##### Table of Contents



Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-Q
 [X]
    
    Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934For the Quarterly Period Ended March 31, 2006[ ]
    
    Transition Report under Section 13 or 15(d) of the Exchange ActFor the Transition Period from                    to
  Dresser-Rand Group Inc.
 
  Delaware
    
    20-1780492(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 1200 West Sam
Houston Parkway, No.
Houston, TX
    
    77043(Address of principal executive offices)
    
    (Zip Code)
  
   
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PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited):Consolidated Statement of Operations for the three months ended March 31, 2006 and 2005
    
    
    3Consolidated Balance Sheet at March 31, 2006, and December 31, 2005
    
    
    4Consolidated Statement of Cash Flows for the three months ended March 31, 2006 and 2005
    
    
    5Notes to Unaudited Consolidated Financial Statements at March 31, 2006
    
    
    6-17Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18-23Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    25-27PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 6. Exhibits
    
    
    30Signatures
    
    
    31Exhibits
    
    
    32-35EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
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PART I.  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Three months ended March 31,2006
    
    
    2005Net sales of products
    
    $
    229,668
    
    
    $
    178,448Net sales of services
    
    
    61,887
    
    
    
    55,552Total revenues
    
    
    291,555
    
    
    
    234,000Cost of products sold
    
    
    180,283
    
    
    
    143,815Cost of services sold
    
    
    44,249
    
    
    
    42,476Total cost of products and services sold
    
    
    224,532
    
    
    
    186,291Gross Profit
    
    
    67,023
    
    
    
    47,709Selling and administrative expenses
    
    
    46,496
    
    
    
    37,361Research and development expenses
    
    
    2,083
    
    
    
    1,632Curtailment gain
    
    
    (11,796)
    
    
    
    Income from operations
    
    
    30,240
    
    
    
    8,716Interest expense, net
    
    
    (13,673
    )
    
    
    (15,233
    )Other income (expense), net
    
    
    1,900
    
    
    
    (180
    )Income (loss) before income taxes
    
    
    18,467
    
    
    
    (6,697
    )Provision (benefit) for income taxes
    
    
    6,151
    
    
    
    (2,679
    )Net income (loss)
    
    $
    12,316
    
    
    $
    (4,018
    )Net income (loss) per common share  basic and diluted
    
    $
    0.14
    
    
    $
    (0.07
    )
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March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)AssetsCurrent
assetsCash and cash equivalents
    
    $
    58,719
    
    
    $
    98,036Accounts receivable, less allowance for doubtful
accounts of $9,981 and $8,649 at 2006 and 2005
    
    
    223,660
    
    
    
    268,831Inventories, net
    
    
    184,297
    
    
    
    145,762Prepaid expenses
    
    
    28,154
    
    
    
    25,887Deferred income taxes, net
    
    
    11,058
    
    
    
    10,899Total current assets
    
    
    505,888
    
    
    
    549,415Property, plant and equipment, net
    
    
    224,810
    
    
    
    228,671Goodwill
    
    
    401,170
    
    
    
    393,300Intangible assets, net
    
    
    457,380
    
    
    
    460,919Other assets
    
    
    23,650
    
    
    
    25,566Total assets
    
    $
    1,612,898
    
    
    $
    1,657,871Liabilities and Stockholders EquityCurrent
liabilitiesAccounts payable and accruals
    
    $
    300,205
    
    
    $
    303,430Customer advance payments
    
    
    78,781
    
    
    
    84,695Accrued income taxes payable
    
    
    6,210
    
    
    
    4,988Loans payable
    
    
    68
    
    
    
    67Total current liabilities
    
    
    385,264
    
    
    
    393,180Deferred income taxes
    
    
    25,649
    
    
    
    22,586Postemployment and other employee benefit liabilities
    
    
    101,675
    
    
    
    113,861Long-term debt
    
    
    549,780
    
    
    
    598,137Other noncurrent liabilities
    
    
    14,955
    
    
    
    15,447Total liabilities
    
    
    1,077,323
    
    
    
    1,143,211Commitments
and contingencies (Notes 7 through 11)Stockholders
EquityCommon stock, $0.01 par value, 250,000,000 and 101,200,000 shares
authorized; and, 85,479,959 and 85,476,283 shares issued and
outstanding, respectively
    
    
    855
    
    
    
    855Additional paid-in capital
    
    
    493,603
    
    
    
    493,163Retained earnings
    
    
    56,640
    
    
    
    44,324Accumulated other comprehensive loss
    
    
    (15,523
    )
    
    
    (23,682
    )Total stockholders equity
    
    
    535,575
    
    
    
    514,660Total liabilities and stockholders equity
    
    $
    1,612,898
    
    
    $
    1,657,871
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Three Months Ended March 31,2006
    
