PROSPECTUS FILING

424B4 1 y08819b4e424b4.htm PROSPECTUS FILING PROSPECTUS FILING

Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-124963 and 333-127219

PROSPECTUS

27,000,000 Shares

Dresser-Rand Group Inc.

Common Stock

Dresser-Rand Group Inc. is offering shares of its common stock. All of the 27,000,000 shares of common stock are being sold by us. We intend to use approximately $55.1 million of the net proceeds from the sale of the shares being sold in this offering to repay certain of our indebtedness and approximately $477.9 million of the net proceeds to pay a dividend to our stockholders existing immediately prior to this offering, consisting of affiliates of First Reserve and certain members of our management.

This is our initial public offering and no public market currently exists for our shares. Our common stock has been approved for listing on the New York Stock Exchange under the symbol “DRC,” subject to official notice of issuance.

The underwriters have the option to purchase up to an additional 4,050,000 shares of common stock from us at the initial public offering price less the underwriting discount to cover over-allotments. We intend to use the proceeds we receive from any shares sold pursuant to the underwriters’ over-allotment option to pay an additional dividend to our existing stockholders.

Investing in the common stock involves risks. See “Risk Factors” beginning on page 13.


					Proceeds,
	Initial Public		Underwriting		before expenses,
	Offering Price		Discount		to us

Per Share		$21.00		$1.26		$19.74
Total	$	567,000,000	$	34,020,000	$	532,980,000

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares to purchasers on August 10, 2005.


Morgan Stanley	Citigroup

UBS Investment Bank

Bear, Stearns & Co. Inc.

Goldman, Sachs & Co.

Lehman Brothers

Natexis Bleichroeder Inc.

Simmons & Company

International

Howard Weil Incorporated

August 4, 2005

DATUM compressor at STATOIL facility in Kollsnes, Norway

Dresser-Rand provides aftermarket parts and services to production facilities like

the Hibernia platform in Newfoundland, Canada.

TABLE OF CONTENTS


	Page

Prospectus Summary		1
Risk Factors		13
Special Note Regarding Forward-Looking Statements		27
Market and Industry Data		28
The Transactions		29
Use of Proceeds		33
Dividend Policy		33
Capitalization		35
Dilution		36
Unaudited Pro Forma Financial Information		38
Selected Historical Financial Information		44
Management’s Discussion and Analysis of Financial Condition and Results of Operations		47
Industry Overview		73
Business		77
Management		90
Principal Stockholders		104
Certain Related Party Transactions		106
Description of Indebtedness		108
Description of Capital Stock		114
Shares Eligible For Future Sale		118
Certain United States Federal Income and Estate Tax Consequences to Non-U.S. Holders		120
Underwriting		123
Validity of the Shares		127
Experts		127
Where You Can Find More Information		127
Index to Financial Statements		F-1

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell shares of common stock and seeking offers to buy shares of common stock, only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the shares of common stock.

Through and including August 29, 2005 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus, but it may not contain all of the information that is important to you. We urge you to read this entire prospectus including the “Risk Factors” section and the consolidated and combined financial statements and notes thereto, before investing in our common stock.

Unless the context otherwise indicates, as used in this prospectus, (i) the terms “we,” “our,” “us” and similar terms refer to Dresser-Rand Group Inc. and its consolidated subsidiaries after giving effect to the consummation of the acquisition and financing thereof as described in “The Transactions,” (ii) the term “issuer” refers to Dresser-Rand Group Inc. and not to any of its subsidiaries, (iii) the term “Dresser-Rand Entities” refers to the predecessors of the issuer (Dresser-Rand Company and its direct and indirect subsidiaries, Dresser-Rand Canada, Inc. and Dresser-Rand GmbH), and (iv) the term “Ingersoll-Rand” refers to Ingersoll-Rand Company Limited, a Bermuda corporation, and its predecessors, which sold its 51% interest in the Dresser-Rand Entities in the acquisition described in “The Transactions.”

Dresser-Rand Group Inc.

Our Business

We are among the largest global suppliers of rotating equipment solutions to the worldwide oil, gas, petrochemical and process industries. In 2004, approximately 94% of our combined revenues were generated from oil and gas infrastructure spending. Our services and products are used for a wide range of applications, including oil and gas production, high-pressure field injection and enhanced oil recovery, pipelines, refinery processes, natural gas processing, and petrochemical production. We believe we have the largest installed base in the world of the classes of equipment we manufacture, with approximately 38% of the total installed base of equipment in operation. Our extensive and diverse client base consists of most major and independent oil and gas producers and distributors worldwide, national oil and gas companies, and chemical and industrial companies. Our clients include Royal Dutch Shell, Exxon Mobil, BP, Statoil, Chevron, Petrobras, Pemex, PDVSA, Conoco, Lukoil, Marathon and Dow Chemical.

We operate globally with manufacturing facilities in the United States, France, Germany, Norway, India and Brazil and have 24 service and support centers worldwide. We have one of the broadest sales and services networks in the industry, with locations in all of the major international energy markets and established coverage of 105 countries. We believe our recent financial performance demonstrates our ability to improve our results through on-going commitment to operational excellence, as well as through the growth of our services-centered, solutions-based business model. At March 31, 2004 and March 31, 2005, our backlog was $520.0 million and $851.6 million, respectively, and we estimate that at June 30, 2005 our backlog was approximately $842.3 million. For the three months ended March 31, 2004 and March 31, 2005, we generated net income (loss) of $3.3 million and $(4.0) million, respectively, and EBITDA of $11.1 million and $25.5 million, respectively. For the year ended December 31, 2003, the period from January 1, 2004 through October 29, 2004 and the period from October 30, 2004 through December 31, 2004, we generated net income of $20.4 million, $42.2 million and $7.2 million, respectively, and EBITDA of $59.0 million, $73.7 million and $40.4 million, respectively. EBITDA is defined, reconciled and its importance explained in note 6 to “— Summary Historical and Pro Forma Financial Information.” These results reflect the impact of both our growth-oriented business realignment and our continued focus on operating efficiency.

Our business operates in two segments: new units and aftermarket parts and services. The following charts show the proportion of our revenue generated by segment, geography and end market for the periods indicated:


	*New Units*

We are a leading manufacturer of highly-engineered turbo and reciprocating compression equipment and steam turbines. Our products are custom-designed to client specifications for long-life, critical applications. We are the market leader in North America in new unit sales of turbo and reciprocating compressors and have consistently ranked in the top three in worldwide market share.


	*Aftermarket Parts and Services*

We offer a comprehensive range of aftermarket parts and services, including installation, maintenance, monitoring, operation, repairs, overhauls and upgrades. With a typical operating life of 30 years or more, rotating equipment requires substantial aftermarket parts and services over its operating life. The cumulative revenues from these aftermarket activities often significantly exceed the initial purchase price of a unit, which in many cases can be as low as five percent of the total life-cycle cost of the unit to the client.

