##### 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 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For 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)
  Securities registered pursuant to
    Section 12(b) of the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.01 par value

New York Stock Exchange              þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  þ o o
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




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##### Table of Contents



TABLE
    OF CONTENTS
  PagePART IItem 1.

Business


3Item 1A.

Risk
    Factors


12Item 1B.

Unresolved Staff
    Comments


21Item 2.

Properties


21Item 3

Legal
    Proceedings


21Item 4

Submission of
    Matters to a Vote of Security Holders


21PART IIItem 5.

Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


22Item 6.

Selected Financial
    Data


24Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


25Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


42Item 8.

Financial
    Statements and Supplementary Data


42Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


42Item 9A.

Controls and
    Procedures


42Item 9B.

Other
    Information


45PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


45Item 11.

Executive
    Compensation


45Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


45Item 13.

Certain
    Relationships and Related Transactions


45Item 14.

Principal
    Accountant Fees and Services


45PART IVItem 15.

Exhibits, Financial
    Statements and Schedules


45  2




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ITEM 1.
    BUSINESS  Overview
  Form 10-K,
  Form 10-K,
    and/or
  
    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 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; and
    the increased worldwide demand for oil and feedstock for refined
    products resulting from economic growth.  Recent
    Developments
    Business
    Strategy
    Increase Sales of Aftermarket Parts and Services to Existing
    Installed Base.
  Expand Aftermarket Parts and Services Business to
    Non-Dresser-Rand OEM Equipment.
  Grow Alliances.
 4




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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
   
  Form 10-K,
  New
    Units
    Dresser-Rand
    Major Product Categories
  End MarketsMaximum


Up


Mid


Down


PetroProduct

Performance


Stream


Stream


Stream


Chemical


Chemical


Industrial


PowerTurbo ProductsCompressors


up to 500k CFM



ü



ü



ü



ü



ü



üGas & Power turbines


up to 60 MW



ü



ü



ü



ü



ü



ü



üHot Gas Expanders


Up to 1600#F











ü



ü











üControl Systems






ü



ü



ü



ü



ü



ü



üReciprocating CompressorsProcess


up to 325k lbs.



ü



ü



ü



ü



ü



üRod LoadSeparable


up to 11k HP,



ü



ü



ü7500psigSteam Turbines


up to 75 MW



ü



ü



ü



ü



ü



ü



ü   Turbo Products.
   6




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Reciprocating Compressors. (G-T-C, 2 3
  Steam Turbines.
  New
    Product Development
  sub-sea
   7




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Aftermarket
    Parts and Services
    
    Replacement Parts
    Equipment Repair & Rerates
    Field Service Turnaround
    Equipment Installation
    U.S. Navy Service and Repair
    Applied Technology
    Operation and Maintenance Contracts
    Long-Term Service Agreements
    Rotor/Spare Parts Storage
    Special Coatings/Weldings
    Condition Monitoring
    Product Training
    Controls Retrofit
    Turnkey Installation/Project Management
    Equipment Technology Revamps/Upgrades
    Site/Reliability Audits       8




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Revamp/Upgrade
    Opportunities
      and/or
    Sales and
    Marketing
    Manufacturing
    and Engineering Design
       9




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Clients
    and/or
  Competition
  non-U.S. companies.
      Research
    and Development
   10




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Employees
  contract-by-contract
  Environmental
    and Government Regulation
           11




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Intellectual
    Property
          Additional
    Information
  www.dresser-rand.com www.sec.gov Form 10-K. 1-800-SEC-0330.
   ITEM 1A.  RISK
    FACTORS



Risks
    Related to Our Business



We
    have identified material weaknesses in our internal
    controls.



Our management has concluded that our disclosure controls and
    procedures and internal control over financial reporting were
    not effective as of December 31, 2006 as a result of
    several material weaknesses in our internal control over
    financial reporting. As a result, this
    Form 10-K
    includes an adverse opinion from PricewaterhouseCoopers LLP, our
    independent registered public accounting firm, on our internal
    control over financial reporting. A description of the material
    weaknesses is included in Item 9A, Controls and
    Procedures, in this
    Form 10-K.



The material weaknesses could result in a misstatement of
    substantially all accounts and disclosures, which would result
    in a material misstatement of annual or interim financial
    statements that would not be prevented or detected. Errors in
    our financial statements could require a restatement or prevent
    us from timely filing our periodic reports with the SEC.
    Additionally, inferior internal control over financial reporting
    could cause investors to lose confidence in our reported
    financial information, which could have a negative effect on the
    trading price of our securities.

12




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Our
    operating results and cash flows could be harmed during economic
    or industry downturns.
    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.
   13




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
    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.    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.   14




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period-to-period
  and/or
  If we
    lose our senior management, our business may be materially
    adversely affected.
   15




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Environmental
    compliance costs and liabilities could affect our financial
    condition, results of operations and cash flows
    adversely.
  clean-up and/or
  clean-up
  clean-up clean-up and/or
  Failure
    to maintain a safety performance that is acceptable to our
    clients could result in the loss of future
    business.
     16




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Our
    business could suffer if we are unsuccessful in negotiating new
    collective bargaining agreements.
  contract-by-contract
  First
    Reserves interests may not be aligned with yours; it may
    be able to exercise significant influence over our director
    nomination process.
      Our
    Predecessor financial information may not be comparable to
    future periods.
  Form 10-K Form 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.
   17




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Third
    parties may infringe our intellectual property or we may
    infringe the intellectual property of third parties, and we may
    expend significant resources enforcing or defending our rights
    or suffer competitive injury.
      Our
    brand name may be subject to confusion.
      Natural
    gas operations entail inherent risks that may result in
    substantial liability to us.
    Risks
    Related to Our Leverage
  Our
    substantial indebtedness could adversely affect our financial
    condition and prevent us from fulfilling our debt service
    obligations.
   18




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
    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.        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; 19




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
    change the nature of our business; and
    engage in affiliate transactions.  pro
    rata
  and/or and/or
  Other
    Risks Relating to Us
  The
    market price of our common stock may be volatile.
    
    actual or anticipated variations in operating results;
    changes in opinions and earnings and other financial estimates
    by research analysts;
    actual or anticipated changes in economic, political or market
    conditions, such as recessions or international currency
    fluctuations;
    actual or anticipated changes in regulatory environment
    affecting our industry;
    changes in the market valuations of our industry peers; and
    announcements by us or our competitors of significant
    acquisitions, strategic partnerships, divestitures, joint
    ventures, new products and technologies, or other strategic
    initiatives.    Provisions
    in our amended and restated certificate of incorporation and
    amended and restated bylaws and Delaware law may discourage a
    takeover attempt.
   20




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ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    Approx.Location

Status

Square Feet


TypePainted Post, New York

Owned/Leased


840,000


Manufacturing and servicesOlean, New York

Owned/Leased


970,000


Manufacturing and servicesWellsville, New York

Owned/Leased


380,000


Manufacturing and servicesBurlington, Iowa

Owned


185,000


Manufacturing and servicesMillbury, Massachusetts

Owned


104,000


ServicesCampinas, Brazil

Owned


36,870


ServicesKongsberg, Norway

Leased


104,000


Manufacturing and servicesLe Havre, France

Owned/Leased


866,000


Manufacturing and servicesNaroda, India

Leased


102,000


Manufacturing and servicesOberhausen, Germany

Owned


75,000


Manufacturing and servicesBielefeld, Germany

Owned


31,000


Manufacturing and servicesHouston, Texas

Owned


115,800


ServicesHouston, Texas

Owned


45,900


ManufacturingHouston, Texas

Owned


77,800


Warehouse and offices  ITEM 3.  LEGAL
    PROCEEDINGS



Dresser-Rand (UK) Limited, one of our wholly-owned indirect
    subsidiaries, is involved in litigation that was initiated on
    June 1, 2004, and is currently pending in the High Court of
    Justice, Queens Bench Division, Technology and Construction
    Court in London, England, with Maersk Oil UK Limited over
    alleged defects in performance of certain compressor equipment
    sold by Dresser-Rand (UK) Limited. The claimant is seeking
    damages of about 8 million pounds sterling (approximately
    $15.7 million). Witness testimony concluded in July 2006,
    closing arguments concluded in December 2006 and a decision is
    expected in the first quarter of 2007. In prior years, we had
    offered to settle and recorded a litigation liability for
    0.9 million pounds sterling (approximately
    $1.8 million). Based on a report received from an expert
    damages witness hired by the Company and our review of the
    expert testimony at the trial, we increased our accrual for the
    estimated loss for this litigation by 0.7 million pounds
    sterling during 2006 (approximately $1.3 million) bringing
    the total accrual to 1.6 million pounds sterling
    (approximately $3.1 million). While we believe that we have
    made adequate provision for the ultimate loss in this litigation
    and intend to continue our vigorous defense of this suit, it is
    reasonably possible that the loss could be up to the
    3.1 million pounds sterling (approximately
    $6.1 million) limit of liability stated in the agreement
    with the customer, not including interest or costs, or
    1.5 million pounds sterling (approximately
    $3.0 million) in excess of amounts recognized as of
    December 31, 2006.