    
    2005Cash flows
from operating activitiesNet income (loss)
    
    $
    12,316
    
    
    $
    (4,018
    )Adjustments to arrive at net cash provided by operating activities:Depreciation and amortization
    
    
    13,054
    
    
    
    16,951Curtailment gain
    
    
    (11,796
    )
    
    
    Deferred income taxes
    
    
    2,447
    
    
    
    (5,766
    )Amortization of debt financing costs
    
    
    2,007
    
    
    
    2,827Employee stock compensation
    
    
    440
    
    
    
    168(Net adjustment) provision for losses on inventory
    
    
    (121
    )
    
    
    1,403Minority interest, net of dividends
    
    
    (234
    )
    
    
    (326
    )Equity in undistributed losses
    
    
    
    
    
    
    411Loss on sale of property, plant and equipment
    
    
    85
    
    
    
    87Working
capital and otherAccounts receivable
    
    
    49,006
    
    
    
    81,060Inventories
    
    
    (36,365
    )
    
    
    (1,178
    )Accounts payable
    
    
    (2,606
    )
    
    
    5,112Customer advances
    
    
    (7,455
    )
    
    
    40,947Other
    
    
    (8,307
    )
    
    
    (19,786
    )Net cash provided by operating activities
    
    
    12,471
    
    
    
    117,892Cash flows
from investing activitiesCapital expenditures
    
    
    (3,198
    )
    
    
    (1,643
    )Proceeds from equity investment disposition
    
    
    
    
    
    
    10,000Net cash (used in) provided by investing activities
    
    
    (3,198
    )
    
    
    8,357Cash flows
from financing activitiesPayments of long-term debt
    
    
    (50,000
    )
    
    
    (85,685
    )Net cash used in financing activities
    
    
    (50,000
    )
    
    
    (85,685
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    1,410
    
    
    
    (747
    )Net (decrease) increase in cash and cash equivalents
    
    
    (39,317
    )
    
    
    39,817Cash and cash equivalents, beginning of the period
    
    
    98,036
    
    
    
    111,500Cash and cash equivalents, end of period
    
    $
    58,719
    
    
    $
    151,317
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1.
    
    Basis of presentation
  2.
    
    Recently issued accounting standards
 , Inventory
Costs, an Amendment of Accounting Research Bulletin No. 43, and Chapter 4
 Share-Based Payments Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 Exchanges of Non-monetary Assets Accounting for Non-monetary Transactions
 Accounting Changes and Error Corrections
 3.
    
    Curtailment gain
  4.
    
    Earnings per share
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5.
    
    Intangible assets and goodwill
  March 31, 2006
    
    
    Weighted
    
    
    December 31, 2005Accumulated
    
    
    Average
    
    
    
    
    
    
    Accumulated(In thousands of dollars)
    
    Cost
    
    
    Amortization
    
    
    Useful Lives
    
    
    Cost
    
    
    AmortizationTrade names
    
    $
    87,600
    
    
    $
    2,995
    
    
    40 years
    
    $
    87,600
    
    
    $
    2,448Customer relationships
    
    
    233,993
    
    
    
    8,325
    
    
    40 years
    
    
    232,219
    
    
    
    6,806Software
    
    
    30,553
    
    
    
    4,336
    
    
    10 years
    
    
    30,553
    
    
    
    3,571Existing technology
    
    
    126,577
    
    
    
    7,128
    
    
    25 years
    
    
    126,577
    
    
    
    5,800Order backlog
    
    
    26,325
    
    
    
    26,166
    
    
    15 months
    
    
    26,325
    
    
    
    25,561Non-compete agreement
    
    
    4,382
    
    
    
    3,100
    
    
    2 years
    
    
    4,382
    
    
    
    2,551Total amortizable intangible assets
    
    $
    509,430
    
    
    $
    52,050
    
    
    
    
    
    
    $
    507,656
    
    
    $
    46,737
   March 31,(In thousands of dollars)
    
    2006Beginning balance
    
    $
    393,300TES acquisition
    
    
    1,186Translation adjustments
    
    
    6,684Ending balance
    
    $
    401,170
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Final(In thousands of dollars)Accounts receivable
    
    $
    12,454Inventory
    
    
    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
  6.
    
    Inventories
  March 31,
    
    
    December 31,(In thousands of dollars)
    
    2006
    
    
    2005Raw materials and supplies
    
    $
    99,633
    
    
    $
    83,355Work-in-process and finished goods
    
    
    280,941
    
    
    
    257,488380,574
    
    
    
    340,843Less:Progress payments
    
    
    (196,277
    )
    
    
    (195,081
    )Total
    
    $
    184,297
    
    
    $
    145,762
  7.
    