The steady demand from our installed base for parts and aftermarket services represents a stable source of recurring revenues and cash flow. Moreover, with our value-based solutions strategy, we have a demonstrated track record of growth in this segment as a result of our focus on expanding our service offerings into new areas, including servicing other OEMs’ installed base of equipment, developing new technology upgrades and increasing our penetration of higher value-added services to our own installed base.

Competitive Strengths


	Global Presence and Market Leadership. We operate globally and provide coverage in 105 countries worldwide. We believe we are a leading provider of rotating equipment solutions in most of the markets we serve. We believe that rotating equipment solutions providers with global scale are positioned to disproportionately share in future industry growth as customers shift their business to the handful of companies with the ability to fulfill the full range of their equipment and service needs worldwide.

	Largest Installed Base in the Industry. As of December 31, 2004, we estimate that there were more than 77,000 of our units in operation. We believe this represents approximately 38% of all the units in our classes of products that are currently in operation and is the largest installed base of such equipment in the industry. This significant scale advantage offers a number of competitive benefits, including the opportunity to significantly grow our aftermarket parts and services business in light of an industry outsourcing trend, a substantial source of stable, recurring, high-margin aftermarket revenue, and the capacity to support both a high level of reinvestment in research and development and a global service center network that is difficult for competitors with a smaller installed base to match.


	Largest Network of Service and Support Centers. We have 24 service and support centers employing approximately 1,000 service personnel in 14 countries, providing coverage in 105 countries and offering a broad range of support services for both our own and other OEM’s equipment. Our coverage area of service centers servicing both turbo and reciprocating compressors is approximately 50% larger than that of our next closest competitor. Because many aftermarket parts and services sales decisions are made by clients at the local plant level on the basis of supplier expertise, local presence and response time, we believe that our global network protects our existing aftermarket activity and positions us for future growth in this business.

	Leading Technology Platform. Our research efforts center around leading technologies that maximize operating performance by increasing efficiency, durability, reliability and versatility. For example, we spent approximately five years and over $60 million to develop our DATUM turbo compressor platform. We believe this platform is more efficient than competing offerings, offers clients the lowest total cost of ownership, reduces emissions and noise levels and improves ease and speed of maintenance.

	Fastest Cycle Time. We believe we generally have the fastest cycle time (time from order booking to unit delivery) in the industry among manufacturers in our product range. On a typical oil and gas project, our fast cycle time can reduce unit delivery time by as much as twelve weeks, thus reducing project costs and providing earlier start-up of the production equipment.

	Substantial Investment in Systems. We have invested substantial resources to develop a number of key proprietary systems. These systems enable us to reduce costs, shorten cycle times, monitor our own and some of our competitors’ installed bases, effectively monitor and manage our responsiveness to client requests and manage the entire sales cycle from lead generation to order booking on a global basis.

	Strong and Experienced Management Team. Our management team has an average of 17 years experience with us, including our CEO who has been with us for 24 years, and has extensive industry experience and longstanding customer relationships. This management team has been responsible for the successful services revenue growth and cost reduction initiatives that have driven our increased profitability.

	Attractive Business Model. Our business model has several attractive features, including:


	•	Strong, Stable Cash Flow with Low Growth Capital Requirements. As a result of the recurring revenue from our aftermarket parts and services business, progress payments from customers that limit our need for additional working capital as we grow, and the moderate capital expenditures needed to support our services-based growth model, our business generates strong, recurring cash flows.

	•	Visibility. We have a high degree of visibility into our forecasted financial performance because a substantial portion of our new unit orders is booked six to nine months in advance of delivery. At March 31, 2005, our new units backlog was $692.7 million or 86.6% above the new units backlog at March 31, 2004.

Business Strategy

We intend to continue to focus on the oilfield, natural gas and energy sectors and thus expect to capitalize on the expected long-term growth in equipment and services investment in these sectors. Specifically, we intend to:


	Increase Sales of Aftermarket Parts and Services to Existing Installed Base. We are implementing a proactive approach to aftermarket parts and services sales that capitalizes on our newly created proprietary database of the installed base of our own and our competitors’ equipment.

	Expand Aftermarket Parts and Services Business to Non-Dresser-Rand OEM Equipment. We believe the aftermarket parts and services market for non-Dresser-Rand equipment represents a significant growth opportunity that we have only just begun to pursue on a systematic basis. We intend to


	capitalize on our expertise, broad network of service centers, flexible technology and existing client relationships with most major industry participants to grow our aftermarket parts and services solutions for non-Dresser-Rand equipment.

	Grow Alliances. In the past three years, we have seen a high level of interest among our clients in seeking alliances with us, and we have entered into agreements with more than 30 of our major clients. We plan to leverage our market leadership, global presence and comprehensive range of products and services to continue to take advantage of this trend by pursuing new client alliances as well as strengthening our existing alliances.

	Expand our Performance-Based Long-Term Service Contracts. We are growing the outsourced services market with our performance-based operations and maintenance solutions (known as our Availability+ program), which are designed to offer clients significant value (improved equipment performance, decreased life cycle cost and higher availability levels) versus the traditional services and products approach.

	Introduce New and Innovative Products and Technologies. We believe we are an industry leader in introducing new, value-added technology. Product innovation has historically provided, and we believe will continue to provide, significant opportunities to increase revenues from both new product sales and upgrades to our, and other OEMs’, installed base of equipment. We plan to continue developing innovative products, including new compressor platforms for subsea and underground applications, which would further open up new markets to us.

	Continue to Improve Profitability. Since the fourth quarter of 2002, we have implemented a number of productivity improvement programs across our entire company that have permitted us to streamline our operations. From September 30, 2002 through December 31, 2004, we consolidated eight facilities and reduced headcount from 5,942 to 4,631 employees, and have significantly increased our profitability. We are focused on continuing to improve our cost position in every area of our business, and we believe there is substantial opportunity to further increase our productivity in the future.

	Selectively Pursue Acquisitions. We intend to continue our disciplined pursuit of acquisition opportunities that fit our business strategy.

Risk Factors

Investing in our common stock involves substantial risk. You should carefully consider all the information in this prospectus prior to investing in our common stock. Our ability to execute our strategy is subject to the risks that are generally associated with the rotating equipment and services industry. For example, our profitability could decline due to a significant downturn in our clients’ markets, decrease in the consumption of oil, gas or petrochemicals, as well as unanticipated operating conditions, loss of customers and other factors that are not within our control. Our operations and properties are subject to stringent environmental laws and regulations that impose significant actual and potential costs on us, and future regulations could increase those costs. Furthermore, the heavily regulated nature of our clients’ industries imposes significant safety performance requirements on us, and we could lose the opportunity to bid on certain clients’ contracts if we do not meet those requirements.

We are also subject to a number of risks related to our competitive position and business strategies. For example, our acquisitive business strategy exposes us to the risks involved in consummating and integrating acquisitions, including the risk that in a future acquisition we could incur additional debt and contingent liabilities which could adversely affect our operating results. For additional risks relating to our business and the offering, see “Risk Factors” beginning on page 13 of this prospectus.