We are involved in various litigation, claims and administrative
    proceedings, arising in the normal course of business. Amounts
    recorded for identified contingent liabilities are estimates,
    which are regularly reviewed and adjusted to reflect additional
    information when it becomes available. Subject to the
    uncertainties inherent in estimating future costs for contingent
    liabilities, management believes that any future adjustments to
    recorded amounts, with respect to these currently known
    contingencies, would not have a material effect on the financial
    condition, results of operations, liquidity or cash flows of the
    Company.  ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   21




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PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS      High


Low2005Quarter ended September 30,
    2005

$
26.75


$
20.10Quarter ended December 31,
    2005

$
25.15


$
19.052006Quarter ended March 31, 2006

$
27.94


$
22.01Quarter ended June 30, 2006

$
27.10


$
18.92Quarter ended September 30,
    2006

$
23.64


$
18.60Quarter ended December 31,
    2006

$
26.23


$
18.81        22




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##### Table of Contents



Performance
    Graph
    
  Company Name/Index


8/5/05



12/30/05



12/29/06Dresser-Rand


$
100




106




107Custom Composite Index



100




111




128S&P 500 Index



100




102




116    23




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ITEM 6.
    SELECTED
    FINANCIAL DATA  Form 10-K.
  Successor



PredecessorPeriod from



Period fromOctober 30



January 1through



throughYear Ended December 31,


December 31,



October 29,


Year Ended December 31,2006


2005


2004



2004


2003


2002(In thousands except share and per share data)Statement of Operations
    Data:Net sales, third parties

$
1,501,527


$
1,206,915


$
199,907



$
712,483


$
1,332,242


$
1,026,753Net sales to affiliates















1,845



1,439



1,841Other operating revenue






1,288








1,167



1,669



2,759Total revenues


1,501,527



1,208,203



199,907




715,495



1,335,350



1,031,353Cost of sales


1,097,823



920,964



149,564




538,042



1,132,047



865,858Gross profit


403,704



287,239



50,343




177,453



203,303



165,495Selling and administrative
    expenses(1)


228,815



164,055



21,499




122,700



156,129



138,484Research and development expenses


10,423



7,058



1,040




5,670



8,107



8,044Curtailment gain(2)


(11,796
)



















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










1,800












Restructuring charges(3)























5,185Operating income


176,262



116,126



26,004




49,083



39,067



13,782Interest (expense) income, net


(47,877
)


(57,037
)


(9,654
)



3,156



1,938



(776
)Early redemption premium on debt






(3,688
)















Other income (expense), net


8,931



(2,847
)


(1,846
)



1,882



(9,202
)


15,000Income from continuing operations
    before incomes taxes


137,316



52,554



14,504




54,121



31,803



28,006Provision for incomes taxes(4)


58,557



15,459



7,275




11,970



11,438



11,910Income from continuing operations


78,759



37,095



7,229




42,151



20,365



16,096Net income

$
78,759


$
37,095


$
7,229



$
42,151


$
20,365


$
16,096Income per share, basic and
    diluted(5) and(6)

$
0.92


$
0.56


$
0.13Cash flow data:Cash flows provided by operating
    activities

$
164,052


$
212,422


$
17,416



$
57,729


$
50,963


$
42,029Cash flows (used in) provided by
    investing activities


(19,519
)


(59,483
)


(1,126,939
)



(4,907
)


(7,089
)


3,813Cash flows (used in) provided by
    financing activities


(100,070
)


(160,131
)


1,217,631




(52,030
)


(63,487
)


(18,759
)   24




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##### Table of Contents



Successor



PredecessorAs of December 31,



As of December 31,2006


2005


2004



2003


2002(In thousands)Balance Sheet Data:Cash and cash equivalents

$
146,846


$
98,036


$
111,500



$
41,537


$
59,619Total assets


1,771,329



1,657,871



1,751,074




1,063,875



1,119,464Debt:Current portion of debt


74



67



6,749




3,716



2,631Long-term debt, net of current
    maturities


505,565



598,137



816,664




213



1,254Total debt


505,639



598,204



823,413




3,929



3,885Stockholders equity


631,871



514,660



452,897








Partnership interest















565,035



526,710     (1)
    
    2006 amount includes stock-based compensation
    expense  exit units of $23,551.(2)
    
    See Note 15, Post-retirement Benefits other than Pensions,
    in the Notes to Consolidated and Combined Financial Statements.(3)
    
    Includes severance expenses and facility exit costs associated
    with our corporate restructuring activities.(4)
    
    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 affiliates of First Reserve on October 29, 2004.(5)
    
    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.(6)
    
    For the Successor, basic and diluted earnings per share is
    calculated by dividing net income by the weighted average shares
    outstanding.  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
  Form 10-K Form 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; 25




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
    failure to maintain safety performance acceptable to our clients;
    failure to negotiate new collective bargaining agreements;
    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
  Form 10-K
    Corporate
    History
         26




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Effects
    of Currency Fluctuations
    Revenues
    Cost of
    Sales
    Selling
    and Administrative Expenses
    Research
    and Development Expenses
    Other
    Income (Expense)
    Depreciation
    and Amortization
   27




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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
     28




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Successor
    Predecessor
    Results
    of Operations
  Year
    ended December 31, 2006 (Successor) compared to the year
    ended December 31, 2005 (Successor)
  Year Ended


Year EndedDecember 31, 2006


December 31, 2005(Dollars in millions)Statement of Operations
    Data:Total revenues

$
1,501.5



100.0
%

$
1,208.2



100.0
%Cost of sales


1,097.8



73.1



921.0



76.2Gross profit


403.7



26.9



287.2



23.8Selling and administrative expenses


228.8



15.2



164.0



13.6Research and development expenses


10.4



0.7



7.1



0.6Curtailment gain


(11.8
)


(0.8
)


0.0



0.0Operating income


176.3



11.7



116.1



9.6Interest income (expense), net


(47.9
)


(3.2
)


(57.0
)


(4.8
)Early redemption premium on debt


0.0



0.0



(3.7
)


(0.3
)Other income (expense), net


8.9



0.6



(2.8
)


(0.2
)Income before income taxes


137.3



9.1



52.6



4.3Provision for income taxes


58.5



3.9



15.5



1.2Net income

$
78.8



5.2
%

$
37.1



3.1
%Bookings

$
1,838.9






$
1,446.2Backlog  end of period

$
1,267.4






$
884.7   Total revenues.
  Cost of sales.
 29




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Gross profit.
  Selling and administrative expenses.
  Stock-based compensation expense  exit
    units. ),
    Share-based Payment
  paid-in-capital
    Research and development expenses.
  Curtailment gain.
 30




---



##### Table of Contents



Operating income.
  Interest expense, net.
  Early redemption premium on debt.
  Other income (expense), net.
  Provision for income taxes.
  Bookings and backlog.
 31




---



##### Table of Contents



Segment
    information
          Year ended


Year endedDecember 31, 2006


December 31, 2005(Dollars in millions)Statement of Segment
    Data:RevenuesNew units

$
749.6



49.9
%

$
576.6



47.7
%Aftermarket parts and services


751.9



50.1



631.6



52.3Total revenues

$
1,501.5



100.0
%

$
1,208.2



100.0
%Gross profitNew units

$
108.6






$
70.9Aftermarket parts and services


295.1







216.3Total gross profit

$
403.7






$
287.2Operating incomeNew units

$
47.3






$
20.8Aftermarket parts and services


204.4







141.4Unallocated corporate expenses


(75.4
)






(46.1
)Total operating income

$
176.3






$
116.1BookingsNew units

$
1,002.3






$
771.9Aftermarket parts and services


836.6







674.3Total bookings

$
1,838.9






$
1,446.2Backlog  end of
    periodNew units

$
981.8






$
688.1Aftermarket parts and services


285.6







196.6Total backlog

$
1,267.4






$
884.7   New
    Units
  Revenues.
  Gross profit.
 32




---



##### Table of Contents



Operating income.
  Bookings and Backlog.
  Aftermarket
    Parts and Services
  Revenues.
  Gross profit.
  Operating income.
  Bookings and Backlog.
  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



PredecessorPeriod from



Period fromOctober 30



January 1Year Ended


through



throughDecember 31, 2005


December 31, 2004



October 29, 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 sales


921.0



76.2



149.6



74.8




538.0



75.2Gross profit


287.2



23.8



50.3



25.2




177.5



24.8Selling and administrative expenses


164.0



13.6



21.5



10.8




122.7



17.1Research and development expenses


7.1



0.6



2.8



1.4




5.7



0.8Operating income


116.1



9.6



26.0



13.0




49.1



6.9Interest income (expense), net


(57.0
)


(4.8
)


(9.7
)


(4.8
)



3.1



0.4Early redemption premium on debt


(3.7
)


(0.3
)















Other income (expense), net


(2.8
)


(0.2
)


(1.8
)


(0.9
)



1.9



0.3Income before income taxes


52.6



4.3



14.5



7.3




54.1



7.6Provision for income taxes


15.5



1.2



7.3



3.7




11.9



1.7Net income

$
37.1



3.1
%

$
7.2



3.6
%


$
42.2



5.9
%Bookings

$
1,446.2






$
218.0







$
901.2Backlog  end of period

$
884.7






$
637.6







$
613.4  33




---



##### Table of Contents



Total revenues.
  Cost of sales.
  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.
 34




---



##### Table of Contents



Provision for income taxes.
  Bookings and backlog.
  Segment
    Information
  Successor



PredecessorPeriod from



Period fromOctober 30



January 1Year Ended


through



throughDecember 31,


December 31,



October 29,2005


2004



2004(Dollars in millions)Statement of Segment
    Data:RevenuesNew 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 profitNew units

$
70.9






$
9.8







$
32.3Aftermarket parts and services


216.3







40.5








145.2Total gross profit

$
287.2






$
50.3







$
177.5Operating incomeNew units

$
20.8






$
3.6







$
(0.5
)Aftermarket parts and services


141.4







30.6








85.0Unallocated corporate expenses


(46.1
)






(8.2
)







(35.4
)Total operating income

$
116.1






$
26.0







$
49.1BookingsNew units

$
771.9






$
121.1







$
415.8Aftermarket parts and services


674.3







96.9








485.4Total bookings

$
1,446.2






$
218.0







$
901.2Backlog  end of
    periodNew units

$
688.1






$
489.3







$
439.7Aftermarket parts and services


196.6







148.3








173.7Total backlog

$
884.7






$
637.6







$
613.4   New
    Units
  Revenues.
 35




---



##### Table of Contents



Gross profit.
  Operating income.
  Bookings and backlog.
  Aftermarket
    Parts and Services
  Revenues.
  Gross profit.
  Operating income.
  Bookings and backlog.
  Liquidity
    and Capital Resources
     36




---



##### Table of Contents



Inventories-net Work-in-process
        Inventories-net
   37




---



##### Table of Contents



(Dollars in millions)Accounts receivable

$
12.5Inventory  net


7.3Prepaid expenses and other current
    assets


0.5Total current assets


20.3Property, plant and equipment, net


19.0Intangible assets and goodwill


26.7Total assets acquired


66.0Accounts payable and accruals


9.4Other liabilities


2.0Total liabilities assumed


11.4Cash paid  net

$
54.6        38




---



##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodLess Than


1-3


3-5


More ThanTotal


1 Year


Years


Years


5 Years(In thousands)Long-term debt obligations

$
505,639


$
74


$
15


$
135,550


$
370,000Operating lease obligations


27,971



9,361



10,110



4,987



3,513Post employment benefits


215,129



16,057



35,674



40,629



122,769Interest


261,812



36,296



72,617



71,037



81,862License agreement


3,556



889



889



889



889Total

$
1,014,107


$
62,677


$
119,305


$
253,092


$
579,033   Critical
    Accounting Policies
  Form 10-K,
  
    Revenue recognition  We recognize revenue when
    it is realized or realizable and earned. We consider revenue
    realized or realizable and earned when it has persuasive
    evidence of an arrangement, delivery of the product or service
    has occurred, the sales price is fixed or determinable and
    collectibility is reasonably assured. Delivery does not occur
    until products have been shipped or services have been provided
    to the client, risk of loss has transferred to the client and
    client acceptance has been obtained, client acceptance
    provisions have lapsed, or we have objective evidence that the
    criteria specified in the client acceptance provisions have been
    satisfied. The amount of revenue related to any contingency is
    not recognized until the contingency is resolved.  and/or
  
