              



CONDENSED CONSOLIDATING STATEMENT OF INCOME (SUCCESSOR)


For the Year ended December 31, 2005


|                                                    |                                   |                           |         |            |            |            |         |            |  |               |             |         |  |       |          |          |   |   |           |         | 
|--------------------------------------------------- | --------------------------------- | ------------------------- | ------- | ---------- | ---------- | ---------- | ------- | ---------- |  | ------------- | ----------- | ------- |  | ----- | -------- | -------- | - | - | --------- | ------- | 
|                                                    |                                   |                           |         |            |            | Subsidiary |         |            |  |               |            
|                                                    |                                   |                           |         | Subsidiary |            |            | Non-    |            |  | Consolidating |             |         | 
|                                                    |                                   | Issuer                    |         |            | Guarantors |            |         | Guarantors |  |               | Adjustments |         |  | Total |         
|                                                    |                                   |                           |         |            |            |            |         |            |  |               |             |         |  |       |         
|                                                    |                                   | (In thousands of dollars) |        
|Net sales                                           |                                   | $                         |        |            |            | $          | 815,607 |            |  | $             | 506,342     |         |  | $     | (113,746 | )        |   | $ | 1,208,203 |        
|Cost of goods sold                                  |                                   |                           |        |            |            |            | 654,302 |            |  |               | 381,288     |         |  |       | (107,568 | )        |   |   | 928,022   |        
|                                                    |                                   |                           |         |            |            |            |         |            |  |               |             |         |  |       |         
|                                                    | Gross profit                      |                           |         |           |            |            |         | 161,305    |  |               |             | 125,054 |  |       |          | (6,178   | ) |   |           | 280,181 | 
|Selling and administrative expenses                 |                                   |                           | 6,108   |            |            |            | 103,053 |            |  |               | 57,954      |         |  |       | (3,060   | )        |   |   | 164,055   |        
|                                                    |                                   |                           |         |            |            |            |         |            |  |               |             |         |  |       |         
|                                                    | Income from operations            |                           |         | (6,108     | )          |            |         | 58,252     |  |               |             | 67,100  |  |       |          | (3,118   | ) |   |           | 116,126 | 
|Equity earnings (losses) in affiliates (net of tax) |                                   |                           | 96,520  |            |            |            | 12,168  |            |  |               |            |         |  |       | (108,688 | )        |   |   |          |        
|Interest (expense) income, net                      |                                   |                           | (52,844 | )          |            |            | 372     |            |  |               | (4,565      | )       |  |       |         |          |   |   | (57,037   | )      
|Intercompany interest and fees                      |                                   |                           | 5,479   |            |            |            | 3,392   |            |  |               | (8,871      | )       |  |       |         |          |   |   |          |        
|Other income (expense), net                         |                                   |                           | (3,869  | )          |            |            | (794    | )          |  |               | (1,872      | )       |  |       |         |          |   |   | (6,535    | )      
|                                                    |                                   |                           |         |            |            |            |         |            |  |               |             |         |  |       |         
|                                                    | Income (loss) before income taxes |                           |         | 39,178     |            |            |         | 73,390     |  |               |             | 51,792  |  |       |          | (111,806 | ) |   |           | 52,554  | 
|Provision for income taxes                          |                                   |                           | 2,083   |            |            |            |        |            |  |               | 13,376      |         |  |       |         |          |   |   | 15,459    |        
|                                                    |                                   |                           |         |            |            |            |         |            |  |               |             |         |  |       |         
|                                                    | Net (loss) income                 |                           | $       | 37,095     |            |            | $       | 73,390     |  |               | $           | 38,416  |  |       | $        | (111,806 | ) |   | $         | 37,095  | 
|                                                    |                                   |                           |         |            |            |            |         |            |  |               |             |         |  |       |         

F-41



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET (SUCCESSOR)