The Acquisition

On August 25, 2004, Dresser-Rand Holdings, LLC, our indirect parent and an affiliate of First Reserve Corporation (“First Reserve”), entered into an equity purchase agreement with Ingersoll-Rand to purchase all

of the equity interests in the Dresser-Rand Entities for approximately $1.13 billion. The acquisition closed on October 29, 2004. In connection with the acquisition, funds affiliated with First Reserve contributed $430 million in cash as equity to Dresser-Rand Holdings, LLC, which used this cash to fund a portion of the purchase price for the Dresser-Rand Entities. The remainder of the cash needed to finance the acquisition, including related fees and expenses, was provided by funds raised by the offering of our $420 million senior subordinated notes due 2014 (the “notes”) and borrowings under our $695 million senior secured credit facility. The senior secured credit facility consists of a $395 million term loan portion and a $300 million revolving portion. See “The Transactions.”

Recent Developments

On June 30, 2005, we announced that we had entered into an asset purchase agreement with Tuthill Corporation whereby we agreed to purchase certain assets of its Tuthill Energy Systems division. Tuthill Energy Systems is an international manufacturer of single- and multi-stage steam turbines and portable ventilators and manufactures under the Coppus, Murray and Nadrowski brands. The aggregate purchase price for the acquisition is approximately $58.7 million. The closing of this acquisition is subject to customary conditions, including the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. We intend to finance this acquisition with our available cash and/or borrowings under our senior secured credit facility and expect the acquisition to close later this year.

Company Information

Dresser-Rand Group Inc. is a Delaware corporation formed in October 2004. Our principal executive offices are located at Paul Clark Drive, Olean, New York 14760 and our telephone number is (716) 375-3000.

Our predecessor company was initially formed on December 31, 1986, when Dresser Industries, Inc. and Ingersoll-Rand entered into a partnership agreement for the formation of Dresser-Rand Company, a New York general partnership owned 50% by Dresser Industries, Inc. and 50% by Ingersoll-Rand. On October 1, 1992, Dresser Industries, Inc. purchased a 1% equity interest from Dresser-Rand Company. In September 1999, Dresser Industries, Inc. merged with Halliburton Industries, and Dresser Industries, Inc.’s ownership interest in Dresser-Rand Company transferred to Halliburton Industries. On February 2, 2000, a wholly-owned subsidiary of Ingersoll-Rand purchased Halliburton Industries’ 51% interest in Dresser-Rand Company.

The Offering



Shares of common stock offered by Dresser-Rand Group Inc.		27,000,000 shares.



Shares of common stock to be outstanding after this offering		85,444,887 shares (including 4,050,000 shares, adjusted for the elimination of any fractional shares, that will be dividended to our stockholders existing immediately prior to this offering, consisting of affiliates of First Reserve and certain members of our management, assuming the underwriters do not exercise their option to purchase additional shares and giving effect to the 0.537314-for-one reverse stock split we expect to effect immediately prior to the consummation of the offering).



Over-allotment option		4,050,000 shares.



Use of proceeds		We estimate that the net proceeds to us from this offering, after deducting underwriting discounts will be approximately $533.0 million. We intend to use approximately $55.1 million of the net proceeds to repay certain indebtedness. We intend to use net proceeds of approximately $477.9 million to pay a dividend to our stockholders existing immediately prior to the offering. See “Use of Proceeds.” We will pay the offering expenses out of cash on hand. We also intend to use the proceeds we receive from any shares sold pursuant to the underwriters’ over-allotment option to pay an additional dividend to our existing stockholders.



New York Stock Exchange symbol		“DRC”

Unless we specifically state otherwise, all information in this prospectus:


	•	assumes no exercise by the underwriters of their over-allotment option;

	•	gives effect to the 1,006,092.87-for-one stock split effected in February 2005 to achieve a price per share equivalent to the price per unit of Dresser-Rand Holdings, LLC as of the date of the acquisition;


	•	assumes that we issue an additional 4,050,000 shares, adjusted for the elimination of any fractional shares, of our common stock to our existing stockholders pursuant to a stock dividend that we will declare prior to the consummation of this offering, the terms of which will require that shortly after the expiration of the underwriters’ over-allotment option (assuming the option is not exercised in full), we issue to our existing stockholders the number of shares equal to (x) the number of additional shares the underwriters have an option to purchase minus (y) the actual number of shares the underwriters purchase from us pursuant to that option; and



	•	excludes 4,272,245 shares of common stock reserved for issuance under our 2005 Stock Incentive Plan and our 2005 Directors Stock Incentive Plan. Following the completion of this offering, approximately 1,500 shares will be granted to our independent director.

The size of the 0.537314-for-one reverse stock split referenced herein was intended to achieve an estimated share price between $19 and $21 per share.

Summary Historical and Pro Forma Financial Information

Prior to the closing of the transactions on October 29, 2004, Dresser-Rand Group Inc. did not have any assets, liabilities or results of operations. Therefore, the following summary historical financial information as of December 31, 2003 and for the years ended December 31, 2002 and 2003 and for the period from January 1, 2004 through October 29, 2004 has been derived from the audited combined financial statements of the Dresser-Rand Entities (the predecessors to Dresser-Rand Group Inc.), which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. The summary historical financial information as of December 31, 2004 and for the period from October 30, 2004 (our date of inception) to December 31, 2004 has been derived from the audited consolidated financial statements of Dresser-Rand Group Inc. The audited financial statements for the years ended December 31, 2002 and 2003, for the period from January 1, 2004 through October 29, 2004, for the period from October 30, 2004 through December 31, 2004 and as of December 31, 2003 and 2004 are included elsewhere in this prospectus. The Dresser-Rand Entities’ unaudited summary historical financial information for the three months ended March 31, 2004 has been derived from the Dresser-Rand Entities’ unaudited combined financial statements and related notes which are included elsewhere in this prospectus, and reflect all adjustments, consisting of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Dresser-Rand Entities’ financial position, results of operations and cash flows as of and for the period presented. Dresser-Rand Group Inc.’s unaudited summary historical financial information as of and for the three months ended March 31, 2005 has been derived from Dresser-Rand Group Inc.’s unaudited consolidated financial statements and related notes which are included elsewhere in this prospectus, and reflect all adjustments, consisting of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of Dresser-Rand Group Inc.’s financial position, results of operations and cash flows as of and for the period presented. Dresser-Rand Group Inc.’s results of operations for the three months ended March 31, 2005 are not necessarily indicative of our results of operations for the full year. The following summary unaudited pro forma balance sheet information as of March 31, 2005 has been prepared to give pro forma effect to this offering and the transactions as if they had occurred on March 31, 2005. The following summary unaudited pro forma statements of operations information for the year ended and for the three months ended December 31, 2004 and March 31, 2005 has been prepared to give pro forma effect to the offering and the transactions as if they had occurred on January 1, 2004. The pro forma adjustments used in preparing the pro forma financial information reflect our estimates of the purchase price allocation, which may change upon finalization of our analysis. The pro forma financial information is for informational purposes only and should not be considered indicative of actual results that would have been achieved had the transactions actually been consummated on the dates indicated and do not purport to indicate balance sheet information or results of operations as of any future date or any future period. This information is only a summary and should be read in conjunction with “Unaudited Pro Forma Financial Information,” “Selected Historical Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated and combined financial statements and the notes thereto included elsewhere in this prospectus.