    Income taxes
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8.
    
    Pension plans
  Three months ended March 31,(In thousands of dollars)
    
    2006
    
    
    2005Service cost
    
    $
    1,437
    
    
    $
    1,361Interest cost
    
    
    4,321
    
    
    
    4,322Expected return on plan assets
    
    
    (4,976
    )
    
    
    (4,737
    )Net
amortization of unrecognizedPlan net losses
    
    
    28
    
    
    
    Net pension expense
    
    $
    810
    
    
    $
    946
 9. Postretirement benefits other than pensions
  Three months ended March 31,(In thousands of dollars)
    
    2006
    
    
    2005Service cost
    
    $
    478
    
    
    $
    452Interest cost
    
    
    654
    
    
    
    673Curtailment gain
    
    
    (11,796
    )
    
    
    Net periodic postretirement benefits (gain) cost
    
    $
    (10,664
    )
    
    $
    1,125
 10.
    
    Commitments and contingencies
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11.
    
    Warranty accruals
   Three months ended March 31,(In thousands of dollars)
    
    2006
    
    
    2005Beginning balance
    
    $
    21,511
    
    
    $
    21,078Provision for warranties issued during period
    
    
    3,282
    
    
    
    1,899Adjustments to warranties issued in prior periods
    
    
    655
    
    
    
    744Payments during period
    
    
    (2,116
    )
    
    
    (3,297
    )Translation adjustments
    
    
    349
    
    
    
    (571
    )Ending balance
    
    $
    23,681
    
    
    $
    19,853
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12. Segment information
  1)
    
    New Units are highly engineered solutions to new customer requests. The segment includes
engineering, manufacturing, sales and administrative support.2)
    
    Aftermarket Parts and Services consist of aftermarket support solutions for the existing
population of installed equipment. The segment includes engineering, manufacturing, sales and
administrative support.
  Three months ended March 31,(In thousands of dollars)
    
    2006
    
    
    2005RevenuesNew units
    
    $
    139,079
    
    
    $
    88,265Aftermarket parts and services
    
    
    152,476
    
    
    
    145,735Total Revenues
    
    $
    291,555
    
    
    $
    234,000Operating IncomeNew units
    
    $
    (1,284
    )
    
    $
    (6,058
    )Aftermarket parts and services
    
    
    34,357
    
    
    
    23,844Unallocable
    
    
    (2,833
    )
    
    
    (9,070
    )Total Operating Income
    
    $
    30,240
    
    
    $
    8,716Depreciation and AmortizationNew units
    
    $
    6,479
    
    
    $
    6,451Aftermarket parts and services
    
    
    6,575
    
    
    
    10,500Total Depreciation and Amortization
    
    $
    13,054
    
    
    $
    16,951Total Assets (including Goodwill)New units
    
    $
    249,165
    
    
    $
    231,899Aftermarket parts and services
    
    
    546,955
    
    
    
    540,265Unallocable
    
    
    816,778
    
    
    
    897,150Total Assets
    
    $
    1,612,898
    
    
    $
    1,669,314
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13. Stockholders equity
  AccumulatedOtherCommon
    
    
    Additional
    
    
    Retained
    
    
    Comprehensive(In thousands of dollars)
    
    Stock
    
    
    Paid-in Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalAt December 31, 2005
    
    $
    855
    
    
    $
    493,163
    
    
    $
    44,324
    
    
    $
    (23,682
    )
    
    $
    514,660Stock based employee compensation
    
    
    
    
    
    
    440
    
    
    
    
    
    
    
    
    
    
    
    440Net income
    
    
    
    
    
    
    
    
    
    
    12,316
    
    
    
    
    
    
    
    12,316Other comprehensive income (loss)Currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,159
    
    
    
    8,159At March 31, 2006
    
    $
    855
    
    
    $
    493,603
    
    
    $
    56,640
    
    
    $
    (15,523
    )
    
    $
    535,575
  Three months ended March 31,(In thousands of dollars)
    
    2006
    
    
    2005Net income (loss)
    
    $
    12,316
    
    
    $
    (4,018
    )Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    8,159
    
    
    
    (13,743
    )Comprehensive income (loss)
    
    $
    20,475
    
    
    $
    (17,761
    )
  March 31,
    
    
    December 31,(In thousands of dollars)
    
    2006
    
    
    2005Minimum pension liability, net of tax
    
    $
    (6,002
    )
    
    $
    (6,002
    )Foreign currency translation adjustment
    
    
    (9,521
    )
    
    
    (17,680
    )Accumulated other comprehensive loss
    
    $
    (15,523
    )
    
    $
    (23,682
    )
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14. Supplemental guarantor financial information
   CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended March 31, 2006
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    Total(In thousands of dollars)Net sales
    