December 31, 2005


|                                              |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |            |            |   |   |         |           | 
|--------------------------------------------- | ------------------------------------------ | ------------------------- | --------- | ---------- | ---------- | ---------- | -------- | ---------- |  | ------------- | ----------- | ------- |  | ----- | ---------- | ---------- | - | - | ------- | --------- | 
|                                              |                                            |                           |           |            |            | Subsidiary |          |            |  |               |            
|                                              |                                            |                           |           | Subsidiary |            |            | Non-     |            |  | Consolidating |             |         | 
|                                              |                                            | Issuer                    |           |            | Guarantors |            |          | Guarantors |  |               | Adjustments |         |  | Total |           
|                                              |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |           
|                                              |                                            | (In thousands of dollars) |          
|ASSETS                                        |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |            |            |   |   |         |          
|Cash and cash equivalents                     |                                            | $                         |          |            |            | $          | 41,587   |            |  | $             | 56,449      |         |  | $     |           |            |   | $ | 98,036  |          
|Accounts and notes receivables net            |                                            |                           | 100       |            |            |            | 129,285  |            |  |               | 139,446     |         |  |       |           |            |   |   | 268,831 |          
|Inventories, net (excluding advance payments) |                                            |                           |          |            |            |            | 99,697   |            |  |               | 51,970      |         |  |       | (5,905     | )          |   |   | 145,762 |          
|Prepaids expenses and deferred income taxes   |                                            |                           | 4,868     |            |            |            | 5,767    |            |  |               | 26,151      |         |  |       |           |            |   |   | 36,786  |          
|                                              |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |           
|                                              | Total current assets                       |                           |           | 4,968      |            |            |          | 276,336    |  |               |             | 274,016 |  |       |            | (5,905     | ) |   |         | 549,415   | 
|Investment in affiliates                      |                                            |                           | 1,042,089 |            |            |            | 50,658   |            |  |               |            |         |  |       | (1,092,747 | )          |   |   |        |          
|Property, plant, and equipment, net           |                                            |                           |          |            |            |            | 168,434  |            |  |               | 60,237      |         |  |       |           |            |   |   | 228,671 |          
|Intangible assets, net                        |                                            |                           |          |            |            |            | 523,020  |            |  |               | 331,199     |         |  |       |           |            |   |   | 854,219 |          
|Other assets                                  |                                            |                           | 17,146    |            |            |            | 5,360    |            |  |               | 3,060       |         |  |       |           |            |   |   | 25,566  |          
|                                              |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |           
|                                              | Total assets                               |                           | $         | 1,064,203  |            |            | $        | 1,023,808  |  |               | $           | 668,512 |  |       | $          | (1,098,652 | ) |   | $       | 1,657,871 | 
|                                              |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |           
|LIABILITIES AND STOCKHOLDERS EQUITY          |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |            |            |   |   |         |          
|Accounts payable and accruals                 |                                            | $                         | 7,652     |            |            | $          | 155,322  |            |  | $             | 230,139     |         |  | $     |           |            |   | $ | 393,113 |          
|Loans payable                                 |                                            |                           |          |            |            |            |         |            |  |               | 67          |         |  |       |           |            |   |   | 67      |          
|                                              |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |           
|                                              | Total current liabilities                  |                           |           | 7,652      |            |            |          | 155,322    |  |               |             | 230,206 |  |       |            |           |   |   |         | 393,180   | 
|Long-term debt                                |                                            |                           | 532,160   |            |            |            |         |            |  |               | 65,977      |         |  |       |           |            |   |   | 598,137 |          
|Intercompany accounts                         |                                            |                           | 5,750     |            |            |            | (104,901 | )          |  |               | 99,151      |         |  |       |           |            |   |   |        |          
|Other noncurrent liabilities                  |                                            |                           | 3,981     |            |            |            | 105,066  |            |  |               | 42,847      |         |  |       |           |            |   |   | 151,894 |          
|                                              |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |           
|                                              | Total liabilities                          |                           |           | 549,543    |            |            |          | 155,487    |  |               |             | 438,181 |  |       |            |           |   |   |         | 1,143,211 | 
|                                              |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |           
|Common Stock                                  |                                            |                           | 855       |            |            |            |         |            |  |               |            |         |  |       |           |            |   |   | 855     |          
|Other stockholders equity                    |                                            |                           | 513,805   |            |            |            | 868,321  |            |  |               | 230,331     |         |  |       | (1,098,652 | )          |   |   | 513,805 |          
|                                              |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |           
|                                              | Total stockholders equity                 |                           |           | 514,660    |            |            |          | 868,321    |  |               |             | 230,331 |  |       |            | (1,098,652 | ) |   |         | 514,660   | 
|                                              |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |           
|                                              | Total liabilities and stockholders equity |                           | $         | 1,064,203  |            |            | $        | 1,023,808  |  |               | $           | 668,512 |  |       | $          | (1,098,652 | ) |   | $       | 1,657,871 | 
|                                              |                                            |                           |           |            |            |            |          |            |  |               |             |         |  |       |           

F-42



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(SUCCESSOR)


For the year ended December 31, 2005


|                                                   |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |   |        |        |   |         |          |          |  
|-------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | - | ---------- | -------- | ---------- | ---------- | -------- | -------- | ------------- | ----------- | ------- | ------- | ----- | - | ------ | ------ | - | ------- | -------- | -------- | -
|                                                   |                                                     |                                                     |   |            |          | Subsidiary |            |          |          |               |            
|                                                   |                                                     |                                                     |   | Subsidiary |          |            | Non-       |          |          |               |             |        
|                                                   |                                                     |                                                     |   | Guarantors |          |            | Guarantors |          |          | Consolidating |             |         |        
|                                                   |                                                     | Issuer                                              |   |            | Entities |            |            | Entities |          |               | Adjustments |         |         | Total |  
|                                                   |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |  
|                                                   |                                                     | (In thousands of dollars)                           |  
|Cash flows from operating activities:              |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |   |        |        |   |         |         
|                                                   | Net cash provided by (used in) operating activities |                                                     | $ | (27,841    | )        |            | $          | 169,627  |          |               | $           | 68,898  |         |       | $ | 1,738  |        |   | $       | 212,422  |         
|                                                   |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |  
|Cash flows from investing activities:              |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |   |        |        |   |         |         
|                                                   | Capital expenditures                                |                                                     |   |           |          |            |            | (11,003  | )        |               |             | (4,531  | )       |       |   |       |        |   |         | (15,534  | )       
|                                                   | Proceeds from sale of property, plant and equipment |                                                     |   |           |          |            |            | 287      |          |               |             | 734     |         |       |   |       |        |   |         | 1,021    |         
|                                                   | Proceeds from sale of equity investment             |                                                     |   |           |          |            |            | 10,000   |          |               |             |        |         |       |   |       |        |   |         | 10,000   |         
|                                                   | Acquisitions, net of cash                           |                                                     |   | (54,970    | )        |            |            |         |          |               |             |        |         |       |   |       |        |   |         | (54,970  | )       
|                                                   |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |  
|                                                   |                                                     | Net cash provided by (used in) investing activities |   |            | (54,970  | )          |            |          | (716     | )             |             |         | (3,797  | )     |   |        |       |   |         |          | (59,483  | )
|                                                   |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |  
|Cash flows from financing activities:              |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |   |        |        |   |         |         
|                                                   | Net change in debt                                  |                                                     |   | (167,140   | )        |            |            |         |          |               |             | (45,649 | )       |       |   |       |        |   |         | (212,789 | )       
|                                                   | Change in intercompany accounts                     |                                                     |   | 197,293    |          |            |            | (190,665 | )        |               |             | (4,890  | )       |       |   | (1,738 | )      |   |         |         |         
|                                                   | Issuance of common units                            |                                                     |   | 1,419      |          |            |            |         |          |               |             |        |         |       |   |       |        |   |         | 1,419    |         
|                                                   | Proceeds from initial public offering               |                                                     |   | 608,925    |          |            |            |         |          |               |             |        |         |       |   |       |        |   |         | 608,925  |         
|                                                   | Dividends paid                                      |                                                     |   | (557,686   | )        |            |            |         |          |               |             |        |         |       |   |       |        |   |         | (557,686 | )       
|                                                   |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |  
|                                                   |                                                     | Net cash provided by (used in) financing activities |   |            | 82,811   |            |            |          | (190,665 | )             |             |         | (50,539 | )     |   |        | (1,738 | ) |         |          | (160,131 | )
|                                                   |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |  
|Effect of exchange rate changes                    |                                                     |                                                     |  |            |          |            |           |          |          |               | (6,272      | )       |         |       |  |        |        |   | (6,272  | )       
|                                                   |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |  
|Net increase (decrease) in cash & cash equivalents |                                                     |                                                     |  |            |          |            | (21,754    | )        |          |               | 8,290       |         |         |       |  |        |        |   | (13,464 | )       
|Cash and cash equivalents, beginning of period     |                                                     |                                                     |  |            |          |            | 63,341     |          |          |               | 48,159      |         |         |       |  |        |        |   | 111,500 |         
|                                                   |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |  
|Cash and cash equivalents, end of period           |                                                     | $                                                   |  |            |          | $          | 41,587     |          |          | $             | 56,449      |         |         | $     |  |        |        | $ | 98,036  |         
|                                                   |                                                     |                                                     |   |            |          |            |            |          |          |               |             |         |         |       |  