    The delivered unit(s) has value to the client on a stand-alone
    basis.
    There is objective and reliable evidence of the fair value of
    the undelivered unit(s).      
    Inventories  We purchase materials for the
    manufacture of components for use in both our new units and
    aftermarket parts and services segments. The decision to
    purchase a set quantity of a particular item is influenced by
    several factors including: current and projected cost; future
    estimated availability; existing and projected contracts to
    produce certain items; and the estimated needs for our
    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 to the lower of
    cost or market (net realizable value) as necessary. 39




---



##### Table of Contents




    Employee benefit plans  We provide a range of
    benefits to employees and retired former employees, including
    pensions, postretirement, postemployment and healthcare
    benefits. Determining the cost associated with such benefits is
    dependent on various actuarial assumptions, including discount
    rates, expected return on plan assets, compensation increases,
    employee mortality and turnover rates, and healthcare cost trend
    rates. Independent actuaries perform the required calculations
    to determine expense in accordance with 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. 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.     1% Increase

1% Decrease(In thousands of dollars)Effect on total service and
    interest cost components

$
800


$
(650
)Effect of postretirement benefit
    obligations

$
9,500


$
(8,300
)
   
    Commitments and contingencies  We are involved
    in various litigations, claims and administrative proceedings,
    including environmental matters, arising in the normal course of
    business. We have recorded reserves in the financial statements
    related to these matters which are developed based on
    consultation with legal counsel and internal and external
    consultants and engineers, depending on the nature of the
    reserve. We provide for environmental accruals when, in
    conjunction with our internal and external counsel, we determine
    that a liability is both probable and estimable. Factors that
    affect the recorded amount of any liability in the future
    include: our participation percentage due to a settlement by or
    bankruptcy of other potentially responsible parties; a change in
    the environmental laws requiring more stringent requirements; a
    change in the estimate of future costs that will be incurred to
    remediate the site; and changes in technology related to
    environmental remediation. We have property and casualty
    insurance to cover such liabilities, but there is no guarantee
    that the coverage will be sufficient.     
    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 40




---



##### Table of Contents



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
  ,
    Inventory Costs, an Amendment of Accounting Research
    Bulletin No. 43, Chapter 4.
  ,
    Exchanges of Nonmonetary Assets, an Amendment of APB Opinion
    No. 29, Accounting for Nonmonetary Transactions.
  , Accounting for
    Conditional Asset Retirement Obligations.
    Accounting Changes and Error Corrections.
  Accounting for Uncertainty in Income Taxes, an interpretation
    of FASB Statement No. 109.
  Fair Value Measurements.
 41




---



##### Table of Contents



Employers Accounting for Defined Benefit Pension and
    Other Post Retirement Plans, an amendment of FASB Statements
    No. 87, 88, 106 and 132(R).
  ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  non-U.S. dollar non-U.S. subsidiaries
      ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Form 10-K Form 10-K.
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Disclosure
    Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
 42




---



##### Table of Contents



Form 10-K Form 10-K
  Managements
    Report on Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
  Internal Control  Integrated Framework
       43




---



##### Table of Contents



Internal Control  Integrated Framework
    Changes
    in Internal Control Over Financial Reporting
        Rule 3-10 Regulation S-X.
               44




---



##### Table of Contents



ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT    ITEM 11.
    EXECUTIVE
    COMPENSATION    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    Form 10-K
 45




---



##### Table of Contents



(1)

Consolidated Financial StatementsReport of Independent Registered
    Public Accounting Firm

F-2Report of Independent Registered
    Public Accounting Firm

F-4Consolidated Financial Statements
    (Successor) Combined Financial Statements (Predecessor)Consolidated Statement of
    Operations (Successor) for the years ended December 31,
    2006 and 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

F-5Consolidated Balance Sheet
    (Successor) at December 31, 2006 and 2005

F-6Consolidated Statement of Cash
    Flows (Successor) for the years ended December 31, 2006 and
    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

F-7Consolidated Statement of Changes
    in Stockholders Equity (Successor) for the year ended
    December 31, 2006 and 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

F-8Notes to Consolidated and Combined
    Financial Statements

F-9 to F-47(2)

Consolidated Financial Statement
    SchedulesSchedule II 
    Valuation and Qualifying Accounts and Reserves  For
    the years ended December 31, 2006 and 2005, the period from
    January 1, 2004 through October 29, 2004, and the
    period from October 30, 2004 through 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)

Exhibits3.1

Amended and Restated Certificate
    of Incorporation of Dresser-Rand Group Inc. (incorporated by
    reference to Exhibit 3.1 to Dresser-Rand Group Inc.s
    Registration Statement on
    Form S-1/A,
    filed July 18, 2005, File
    No. 333-124963)3.2

Amended and Restated By-Laws of
    Dresser-Rand Group Inc. (incorporated by reference to
    Exhibit 3.2 to Dresser-Rand Group Inc.s Registration
    Statement on
    Form S-1/A,
    filed July 18, 2005, File
    No. 333-124963)4.1

Form of certificate of
    Dresser-Rand Group Inc. common stock (incorporated by reference
    to Exhibit 4.1 to Dresser-Rand Group Inc.s
    Registration Statement on
    Form S-1/A,
    filed July 18, 2005, File
    No. 333-124963)4.2

Indenture dated as of
    October 29, 2004 among Dresser-Rand Group Inc., the
    guarantors party thereto and Citibank, N.A., as trustee
    (incorporated by reference to Exhibit 4.2 to Dresser-Rand
    Group Inc.s Registration Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)4.3

First Supplemental Indenture,
    dated as of December 22, 2005 among Dresser-Rand Group
    Inc., the guarantors party thereto and Citibank, N.A., as
    trustee (incorporated by reference to Exhibit 4.2 to
    Dresser-Rand Group Inc.s Registration Statement on
    Form S-4,
    filed January 23, 2006, File
    No. 333-131212)4.4

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 (incorporated by reference to Exhibit 4.3
    to Dresser-Rand Group Inc.s Registration Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963) 46




---



##### Table of Contents



10.1

Equity Purchase Agreement, dated
    as of August 25, 2004, by and among FRC Acquisition LLC and
    Ingersoll-Rand Company Limited (incorporated by reference to
    Exhibit 10.1 to Dresser-Rand Group Inc.s Registration
    Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)10.2

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
    (incorporated by reference to Exhibit 10.2 to Dresser-Rand
    Group Inc.s Registration Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)10.3

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 (incorporated by reference to Exhibit 10.3 to
    Dresser-Rand Group Inc.s Registration Statement on
    Form S-1/A,
    filed June 28, 2005, File
    No. 333-124963)10.4

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 (incorporated by reference to Exhibit 10.10 to
    Dresser-Rand Group Inc.s Registration Statement on
    Form S-1/A,
    filed July 18, 2005, File
    No. 333-124963)10.5

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 (incorporated
    by reference to Exhibit 10.2 to Dresser-Rand Group
    Inc.s Quarterly Report on
    Form 10-Q,
    filed November 14, 2005, File
    No. 001-32586)10.6

Domestic Guarantee and Collateral
    Agreement, dated and effective as of October 29, 2004,
    among D-R Interholding, LLC, Dresser-Rand Group Inc., the
    domestic subsidiary loan parties named therein and Citicorp
    North America, Inc. as collateral agent (incorporated by
    reference to Exhibit 10.4 to Dresser-Rand Group Inc.s
    Registration Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)10.7

Supplement No. 1 dated as of
    December 22, 2005, to the Domestic Guarantee and Collateral
    Agreement dated and effective as of October 29, 2004, among
    D-R Interholding, LLC, Dresser-Rand Group Inc., the domestic
    subsidiary loan parties named therein and Citicorp North
    America, Inc. as collateral agent (incorporated by reference to
    Exhibit 10.7 to Dresser-Rand Group Inc.s Registration
    Statement on
    Form S-4,
    filed January 23, 2006, File
    No. 333-131212)10.8

Supply Agreement, dated
    October 31, 2004, by and between Dresser-Rand Company and
    Ingersoll-Rand Company (incorporated by reference to
    Exhibit 10.6 to Dresser-Rand Group Inc.s Registration
    Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)10.9

License Agreement, dated as of
    October 26, 2004, by and between Dresser, Inc. and
    Dresser-Rand Group Inc. (incorporated by reference to
    Exhibit 10.7 to Dresser-Rand Group Inc.s Registration
    Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)10.10

License Agreement, dated as of
    October 29, 2004, by and between Dresser-Rand Company,
    Dresser-Rand A.S., Ingersoll-Rand Energy Systems Corporation and
    the Energy Systems Division of Ingersoll-Rand Company
    (incorporated by reference to Exhibit 10.8 to Dresser-Rand
    Group Inc.s Registration Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)10.11

Amended and Restated Limited
    Liability Company Agreement of Dresser-Rand Holdings, LLC,
    effective as of October 29, 2004 (incorporated by reference
    to Exhibit 10.9 to Dresser-Rand Group Inc.s
    Registration Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)*10.12

Amendment to the Amended and
    Restated Limited Liability Company Agreement of Dresser-Rand
    Holdings, LLC, effective as of June 24, 2005 (incorporated
    by reference to Exhibit 10.20 to Dresser-Rand Group
    Inc.s Registration Statement on
    Form S-1/A,
    filed June 28, 2005, File
    No. 333-124963)*10.13

Employment Agreement, dated
    October 27, 2004, by and among Vincent R. Volpe,
    Dresser-Rand Holdings, LLC and Dresser-Rand Group Inc.
    (incorporated by reference to Exhibit 10.10 to Dresser-Rand
    Group Inc.s Registration Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)* 47




---



##### Table of Contents



10.14

Employment Agreement, dated
    July 25, 1990, by and between Jean-Francois Chevrier and
    Dresser-Rand S.A. (incorporated by reference to
    Exhibit 10.11 to Dresser-Rand Group Inc.s
    Registration Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)*10.15