    $
    
    
    
    $
    167,848
    
    
    $
    154,806
    
    
    $
    (31,099
    )
    
    $
    291,555Cost of goods sold
    
    
    
    
    
    
    127,716
    
    
    
    128,200
    
    
    
    (29,301
    )
    
    
    226,615Gross profit
    
    
    
    
    
    
    40,132
    
    
    
    26,606
    
    
    
    (1,798
    )
    
    
    64,940Selling and administrative expenses
    
    
    350
    
    
    
    29,869
    
    
    
    16,607
    
    
    
    (330
    )
    
    
    46,496Curtailment gain
    
    
    
    
    
    
    (11,796
    )
    
    
    
    
    
    
    
    
    
    
    (11,796
    )(Loss) income from operations
    
    
    (350
    )
    
    
    22,059
    
    
    
    9,999
    
    
    
    (1,468
    )
    
    
    30,240Equity earnings (losses) in affiliates (net of tax)
    
    
    18,058
    
    
    
    1,597
    
    
    
    
    
    
    
    (19,655
    )
    
    
    Interest (expense) income, net
    
    
    (12,521
    )
    
    
    79
    
    
    
    (1,231
    )
    
    
    
    
    
    
    (13,673
    )Intercompany interest and fees
    
    
    1,434
    
    
    
    3,686
    
    
    
    (5,120
    )
    
    
    
    
    
    
    Other income, net
    
    
    1,221
    
    
    
    282
    
    
    
    397
    
    
    
    
    
    
    
    1,900Income (loss) before income taxes
    
    
    7,842
    
    
    
    27,703
    
    
    
    4,045
    
    
    
    (21,123
    )
    
    
    18,467(Benefit) provision for income taxes
    
    
    (4,474
    )
    
    
    9,204
    
    
    
    1,421
    
    
    
    
    
    
    
    6,151Net income (loss)
    
    $
    12,316
    
    
    $
    18,499
    
    
    $
    2,624
    
    
    $
    (21,123
    )
    
    $
    12,316
 CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended March 31, 2005
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    Total(In thousands of dollars)Net sales
    
    $
    
    
    
    $
    169,267
    
    
    $
    84,844
    
    
    $
    (20,111
    )
    
    $
    234,000Cost of goods sold
    
    
    46
    
    
    
    143,568
    
    
    
    64,420
    
    
    
    (20,111
    )
    
    
    187,923Gross profit (loss)
    
    
    (46
    )
    
    
    25,699
    
    
    
    20,424
    
    
    
    
    
    
    
    46,077Selling and administrative expenses
    
    
    336
    
    
    
    23,255
    
    
    
    13,770
    
    
    
    
    
    
    
    37,361(Loss) income from operations
    
    
    (382
    )
    
    
    2,444
    
    
    
    6,654
    
    
    
    
    
    
    
    8,716Equity earnings (losses) in affiliates (net of tax)
    
    
    6,251
    
    
    
    1,506
    
    
    
    
    
    
    
    (7,757
    )
    
    
    Interest expense, net
    
    
    (13,607
    )
    
    
    (109
    )
    
    
    (1,517
    )
    
    
    
    
    
    
    (15,233
    )Intercompany interest and fees
    
    
    (1,299
    )
    
    
    (1,647
    )
    
    
    2,946
    
    
    
    
    
    
    
    Other income (expense), net
    
    
    
    
    
    
    1,844
    
    
    
    (2,024
    )
    
    
    
    
    
    
    (180
    )(Loss) income before income taxes
    
    
    (9,037
    )
    
    
    4,038
    
    
    
    6,059
    
    
    
    (7,757
    )
    
    
    (6,697
    )Provision (benefit) for income taxes
    
    
    (5,019
    )
    
    
    
    
    
    
    2,340
    
    
    
    
    
    
    
    (2,679
    )Net (loss) income
    
    $
    (4,018
    )
    
    $
    4,038
    
    
    $
    3,719
    
    
    $
    (7,757
    )
    
    $
    (4,018
    )
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CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2006
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    Total(In thousands of dollars)ASSETSCash and cash equivalents
    
    $
    
    
    
    $
    7,782
    
    
    $
    50,937
    
    
    $
    
    
    
    $
    58,719Accounts and notes receivables net
    
    
    100
    
    
    
    87,285
    
    
    
    136,275
    
    
    
    
    
    
    
    223,660Inventories, net (excluding advance payments)
    
    
    
    
    
    
    120,742
    
    
    
    70,928
    
    
    
    (7,373
    )
    
    
    184,297Prepaid expenses and deferred income taxes
    
    
    5,323
    
    
    
    6,538
    
    
    
    27,351
    
    
    