F-43



---



##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENT OF INCOME (SUCCESSOR)


For the Period from October 30, 2004 through
December 31, 2004


|                                                    |                                   |                           |        |            |            |            |         |            |  |               |             |        |  |       |         |         |   |   |         |        | 
|--------------------------------------------------- | --------------------------------- | ------------------------- | ------ | ---------- | ---------- | ---------- | ------- | ---------- |  | ------------- | ----------- | ------ |  | ----- | ------- | ------- | - | - | ------- | ------ | 
|                                                    |                                   |                           |        |            |            | Subsidiary |         |            |  |               |            
|                                                    |                                   |                           |        | Subsidiary |            |            | Non-    |            |  | Consolidating |             |        | 
|                                                    |                                   | Issuer                    |        |            | Guarantors |            |         | Guarantors |  |               | Adjustments |        |  | Total |        
|                                                    |                                   |                           |        |            |            |            |         |            |  |               |             |        |  |       |        
|                                                    |                                   | (In thousands of dollars) |       
|Net sales                                           |                                   | $                         |       |            |            | $          | 123,431 |            |  | $             | 88,181      |        |  | $     | (11,705 | )       |   | $ | 199,907 |       
|Cost of goods sold                                  |                                   |                           | 56     |            |            |            | 98,234  |            |  |               | 65,819      |        |  |       | (11,705 | )       |   |   | 152,404 |       
|                                                    |                                   |                           |        |            |            |            |         |            |  |               |             |        |  |       |        
|                                                    | Gross Profit                      |                           |        | (56        | )          |            |         | 25,197     |  |               |             | 22,362 |  |       |         |        |   |   |         | 47,503 | 
|Selling and administrative expenses                 |                                   |                           | 19     |            |            |            | 13,170  |            |  |               | 8,310       |        |  |       |        |         |   |   | 21,499  |       
|                                                    |                                   |                           |        |            |            |            |         |            |  |               |             |        |  |       |        
|                                                    | Income from operations            |                           |        | (75        | )          |            |         | 12,027     |  |               |             | 14,052 |  |       |         |        |   |   |         | 26,004 | 
|Equity earnings (losses) in affiliates (net of tax) |                                   |                           | 15,817 |            |            |            | 1,517   |            |  |               |            |        |  |       | (17,334 | )       |   |   |        |       
|Interest (expense) income, net                      |                                   |                           | (8,649 | )          |            |            | (199    | )          |  |               | (806        | )      |  |       |        |         |   |   | (9,654  | )     
|Intercompany interest and fees                      |                                   |                           | 1,019  |            |            |            | (2,984  | )          |  |               | 1,965       |        |  |       |        |         |   |   |        |       
|Other income (expense), net                         |                                   |                           |       |            |            |            | 32      |            |  |               | (1,878      | )      |  |       |        |         |   |   | (1,846  | )     
|                                                    |                                   |                           |        |            |            |            |         |            |  |               |             |        |  |       |        
|                                                    | Income (loss) before income taxes |                           |        | 8,112      |            |            |         | 10,393     |  |               |             | 13,333 |  |       |         | (17,334 | ) |   |         | 14,504 | 
|Provision for income taxes                          |                                   |                           | 883    |            |            |            |        |            |  |               | 6,392       |        |  |       |        |         |   |   | 7,275   |       
|                                                    |                                   |                           |        |            |            |            |         |            |  |               |             |        |  |       |        
|                                                    | Net (loss) income                 |                           | $      | 7,229      |            |            | $       | 10,393     |  |               | $           | 6,941  |  |       | $       | (17,334 | ) |   | $       | 7,229  | 
|                                                    |                                   |                           |        |            |            |            |         |            |  |               |             |        |  |       |        




CONDENSED COMBINING STATEMENT OF INCOME (PREDECESSOR)