Amended and Restated Stockholder
    Agreement, effective as of July 15, 2005, by and among
    Dresser-Rand Group Inc., D-R Interholding, LLC, Dresser-Rand
    Holdings, LLC and certain management employees, together with
    any other stockholder who may be made party to this agreement
    (incorporated by reference to Exhibit 10.12 to Dresser-Rand
    Group Inc.s Registration Statement on
    Form S-1/A,
    filed July 18, 2005, File
    No. 333-124963)*10.16

Dresser-Rand Group Inc. Stock
    Incentive Plan (incorporated by reference to Exhibit 10.13
    to Dresser-Rand Group Inc.s Registration Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)*10.17

Dresser-Rand Group Inc. 2005 Stock
    Incentive Plan (incorporated by reference to Exhibit 10.16
    to Dresser-Rand Group Inc.s Registration Statement on
    Form S-1/A,
    filed July 18, 2005, File
    No. 333-124963)*10.18

Dresser-Rand Group Inc.
    2005 Directors Stock Incentive Plan (incorporated by
    reference to Exhibit 10.18 to Dresser-Rand Group
    Inc.s Registration Statement on
    Form S-1/A,
    filed July 18, 2005, File
    No. 333-124963)*10.19

Form of Subscription Agreement
    (incorporated by reference to Exhibit 10.14 to Dresser-Rand
    Group Inc.s Registration Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)*10.20

Form of Management Stock
    Subscription Agreement (incorporated by reference to
    Exhibit 10.15 to Dresser-Rand Group Inc.s
    Registration Statement on
    Form S-1,
    filed May 16, 2005, File
    No. 333-124963)*10.21

Annual Incentive Plan
    (incorporated by reference to Exhibit 10.17 to Dresser-Rand
    Group Inc.s Registration Statement on
    Form S-1/A,
    filed July 18, 2005, File
    No. 333-124963)*10.22

Form of Indemnification Agreement
    (incorporated by reference to Exhibit 10.1 to Dresser-Rand
    Group Inc.s Current Report on
    Form 8-K,
    filed December 9, 2005, File
    No. 001-32586)*10.23

Stock Option Agreement between
    Dresser-Rand Group Inc. and Lonnie A. Arnett (incorporated by
    reference to Exhibit 10.23 to Dresser-Rand Group
    Inc.s Registration Statement on
    Form S-1/A,
    filed March 3, 2006, File
    No. 333-131300)*10.24

Performance Stock Option Agreement
    between Dresser-Rand Group Inc. and Lonnie A. Arnett
    (incorporated by reference to Exhibit 10.24 to Dresser-Rand
    Group Inc.s Registration Statement on
    Form S-1/A,
    filed March 3, 2006, File
    No. 333-131300)*10.25

Restricted Shares Agreement
    between Dresser-Rand Group Inc. and Lonnie A. Arnett
    (incorporated by reference to Exhibit 10.25 to Dresser-Rand
    Group Inc.s Registration Statement on
    Form S-1/A,
    filed March 3, 2006, File
    No. 333-131300)*10.26

Employment Agreement, dated
    March 18, 2005, between Dresser-Rand Group Inc. and Leonard
    Anthony21.1

List of Subsidiaries23.1

Consent of PricewaterhouseCoopers
    LLP24

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 200231.2

Certification of the Executive
    Vice President and Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200232.1

Certification of the President and
    Chief Executive Officer pursuant to Title 18, United States
    Code, Section 1350, as adopted pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002 (furnished herewith). (This
    certification is being furnished and shall not be deemed
    filed with the SEC for purposes of Section 18
    of the Exchange Act, or otherwise subject to the liability of
    that section, and shall not be deemed to be incorporated by
    reference into any filing under the Securities Act or the
    Exchange Act, except to the extent that the Registrant
    specifically incorporates it by reference.)32.2

Certification of the Executive
    Vice President and Chief Financial Officer pursuant to
    Title 18, United States Code, Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    (furnished herewith). (This certification is being furnished and
    shall not be deemed filed with the SEC for purposes
    of Section 18 of the Exchange Act, or otherwise subject to
    the liability of that section, and shall not be deemed to be
    incorporated by reference into any filing under the Securities
    Act or the Exchange Act, except to the extent that the
    Registrant specifically incorporates it by reference.)     *
    
    Executive Compensation Plans and Arrangements. 48




---



##### Table of Contents



SIGNATURES
      By:
    /s/  VINCENT
    R. VOLPE, JR.   Title:
    President, Chief Executive Officer and Director  attorney-in-fact Form 10-K Form 10-K attorney-in-fact attorney-in-fact attorney-in-fact
  Form 10-K
  Signature

Title

Date/s/  VINCENT
    R. VOLPE JR.Vincent
    R. Volpe Jr.

President, Chief Executive 
    Officer and Director

March 7, 2007/s/  LEONARD
    M. ANTHONYLeonard
    M. Anthony

Executive Vice President 
    and Chief Financial Officer

March 7, 2007/s/  LONNIE
    A. ARNETTLonnie
    A. Arnett

Vice President, Controller 
    and Chief Accounting Officer

March 7, 2007/s/  WILLIAM
    E. MACAULAYWilliam
    E. Macaulay

Chairman of the Board of 
    Directors

March 7, 2007/s/  MARK
    A. MCCOMISKEYMark
    A. McComiskey

Director

March 7, 2007/s/  KENNETH
    W. MOOREKenneth
    W. Moore

Director

March 7, 2007/s/  MICHAEL
    L. UNDERWOODMichael
    L. Underwood

Director

March 7, 2007/s/  PHILIP
    R. ROTHPhilip
    R. Roth

Director

March 7, 2007/s/  LOUIS
    A. RASPINOLouis
    A. Raspino

Director

March 7, 2007/s/  JEAN-PAUL
    VETTIERJean-Paul
    Vettier

Director

March 7, 2007  49




---



##### 



DRESSER-RAND
    GROUP INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
 COMBINED
    FINANCIAL STATEMENTS (PREDECESSOR)
  PageReport of
    Independent Registered Public Accounting Firm

F-2Report of
    Independent Registered Public Accounting Firm

F-4Consolidated Financial
    Statements and Predecessor Combined Financial
    StatementsConsolidated
    Statement of Operations (Successor) for the years ended
    December 31, 2006 and 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

F-5Consolidated
    Balance Sheet (Successor) at December 31, 2006 and
    2005

F-6Consolidated
    Statement of Cash Flows (Successor) for the years ended
    December 31, 2006 and 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

F-7Consolidated
    Statement of Changes in Stockholders Equity (Successor)
    for the years ended December 31, 2006 and 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

F-8Notes to
    Consolidated and Combined Financial Statements

F-9 to F-47   F-1




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
       Consolidated financial statements and financial statement
    schedule
    Internal control over financial reporting
  Internal Control  Integrated
    Framework
     F-2




---



##### Table of Contents



Internal Control  Integrated
    Framework Internal Control  Integrated Framework
      F-3




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM       
     F-4




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  CONSOLIDATED
    STATEMENT OF OPERATIONS (SUCCESSOR)
 AND
    COMBINED STATEMENTS OF OPERATIONS (PREDECESSOR)
  Successor



PredecessorPeriod from



Period fromOctober 30



January 1Year Ended


Year Ended


through



throughDecember 31,


December 31,


December 31,



October 29,2006


2005


2004



2004(In thousands of dollars, except per share information)Net sales of products

$
1,210,729


$
974,679


$
155,993



$
544,794Net sales of services


290,798



232,236



43,914




167,689Net sales to affiliates















1,845Other operating revenue






1,288








1,167Total revenues


1,501,527



1,208,203



199,907




715,495Cost of products sold


900,476



749,678



117,991




411,665Cost of services sold


197,347



171,286



31,573




125,088Cost of products sold to affiliates















1,289Total cost of products and
    services sold


1,097,823



920,964



149,564




538,042Gross profit


403,704



287,239



50,343




177,453Selling and administrative
    expenses (year ended December 31, 2006 amount includes
    $23,551 of stock based compensation  exit units)


228,815



164,055



21,499




122,700Research and development expenses


10,423



7,058



1,040




5,670Curtailment (gain)


(11,796
)











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










1,800




Income from operations


176,262



116,126



26,004




49,083Interest income (expense), net


(47,877
)


(57,037
)


(9,654
)



3,156Early redemption premium on debt






(3,688
)







Other income (expense), net


8,931



(2,847
)


(1,846
)



1,882Income before income taxes


137,316



52,554



14,504




54,121Provision for income taxes


58,557



15,459



7,275




11,970Net income

$
78,759


$
37,095


$
7,229



$
42,151Net income per common share-basic
    and diluted

$
.92


$
.56


$
.13Weighted average shares
    outstanding  basic and diluted (In thousands)


85,453



66,547



53,793    F-5




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  CONSOLIDATED
    BALANCE SHEET (SUCCESSOR)
  December 31,


December 31,2006


2005(In thousands of dollars)AssetsCurrent assetsCash and cash equivalents

$
146,846


$
98,036Accounts receivable, less
    allowance for doubtful accounts of $6,114 and $8,649 at 2006 and
    2005


305,050



268,831Inventories, net


183,029



145,762Prepaid expenses


20,245



25,887Deferred income taxes, net


13,862



10,899Total current assets


669,032



549,415Property, plant and equipment, net


223,085



228,671Goodwill


410,530



393,300Intangible assets, net


446,854



460,919Other assets


21,828



25,566Total assets

$
1,771,329


$
1,657,871Liabilities and
    Stockholders EquityCurrent liabilitiesAccounts payable and accruals

$
303,762


$
303,430Customer advance payments


137,369



84,695Accrued income taxes payable


30,295



4,988Loans payable


74



67Total current liabilities


471,500



393,180Deferred income taxes


26,555



22,586Postemployment and other employee
    benefit liabilities


113,695



113,861Long-term debt


505,565



598,137Other noncurrent liabilities


22,143



15,447Total liabilities


1,139,458



1,143,211Commitments and contingencies
    (Notes 12, 14 through 20)Stockholders EquityCommon stock, $0.01 par
    value, 250,000,000 and 101,200,000 shares authorized,
    85,477,160 and 85,476,283 shares issued and outstanding,
    respectively


855



855Additional paid-in capital


518,811



493,163Retained earnings


123,083



44,324Accumulated other comprehensive
    loss


(10,878
)


(23,682
)Total stockholders equity


631,871



514,660Total liabilities and
    stockholders equity

$
1,771,329


$
1,657,871    F-6




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  CONSOLIDATED
    STATEMENT OF CASH FLOW (SUCCESSOR)
 AND
    COMBINED STATEMENTS OF CASH FLOW (PREDECESSOR)
  Successor