    
    
    
    
    39,212Total current assets
    
    
    5,423
    
    
    
    222,347
    
    
    
    285,491
    
    
    
    (7,373
    )
    
    
    505,888Investment in affiliates
    
    
    1,068,306
    
    
    
    53,094
    
    
    
    
    
    
    
    (1,121,400
    )
    
    
    Property, plant, and equipment, net
    
    
    
    
    
    
    163,853
    
    
    
    60,957
    
    
    
    
    
    
    
    224,810Intangible assets, net
    
    
    
    
    
    
    519,604
    
    
    
    338,946
    
    
    
    
    
    
    
    858,550Other assets
    
    
    15,580
    
    
    
    5,017
    
    
    
    3,053
    
    
    
    
    
    
    
    23,650Total assets
    
    $
    1,089,309
    
    
    $
    963,915
    
    
    $
    688,447
    
    
    $
    (1,128,773
    )
    
    $
    1,612,898LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable and accruals
    
    $
    28,467
    
    
    $
    136,590
    
    
    $
    220,086
    
    
    $
    53
    
    
    $
    385,196Loans payable
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    68Total current liabilities
    
    
    28,467
    
    
    
    136,590
    
    
    
    220,154
    
    
    
    53
    
    
    
    385,264Long-term debt
    
    
    482,160
    
    
    
    (1
    )
    
    
    67,621
    
    
    
    
    
    
    
    549,780Intercompany accounts
    
    
    32,488
    
    
    
    (150,625
    )
    
    
    118,137
    
    
    
    
    
    
    
    Other noncurrent liabilities
    
    
    10,619
    
    
    
    90,292
    
    
    
    41,421
    
    
    
    (53
    )
    
    
    142,279Total liabilities
    
    
    553,734
    
    
    
    76,256
    
    
    
    447,333
    
    
    
    
    
    
    
    1,077,323Common stock
    
    
    855
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    855Other stockholders equity
    
    
    534,720
    
    
    
    887,659
    
    
    
    241,114
    
    
    
    (1,128,773
    )
    
    
    534,720Total stockholders equity
    
    
    535,575
    
    
    
    887,659
    
    
    
    241,114
    
    
    
    (1,128,773
    )
    
    
    535,575Total liabilities and stockholders equity
    
    $
    1,089,309
    
    
    $
    963,915
    
    
    $
    688,447
    
    
    $
    (1,128,773
    )
    
    $
    1,612,898
 Page 15 of 35




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CONDENSED CONSOLIDATING BALANCE SHEET
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 (excluding advance payments)
    
    
    
    
    
    
    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 noncurrent 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
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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 2006
 SubsidiarySubsidiary
    
    
    Non-Guarantors
    
    
    Guarantors
    
    
    ConsolidatingIssuer
    
    
    Entities
    
    
    Entities
    
    
    Adjustments
    
    
    Total(In thousands of dollars)Cash flows from operating activities:Net cash provided by (used in) operating activities
    
    $
    21,794
    
    
    $
    14,337
    
    
    $
    (25,128
    )
    
    $
    1,468
    
    
    $
    12,471Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (2,418
    )
    
    
    (780
    )
    
    
    
    
    
    
    (3,198
    )Net cash (used in) investing activities
    
    
    
    
    
    
    (2,418
    )
    
    
    (780
    )
    
    
    
    
    
    
    (3,198
    )Cash flows from financing activities:Payments of long-term debt
    
    
    (50,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )Change in intercompany accounts
    
    
    28,206
    
    
    
    (45,724
    )
    
    
    18,986
    
    
    
    (1,468
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (21,794
    )
    
    
    (45,724
    )
    
    
    18,986
    
    
    
    (1,468
    )
    
    
    (50,000
    )Effect of exchange rate changes
    
    
    
    
    
    
    
    
    
    
    1,410
    
    
    
    
    
    
    
    1,410Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (33,805
    )
    
    
    (5,512
    )
    
    
    
    
    
    
    (39,317
    )Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    41,587
    
    
    
    56,449
    
    
    
    
    
    
    
    98,036Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    7,782
    
    
    $
    50,937
    
    
    $
    
    
    
    $
    58,719
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 2005
 SubsidiarySubsidiary
    
    
    Non-
    
    
    ConsolidatingIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    Total(in thousands of dollars)Cash flows from operating activities:Net cash provided by operating activities
    
    $
    24,493
    
    
    $
    48,974
    
    
    $
    41,638
    
    
    $
    2,787
    
    
    $
    117,892Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (939
    )
    
    
    (704
    )
    
    
    
    
    
    
    (1,643
    )Proceeds from sale of equity investment
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    10,000Net cash provided by (used in) investing activities
    
    
    
    
    
    
    9,061
    
    
    