For the Period from January 1 through October 29,
2004


|                                                    |                                   |                           |        |            |            |            |         |            |  |           |             |        |   |       |         |         |   |   |         |         | 
|--------------------------------------------------- | --------------------------------- | ------------------------- | ------ | ---------- | ---------- | ---------- | ------- | ---------- |  | --------- | ----------- | ------ | - | ----- | ------- | ------- | - | - | ------- | ------- | 
|                                                    |                                   |                           |        |            |            | Subsidiary |         |            |  |           |            
|                                                    |                                   |                           |        | Subsidiary |            |            | Non-    |            |  | Combining |             |        |  
|                                                    |                                   | Issuer                    |        |            | Guarantors |            |         | Guarantors |  |           | Adjustments |        |   | Total |        
|                                                    |                                   |                           |        |            |            |            |         |            |  |           |             |        |   |       |        
|                                                    |                                   | (In thousands of dollars) |       
|Net sales                                           |                                   | $                         |       |            |            | $          | 429,542 |            |  | $         | 285,953     |        |   | $     |        |         |   | $ | 715,495 |        
|Cost of goods sold                                  |                                   |                           |       |            |            |            | 332,931 |            |  |           | 210,781     |        |   |       |        |         |   |   | 543,712 |        
|                                                    |                                   |                           |        |            |            |            |         |            |  |           |             |        |   |       |        
|                                                    | Gross Profit                      |                           |        |           |            |            |         | 96,611     |  |           |             | 75,172 |   |       |         |        |   |   |         | 171,783 | 
|Selling and administrative expenses                 |                                   |                           |       |            |            |            | 61,864  |            |  |           | 60,836      |        |   |       |        |         |   |   | 122,700 |        
|                                                    |                                   |                           |        |            |            |            |         |            |  |           |             |        |   |       |        
|                                                    | Income from operations            |                           |        |           |            |            |         | 34,747     |  |           |             | 14,336 |   |       |         |        |   |   |         | 49,083  | 
|Equity earnings (losses) in affiliates (net of tax) |                                   |                           | 42,151 |            |            |            | (8,691  | )          |  |           |            |        |   |       | (33,460 | )       |   |   |        |        
|Interest (expense) income, net                      |                                   |                           |       |            |            |            | 1,419   |            |  |           | 1,737       |        |   |       |        |         |   |   | 3,156   |        
|Other income (expense), net                         |                                   |                           |       |            |            |            | 14,096  |            |  |           | (12,214     | )      |   |       |        |         |   |   | 1,882   |        
|                                                    |                                   |                           |        |            |            |            |         |            |  |           |             |        |   |       |        
|                                                    | Income (loss) before income taxes |                           |        | 42,151     |            |            |         | 41,571     |  |           |             | 3,859  |   |       |         | (33,460 | ) |   |         | 54,121  | 
|Provision for income taxes                          |                                   |                           |       |            |            |            | 3,721   |            |  |           | 8,249       |        |   |       |        |         |   |   | 11,970  |        
|                                                    |                                   |                           |        |            |            |            |         |            |  |           |             |        |   |       |        
|                                                    | Net (loss) income                 |                           | $      | 42,151     |            |            | $       | 37,850     |  |           | $           | (4,390 | ) |       | $       | (33,460 | ) |   | $       | 42,151  | 
|                                                    |                                   |                           |        |            |            |            |         |            |  |           |             |        |   |       |        

F-44



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET (SUCCESSOR)


December 31, 2004


|                                              |                           |                                            |          |            |            |            |         |            |           |               |             |         |         |       |          |          |          |   |         |           |           | 
|--------------------------------------------- | ------------------------- | ------------------------------------------ | -------- | ---------- | ---------- | ---------- | ------- | ---------- | --------- | ------------- | ----------- | ------- | ------- | ----- | -------- | -------- | -------- | - | ------- | --------- | --------- | 
|                                              |                           |                                            |          |            |            | Subsidiary |         |            |           |               |            
|                                              |                           |                                            |          | Subsidiary |            |            | Non-    |            |           | Consolidating |             |         |        
|                                              |                           | Issuer                                     |          |            | Guarantors |            |         | Guarantors |           |               | Adjustments |         |         | Total |         
|                                              |                           |                                            |          |            |            |            |         |            |           |               |             |         |         |       |         
|                                              |                           | (In thousands of dollars)                  |         
|ASSETS                                       
|Cash and cash equivalents                     |                           | $                                          |         |            |            | $          | 63,341  |            |           | $             | 48,159      |         |         | $     |         |          |          | $ | 111,500 |          
|Accounts and notes receivables net            |                           |                                            | 32,863   |            |            |            | 99,831  |            |           |               | 132,785     |         |         |       |         |          |          |   | 265,479 |          
|Inventories, net (excluding advance payments) |                           |                                            |         |            |            |            | 112,984 |            |           |               | 62,889      |         |         |       |         |          |          |   | 175,873 |          
|Prepaid expenses and deferred income taxes    |                           |                                            |         |            |            |            | 4,222   |            |           |               | 17,479      |         |         |       |         |          |          |   | 21,701  |          
|                                              |                           |                                            |          |            |            |            |         |            |           |               |             |         |         |       |         
|                                              | Total current assets      |                                            |          | 32,863     |            |            |         | 280,378    |           |               |             | 261,312 |         |       |          |         |          |   |         | 574,553   |          
|Investment in affiliates                      |                           |                                            | 919,711  |            |            |            | 43,720  |            |           |               |            |         |         |       | (963,431 | )        |          |   |        |          
|Property, plant, and equipment, net           |                           |                                            |         |            |            |            | 158,342 |            |           |               | 68,422      |         |         |       |         |          |          |   | 226,764 |          
|Intangible assets, net                        |                           |                                            |         |            |            |            | 532,843 |            |           |               | 370,074     |         |         |       |         |          |          |   | 902,917 |          
|Other Assets                                  |                           |                                            | 23,560   |            |            |            | 19,676  |            |           |               | 3,604       |         |         |       |         |          |          |   | 46,840  |          
|                                              |                           |                                            |          |            |            |            |         |            |           |               |             |         |         |       |         
|                                              | Total Assets              |                                            | $        | 976,134    |            |            | $       | 1,034,959  |           |               | $           | 703,412 |         |       | $        | (963,431 | )        |   | $       | 1,751,074 |          
|                                              |                           |                                            |          |            |            |            |         |            |           |               |             |         |         |       |         
|                                             
|LIABILITIES AND STOCKHOLDERS EQUITY         
|Accounts payable and accruals                 |                           | $                                          | 7,015    |            |            | $          | 105,437 |            |           | $             | 210,461     |         |         | $     |         |          |          | $ | 322,913 |          
|Loans payable                                 |                           |                                            | 2,800    |            |            |            |        |            |           |               | 3,949       |         |         |       |         |          |          |   | 6,749   |          
|                                              |                           |                                            |          |            |            |            |         |            |           |               |             |         |         |       |         
|                                              | Total current liabilities |                                            |          | 9,815      |            |            |         | 105,437    |           |               |             | 214,410 |         |       |          |         |          |   |         | 329,662   |          
|Long-term debt                                |                           |                                            | 696,500  |            |            |            |        |            |           |               | 120,164     |         |         |       |         |          |          |   | 816,664 |          
|Intercompany accounts                         |                           |                                            | (183,078 | )          |            |            | 45,090  |            |           |               | 137,988     |         |         |       |         |          |          |   |        |          
|Other non-current liabilities                 |                           |                                            |         |            |            |            | 95,229  |            |           |               | 56,622      |         |         |       |         |          |          |   | 151,851 |          
|                                              |                           |                                            |          |            |            |            |         |            |           |               |             |         |         |       |         
|                                              | Total liabilities         |                                            |          | 523,237    |            |            |         | 245,756    |           |               |             | 529,184 |         |       |          |         |          |   |         | 1,298,177 |          
|                                              |                           |                                            |          |            |            |            |         |            |           |               |             |         |         |       |         
|Common stock                                  |                           |                                            | 542      |            |            |            |        |            |           |               |            |         |         |       |         |          |          |   | 542     |          
|Other stockholders equity                    |                           |                                            | 452,355  |            |            |            | 789,203 |            |           |               | 174,228     |         |         |       | (963,431 | )        |          |   | 452,355 |          
|                                              |                           |                                            |          |            |            |            |         |            |           |               |             |         |         |       |         
|                                              |                           | Total stockholders equity                 |          |            | 452,897    |            |         |            | 789,203   |               |             |         | 174,228 |       |          |          | (963,431 | ) |         |           | 452,897   | 
|                                              |                           |                                            |          |            |            |            |         |            |           |               |             |         |         |       |         
|                                              |                           | Total liabilities and stockholders equity |          | $          | 976,134    |            |         | $          | 1,034,959 |               |             | $       | 703,412 |       |          | $        | (963,431 | ) |         | $         | 1,751,074 | 
|                                              |                           |                                            |          |            |            |            |         |            |           |               |             |         |         |       |         