PredecessorPeriod from



Period fromYear Ended


Year Ended


October 30 through



January 1 throughDecember 31,


December 31,


December 31,



October 29,2006


2005


2004



2004(In thousands of dollars)Cash flows from operating
    activitiesNet income

$
78,759


$
37,095


$
7,229



$
42,151Adjustments to arrive at net cash
    provided by operating activities:Depreciation and amortization


50,377



61,435



16,269




22,715Stock-based compensation


26,034



4,076



75




Deferred income taxes


14,181



(2,199
)


(974
)



633Amortization of debt financing
    costs


5,722



9,545



738




Provision for losses on inventory


620



920



1,780




6,953(Gain) loss on sale of property,
    plant and equipment


388



(10
)







(1,031
)Write-off of purchased in-process
    research and development assets










1,800




Equity in undistributed (earnings)
    losses






325



(194
)



1,013Minority interest, net of dividends


(457
)


(513
)


51




(1,247
)Curtailment gain


(11,796
)











Other


(772
)


1,989



377




Working capital and otherCustomer advances


48,243



49,904



8,461




11,048Accounts payable


6,256



20,310



4,664




(12,976
)Accounts receivable


(28,249
)


(183
)


(30,050
)



54,213Inventories


(35,191
)


28,682



600




(37,818
)Other


9,937



1,046



6,590




(27,925
)Net cash provided by operating
    activities


164,052



212,422



17,416




57,729Cash flows from investing
    activitiesCapital expenditures


(19,747
)


(15,534
)


(1,791
)



(7,701
)Acquisitions






(54,970
)


(1,125,148
)



Proceeds from entity investment
    dispositions






10,000








Proceeds from sales of property,
    plant and equipment


228



1,021








1,757Decrease in marketable securities















1,037Net cash (used in) investing
    activities


(19,519
)


(59,483
)


(1,126,939
)



(4,907
)Cash flows from financing
    activitiesPayments of short-term borrowings






(1,627
)







(993
)Proceeds from long-term debt










815,033




43Cash paid for debt issuance costs










(33,498
)



Proceeds from revolver










5,000




Payments of revolver










(5,000
)



Payments of long-term debt


(100,070
)


(211,162
)


(1,013
)



(65
)Issuance of common stock






1,419



437,109




Change in due to (from)
    unconsolidated affiliates















(45,918
)Proceeds from initial public
    offering, net






608,925








Dividends paid






(557,686
)







(5,097
)Net cash (used in) provided by
    financing activities


(100,070
)


(160,131
)


1,217,631




(52,030
)Effect of exchange rate changes on
    cash and cash equivalents


4,347



(6,272
)


3,392




1,930Net increase (decrease) in cash
    and cash equivalents


48,810



(13,464
)


111,500




2,722Cash and cash equivalents,
    beginning of the period


98,036



111,500








41,537Cash and cash equivalents, end of
    period

$
146,846


$
98,036


$
111,500



$
44,259    F-7




---



##### 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)
  AccumulatedAdditional





Other


TotalCommon


Paid-in


Retained


Comprehensive


ComprehensiveStock


Capital


Earnings


Income (Loss)


Income (Loss)


Total(In thousands of dollars)SuccessorAt October 30, 2004






















Sale of common stock to D-R
    Interholdings LLC

$
540


$
435,273














$
435,813Sale of common stock to employees


2



1,294















1,296Stock-based employee compensation






75















75Net 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



15,713At December 31, 2004


542



436,642



7,229



8,484







452,897Stock-based employee compensation


3



5,592















5,595Initial public offering net proceeds


310



608,615















608,925Cash 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



4,929At December 31, 2005


855



493,163



44,324



(23,682
)






514,660Stock-based employee compensation






26,034















26,034Other






(386
)














(386
)Net income










78,759






$
78,759



Other comprehensive income (loss)Minimum pension liability, net of
    $224 tax














294



294



Currency translation














17,962



17,962



Adoption of Statement No. 158,
    net of$2,571 tax














(5,452
)






(5,452
)Total comprehensive income

















$
97,015



97,015At December 31, 2006

$
855


$
518,811


$
123,083


$
(10,878
)





$
631,871     AccumulatedOther


TotalPartnership


Comprehensive


ComprehensiveInterest


Income (Loss)


Income (Loss)


Total(In thousands of dollars)PredecessorBalances at January 1, 2004

$
631,640


$
(66,605
)





$
565,035Dividends


(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



48,066Balances at October 29, 2004

$
668,694


$
(60,690
)





$
608,004    F-8




---



##### 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-9




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   Business Combinations.
  (In thousandsof dollars)Assets acquired:Accounts receivable, net

$
193,944Accounts receivable,
    trade  other


32,863Inventories


173,313Prepaid expenses and other current
    assets


14,387Property, plant and equipment


225,654Goodwill


408,424Intangible assets


490,519Other assets


14,156Total assets acquired


1,553,260Liabilities assumed:Accounts payable


94,898Other current liabilities


159,984Short term loans


2,731Tax liabilities


44,920Other non-current liabilities


125,579Total liabilities assumed


428,112Cash paid for
    Acquisition

$
1,125,148   Goodwill and Other Intangible Assets,
     F-10




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    IR
    Transition Services Agreement
    Supply
    Agreement
    License
    Agreement
  250-kilowatt
  Basis
    of Presentation
         F-11




---



##### 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
  No. 98-1 Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use.
 F-12




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  Impairment
    of Long-Lived Assets
  Accounting for the
    Impairment or Disposal of Long Lived Assets.
  Intangible
    Assets
  Goodwill
    and Other Intangible Assets non-amortizable
    Income
    Taxes
  Successor:
  country-by-country
  Predecessor:
    Product
    Warranty
   F-13




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   Environmental
    Costs
    Revenue
    Recognition
      
    The delivered unit(s) has value to the client on a stand-alone
    basis.
    There is objective and reliable evidence of the fair value of
    the undelivered unit(s).      No. 99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent.
  Distribution
    and Shipping Costs
    Research
    and Development Costs
   F-14




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   Comprehensive
    Income (Loss)
    Foreign
    Currency
  non-U.S. consolidated average-for-the-year
  non-U.S. entities
  Financial
    Instruments
      Accounting for Derivative Instruments and Hedging
    Activities
  Stock-based
    Compensation
    Share-Based
    Payment.
 F-15




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   Accounting for Stock Issued to
    Employees.
  Accounting for
    Stock-Based Compensation Accounting for Stock-Based
    Compensation-Transition and Disclosure
  PredecessorPeriod fromJanuary 1 throughOctober 29,2004(In thousands of dollars)Net income, as reported

$
42,151Add: Stock-based employee
    compensation expense included in reported net income, net of tax


446Deduct: Total stock-based employee
    compensation expense determined under fair value method for all
    awards, net of tax


(4,640
)Pro forma net income

$
37,957   New
    Accounting Standards
  Inventory Costs, an Amendment of Accounting Research
    Bulletin No. 43, Chapter 4.
  Exchanges of Nonmonetary Assets, an Amendment of APB Opinion
    No. 29, Accounting for Nonmonetary Transactions.
  Accounting for
    Conditional Asset Retirement Obligations.
   F-16




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   Accounting Changes and Error
    Corrections.
  Accounting for Uncertainty in Income Taxes, an interpretation
    of FASB Statement No. 109.
  Fair Value Measurements.
  Employers Accounting for Defined Benefit Pension and
    Other Post Retirement Plans an amendment of FASB
    Statements No. 87, 88, 106 and 132(R).
  Prior to





As Reported atApplication of


Effect of Adopting


December 31,Statement No. 158


Statement No. 158


2006(In thousands of dollars)Deferred income taxes

$
29,126


$
(2,571
)

$
26,555Postemployment and other employee
    benefit liabilities


105,672



8,023



113,695Total Liabilities


1,134,006



5,452



1,139,458Accumulated other comprehensive
    loss


(5,426
)


(5,452
)


(10,878
)Total stockholders equity


637,323



(5,452
)


631,871   3.
    Related
    Party Transactions  Successor
  Dresser-Rand
    Name
   F-17




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    Predecessor
  Intercompany
    Activities
  and/or
        Employee
    Benefit Administration
  and/or
  Other
    Related Party Transactions
   F-18




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   4.
    Acquisitions    (In thousandsof dollars)Accounts receivable

$
12,454Inventories


7,309Prepaid expenses and other current
    assets


515Total current assets


20,278Property, plant and equipment , net


19,029Amortizable intangible assets


19,600Goodwill


7,119Total assets acquired


66,026Accounts payable and accruals


9,435Other liabilities


2,016Total liabilities assumed


11,451Cash paid  net

$
54,575           (In thousandsof dollars)Customer relationships

$
9,100


15 yearsTrade names


4,900


40 yearsTechnology


4,200


25 yearsBacklog


1,400


.5 yearTotals

$
19,600    F-19




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    5.
    Sale of
    common stock  3 8
  6.
    Earnings
    per share  Successor
    Predecessor
    7.
    Inventories    SuccessorDecember 31,2006


2005(In thousands of dollars)Raw materials and supplies

$
112,746


$
83,355Work-in-process
    and finished goods


209,966



257,488322,712



340,843Less:Progress payments


(139,683
)


(195,081
)Total

$
183,029


$
145,762     8.
    Investments
    In Partially Owned Equity Companies   F-20




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
     Successor



PredecessorPeriod from



Period fromOctober 30 through



January 1 throughDecember 31,



October 29,2004



2004(In thousands of dollars)Net sales

$
13,460



$
56,271Gross profit


3,725




17,857Net income/(loss)


596




(1,849
)     9.
    Property,
    Plant and Equipment    SuccessorDecember 31,2006


2005(In thousands of dollars)Cost:Land

$
10,180


$
9,645Buildings and improvements


74,075



70,698Machinery and equipment


195,694



174,300279,949



254,643Less: Accumulated depreciation


(56,864
)


(25,972
)Property plant and equipment, net

$
223,085


$
228,671     10.
    Intangible
    Assets and Goodwill    SuccessorDecember 31, 2006





December 31, 2005WeightedAccumulated


Average





AccumulatedCost


Amortization


Useful Lives


Cost


Amortization(In thousands of dollars)Trade names

$
87,600


$
4,641



40 years


$
87,600


$
2,448Customer relationships


237,493



12,987



40 years



232,219



6,806Software


30,553



6,632



10 years



30,553



3,571Existing technology


126,577



11,113



25 years



126,577



5,800Order backlog


26,325



26,325



15 months



26,325



25,561Non-compete agreement


4,382



4,378



2 years



4,382



2,551Royalty agreement










14 months



2,320



2,320Total amortizable intangible assets

$
512,930


$
66,076






$
509,976


$
49,057    F-21




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
      SuccessorDecember 31,2006