    (704
    )
    
    
    
    
    
    
    8,357Cash flows from financing activities:Payments of long-term debt
    
    
    (67,141
    )
    
    
    
    
    
    
    (18,544
    )
    
    
    
    
    
    
    (85,685
    )Change in intercompany accounts
    
    
    42,648
    
    
    
    (53,357
    )
    
    
    13,496
    
    
    
    (2,787
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (24,493
    )
    
    
    (53,357
    )
    
    
    (5,048
    )
    
    
    (2,787
    )
    
    
    (85,685
    )Effect of exchange rate changes
    
    
    
    
    
    
    
    
    
    
    (747
    )
    
    
    
    
    
    
    (747
    )Net increase in cash and cash equivalents
    
    
    
    
    
    
    4,678
    
    
    
    35,139
    
    
    
    
    
    
    
    39,817Cash and cash equivalents  beginning of year
    
    
    
    
    
    
    63,341
    
    
    
    48,159
    
    
    
    
    
    
    
    111,500Cash and cash equivalents  end of year
    
    $
    
    
    
    $
    68,019
    
    
    $
    83,298
    
    
    $
    
    
    
    $
    151,317
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Overview
   New Units
 Aftermarket Parts and Services
 Results of Operations
 Three months ended March 31, 2006 compared to three months ended March 31, 2005
 Period to Period ChangeThree months ended March
    
    
    Three months ended March31, 2006
    
    
    31, 2005
    
    
    2005 to 2006
    
    
    % ChangeStatement of Operations Data:
    
    (Dollars in millions)Total revenues
    
    $
    291.6
    
    
    
    100.0
    %
    
    $
    234.0
    
    
    
    100.0
    %
    
    $
    57.6
    
    
    
    24.6
    %Cost of goods sold
    
    
    224.6
    
    
    
    77.0
    
    
    
    186.3
    
    
    
    79.6
    
    
    
    38.3
    
    
    
    20.5
    %Gross profit
    
    
    67.0
    
    
    
    23.0
    
    
    
    47.7
    
    
    
    20.4
    
    
    
    19.3
    
    
    
    40.5
    %Selling and administrative expenses
    
    
    46.5
    
    
    
    15.9
    
    
    
    37.4
    
    
    
    16.0
    
    
    
    9.1
    
    
    
    24.5
    %Research and development expenses
    
    
    2.1
    
    
    
    0.7
    
    
    
    1.6
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    27.6
    %Curtailment gain
    
    
    (11.8
    )
    
    
    (4.0
    )
    
    
    0.0
    
    
    
    0.0
    
    
    
    (11.8
    )
    
    NMOperating income
    
    
    30.2
    
    
    
    10.4
    
    
    
    8.7
    
    
    
    3.7
    
    
    
    21.5
    
    
    
    246.9
    %Interest income (expense), net
    
    
    (13.6
    )
    
    
    (4.8
    )
    
    
    (15.2
    )
    
    
    (6.5
    )
    
    
    1.6
    
    
    
    (10.2
    )%Other income (expense), net
    
    
    1.9
    
    
    
    0.7
    
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    2.1
    
    
    NMIncome before income taxes
    
    
    18.5
    
    
    
    6.3
    
    
    
    (6.7
    )
    
    
    (2.9
    )
    
    
    25.2
    
    
    NMProvision for income taxes
    
    
    6.2
    
    
    
    2.1
    
    
    
    (2.7
    )
    
    
    (1.2
    )
    
    
    8.9
    
    
    NMNet income
    
    $
    12.3
    
    
    
    4.2
    %
    
    $
    (4.0
    )
    
    
    (1.7
    )%
    
    $
    16.3
    
    
    NMBookings
    
    $
    365.3
    
    
    
    
    
    
    $
    450.3
    
    
    
    
    
    
    $
    (85.0
    )
    
    
    (18.9
    )%Backlog  ending
    
    $
    993.8
    
    
    
    
    
    
    $
    851.6
    
    
    
    
    
    
    $
    142.2
    
    
    
    16.7
    %
 Total revenues.
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Cost of goods sold.
 Gross profit.
 Selling
and administrative expenses.
 Research and development expenses.
 Curtailment gain.
 Operating income.
 Interest expense, net.
 Other income (expense), net.
 Provision for income taxes.
 Bookings and backlog.
 Page 19 of 35




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Segment information
  1)
    
    New Units are highly engineered solutions to new customer requests.2)
    
    Aftermarket Parts and Services consist of aftermarket support solutions for the existing
population of installed equipment.
  Segment Analysis  Three Months ended March 31, 2006 compared to three months ended March 31, 2005
 Period to Period ChangeThree months ended March
    