F-45



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(SUCCESSOR)


For the period from October 30, 2004 through
December 31, 2004


|                                               |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |   |        |        |   |         |            |            |  
|---------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | - | ---------- | ---------- | ---------- | ---------- | -------- | ------ | ------------- | ----------- | ------- | ------ | ----- | - | ------ | ------ | - | ------- | ---------- | ---------- | -
|                                               |                                                     |                                                     |   |            |            | Subsidiary |            |          |        |               |            
|                                               |                                                     |                                                     |   | Subsidiary |            |            | Non-       |          |        |               |             |        
|                                               |                                                     |                                                     |   | Guarantors |            |            | Guarantors |          |        | Consolidating |             |         |       
|                                               |                                                     | Issuer                                              |   |            | Entities   |            |            | Entities |        |               | Adjustments |         |        | Total |  
|                                               |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |  
|                                               |                                                     | (In thousands of dollars)                           |  
|Cash flows from operating activities:          |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |   |        |        |   |         |           
|                                               | Net cash provided by (used in) operating activities |                                                     | $ | (4,422     | )          |            | $          | 1,439    |        |               | $           | 12,870  |        |       | $ | 7,529  |        |   | $       | 17,416     |           
|                                               |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |  
|Cash flows from investing activities:          |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |   |        |        |   |         |           
|                                               | Capital expenditures                                |                                                     |   |           |            |            |            | (929     | )      |               |             | (862    | )      |       |   |       |        |   |         | (1,791     | )         
|                                               | Acquisitions, net of cash                           |                                                     |   | (1,125,148 | )          |            |            |         |        |               |             |        |        |       |   |       |        |   |         | (1,125,148 | )         
|                                               |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |  
|                                               |                                                     | Net cash provided by (used in) investing activities |   |            | (1,125,148 | )          |            |          | (929   | )             |             |         | (862   | )     |   |        |       |   |         |            | (1,126,939 | )
|                                               |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |  
|Cash flows from financing activities:          |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |   |        |        |   |         |           
|                                               | Net change in debt                                  |                                                     |   | 699,300    |            |            |            |         |        |               |             | 114,720 |        |       |   |       |        |   |         | 814,020    |           
|                                               | Change in intercompany accounts                     |                                                     |   | 17,168     |            |            |            | 69,668   |        |               |             | (79,307 | )      |       |   | (7,529 | )      |   |         |           |           
|                                               | Cash paid for debt issuance costs                   |                                                     |   | (24,007    | )          |            |            | (6,837   | )      |               |             | (2,654  | )      |       |   |       |        |   |         | (33,498    | )         
|                                               | Issuance of common units                            |                                                     |   | 437,109    |            |            |            |         |        |               |             |        |        |       |   |       |        |   |         | 437,109    |           
|                                               |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |  
|                                               |                                                     | Net cash provided by (used in) financing activities |   |            | 1,129,570  |            |            |          | 62,631 |               |             |         | 32,427 |       |   |        | (7,529 | ) |         |            | 1,217,631  |  
|                                               |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |  
|Effect of exchange rate changes                |                                                     |                                                     |  |            |            |            |           |          |        |               | 3,392       |         |        |       |  |        |        |   | 3,392   |           
|                                               |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |  
|Net increase in cash & cash equivalents        |                                                     |                                                     |  |            |            |            | 63,341     |          |        |               | 48,159      |         |        |       |  |        |        |   | 111,500 |           
|Cash and cash equivalents, beginning of period |                                                     |                                                     |  |            |            |            |           |          |        |               |            |         |        |       |  |        |        |   |        |           
|                                               |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |  
|Cash and cash equivalents, end of period       |                                                     | $                                                   |  |            |            | $          | 63,341     |          |        | $             | 48,159      |         |        | $     |  |        |        | $ | 111,500 |           
|                                               |                                                     |                                                     |   |            |            |            |            |          |        |               |             |         |        |       |  