2005(In thousands of dollars)Beginning balance

$
393,300


$
423,330Dispositions/Adjustments


(11,658
)


(1,989
)TES acquisition


1,186



5,933Translation adjustments


27,702



(33,974
)Ending balance

$
410,530


$
393,300     11.
    Accounts
    Payable and Accruals    SuccessorDecember 31,2006


2005(In thousands of dollars)Accounts payable

$
132,980


$
128,414Accruals:Payroll and benefits


34,889



34,980Contract reserves


25,439



26,309Taxes other than income


25,141



20,485Warranties


23,386



21,511Third party commissions


11,952



9,961Insurance and claims


8,540



8,631Legal, audit and consulting


7,796



5,257Interest


6,948



6,789Pension and postretirement benefits


5,352



9,735Other


21,339



31,358Total accounts payable and accruals

$
303,762


$
303,430   12.
    Income
    Taxes    Successor



PredecessorPeriod from



Period fromYear Ended


Year Ended


October 30 through



January 1 throughDecember 31,


December 31,


December 31,



October 29,2006


2005


2004



2004(In thousands of dollars)United States

$
47,104


$
4,884


$
(3,562
)


$
34,058Foreign


90,212



47,670



18,066




20,063Total

$
137,316


$
52,554


$
14,504



$
54,121  F-22




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    Successor



PredecessorPeriod from



Period fromYear Ended


Year Ended


October 30 through



January 1 throughDecember 31,


December 31,


December 31,



October 29,2006


2005


2004



2004(In thousands of dollars)Current tax expense (benefit)United States

$
12,781


$



$
883



$
(933
)Foreign


31,595



17,658



7,366




12,270Total current


44,376



17,658



8,249




11,337Deferred tax expense (benefit)United States


11,877



2,083








(2,707
)Foreign


2,304



(4,282
)


(974
)



3,340Total deferred


14,181



(2,199
)


(974
)



633Total provision for income taxes

$
58,557


$
15,459


$
7,275



$
11,970     Successor



PredecessorPeriod from



Period fromYear Ended


Year Ended


October 30 through



January 1 throughDecember 31,


December 31,


December 31,



October 29,2006


2005


2004



2004(In thousands of dollars)Statutory U.S. rate


35.0
%


35.0
%


35.0
%



35.0
%Increase (decrease) in rate
    resulting from:Foreign operations


0.2
%


0.8
%


3.5
%



9.9
%State and local income taxes, net
    of U.S. tax


1.6
%


0.6
%


6.0
%



(0.2
)%Valuation allowances


1.5
%


(1.8
)%


11.0
%



7.2
%Extraterritorial income exclusion


(1.9
)%


(7.7
)%


(4.8
)%



Stock-based compensation


6.3
%


2.6
%







Nontaxable partnership income















(18.7
)%Other


(0.1
)%


(0.1
)%


(0.5
)%



(11.1
)%Effective tax rate


42.6
%


29.4
%


50.2
%



22.1
%  F-23




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    SuccessorDecember 31,2006


2005(In thousandsof dollars)Deferred tax liabilitiesDepreciation and amortization

$
51,260


$
45,733Deferred tax (assets)Inventories and receivables

$
(6,386
)

$
(2,052
)Other accrued expenses


(2,090
)


(11,594
)Tax net operating loss
    carryforwards


(6,271
)


(12,877
)Pension and employee benefits


(28,141
)


(15,719
)Total deferred tax (assets)


(42,888
)


(42,242
)Valuation allowances


4,321



8,196Net deferred tax (assets)


(38,567
)


(34,046
)Total net deferred tax liabilities

$
12,693


$
11,687Presented in the balance sheet as:Current deferred tax (assets)

$
(13,862
)

$
(10,899
)Non-current deferred tax
    liabilities


26,555



22,586Total net deferred tax liabilities

$
12,693


$
11,687            F-24




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  Accounting
    for Income Taxes.
    13.
    Long-Term
    Debt  Senior
    Secured Credit Facility
    1 2 1 2
     F-25




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  30-day
    Senior
    Subordinated Notes
  7 3 8 7 3 8
    90-day
   F-26




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
     SuccessorDecember 31,2006


2005(In thousandsof dollars)Senior subordinated notes

$
370,000


$
370,000Senior secured credit facility


135,550



228,023Other debt


89



181Total long term debt


505,639



598,204Less: current maturities


(74
)


(67
)Total non current long term debt

$
505,565


$
598,137     Senior


Senior SecuredSubordinated


Credit FacilityNotes


and Other Debt


Other Debt


Total(In thousands of dollars)2007

$



$



$
74


$
742008










15



152009














2010














2011






135,550







135,5502012 and after


370,000











370,000$
370,000


$
135,550


$
89


$
505,639     14.
    Pension
    Plans  Employers Accounting for Defined Benefit Pension and
    Other Post-retirement Plans
  Non-U.S. plans non-U.S. plans
 F-27




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
     SuccessorDecember 31,2006


2005(In thousands of dollars)Change in projected benefit
    obligationsBenefit obligation at beginning of
    the period

$
326,784


$
317,498Service cost


6,165



5,112Interest cost


17,531



17,119Employee contributions


248



221Expenses paid


(866
)


(395
)Actuarial losses


2,977



12,132Plan Amendments


467



Benefits paid


(15,177
)


(13,831
)Foreign exchange impact


12,954



(11,072
)Benefit obligation at end of the
    period

$
351,083


$
326,784Change in plan assetsFair value at beginning of the
    period

$
252,857


$
243,132Actual return on assets


26,844



20,433Company contributions


10,859



10,155Employee contributions


248



221Expenses paid


(866
)


(395
)Benefits paid


(15,177
)


(13,831
)Foreign exchange impact


9,375



(6,858
)Fair value of assets at end of the
    period

$
284,140


$
252,857   December 31,2006


2005(In thousands of dollars)Funded statusNet assets less than benefit
    obligations

$
(66,943
)

$
(73,927
)Plan net losses not recognized






5,019Contributions after measurement
    date


278



108Net balance sheet liability

$
(66,665
)

$
(68,800
)     December 31,2006


2005(In thousands of dollars)Current liabilities

$
(4,391
)

$
(9,404
)Noncurrent liabilities


(62,274
)


(59,396
)Total

$
(66,665
)

$
(68,800
)  F-28




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    SuccessorDecember 31,2006


2005(In thousands of dollars)Net loss

$
10,935


$
9,257Prior service cost


467



Total

$
11,402


$
9,257     SuccessorDecember 31,2006


2005Weighted-average assumptions used,
    benefit obligationsDiscount rateU.S. plans


5.60%



5.65%Non-U.S. plans


4.94%



4.89%Rate of compensation increaseU.S. plans


N/A



N/ANon-U.S. plans


3.88%



3.66%    F-29




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
     Successor



PredecessorPeriod from



Period fromFor


For


October 30



January 1Year Ended


Year Ended


through



throughDecember 31,


December 31,


December 31,



October 29,2006


2005


2004



2004(In thousands of dollars)Service cost

$
6,165


$
5,112


$
870



$
3,801Interest cost


17,531



17,119



2,884




16,903Expected return on plan assets


(20,142
)


(19,377
)


(3,207
)



(21,173
)Amortization ofTransition amount















1Prior Service Cost















453Net losses


116












3,375Net periodic benefit cost

$
3,670


$
2,854


$
547



$
3,360Weighted-average assumptions used,
    net periodic pension costDiscount rateU.S. plans


5.65%



5.75%



5.75%




6.00%Non-U.S. plans


4.89%



5.31%



5.31%




5.75%Rate of compensation increaseU.S. plans


N/A



N/A



N/A




N/ANon-U.S. plans


3.66%



3.75%



3.75%




3.75%Expected return on plan assetsU.S. plans


8.50%



8.50%



8.50%




8.75%Non-U.S. plans


6.48%



7.09%



7.09%




7.50%       SuccessorDecember 31,2006


2005(In thousands of dollars)Projected Benefit Obligation

$
349,945


$
325,855Accumulated Benefit Obligation


333,234



312,957Fair Value of Plan Assets


283,443



252,209    F-30




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
     SuccessorDecember 31,2006


2005Asset Category*Equity securities


60.0
%


62.6
%Debt securities


34.0
%


36.1
%Other


6.0
%


1.3
%Total


100.00
%


100.0
%     non-U.S. plans.
    non-U.S. plans
    Defined
    Contribution Plans
  non-U.S. defined non-U.S. benefit
  15.
    Post-retirement
    Benefits other than Pensions  Employers Accounting for Defined Benefit Pension and
    Other Post-retirement Plans
 F-31




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
       SuccessorDecember 31,2006


2005(In thousands of dollars)Change in benefit obligationsBenefit obligation at beginning of
    the period

$
54,904


$
47,568Service cost


1,742



1,998Interest cost


2,444



2,735Actuarial losses


5,319



1,828Acquisitions






786Benefits paid


(169
)


(11
)Plan amendments


43



Curtailment and other


(14,318
)


Employee contributions


13



Benefit obligation at end of the
    period

$
49,978


$
54,904Funded statusNet assets less than benefit
    obligations

$
(49,978
)

$
(54,904
)Plan net losses






1,828Contributions after measurement
    date


14



4Net balance sheet liability

$
(49,964
)

$
(53,072
)Amounts recognized in the balance
    sheet:Current liabilities

$
(187
)

$
(10
)Noncurrent liabilities


(49,777
)


(53,062
)Total

$
(49,964
)

$
(53,072
)Amounts recognized in accumulated
    other comprehensive income consist of:Net loss

$
5,319


$
Net prior service cost


43



Total

$
5,362


$
  F-32




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    Successor



PredecessorPeriod from



Period fromOctober 30 through



January 1 throughYear Ended December 31,


December 31,



October 29,2006


2005


2004



2004Service cost

$
1,742


$
1,998


$
301



$
1,599Interest cost


2,444



2,735



449




9,323Amortization of net prior service
    (credit)















(861
)Amortization of net loss















3,011Curtailment (credit)


(11,796
)











Net periodic post-retirement
    benefits (income)/cost

$
(7,610
)

$
4,733


$
750



$
13,072         Successor



PredecessorPeriod from



Period fromOctober 30 through



January 1 throughYear Ended December 31,


December 31,



October 29,2006


2005


2004



2004Weighted-average discount rate
    assumption used to determineBenefit obligations at end of
    period