	Predecessor											Successor

							Period					Period						Pro Forma			Pro Forma
	Year Ended						January 1		Three Months			October 30			Three Months			Year			Three Months
	December 31,						through		Ended			through			Ended			Ended			Ended
							October 29,		March 31,			December 31,			March 31,			December 31,			March 31,
	2002			2003			2004		2004			2004			2005			2004			2005

	(In thousands)
Statement of Operations Data:
Total revenues	$	1,031,353		$	1,335,350		$	715,495	$	170,348		$	199,907		$	234,000		$	915,402		$	234,000
Cost of goods sold		865,858			1,132,047			538,042		122,765			149,564			186,291			704,497			183,371

Gross profit		165,495			203,303			177,453		47,583			50,343			47,709			210,905			50,629
Selling and administrative expenses		138,484			156,129			122,700		39,636			21,499			37,361			143,094			37,361
Research and development expenses		8,044			8,107			5,670		1,524			1,040			1,632			6,710			1,632
Write-off of purchased in-process research and development assets		—			—			—		—			1,800			—			—			—
Restructuring charges(1)		5,185			—			—		—			—			—			—			—

Operating income		13,782			39,067			49,083		6,423			26,004			8,716			61,101			11,636
Interest income (expense), net		(776	)		1,938			3,156		(297	)		(9,654	)		(15,233	)		(50,103	)		(14,258	)
Other income (expense), net		15,000			(9,202	)		1,882		(2,385	)		(1,846	)		(180	)		36			(180	)

Income (loss) before income taxes		28,006			31,803			54,121		3,741			14,504			(6,697	)		11,034			(2,802	)
(Benefit) provision for income taxes(2)		11,910			11,438			11,970		431			7,275			(2,679	)		15,997			(1,121	)

Net income (loss)	$	16,096		$	20,365		$	42,151	$	3,310		$	7,229		$	(4,018	)	$	(4,963	)	$	(1,681	)


	Predecessor												Successor
																						Pro Forma
																			Pro Forma			Three
	Year Ended						Period January 1			Three Months			Period October 30			Three Months			Year			Months
	December 31,						through			Ended			through			Ended			Ended			Ended
							October 29,			March 31,			December 31,			March 31,			December 31,			March 31,
	2002			2003			2004			2004			2004			2005			2004			2005

	(In thousands, except share and per share data)
Earnings (loss) per share data(3)(4)(5):
Basic and diluted earnings (loss) per share:
Net income (loss)													$	0.07		$	(0.04	)	$	(0.06	)	$	(0.02	)
Weighted average shares														100,115,080			100,908,116			84,843,188			85,269,297
Cash flow data:
Cash flows provided by (used in) operating activities	$	42,029		$	50,963		$	57,729		$	(29,270	)	$	17,948		$	118,467
Cash flows provided by (used in) investing activities		3,813			(7,089	)		(4,907	)		172			(1,126,939	)		8,357
Cash flows provided by (used in) financing activities		(18,759	)		(63,487	)		(52,030	)		28,355			1,217,099			(86,260	)
Other financial data:
EBITDA(6)(7)(8)	$	62,604		$	58,974		$	73,680		$	11,071		$	40,427		$	25,487		$	127,413		$	28,407
Depreciation and amortization		33,822			29,109			22,715			7,033			16,269			16,951			66,276			16,951
Capital expenditures		13,670			7,590			7,701			906			1,791			1,643


				Successor
		Predecessor

		As of		As of		As of March 31, 2005
		December 31,		December 31,				Pro
		2003		2004		Actual		Forma

		(In thousands)
Balance Sheet Data:
Cash and cash equivalents		$	41,537	$	111,500	$	151,317	$	148,942
Property, plant and equipment, net			101,438		226,764		220,499		220,499
Total assets			1,063,875		1,751,074		1,669,314		1,664,894
Goodwill			10,214		423,330		411,186		411,186
Debt:
	Short-term debt		3,716		2,734		2,731		2,731
	Long-term debt, including current maturities		213		400,679		310,273		310,273
	Senior subordinated notes		—		420,000		420,000		370,000
Total debt			3,929		823,413		733,004		683,004
Partnership interest			565,035		—		—		—
Stockholders’ equity			—		452,897		435,304		484,713


(1)	Includes severance expenses and facility exit costs associated with our corporate restructuring activities.

(2)	On the closing date of the transactions we became a corporation subject to corporate income taxes in the United States. In the United States, we were a partnership during the Predecessor periods presented. The data presented does not give effect to income taxes we would have been required to recognize if we were organized as a corporation, except with regard to the pro forma period.

(3)	Historical basic and diluted earnings per share data has not been presented for the Predecessor because the Predecessor did not operate as a separate legal entity from Ingersoll-Rand.

(4)	For the Successor, basic and diluted earnings (loss) per share is calculated by dividing net earnings by the weighted average shares outstanding adjusted to reflect the 1,006,092.87-for-one stock split effected in February 2005.


(5)	Unaudited pro forma basic and diluted earnings (loss) per share have been calculated in accordance with the SEC rules for initial public offerings. These rules require that the weighted average share calculation give retroactive effect to any changes in our capital structure as well as the number of shares whose sale proceeds would be necessary to repay any debt or to pay any dividend as reflected in the pro forma adjustments. Therefore, pro forma weighted average shares for purposes of the unaudited pro forma basic and diluted earnings per share calculation, has been adjusted to reflect (i) the 0.537314-for-one reverse stock split we expect to effect immediately prior to the consummation of this offering and (ii) the stock dividend of 4,050,000 shares, adjusted for the elimination of any fractional shares, to our existing stockholders that will be made shortly after the expiration of the underwriters’ over-allotment option assuming no exercise of that option and 27,000,000 shares of our common stock being offered hereby.