    
    Three months ended March31, 2006
    
    
    31, 2005
    
    
    2005 to 2006
    
    
    % Change(Dollars in millions)Statement of Segment Data:RevenuesNew units
    
    $
    139.1
    
    
    
    47.7
    %
    
    $
    88.3
    
    
    
    37.7
    %
    
    $
    50.8
    
    
    
    57.6
    %Aftermarket parts and services
    
    
    152.5
    
    
    
    52.3
    %
    
    
    145.7
    
    
    
    62.3
    %
    
    
    6.8
    
    
    
    4.6
    %Total revenues
    
    $
    291.6
    
    
    
    100.0
    %
    
    $
    234.0
    
    
    
    100.0
    %
    
    $
    57.6
    
    
    
    24.6
    %Gross profitNew units
    
    $
    11.2
    
    
    
    
    
    
    $
    3.9
    
    
    
    
    
    
    $
    7.3
    
    
    
    190.8
    %Aftermarket parts and services
    
    
    55.8
    
    
    
    
    
    
    
    43.8
    
    
    
    
    
    
    
    12.0
    
    
    
    27.3
    %Total gross profit
    
    $
    67.0
    
    
    
    
    
    
    $
    47.7
    
    
    
    
    
    
    $
    19.3
    
    
    
    40.5
    %Operating incomeNew units
    
    $
    (1.3
    )
    
    
    
    
    
    $
    (6.1
    )
    
    
    
    
    
    $
    4.8
    
    
    
    (78.8
    )%Aftermarket parts and services
    
    
    34.4
    
    
    
    
    
    
    
    23.8
    
    
    
    
    
    
    
    10.6
    
    
    
    44.1
    %Unallocated corporate expense
    
    
    (2.9
    )
    
    
    
    
    
    
    (9.0
    )
    
    
    
    
    
    
    6.1
    
    
    
    (68.8
    )%Total operating income
    
    $
    30.2
    
    
    
    
    
    
    $
    8.7
    
    
    
    
    
    
    $
    21.5
    
    
    
    246.9
    %BookingsNew units
    
    $
    165.5
    
    
    
    
    
    
    $
    295.5
    
    
    
    
    
    
    $
    (130.0
    )
    
    
    (44.0
    )%Aftermarket parts and services
    
    
    199.8
    
    
    
    
    
    
    
    154.8
    
    
    
    
    
    
    
    45.0
    
    
    
    29.0
    %Total bookings
    
    $
    365.3
    
    
    
    
    
    
    $
    450.3
    
    
    
    
    
    
    $
    (85.0
    )
    
    
    (18.9
    )%Backlog  endingNew units
    
    $
    749.8
    
    
    
    
    
    
    $
    692.7
    
    
    
    
    
    
    $
    57.1
    
    
    
    8.2
    %Aftermarket parts and services
    
    
    244.0
    
    
    
    
    
    
    
    158.9
    
    
    
    
    
    
    
    85.1
    
    
    
    53.6
    %Total backlog
    
    $
    993.8
    
    
    
    
    
    
    $
    851.6
    
    
    
    
    
    
    $
    142.2
    
    
    
    16.7
    %
 New Units
 Revenues.
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Gross profit.
 Operating income.
 Bookings and backlog.
 Aftermarket Parts and Services
 Revenues
 Gross profit.
 Operating income.
 Bookings and backlog.
 Liquidity and Capital Resources
   Page 21 of 35




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Recently issued accounting standards
 , Inventory
Costs, an Amendment of Accounting Research Bulletin No. 43, and Chapter 4
 Share-Based Payments Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 Exchanges of Non-monetary Assets Accounting for Non-monetary Transactions
 Accounting Changes and Error Corrections
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 Risk Factors
  
    
    material weaknesses in our internal control over financial reporting;
 Page 22 of 35




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
    
    economic or industry downturns;
    
    our inability to implement our business strategy to increase our aftermarket parts and services revenue;
    
    competition in our markets;
    
    failure to complete or achieve the expected benefits from any future acquisitions;
    
    economic, political, currency and other risks associated with our international sales and operations;
    
    loss of our senior management;
    
    our brand name may be confused with others;
    
    environmental compliance costs and liabilities;
    
    failure to maintain safety performance acceptable to our clients;
    
    failure to negotiate new collective bargaining agreements;
    
    our ability to operate as a standalone company;
    
    unexpected product claims or regulations;
    
    infringement on our intellectual property or our infringement on others intellectual property; and
    
    other factors described in this report.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
   
 Page 24 of 35




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
    Material Weaknesses in Internal Control Over Financial Reporting
   Page 25 of 35




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a)
    