5.70
%


5.80
%


5.75
%



6.00
%Net periodic benefit cost for the
    period ended December 31


5.80
%


5.75
%


5.75
%



6.00
%Assumed health care cost trend
    rates Current year trend rate


10.00
%


10.00
%


11.00
%



11.00
%Ultimate trend rate


5.00
%


5.00
%


5.00
%



5.25
%Year that the rate reaches the
    ultimate trend rate


2012



2011



2010




2010       1%


1%Increase


DecreaseEffect on total service and
    interest cost components

$
800


$
(650
)Effect on postretirement benefit
    obligations


9,500



(8,300
)   16.
    Financial
    Instruments   F-33




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
      17.
    Commitments
    and Contingencies          18.
    Warranties   F-34




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
     Successor



PredecessorPeriod from



Period fromYear Ended


Year Ended


October 30 through



January 1 throughDecember 31,


December 31,


December 31,



October 29,2006


2005


2004



2004(In thousands of dollars)Beginning balance

$
21,511


$
21,078


$
20,319



$
23,699Provision for warranties issued
    during period


17,238



13,502



1,194




6,811Adjustments to warranties issued
    in prior periods


(394
)


1,733



389




1,813Payments during period


(16,496
)


(13,131
)


(1,732
)



(12,633
)Translation


1,527



(1,671
)


908




629Ending balance

$
23,386


$
21,511


$
21,078



$
20,319   19.
    Incentive
    Stock-Based Compensation Plans  Successor
    incentive plan
        2005



2004Expected volatility


36.20
%



36.20
%Expected dividend yield


0
%



0
%Expected average term (in years)


4.0




4.0Risk-free interest rate


3.80
%



3.18
%    F-35




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
      paid-in-capital
          2006


2005Weighted


Number of


Weighted


Number ofAverage


Shares Under


Average


Shares UnderExercise Price


Option


Exercise Price


OptionBalance at January 1

$
21.00



107,463


$




Options granted


24.82



264,400



21.00



107,463Options exercised














Options canceled/expired


25.10



(4,750
)






Balance at December 31

$
23.78



367,113


$
21.00



107,463Exercisable at December 31

$
21.00



83,284







      F-36




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005Option term (years)


6.0



3.5Volatility


32.70
%


32.10
%Risk-free interest rate (zero
    coupon US Treasury note)


4.65
%


4.50
%Dividend yield






Weighted-average fair value per
    option granted

$
10.20


$
6.27           Predecessor
    stock incentive plan
      PredecessorPeriod fromJanuary 1 through


Year EndedOctober 29,


December 31,2004


2003Dividend 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-37




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    Shares Subject


Option Price


Weighted Averageto Option


Range per Share


Exercise PriceJanuary 1, 2003


592,058


$
33.67 - 53.03


$
45.04Granted


162,220



39.05



39.05Exercised


(117,634
)


33.67 - 53.03



45.35Cancelled


(23,222
)


39.05 - 53.05



42.91December 31, 2003


613,422



39.05 - 53.03



44.25Granted


136,610



64.37



46.96Exercised


(82,299
)


39.05 - 53.03



46.14Cancelled


(107,272
)


39.05 - 64.37



47.84October 29, 2004


560,461


$
39.05 - 64.37


$
47.77     20.
    Significant
    Customers and Concentration of Credit Risk    non-U.S. countries.
  21.
    Other
    Income (Expense)    Successor



PredecessorPeriod from



Period fromOctober 30



January 1Year Ended


Year Ended


through



throughDecember 31,


December 31,


December 31,



October 29,2006


2005


2004



2004(In thousands of dollars)Foreign currency gains (losses)

$
8,939


$
(2,165
)

$
(1,023
)


$
2,069Equity on earnings (losses) of
    partially owned affiliates






(560
)


194




(1,013
)Other


(8
)


(122
)


(1,017
)



826Total other income/(expense), net

$
8,931


$
(2,847
)

$
(1,846
)


$
1,882   22.
    Royalty
    Agreement   F-38




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    23.
    Segment
    Information:          F-39




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  Successor



PredecessorPeriod from



Period fromOctober 30



January 1Year Ended


Year Ended


through



throughDecember 31,


December 31,


December 31,



October 29,2006


2005


2004



2004(In thousands of dollars)RevenuesNew units

$
749,609


$
576,612


$
77,607



$
267,691Aftermarket parts and services


751,918



631,591



122,300




447,804Total revenues

$
1,501,527


$
1,208,203


$
199,907



$
715,495Operating incomeNew units

$
47,303


$
20,847


$
3,567



$
(464
)Aftermarket parts and services


204,350



141,374



30,571




85,039Unallocable


(75,391
)


(46,095
)


(8,134
)



(35,492
)Total operating income

$
176,262


$
116,126


$
26,004



$
49,083Depreciation and
    amortizationNew units

$
26,934


$
29,496


$
5,775



$
9,201Aftermarket parts and services


23,443



31,939



10,494




13,514Total depreciation and amortization

$
50,377


$
61,435


$
16,269



$
22,715GoodwillNew units

$
117,926


$
114,829


$
123,831Aftermarket parts and services


292,604



278,471



299,499Total Goodwill

$
410,530


$
393,300


$
423,330Total assets (including
    goodwill)New units

$
280,720


$
253,696


$
270,563Aftermarket parts and services


605,732



541,605



564,253Unallocable


884,877



862,570



916,258Total assets

$
1,771,329


$
1,657,871


$
1,751,074Revenues by
    destinationNorth America

$
541,103


$
498,620


$
77,700



$
275,941Latin America


213,691



156,923



30,660




139,898Europe


362,278



231,393



26,591




113,461Asia-Pacific


204,303



135,594



21,482




94,291Middle East, Africa


180,152



185,673



43,474




91,904Total revenues

$
1,501,527


$
1,208,203


$
199,907



$
715,495Long-lived assets by geographic
    areaNorth America

$
160,400


$
169,031


$
159,060Latin America


3,339



3,065



2,531Europe


51,959



49,681



58,860Asia-Pacific


7,383



6,890



6,313Middle East, Africa


4



4



Total long-lived assets

$
223,085


$
228,671


$
226,764    F-40




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   24.
    Selected
    Unaudited Quarterly Financial Data:  SuccessorThree Months EndedMarch 31,

June 30,

September 30,

December 31,2006

2006

2006

2006(In thousands of dollars)Total revenues

$
291,555


$
423,981


$
310,293


$
475,698Gross profit


67,023



96,391



99,336



140,954Net income


12,316



10,694



22,927



32,822Net income per share-basic and
    diluted


0.14



0.13



0.27



0.38   Three Months EndedMarch 31,

June 30,

September 30,

December 31,2005

2005

2005

2005(In thousands of dollars)Total revenues

$
234,000


$
302,478


$
309,759


$
361,966Gross profit


47,709



63,778



76,905



98,847Net income (loss)


(4,018
)


(1,525
)


10,434



32,204Net income (loss) per share-basic
    and diluted


(0.07
)


(0.03
)


0.15



0.38   25.
    Supplemental
    Cash Flow Information:  Successor


PredecessorPeriod from


Period fromOctober 30


January 1Year Ended

Year Ended

through


throughDecember 31,

December 31,

December 31,


October 29,2006

2005

2004


2004(In thousands of dollars)Cash paid for interest

$
45,641


$
50,475


$
2,930



$
888Cash paid for income taxes, net of
    refunds


15,852



26,992



3,337




7,566     26.
    Supplemental
    Guarantor Financial Information:     F-41




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    COMBINING STATEMENT OF INCOME (SUCCESSOR)
    For the Year Ended December 31, 2006
  SubsidiarySubsidiary


Non-


ConsolidatingIssuer


Guarantors


Guarantors


Adjustments


Total(In thousands of dollars)Net sales

$



$
920,834


$
718,474


$
(137,781
)

$
1,501,527Cost of goods sold






694,171



537,234



(133,582
)


1,097,823Gross profit






226,663



181,240



(4,199
)


403,704Selling and administrative expenses


26,467



132,021



71,442



(1,115
)


228,815Research and development expenses






9,969



454







10,423Curtailment gain






(11,796
)










(11,796
)(Loss) income from operations


(26,467
)


96,469



109,344



(3,084
)


176,262Equity earnings in affiliates


179,688



6,493







(186,181
)


Interest (expense), net


(44,487
)


(8
)


(3,382
)






(47,877
)Intercompany interest and fees


(77,703
)


97,140



(19,437
)






Other income (expense), net


5,158



127



3,646







8,931Income before income taxes


36,189



200,221



90,171



(189,265
)


137,316(Benefit) provision for income
    taxes


(42,570
)


70,987



30,140







58,557Net income

$
78,759


$
129,234


$
60,031


$
(189,265
)

$
78,759     CONDENSED
    COMBINING STATEMENT OF INCOME (SUCCESSOR)
    For the Year Ended December 31, 2005
  SubsidiarySubsidiary


Non-


CombiningIssuer


Guarantors


Guarantors


Adjustments


Total(In thousands of dollars)Net sales

$



$
815,607


$
506,342


$
(113,746
)

$
1,208,203Cost of goods sold






647,549



380,983



(107,568
)


920,964Gross profit






168,058



125,359



(6,178
)


287,239Selling and administrative expenses


6,108



103,053



57,954



(3,060
)


164,055Research and development expenses






6,753



305







7,058(Loss) income from operations


(6,108
)


58,252



67,100



(3,118
)


116,126Equity earnings in affiliates


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 before income taxes


39,178



73,390



51,792



(111,806
)


52,554Provision for income taxes


2,083







13,376







15,459Net income

$
37,095


$
73,390


$
38,416


$
(111,806
)

$
37,095  F-42




---



##### 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
  SubsidiarySubsidiary


Non-


ConsolidatingIssuer


Guarantors


Guarantors


Adjustments


Total(In thousands of dollars)Net sales

$



$
123,431


$
88,181


$
(11,705
)

$
199,907Cost of goods sold


56



95,535



65,678



(11,705
)


149,564Gross (loss) profit


(56
)


27,896



22,503







50,343Selling and administrative expenses


19



13,170



8,310







21,499Research and development expenses






899



141







1,040Write-off of purchased in-process
    research and development assets






1,800











1,800(Loss) income from operations


(75
)


12,027



14,052







26,004Equity earnings in affiliates


15,817



1,517







(17,334
)


Interest (expense), 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 before income taxes


8,112



10,393



13,333



(17,334
)


14,504Provision for income taxes


883







6,392







7,275Net 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
  SubsidiarySubsidiary