(6)	EBITDA is defined as net income (loss) before interest, taxes, depreciation and amortization. EBITDA is not intended to represent cash flow from operations as defined by GAAP and should not be used as an alternative to net income as an indicator of operating performance or to cash flow as a measure of liquidity. While EBITDA is frequently used as a measure of operations and the ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by our investors and other interested parties, as well as by our management, in the evaluation of companies in our industry, many of which present EBITDA when reporting their results. In addition, EBITDA provides additional information used by our management and board of directors to facilitate internal comparisons to historical operating performance of prior periods. Further, management believes EBITDA facilitates their operating performance comparisons from period to period because it excludes potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as impact of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). The following table reconciles EBITDA to net income (loss):


	Predecessor										Successor
																			Pro Forma
						Period					Period					Pro Forma			Three
	Year Ended					January 1			Three Months		October 30		Three Months			Year			Months
	December 31,					through			Ended		through		Ended			Ended			Ended
						October 29,			March 31,		December 31,		March 31,			December 31,			March 31,
	2002		2003			2004			2004		2004		2005			2004			2005

	(In thousands)
Net income (loss)	$	16,096	$	20,365		$	42,151		$	3,310	$	7,229	$	(4,018	)	$	(4,963	)	$	(1,681	)
Provision (benefit) for income taxes		11,910		11,438			11,970			431		7,275		(2,679	)		15,997			(1,121	)
Interest expense (income) net		776		(1,938	)		(3,156	)		297		9,654		15,233			50,103			14,258
Depreciation and amortization		33,822		29,109			22,715			7,033		16,269		16,951			66,276			16,951

EBITDA	$	62,604	$	58,974		$	73,680		$	11,071	$	40,427	$	25,487		$	127,413		$	28,407

EBITDA is different from Adjusted EBITDA, which is a measure used in certain covenants contained in our debt instruments. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Covenant Compliance” for a discussion of this measure and the covenants in which it is used.


(7)	The following table provides supplemental information as to identified expenses that are reflected in EBITDA that are expected to be either reduced or increased, as applicable, due to the change in ownership of Dresser-Rand Group Inc. as a result of the acquisition:


	Predecessor												Successor
																			Pro Forma
													Period				Pro Forma		Three
	Year Ended						Period January 1			Three Months			October 30		Three Months		Year		Months
	December 31,						through			Ended			through		Ended		Ended		Ended
							October 29,			March 31,			December 31,		March 31,		December 31,		March 31,
	2002			2003			2004			2004			2004		2005		2004		2005

	(In thousands)
Net reduction in SFAS 106 expense(a)	$	8,512		$	10,033		$	9,322		$	3,178		$	—	$	—	$	—	$	—
Excess (additional) corporate allocation(b)		(4,876	)		3,816			2,122			626			—		—		2,122		—
Removal of incremental corporate overhead(c)		—			5,091			8,025			5,844			—		—		8,025		—
Pension(d)		(2,317	)		8,079			1,529			511			—		—		1,085		—
Compensation adjustment(e)		(832	)		(832	)		(693	)		(208	)		—		—		—		—

	$	487		$	26,187		$	20,305		$	9,951		$	—	$	—	$	11,232	$	—


	(a)	Reflects the adjustment to historical expense for the change in postretirement benefits other than pension expense due to Ingersoll-Rand’s retention of the obligations for all employees who are retired or eligible to retire as well as the results of actuarial valuations performed as of the transaction date for the portion retained by us.

	(b)	Reflects the difference between the corporate overhead expenses allocated to us by Ingersoll-Rand and our estimated annual stand-alone expenses.

	(c)	Reflects adjustment for removal of incremental corporate allocation initiated in 2003 by Ingersoll-Rand.

	(d)	Reflects an adjustment for additional funding of certain pension plans and the elimination of actuarial losses through purchase accounting.

	(e)	Reflects compensation expense related to the management equity program of $682,000 annually and CEO compensation adjustment of $150,000 annually.


(8)	The following table provides supplemental information as to unusual and other items that are reflected in EBITDA:


	Predecessor												Successor
																						Pro Forma
							Period						Period						Pro Forma			Three
	Year Ended						January 1			Three Months			October 30			Three Months			Year			Months
	December 31,						through			Ended			through			Ended			Ended			Ended
							October 29,			March 31,			December 31,			March 31,			December 31,			March 31,
	2002			2003			2004			2004			2004			2005			2004			2005

	(In thousands)
Restructuring costs	$	5,185		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Productivity measures(a)		—			11,696			4,679			3,470			(62	)		—			4,617			—
Nigeria loss contract(b)		—			4,843			6,437			1,818			206			—			6,643			—
Nigeria casualty losses(c)		—			2,750			—			—			—			—			—			—
Provision for obsolete material(d)		—			3,300			2,100			1,000			—			—			2,100			—
New York State grant(e)		(8,000	)		1,289			—			—			—			—			—			—
Equity (earnings) losses(f)		479			133			1,013			582			(194	)		411			819			411
Insurance claim(g)		(10,145	)		—			—			—			—			—			—			—
Settlement of product liability claim(h)		—			—			(4,500	)		(4,500	)		—			—			(4,500	)		—
China receivables(i)		—			—			970			—			—			—			970			—
Write-off of purchased in-process research and development assets		—			—			—			—			1,800			—			—			—
Inventory step-up write off(j)		—			—			—			—			2,281			2,920			—			—
Other expense (income)(k)		1,535			(2,976	)		(826	)		15			1,017			(54	)		191			(54	)

	$	(10,946	)	$	21,035		$	9,873		$	2,385		$	5,048		$	3,277		$	10,840		$	357


	(a)	Reflects severance expenses associated with our efficiency initiatives. These expenses were included in cost of goods sold and selling and administrative expenses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	(b)	Reflects losses under (i) a contract imposed on the business by Halliburton Industries terminated at the end of 2004, and (ii) a contract in Nigeria we were forced to exit because of force majeure.

	(c)	Reflects losses of inventory stocks resulting from a fire in a warehouse in Nigeria.

	(d)	Offsets impact of decision to increase obsolete and slow moving inventory reserve level. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	(e)	Reflects one-time income from a New York State grant for the year ended December 31, 2002, and one-time charge related to refunding a portion of the grant in the year ended December 31, 2003. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	(f)	Non-cash (gains) losses in joint ventures.

	(g)	Reflects gains from the settlement of an insurance claim relating to a fire that occurred in 2000.

	(h)	Reflects one-time gain from settlement of a legal claim. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	(i)	Reflects write-off of receivables related to business closure.

	(j)	As a result of the transactions, we wrote up inventory in the amount of $7.4 million. Of this amount, $2.3 million was expensed in the two-month period from October 30, 2004 through December 31, 2004 and $2.9 million was expensed in the three months ended March 31, 2005.


	(k)	Non-operating income and expense and other non-cash charges and credits. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

RISK FACTORS

Investing in our common stock involves substantial risk. You should carefully consider all the information in this prospectus prior to investing in our common stock. In particular, we urge you to consider carefully the factors below.

Risks Related to Our Business


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

In June 2004, the Public Company Accounting Oversight Board, or PCAOB, adopted rules for purposes of implementing Section 404 of the Sarbanes-Oxley Act of 2002, which included revised definitions of material weaknesses and significant deficiencies in internal control over financial reporting. The PCAOB defines a material weakness as “a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.” The new rules describe certain circumstances as being both significant deficiencies and strong indicators that a material weakness in internal control over financial reporting exists.