    We did not have a sufficient complement of personnel to have an appropriate
accounting and financial reporting organizational structure to support the activities
of the Company. Specifically, we did not have personnel with an appropriate level of
accounting knowledge, experience and training in the selection, application and
implementation of GAAP commensurate with our financial reporting requirements.b)
    
    We did not have an appropriate level of control consciousness as it relates to
the establishment and maintenance of policies and procedures with respect to the
primary components of information technology general controls. This resulted in either
not having appropriate controls designed and in place or not achieving operating
effectiveness over systems development, software change management, computer operations
and security, which are referred to as information technology general controls.
Additionally, we lacked a sufficient complement of personnel with a level of knowledge
and experience to have an appropriate information technology organizational structure.
 The control environment sets the tone of an organization, influences the control
consciousness of its people, and is the foundation of all other components of internal
control over financial reporting. These control environment material weaknesses contributed
to the material weaknesses discussed in 2 and 3 below.
 2.
    We did not have effective controls over certain of our accounts and disclosures because of
the following material weaknesses.
 a)
    
    We did not have effective controls over the preparation and review of the
interim and annual consolidated financial statements and disclosures. Specifically,
effective controls were not designed and in place over the process related to
identifying and accumulating all required supporting information to ensure the
completeness and accuracy of the consolidated financial statements and disclosures
including the required guarantor subsidiary financial statement disclosures as required
by Rule 3-10 of Regulation S-X.b)
    
    We did not have effective controls over the completeness and accuracy of
foreign currency translations related to our foreign affiliates. Specifically, our
controls over the translation of the step-up basis in property, plant and equipment
recorded as a result of the acquisition of certain foreign subsidiaries and the related
cumulative translation adjustment were not effectively designed to ensure that the
translated amounts were determined in accordance with generally accepted accounting
principles.c)
    
    We did not have effective controls over the valuation of accounts receivable.
Specifically, effective controls were not in place to ensure the proper determination
and review of the allowance for doubtful accounts.d)
    
    We did not have effective controls over the valuation of inventory.
Specifically, effective controls were not designed and in place to ensure the proper
determination and review of the obsolete and slow-moving inventory reserve at
period-end.e)
    
    We did not have effective controls over the timely preparation, review and
approval of certain account analyses and reconciliations. Specifically, we did not
have effective controls over the completeness and accuracy of supporting schedules and
underlying data supporting account reconciliations prepared for certain accounts
related to accounts receivable, payroll, inventory, property, plant and equipment and
accruals.f)
    
    We did not have effective controls over intercompany accounts. Specifically,
we did not have effective controls to ensure that intercompany account balances were
reconciled timely and properly eliminated in consolidation in accordance with generally
accepted accounting principles.g)
    
    We did not have effective controls over revenue recognition. Specifically, our
controls were not adequate to ensure the completeness and accuracy of revenues recorded
for contracts with non-standard terms and conditions.
 3.
    We did not design or have effective controls over segregation of duties, including access to
financial applications and data. Specifically, certain financial accounting and information
technology personnel had unrestricted and unmonitored access to critical financial
applications and data, which are significant to the financial statements, and that
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could lead to the creation, approval or processing of financial transactions, changes to
financial data or changes to application controls and processing, without appropriate review and
authorization.
  Remediation of Material Weaknesses
    Change in Internal Control Over Financial Reporting
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PART II.  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
     ITEM
1A. RISK FACTORS
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   For
    
    WithheldWilliam E. Macaulay
    
    81,964,738
    
    966,116Mark A. McComiskey
    
    81,847,205
    
    1,083,649Kenneth W. Moore
    
    81,879,100
    
    1,051,754Louis A. Raspino
    
    82,601,339
    
    329,515Philip R. Roth
    
    82,602,189
    
    328,665Thomas J. Sikorski
    
    81,819,585
    
    1,111,269Michael L. Underwood
    
    82,601,389
    
    329,465Vincent R. Volpe, Jr.
    
    71,375,977
    
    11,554,877
   For
    
    Against82,882,858
    
    41,560
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ITEM 6. EXHIBITS
  Exhibit 3.1
    
    Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the
Registrants Registration Statement on Form S-1 (File No. 333-124963) filed with the SEC on August 2, 2005 (the
Form S-1)).Exhibit 3.2
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrants Form S-1).Exhibit 31.1
    
    Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.Exhibit 31.2
    
    Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certification of the President and Chief Executive Officer pursuant to Title 18, United States Code, Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (This certification is
being furnished and shall not be deemed filed with the SEC for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into
any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically
incorporates it by reference.)Exhibit 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.)
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SIGNATURES
  DRESSER-RAND GROUP INC.May 15, 2006

/s/ Lonnie A. ArnettLonnie A. ArnettVice President, Controller and Chief
Accounting Officer and Duly Authorized Officer Page 31 of 35