Non-


CombiningIssuer


Guarantors


Guarantors


Adjustments


Total(In thousands of dollars)Net sales

$



$
429,542


$
285,953


$



$
715,495Cost of goods sold






328,004



210,038







538,042Gross Profit






101,538



75,915







177,453Selling and administrative expenses






61,864



60,836







122,700Research and development expenses






4,927



743







5,670Income from Operations






34,747



14,336







49,083Equity earnings (losses) in
    affiliates


42,151



(8,691
)






(33,460
)


Interest income, net






1,419



1,737







3,156Other income (expense), net






14,096



(12,214
)






1,882Income before income taxes


42,151



41,571



3,859



(33,460
)


54,121Provision for income taxes






3,721



8,249







11,970Net income (loss)

$
42,151


$
37,850


$
(4,390
)

$
(33,460
)

$
42,151  F-43




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING BALANCE SHEET (SUCCESSOR)
    December 31, 2006
  SubsidiarySubsidiary


Non-


ConsolidatingIssuer


Guarantors


Guarantors


Adjustments


Total(In thousands of dollars)ASSETSCash and cash equivalents

$
36,957


$



$
109,889


$



$
146,846Accounts and notes receivables net






145,713



159,337







305,050Inventories, net






133,327



58,691



(8,989
)


183,029Prepaid expenses and deferred
    income taxes


8,629



4,242



21,236







34,107Total Current Assets


45,586



283,282



349,153



(8,989
)


669,032Investment in affiliates


1,232,882



59,416







(1,292,298
)


Property, plant, and equipment, net






160,809



62,276







223,085Intangible assets, net






466,616



390,768







857,384Other Assets


14,905



4,269



2,654







21,828Total Assets

$
1,293,373


$
974,392


$
804,851


$
(1,301,287
)

$
1,771,329LIABILITIES AND
    STOCKHOLDERS EQUITYAccounts payable and accruals

$
22,404


$
222,372


$
226,650


$



$
471,426Loans payable










74







74Total current liabilities


22,404



222,372



226,724







471,500Long-term debt


432,160







73,405







505,565Intercompany accounts


197,893



(344,809
)


146,916







Other non-current liabilities


9,045



99,043



54,305







162,393Total liabilities


661,502



(23,394
)


501,350







1,139,458Common Stock


855















855Other stockholders equity


631,016



997,786



303,501



(1,301,287
)


631,016Total stockholders equity


631,871



997,786



303,501



(1,301,287
)


631,871Total liabilities and
    stockholders equity

$
1,293,373


$
974,392


$
804,851


$
(1,301,287
)

$
1,771,329  F-44




---



##### Table of Contents



DRESSER-RAND
    GROUP INC.
  NOTES TO
    CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING BALANCE SHEET (SUCCESSOR)
    December 31, 2005
  SubsidiarySubsidiary


Non-


ConsolidatingIssuer


Guarantors


Guarantors


Adjustments


Total(In thousands of dollars)ASSETSCash and cash equivalents

$



$
41,587


$
56,449


$



$
98,036Accounts and notes receivables net


100



129,285



139,446







268,831Inventories, net






99,697



51,970



(5,905
)


145,762Prepaid expenses and deferred
    income taxes


4,868



5,767



26,151







36,786Total Current Assets


4,968



276,336



274,016



(5,905
)


549,415Investment in affiliates


1,042,089



50,658







(1,092,747
)


Property, plant, and equipment, net






168,434



60,237







228,671Intangible assets, net






523,020



331,199







854,219Other Assets


17,146



5,360



3,060







25,566Total Assets

$
1,064,203


$
1,023,808


$
668,512


$
(1,098,652
)

$
1,657,871LIABILITIES AND
    STOCKHOLDERS EQUITYAccounts payable and accruals

$
7,652


$
155,322


$
230,139


$



$
393,113Loans payable










67







67Total current liabilities


7,652



155,322



230,206







393,180Long-term debt


532,160







65,977







598,137Intercompany accounts


5,750



(104,901
)


99,151







Other non-current liabilities


3,981



105,066



42,847







151,894Total liabilities


549,543



155,487



438,181







1,143,211Common Stock


855















855Other stockholders equity


513,805



868,321



230,331



(1,098,652
)


513,805Total stockholders equity


514,660



868,321



230,331



(1,098,652
)


514,660Total liabilities and
    stockholders equity

$
1,064,203


$
1,023,808


$
668,512


$
(1,098,652
)

$
1,657,871  F-45




---



##### 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, 2006
  SubsidiarySubsidiary


Non-Guarantors


Guarantors


ConsolidatingIssuer


Entities


Entities


Adjustments


Total(In thousands of dollars)Cash flows from operating
    activities:Net cash (used in) provided by
    operating activities

$
(58,937
)

$
215,074


$
4,831


$
3,084


$
164,052Cash flows from investing
    activities:Capital expenditures






(15,268
)


(4,479
)






(19,747
)Proceeds from the sale of equity
    investment






(1
)


229







228Net cash (used in) investing
    activities






(15,269
)


(4,250
)






(19,519
)Cash flows from financing
    activities:Net change in debt


(100,000
)






(70
)






(100,070
)Change in intercompany accounts


195,894



(241,392
)


48,582



(3,084
)


Net cash provided by (used in)
    financing activities


95,894



(241,392
)


48,512



(3,084
)


(100,070
)Effect of exchange rate changes










4,347







4,347Net increase (decrease) in cash
    and cash equivalents


36,957



(41,587
)


53,440







48,810Cash and cash equivalents,
    beginning of period






41,587



56,449







98,036Cash and cash equivalents, end of
    period

$
36,957


$



$
109,889


$



$
146,846     CONDENSED
    CONSOLIDATING STATEMENT OF CASH FLOWS (SUCCESSOR)
    For the Year Ended December 31, 2005
  SubsidiarySubsidiary


Non-Guarantors


Guarantors


ConsolidatingIssuer


Entities


Entities


Adjustments


Total(In thousands of dollars)Cash flows from operating
    activities:Net cash (used in) provided by
    operating activities

$
(27,841
)

$
169,627


$
68,898


$
1,738


$
212,422Cash flows from investing
    activities:Capital expenditures






(11,003
)


(4,531
)






(15,534
)Proceeds from the sale of
    property, plant and equipment






287



734







1,021Proceeds from the sale of equity
    investment






10,000











10,000Acquisitions, net of cash


(54,970
)














(54,970
)Net cash (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















1,419Proceeds from initial public
    offering


608,925















608,925Dividends 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 (decrease) increase in cash
    and cash equivalents






(21,754
)


8,290







(13,464
)Cash and cash equivalents,
    beginning of period






63,341



48,159







111,500Cash and cash equivalents, end of
    period

$



$
41,587


$
56,449


$



$
98,036  F-46




---



##### 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
  SubsidiarySubsidiary


Non-Guarantors


Guarantors


ConsolidatingIssuer


Entities


Entities


Adjustments


Total(In thousands of dollars)Cash flows from operating
    activities:Net cash (used in) provided by
    operating activities

$
(4,422
)

$
1,439


$
12,870


$
7,529


$
17,416Cash flows from investing
    activities:Capital expenditures






(929
)


(862
)






(1,791
)Acquisitions, net of cash


(1,125,148
)














(1,125,148
)Net cash (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







814,020Change 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















437,109Net cash provided by financing
    activities


1,129,570



62,631



32,427



(7,529
)


1,217,631Effect of exchange rate changes










3,392







3,392Net increase in cash and cash
    equivalents






63,341



48,159







111,500Cash and cash equivalents,
    beginning of period


















Cash and cash equivalents, end of
    period

$



$
63,341


$
48,159


$



$
111,500     CONDENSED
    COMBINING STATEMENT OF CASH FLOWS (PREDECESSOR)
    For the Period from January 1 through October 29,
    2004
  SubsidiarySubsidiary


Non-Guarantors


Guarantors


CombiningIssuer


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
)

$



$
57,729Cash flows from investing
    activities:Capital expenditures






(4,607
)


(3,094
)






(7,701
)Proceeds from sale of property,
    plant, and equipment






1,764



(7
)






1,757Proceeds from sale of marketable
    securities






1,037











1,037Net cash (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 (used in) provided by
    financing activities






(150,710
)


98,680







(52,030
)Effect of exchange rate changes










1,930







1,930Net increase (decrease) in cash and
    cash equivalents






2,824



(102
)






2,722Cash and cash equivalents,
    beginning of period






(156
)


41,693







41,537Cash and cash equivalents, end of
    period

$



$
2,668


$
41,591


$



$
44,259  F-47




---



##### Table of Contents



Dresser-Rand Group Inc.
  SCHEDULE II  VALUATION AND QUALIFYING
    ACCOUNTS AND RESERVES
 For the years ended December 31, 2006 and 2005, the
    period from October 29 through December 31, 2004
    (Successor),
 and the period from January 1 through October 29, 2004
    (Predecessor)
    ($ in thousands)
  Successor
  AdditionsBeginning


Charges to








EndingBalance at


Costs and


Charges to





Balance atDescription

01/01/06


Expenses


Other Accounts


Deductions


12/31/2006Allowance for Doubtful Accounts

$
8,649


$
771


$
116


$
3,422
(a)

$
6,114Valuation Allowance for Deferred
    Tax Asset


8,196



2,041



579
(b)


6,495
(c)


4,321      (a)
    
    - Impact of translation of ($432) and write-off of Bad Debts of
    $3,854.(b)
    
    - Impact of translation.(c)
    
    - Write-off of deferred tax assets.  AdditionsBeginning


Charges to








EndingBalance at


Costs and


Charges to





Balance atDescription

01/01/05


Expenses


Other Accounts


Deductions


12/31/2005Allowance for Doubtful Accounts

$
14,569


$
(242
)

$
792
(a)

$
6,470
(b)

$
8,649Valuation Allowance for Deferred
    Tax Asset


11,993



(1,674
)


(2,123
)(c)



(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).  AdditionsBeginning


Charges to








EndingBalance at


Costs and


Charges to





Balance atDescription

10/30/2004


Expenses


Other Accounts


Deductions


12/31/2004Allowance for Doubtful Accounts

$
14,483


$
327






$
241
(a)

$
14,569Valuation 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
  AdditionsBeginning


Charges to








EndingBalance at


Costs and


Charges to





Balance atDescription

01/01/2004


Expenses


Other Accounts


Deductions


10/29/2004Allowance for Doubtful Accounts

$
12,427


$
3,139






$
1,083
(a)

$
14,483Valuation 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. S-1