As a result of our transition from a subsidiary of a multinational company to a stand alone entity, we have identified a number of factors contributing to our conclusion that we have a material weakness, including the following:


	•	identification by our auditors of misstatements in internal drafts of our financial statements that were not initially identified by our internal control process, indicating a weakness with respect to our ability to properly monitor and account for non-routine transactions, and to apply GAAP in transactions subject to new or complex accounting pronouncements;

	•	the need for a Chief Financial Officer with SEC reporting experience, a Director of Financial Reporting with strong accounting and SEC reporting experience and additional skilled accounting and SEC experienced personnel to enhance the accounting department to remedy insufficient experience in public company accounting and periodic reporting matters among our existing staff;

	•	the need to develop a tax department;

	•	the need to develop a risk management department;

	•	the need to establish an internal audit department; and

	•	the need to enhance our documentation of our systems and controls.

We have already taken a number of actions to begin to address the items identified including:


	•	recently hiring an experienced Chief Financial Officer with broad finance and SEC reporting experience, a Chief Accounting Officer with significant accounting experience, a Director of Risk Management, a Director of Internal Audit and a General Counsel;

	•	engaging additional outside personnel to assist our internal personnel with audit work and SEC reporting;

	•	outsourcing our tax functions to a professional service firm; and

	•	evaluating external resources to supplement our Section 404 evaluation efforts.

While we have taken actions to address the items identified, additional measures will be necessary and these measures, along with other measures we expect to take to improve our internal controls, may not be sufficient to address the issues identified by our independent auditors or ensure that our internal controls are effective. If we are unable to provide reliable and timely financial reports our business and prospects could suffer material adverse

effects and our share price could be adversely affected. In addition, we may in the future identify further material weaknesses or significant deficiencies in our internal control over financial reporting.

Beginning with the year ending December 31, 2006, pursuant to Section 404 of the Sarbanes-Oxley Act, our management will be required to deliver a report that assesses the effectiveness of our internal control over financial reporting, and our auditors will be required to deliver an attestation report on management’s assessment of and operating effectiveness of internal controls. We have substantial effort ahead of us to complete documentation of our internal control system and financial processes, information systems, assessment of their design, remediation of control deficiencies identified in these efforts and management testing of the design and operation of internal controls. We may not be able to complete the required management assessment by our reporting deadline. An inability to complete and document this assessment could result in us receiving something other than an unqualified report from our auditors with respect to our internal controls. In addition, if material weaknesses are identified and not remediated with respect to our internal control over financial reporting, we would not be able to conclude that our internal controls over financial reporting were effective, which could result in the inability of our external auditors to deliver an unqualified report, or any report, on our internal controls. Inferior internal controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.

While a division of our prior owner, we had two “reportable conditions” in our internal financial controls:


	•	During the third quarter of 2003, a management review identified an issue relating to work-in-process inventory at two of our manufacturing locations. It was determined that certain work-in-process inventory had not been properly relieved upon shipment during the time period from 1999 through 2003, resulting in an overstatement of inventory. Management immediately began an extensive, in-depth review of our accounts and records. As a consequence of these problems, we implemented an internal review of the functions and processes at the two plants that were involved, identified gaps in our internal controls and put in place remedial measures. At the end of this review and remediation process, our auditors determined that we had successfully eliminated the weakness in our inventory controls.

	•	During June 2004, management uncovered an issue relating to payroll fraud at our U.S. Shared Services Unit in Olean, NY. It was determined that the payroll supervisor had misappropriated funds through the payroll system from February 1994 to June 2004. A thorough investigation was undertaken involving Dresser-Rand Company personnel, Ingersoll-Rand Internal Audit and the forensic investigations section of an independent accounting firm. The review of past payroll records from both Oracle (2/01 - 6/04) and GEAC (1/90 - 12/00) systems revealed that $1.042 million had been illegally processed through payroll and diverted to the payroll supervisor’s bank account. As part of the investigation, steps were taken to ensure that proper segregation of duties exist such that no one in the payroll, human resources or information technology areas has update capability for both the payroll and the human resources systems.


	*We will soon be subject to financial reporting and other requirements for which our accounting and other management systems and resources may not be adequately prepared.*

This registration will result in our becoming subject to reporting and other obligations under the Exchange Act. These reporting and other obligations will place significant demands on our management, administrative and operational resources, including our accounting resources. Since the transactions, we have continued to upgrade our systems, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. However, we may need to supplement our financial, administrative and other resources, and we may have underestimated the difficulties and costs of obtaining any required resources and successfully operating as an independent company. If we are unable to upgrade our financial and management controls, reporting systems and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired. Further, if we are late in filing certain SEC reports, it could constitute a default under our indenture and senior secured credit facility.


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

The businesses of most of our clients, particularly oil, gas and petrochemical companies, are, to varying degrees, cyclical and historically have experienced periodic downturns. Profitability in those industries is highly sensitive to supply and demand cycles and volatile product prices, and our clients in those industries historically have tended to delay large capital projects, including expensive maintenance and upgrades, during industry downturns. These industry downturns have been characterized by diminished product demand, excess manufacturing capacity and subsequent accelerated erosion of average selling prices. Demand for our new units and, to a lesser extent, aftermarket parts and services is driven by a combination of long-term and cyclical trends, including increased outsourcing of services, maturing oil and gas fields, the aging of the installed base of equipment throughout the industry, gas market growth and the construction of new gas infrastructure, and regulatory factors. In addition, the growth of new unit sales is generally linked to the growth of oil and gas consumption in markets in which we operate. Therefore, any significant downturn in our clients’ markets or in general economic conditions could result in a reduction in demand for our services and products and could harm our business and such downturns, or the perception that they may occur, could have a significant negative impact on the market price of our stock.


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

We estimate that we currently provide approximately 50% of the supplier-provided aftermarket parts and services needs of our own manufactured equipment base and less than two percent of the aftermarket parts and services needs of the equipment base of other manufacturers. Our future success depends, in part, on our ability to provide aftermarket parts and services to both our own and our competitors’ equipment base and our ability to develop and maintain our alliance relationships. Our ability to implement our business strategy successfully depends on a number of factors, including the success of our competitors in servicing the aftermarket parts and services needs of our clients, the willingness of our clients to outsource their service needs to us, the willingness of our competitors’ clients to outsource their service needs to us, and general economic conditions. We cannot assure you that we will succeed in implementing our strategy. See “Business—Business Strategy.”


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

We encounter competition in all areas of our business, principally in the new unit segment. The principal methods of competition in our markets include product performance, client service, product lead times, global reach, brand reputation, breadth of product line, quality of aftermarket service and support and price. Our clients increasingly demand more technologically advanced and integrated products, and we must continue to develop our expertise and technical capabilities in order to manufacture and market these products successfully. To remain competitive, we will need to invest continuously in research and development, manufacturing, marketing, client service and support and our distribution networks. In addition, our significant leverage and the restrictive covenants to which we are subject may harm our ability to compete effectively. In our aftermarket parts and services segment, we compete with our major competitors, small independent local providers and our clients’ in-house service providers. Other OEMs typically have an advantage in competing for services and upgrades to their own equipment. Failure to penetrate this market will adversely affect our ability to grow our business. In addition, our competitors are increasingly emulating our alliance strategy. Our alliance relationships are terminable without penalty by either party, and failure to maintain or enter into new alliance relationships will adversely affect our ability to grow our business.