F-46



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


CONDENSED COMBINING STATEMENT OF CASH FLOWS (PREDECESSOR)


For the period from January 1 through October 29,
2004


|                                                   |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |   |   |   |   |        |         |         |  
|-------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------------- | - | ---------- | - | ---------- | ---------- | -------- | -------- | ----------- | ------ | ------- | ------ | - | - | - | - | - | ------ | ------- | ------- | -
|                                                   |                                                      |                                                     |   |            |   | Subsidiary |            |          |          |             |       
|                                                   |                                                      |                                                     |   | Subsidiary |   |            | Non-       |          |          |             |        |        
|                                                   |                                                      |                                                     |   | Guarantors |   |            | Guarantors |          |          | Combining   |        |        
|                                                   |                                                      | Issuer                                              |   | Entities   |   |            | Entities   |          |          | Adjustments |        | Total   |       
|                                                   |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |       
|                                                   |                                                      | (In thousands of dollars)                           |  
|Cash flows from operating activities:              |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |   |   |   |   |        |        
|                                                   | Net cash provided by (used in) operating activities  |                                                     | $ |           |   |            | $          | 155,340  |          |             | $      | (97,611 | )      |   | $ |  |   |   | $      | 57,729  |        
|                                                   |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |  
|Cash flows from investing activities:              |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |   |   |   |   |        |        
|                                                   | Capital expenditures                                 |                                                     |   |           |   |            |            | (4,607   | )        |             |        | (3,094  | )      |   |   |  |   |   |        | (7,701  | )      
|                                                   | Proceeds from sale of property, plant, and equipment |                                                     |   |           |   |            |            | 1,764    |          |             |        | (7      | )      |   |   |  |   |   |        | 1,757   |        
|                                                   | Proceeds from sale of marketable securities          |                                                     |   |           |   |            |            | 1,037    |          |             |        |        |        |   |   |  |   |   |        | 1,037   |        
|                                                   |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |  
|                                                   |                                                      | Net cash provided by (used in) investing activities |   |            |  |            |            |          | (1,806   | )           |        |         | (3,101 | ) |   |   |  |   |        |         | (4,907  | )
|                                                   |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |  
|Cash flows from financing activities:              |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |   |   |   |   |        |        
|                                                   | Net change in debt                                   |                                                     |   |           |   |            |            |         |          |             |        | (1,015  | )      |   |   |  |   |   |        | (1,015  | )      
|                                                   | Change in due to (from) unconsolidated affiliates    |                                                     |   |           |   |            |            | (161,320 | )        |             |        | 115,402 |        |   |   |  |   |   |        | (45,918 | )      
|                                                   | Dividends paid                                       |                                                     |   |           |   |            |            | 10,610   |          |             |        | (15,707 | )      |   |   |  |   |   |        | (5,097  | )      
|                                                   |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |  
|                                                   |                                                      | Net cash provided by (used in) financing activities |   |            |  |            |            |          | (150,710 | )           |        |         | 98,680 |   |   |   |  |   |        |         | (52,030 | )
|                                                   |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |  
|Effect of exchange rate changes                    |                                                      |                                                     |  |            |   |            |           |          |          |             | 1,930  |         |        |   |  |   |   |   | 1,930  |        
|                                                   |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |  
|Net increase (decrease) in cash & cash equivalents |                                                      |                                                     |  |            |   |            | 2,824      |          |          |             | (102   | )       |        |   |  |   |   |   | 2,722  |        
|Cash and cash equivalents, beginning of period     |                                                      |                                                     |  |            |   |            | (156       | )        |          |             | 41,693 |         |        |   |  |   |   |   | 41,537 |        
|                                                   |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |  
|Cash and cash equivalents, end of period           |                                                      | $                                                   |  |            |   | $          | 2,668      |          |          | $           | 41,591 |         |        | $ |  |   |   | $ | 44,259 |        
|                                                   |                                                      |                                                     |   |            |   |            |            |          |          |             |        |         |        |   |  

CONDENSED COMBINING STATEMENT OF INCOME (PREDECESSOR)


For the Year ended December 31, 2003


|                                                    |                                   |                           |        |            |            |            |         |            |   |           |             |         |  |       |       |       |  |   |           |         | 
|--------------------------------------------------- | --------------------------------- | ------------------------- | ------ | ---------- | ---------- | ---------- | ------- | ---------- | - | --------- | ----------- | ------- |  | ----- | ----- | ----- |  | - | --------- | ------- | 
|                                                    |                                   |                           |        |            |            | Subsidiary |         |            |   |           |            
|                                                    |                                   |                           |        | Subsidiary |            |            | Non-    |            |   | Combining |             |         | 
|                                                    |                                   | Issuer                    |        |            | Guarantors |            |         | Guarantors |   |           | Adjustments |         |  | Total |      
|                                                    |                                   |                           |        |            |            |            |         |            |   |           |             |         |  |       |      
|                                                    |                                   | (In thousands of dollars) |       
|Net sales                                           |                                   | $                         |       |            |            | $          | 648,904 |            |   | $         | 686,446     |         |  | $     |      |       |  | $ | 1,335,350 |        
|Cost of goods sold                                  |                                   |                           |       |            |            |            | 565,595 |            |   |           | 574,559     |         |  |       |      |       |  |   | 1,140,154 |        
|                                                    |                                   |                           |        |            |            |            |         |            |   |           |             |         |  |       |      
|                                                    | Gross profit                      |                           |        |           |            |            |         | 83,309     |   |           |             | 111,887 |  |       |       |      |  |   |           | 195,196 | 
|Selling and administrative expenses                 |                                   |                           |       |            |            |            | 92,783  |            |   |           | 63,346      |         |  |       |      |       |  |   | 156,129   |        
|                                                    |                                   |                           |        |            |            |            |         |            |   |           |             |         |  |       |      
|                                                    | Income from Operations            |                           |        |           |            |            |         | (9,474     | ) |           |             | 48,541  |  |       |       |      |  |   |           | 39,067  | 
|Equity earnings (losses) in affiliates (net of tax) |                                   |                           | 20,365 |            |            |            | (28,959 | )          |   |           |            |         |  |       | 8,594 |       |  |   |          |        
|Interest (expense) income, net                      |                                   |                           |       |            |            |            | 219     |            |   |           | 1,719       |         |  |       |      |       |  |   | 1,938     |        
|Other income (expense), net                         |                                   |                           |       |            |            |            | 20,969  |            |   |           | (30,171     | )       |  |       |      |       |  |   | (9,202    | )      
|                                                    |                                   |                           |        |            |            |            |         |            |   |           |             |         |  |       |      
|                                                    | Income (loss) before income taxes |                           |        | 20,365     |            |            |         | (17,245    | ) |           |             | 20,089  |  |       |       | 8,594 |  |   |           | 31,803  | 
|Provision for income taxes                          |                                   |                           |       |            |            |            | 2,197   |            |   |           | 9,241       |         |  |       |      |       |  |   | 11,438    |        
|                                                    |                                   |                           |        |            |            |            |         |            |   |           |             |         |  |       |      
|                                                    | Net (loss) income                 |                           | $      | 20,365     |            |            | $       | (19,442    | ) |           | $           | 10,848  |  |       | $     | 8,594 |  |   | $         | 20,365  | 
|                                                    |                                   |                           |        |            |            |            |         |            |   |           |             |         |  |       |      