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

We have at times used acquisitions as a means of expanding our business and expect that we will continue to do so. If we do not successfully integrate acquisitions, we may not realize operating advantages and cost savings. Future acquisitions may require us to incur additional debt and contingent liabilities, which may

materially and adversely affect our business, operating results and financial condition. The acquisition and integration of companies involve a number of risks, including:


	•	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.

We may not be able to maintain the levels of operating efficiency that acquired companies achieved separately. Successful integration of acquired operations will depend upon our ability to manage those operations and to eliminate redundant and excess costs. We may not be able to achieve the cost savings and other benefits that we would hope to achieve from acquisitions, which could have a material adverse effect on our business, financial condition and results of operations.


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

Since we manufacture and sell our products and services worldwide, our business is subject to risks associated with doing business internationally. For the year ended December 31, 2004, 39% of our net revenue was derived from North America, 18% from Latin America, 15% from Europe, 13% from Asia Pacific and 15% from the Middle East and Africa. Accordingly, our future results could be harmed by a variety of factors, including:


	•	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.

Our international operations are affected by global economic and political conditions. Changes in economic or political conditions in any of the countries in which we operate could result in exchange rate movements, new currency or exchange controls or other restrictions being imposed on our operations or expropriation. In addition, the financial condition of foreign clients may not be as strong as that of our current domestic clients.

Some of the international markets in which we operate are politically unstable and are subject to occasional civil and communal unrest, such as Venezuela and Western Africa. For example, in Nigeria we recently terminated a contract due to civil unrest. Riots, strikes, the outbreak of war or terrorist attacks in foreign locations, such as in the Middle East, could also adversely affect our business.

From time to time, certain of our foreign subsidiaries operate in countries that are or have previously been subject to sanctions and embargoes imposed by the U.S. government and the United Nations, including Iraq, Iran, Libya, Sudan and Syria. Those foreign subsidiaries sell compressors, turbines and related parts and accessories to customers including enterprises controlled by government agencies of these countries in the oil, gas, petrochemical and power production industries. Although these sanctions and embargoes do not prohibit those subsidiaries from selling products and providing services in such countries, they do prohibit the issuer and its domestic subsidiaries, as well as employees of our foreign subsidiaries who are U.S. citizens, from participating in, approving or otherwise facilitating any aspect of the business activities in those countries. These constraints on our ability to have U.S. persons, including our senior management, provide managerial oversight and supervision may negatively affect the financial or operating performance of such business activities.

In addition, some of these countries, including those named in the preceding paragraph, are or previously have been identified by the State Department as terrorist-sponsoring states. Because certain of our foreign subsidiaries have contact with and transact business in such countries, including sales to enterprises controlled by agencies of the governments of such countries, our reputation may suffer due to our association with these countries which may have a material adverse effect on the valuation of our stock. Further, certain U.S. states have recently enacted legislation regarding investments by pension funds and other retirement systems in companies that have business activities or contacts with countries that have been identified as terrorist-sponsoring states and similar legislation may be pending in other states. As a result, pension funds and other retirement systems may be subject to reporting requirements with respect to investments in companies such as ours or may be subject to limits or prohibitions with respect to those investments that may have a material adverse effect on the price of our shares.

Fluctuations in the value of the U.S. dollar may adversely affect our results of operations. Because our combined financial results are reported in U.S. dollars, if we generate sales or earnings in other currencies the translation of those results into U.S. dollars can result in a significant increase or decrease in the amount of those sales or earnings. In addition, our debt service requirements are primarily in U.S. dollars, even though a significant percentage of our cash flow is generated in euros or other foreign currencies. Significant changes in the value of the euro relative to the U.S. dollar could have a material adverse effect on our financial condition and our ability to meet interest and principal payments on U.S. dollar-denominated debt, including the notes and the U.S. dollar-denominated borrowings under the senior secured credit facility.

In addition, fluctuations in currencies relative to currencies in which our earnings are generated may make it more difficult to perform period-to-period comparisons of our reported results of operations. For purposes of accounting, the assets and liabilities of our foreign operations, where the local currency is the functional currency, are translated using period-end exchange rates, and the revenues and expenses of our foreign operations are translated using average exchange rates during each period.

In addition to currency translation risks, we incur currency transaction risk whenever we or one of our subsidiaries enters into either a purchase or a sales transaction using a currency other than the local currency of the transacting entity. Given the volatility of exchange rates, we cannot assure you that we will be able to effectively manage our currency transaction and/or translation risks. Volatility in currency exchange rates may have a material adverse effect on our financial condition or results of operations. We have purchased and may continue to purchase foreign currency hedging instruments protecting or offsetting positions in certain currencies to reduce the risk of adverse currency fluctuations. We have in the past experienced and expect to

continue to experience economic loss and a negative impact on earnings as a result of foreign currency exchange rate fluctuations.


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

As a result of the enhanced compliance processes implemented by us shortly prior to and following the acquisition of the Company from Ingersoll-Rand in October 2004, we have recently discovered that our Brazilian subsidiary engaged in a number of transactions that resulted in steam turbine parts and services being provided to Moa Nickel S.A., a Cuban mining company jointly owned by the Government of Cuba and Sherritt International Corp., a Canadian company. Our revenues from these transactions were approximately $4.0 million in the aggregate since December 1999, when we acquired a controlling interest in the Brazilian subsidiary. This amount represents approximately 0.08% of our consolidated revenues from 2000 through June 30, 2005. Of the $4.0 million, approximately $2.5 million in revenues were in connection with the sale of a spare part ordered in October 2003, which was delivered and installed in Cuba, with the assistance of non-U.S. employees of our Brazilian subsidiary, in May 2005. When these transactions came to our attention, we instructed our Brazilian subsidiary in July 2005 to cease dealings with Cuba. These transactions were apparently in violation of the U.S. Treasury Department’s Office of Foreign Assets Control’s regulations with respect to Cuba. We have informed the U.S. Treasury Department of these matters and are currently engaged in preliminary discussions with the Department. Our inquiry into these transactions is continuing and the Department’s review of this matter is in a very preliminary stage. Cuba is subject to economic sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control, and is identified by the U.S. State Department as a terrorist-sponsoring state. To the extent we violated any regulations with respect to Cuba or the Department determines that other violations have occurred, we will be subject to fines or other sanctions, including possible criminal penalties, with related business consequences. We do not expect these matters to have a material adverse effect on our financial performance. These matters may have a material adverse effect on the valuation of our stock, beyond any loss of revenue or earnings. In addition, the Department’s investigation into our activities with respect to Cuba may result in additional scrutiny of our activities with respect to other countries that are the subject of sanctions.