F-47



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##### Table of Contents



DRESSER-RAND GROUP INC.




NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


CONDENSED COMBINING STATEMENT OF CASH FLOWS (PREDECESSOR)


For the year ended December 31, 2003


|                                                   |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |   |   |   |   |         |         |         |  
|-------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------------- | - | ---------- | - | ---------- | ---------- | ------- | ------- | ----------- | ------- | ------- | ------- | - | - | - | - | - | ------- | ------- | ------- | -
|                                                   |                                                      |                                                     |   |            |   | Subsidiary |            |         |         |             |        
|                                                   |                                                      |                                                     |   | Subsidiary |   |            | Non-       |         |         |             |         |        
|                                                   |                                                      |                                                     |   | Guarantors |   |            | Guarantors |         |         | Combining   |         |        
|                                                   |                                                      | Issuer                                              |   | Entities   |   |            | Entities   |         |         | Adjustments |         | Total   |        
|                                                   |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |        
|                                                   |                                                      | (In thousands of dollars)                           |  
|Cash flows from operating activities:              |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |   |   |   |   |         |        
|                                                   | Net cash provided by (used in) operating activities  |                                                     | $ |           |   |            | $          | 26,630  |         |             | $       | 24,333  |         |   | $ |  |   |   | $       | 50,963  |        
|                                                   |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |  
|Cash flows from investing activities:              |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |   |   |   |   |         |        
|                                                   | Capital expenditures                                 |                                                     |   |           |   |            |            | (3,216  | )       |             |         | (4,374  | )       |   |   |  |   |   |         | (7,590  | )      
|                                                   | Proceeds from sale of property, plant, and equipment |                                                     |   |           |   |            |            | 149     |         |             |         | 411     |         |   |   |  |   |   |         | 560     |        
|                                                   | Proceeds from sale of marketable securities          |                                                     |   |           |   |            |            | (227    | )       |             |         | 168     |         |   |   |  |   |   |         | (59     | )      
|                                                   |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |  
|                                                   |                                                      | Net cash provided by (used in) investing activities |   |            |  |            |            |         | (3,294  | )           |         |         | (3,795  | ) |   |   |  |   |         |         | (7,089  | )
|                                                   |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |  
|Cash flows from financing activities:              |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |   |   |   |   |         |        
|                                                   | Net change in debt                                   |                                                     |   |           |   |            |            |        |         |             |         | (58     | )       |   |   |  |   |   |         | (58     | )      
|                                                   | Change in due to (from) unconsolidated affiliates    |                                                     |   |           |   |            |            | (28,362 | )       |             |         | (35,067 | )       |   |   |  |   |   |         | (63,429 | )      
|                                                   |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |  
|                                                   |                                                      | Net cash provided by (used in) financing activities |   |            |  |            |            |         | (28,362 | )           |         |         | (35,125 | ) |   |   |  |   |         |         | (63,487 | )
|                                                   |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |  
|Effect of exchange rate changes                    |                                                      |                                                     |  |            |   |            |           |         |         |             | 1,531   |         |         |   |  |   |   |   | 1,531   |        
|                                                   |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |  
|Net increase (decrease) in cash & cash equivalents |                                                      |                                                     |  |            |   |            | (5,026     | )       |         |             | (13,056 | )       |         |   |  |   |   |   | (18,082 | )      
|Cash and cash equivalents, beginning of period     |                                                      |                                                     |  |            |   |            | 4,870      |         |         |             | 54,749  |         |         |   |  |   |   |   | 59,619  |        
|                                                   |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |  
|Cash and cash equivalents, end of period           |                                                      | $                                                   |  |            |   | $          | (156       | )       |         | $           | 41,693  |         |         | $ |  |   |   | $ | 41,537  |        
|                                                   |                                                      |                                                     |   |            |   |            |            |         |         |             |         |         |         |   |  

F-48



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##### Table of Contents



DRESSER-RAND GROUP INC.


SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES


For the year ended December 31, 2005, the period from
October 29 through December 31, 2004 (Successor),


the period from January 1 through October 29, 2004 and
the year ended December 31, 2003 (Predecessor)


($ in thousands)


Successor


|                                           |  |            |        |           |            |   |        |                |  |   |            |        |            |            |       |     |  |   |       | 
|------------------------------------------ |  | ---------- | ------ | --------- | ---------- | - | ------ | -------------- |  | - | ---------- | ------ | ---------- | ---------- | ----- | --- |  | - | ----- | 
|                                           |  |            |        | Additions |            |   |        |                | 
|                                           |  |            |        |           |            |   |        |                | 
|                                           |  | Beginning  |        |           | Charges to |   |        |                |  |   |            | Ending |           
|                                           |  | Balance at |        |           | Costs and  |   |        | Charges to     |  |   |            |        | Balance at |           
|Description                                |  | 01/01/05   |        |           | Expenses   |   |        | Other Accounts |  |   | Deductions |        |            | 12/31/2005 |      
|                                           |  |            |        |           |            |   |        |                |  |   |            |        |            |            |      
|Allowance for Doubtful Accounts            |  | $          | 14,569 |           |            | $ | (242   | )              |  | $ | 792        | (a)    |            | $          | 6,470 | (b) |  | $ | 8,649 | 
|Valuation Allowance for Deferred Tax Asset |  |            | 11,993 |           |            |   | (1,674 | )              |  |   | (2,123     | )(c)   |            |            |      |     |  |   | 8,196 | 








|      |             
|----- | ------------
|(a)  | Acquisitions



|      |                                                                  
|----- | -----------------------------------------------------------------
|(b)  | Impact of translation of 502 and write-off of Bad Debts of 5,968.



|      |                                                                         
|----- | ------------------------------------------------------------------------
|(c)  | Impact of translation of (134) and reduction of goodwill of
    (1,989).

|                                           |  |            |        |           |            |   |       |                |  |  |            |        |            |            |     |     |  |   |        | 
|------------------------------------------ |  | ---------- | ------ | --------- | ---------- | - | ----- | -------------- |  |  | ---------- | ------ | ---------- | ---------- | --- | --- |  | - | ------ | 
|                                           |  |            |        | Additions |            |   |       |                | 
|                                           |  |            |        |           |            |   |       |                | 
|                                           |  | Beginning  |        |           | Charges to |   |       |                |  |  |            | Ending |           
|                                           |  | Balance at |        |           | Costs and  |   |       | Charges to     |  |  |            |        | Balance at |           
|Description                                |  | 10/30/2004 |        |           | Expenses   |   |       | Other Accounts |  |  | Deductions |        |            | 12/31/2004 |    
|                                           |  |            |        |           |            |   |       |                |  |  |            |        |            |            |    
|Allowance for Doubtful Accounts            |  | $          | 14,483 |           |            | $ | 327   |                |  |  |           |        |            | $          | 241 | (a) |  | $ | 14,569 | 
|Valuation Allowance for Deferred Tax Asset |  |            | 10,002 |           |            |   | 1,595 |                |  |  | 396        | (b)    |            |            |    |     |  |   | 11,993 | 








|      |                                                                                                                                                            
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)  | Impact of translation of (420), write-off of Bad Debts of 120
    and reclassification of allowance related to a partially owned
    equity company of 541.



|      |                                                                 
|----- | ----------------------------------------------------------------
|(b)  | Impact of translation of 773 and reduction of goodwill of (377).




Predecessor


|                                           |  |            |        |           |            |   |       |                |  |  |            |        |            |            |       |     |  |   |        | 
|------------------------------------------ |  | ---------- | ------ | --------- | ---------- | - | ----- | -------------- |  |  | ---------- | ------ | ---------- | ---------- | ----- | --- |  | - | ------ | 
|                                           |  |            |        | Additions |            |   |       |                | 
|                                           |  |            |        |           |            |   |       |                | 
|                                           |  | Beginning  |        |           | Charges to |   |       |                |  |  |            | Ending |           
|                                           |  | Balance at |        |           | Costs and  |   |       | Charges to     |  |  |            |        | Balance at |           
|Description                                |  | 01/01/2004 |        |           | Expenses   |   |       | Other Accounts |  |  | Deductions |        |            | 10/29/2004 |      
|                                           |  |            |        |           |            |   |       |                |  |  |            |        |            |            |      
|Allowance for Doubtful Accounts            |  | $          | 12,427 |           |            | $ | 3,139 |                |  |  |           |        |            | $          | 1,083 | (a) |  | $ | 14,483 | 
|Valuation Allowance for Deferred Tax Asset |  |            | 6,091  |           |            |   | 3,897 |                |  |  | 14         | (b)    |            |            |      |     |  |   | 10,002 | 








|      |                                                                        
|----- | -----------------------------------------------------------------------
|(a)  | Impact of translation of (175) and write-off of Bad Debts
    of 1,258.



|      |                       
|----- | ----------------------
|(b)  | Impact of translation.

|                                           |  |            |       |           |            |   |        |                |  |  |            |        |            |            |     |     |  |   |        | 
|------------------------------------------ |  | ---------- | ----- | --------- | ---------- | - | ------ | -------------- |  |  | ---------- | ------ | ---------- | ---------- | --- | --- |  | - | ------ | 
|                                           |  |            |       | Additions |            |   |        |                | 
|                                           |  |            |       |           |            |   |        |                | 
|                                           |  | Beginning  |       |           | Charges to |   |        |                |  |  |            | Ending |           
|                                           |  | Balance at |       |           | Costs and  |   |        | Charges to     |  |  |            |        | Balance at |           
|Description                                |  | 01/01/2003 |       |           | Expenses   |   |        | Other Accounts |  |  | Deductions |        |            | 12/31/2003 |    
|                                           |  |            |       |           |            |   |        |                |  |  |            |        |            |            |    
|Allowance for Doubtful Accounts            |  | $          | 9,790 |           |            | $ | 3,001  |                |  |  |           |        |            | $          | 364 | (a) |  | $ | 12,427 | 
|Valuation Allowance for Deferred Tax Asset |  |            | 9,487 |           |            |   | (3,403 | )              |  |  | 7          | (b)    |            |            |    |     |  |   | 6,091  | 








|      |                                                                        
|----- | -----------------------------------------------------------------------
|(a)  | Impact of translation of (787) and write-off of Bad Debts
    of 1,151.



|      |                       
|----- | ----------------------
|(b)  | Impact of translation.

S-1