	*We might not be able to improve our operating efficiencies and productivity as much as we have in the past.*

Since the fourth quarter of 2002, we have engaged in restructuring and productivity improvement programs, which have had a positive impact on our results of operations. We intend to implement additional measures to enhance our operating efficiencies and productivity in the future. However, they may not have as positive an impact on our operating performance as such prior measures, and it is possible that they could impair our results of operations.


	*If we lose our senior management, our business may be adversely affected.*

The success of our business is largely dependent on our senior managers, as well as on our ability to attract and retain other qualified personnel. Six of the top members of our senior management team have been with us for over 20 years, including our Chief Executive Officer and president who has been with us for 24 years. In addition, there is significant demand in our industry for qualified engineers and mechanics. We cannot assure you that we will be able to attract and retain the personnel, including qualified mechanics and engineers, necessary for the development of our business. The loss of the services of key personnel or the failure to attract additional personnel as required could have a material adverse effect on our business, financial condition and results of operations.


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

Our operations and properties are subject to stringent U.S. and foreign, federal, state and local laws and regulations relating to environmental protection, including laws and regulations governing the investigation and clean up of contaminated properties as well as air emissions, water discharges, waste management and disposal and workplace health and safety. Such laws and regulations affect a significant percentage of our operations, are continually changing, are different in every jurisdiction and can impose substantial fines and sanctions for violations. Further, they may require substantial clean-up costs for our properties (many of which are sites of long-standing manufacturing operations) and the installation of costly pollution control equipment

or operational changes to limit pollution emissions and/or decrease the likelihood of accidental hazardous substance releases. We must conform our operations and properties to these laws and adapt to regulatory requirements in all jurisdictions as these requirements change.

We routinely deal with natural gas, oil and other petroleum products. As a result of our fabrication and aftermarket parts and services operations, we generate, manage and dispose of or recycle hazardous wastes and substances such as solvents, thinner, waste paint, waste oil, washdown wastes and sandblast material. Hydrocarbons or other hazardous substances or wastes may have been disposed or released on, under or from properties owned, leased or operated by us or on, under or from other locations where such substances or wastes have been taken for disposal. These properties may be subject to investigatory, clean-up and monitoring requirements under U.S. and foreign, federal, state and local environmental laws and regulations. Such liability may be imposed without regard to the legality of the original actions and without regard to whether we knew of, or were responsible for, the presence of such hazardous or toxic substances, and such liability may be joint and several with other parties. If the liability is joint and several, we could be responsible for payment of the full amount of the liability, whether or not any other responsible party also is liable.

We have experienced, and expect to continue to experience, both operating and capital costs to comply with environmental laws and regulations, including the clean-up and investigation of some of our properties as well as offsite disposal locations. In addition, although we believe our operations are in compliance with environmental laws and regulations and that we will be indemnified by Ingersoll-Rand for certain contamination and compliance costs (subject to certain exceptions and limitations), new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination, the imposition of new clean-up requirements, new claims for property damage or personal injury arising from environmental matters, or the refusal and/or inability of Ingersoll-Rand to meet its indemnification obligations could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition and results of operations. For more information on the limitations of Ingersoll-Rand’s indemnity, see “Business—Environmental and Government Regulation.”


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

Our U.S. clients are heavily regulated by the Occupational Safety & Health Administration, or OSHA, concerning workplace safety and health. Our clients have very high expectations regarding safety and health issues and require us to maintain safety performance records for our worldwide operations, field services, repair centers, sales and manufacturing plant units. Our clients often insist that our safety performance equal or exceed their safety performance requirements. We estimate that over 90% of our clients have safety performance criteria for their suppliers in order to be qualified for their “approved suppliers” list. For instance, BP, one of our largest customers in 2003, requires its suppliers to have an OSHA Recordable Incident Rate of 2.5 or less. If we fail to meet a client’s safety performance requirements, we may be removed from that client’s approved suppliers database and precluded from bidding on future business opportunities with that client.

In response to our clients’ requirements regarding safety performance, we maintain a database to measure our monthly and annual safety performance and track our incident rates. Our incident rates help us identify and track accident trends, determine root causes, formulate corrective actions, and implement preventive initiatives. Within the past two years, we have been removed from one client’s approved supplier database for failure to meet the client’s safety performance requirements. We cannot assure you that we will be successful in maintaining or exceeding our clients’ requirements in this regard or that we will not lose the opportunity to bid on certain clients’ contracts.


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

the United Brotherhood of Carpenters and Joiners of America whereby we hire skilled trade workers on a contract-by-contract basis. Our contract with the United Brotherhood of Carpenters and Joiners of America can be terminated by either party with 90 days’ prior written notice. Our operations in the following locations are unionized: Le Havre, France; Oberhausen, Germany; Kongsberg, Norway; and Naroda, India. Additionally, approximately 42% of our employees outside of the United States belong to industry or national labor unions. Although we believe that our relations with our employees are good, we cannot assure you that we will be successful in negotiating new collective bargaining agreements, that such negotiations will not result in significant increases in the cost of labor or that a breakdown in such negotiations will not result in the disruption of our operations.


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

Upon completion of this offering, First Reserve will continue to control a majority of our capital stock on a fully diluted basis. As a result, First Reserve has the ability to control our policies and operations including the appointment of management, the entering into of mergers, acquisitions, sales of assets, divestitures and other extraordinary transactions, future issuances of our common stock or other securities, the payments of dividends, if any, on our common stock, the incurrence of debt by us and amendments to our certificate of incorporation and bylaws. For example, First Reserve could cause us to make acquisitions that increase our indebtedness or to sell revenue-generating assets. Additionally, First Reserve is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. First Reserve may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. So long as First Reserve continues to own a significant amount of our equity, even if such amount is less than 50%, it will continue to be able to strongly influence or effectively control our decisions.

In addition, in connection with the acquisition, we entered into a stockholders agreement with First Reserve and certain management stockholders, which was amended and restated in connection with this offering. The stockholders agreement provides that for so long as First Reserve holds at least 5% of the outstanding shares of our common stock, it may designate all of the nominees for election to our board of directors other than any independent directors. All stockholders that are a party to the stockholders agreement are obligated to vote their shares in favor of such nominees. Independent directors will be designated for nomination by our board of directors, however such independent nominees must be reasonably acceptable to First Reserve for so long as its holds at least 5% of the outstanding shares of our common stock. For so long as First Reserve holds at least 20% of the outstanding shares of our common stock, many significant decisions involving us require the approval of a majority of our board of directors and at least one director designated for nomination by First Reserve who is also an officer of First Reserve Corporation. For example, the following transactions are subject to such approval requirements: any acquisition or sale of assets involving amounts in excess of one percent of sales during any twelve month period, or any acquisition of another business or any equity of another entity; any merger, consolidation, substantial sale of assets or dissolution involving us or any of our material subsidiaries; any declaration of dividends; the issuance of common stock or other securities of us or any of our material subsidiaries; and any amendment to our Certificate of Incorporation or comparable organizational documents of our material subsidiaries. Although state law is ambiguous regarding the extent to which fiduciary duties can be waived by contract, to the extent permitted by law, First Reserve has no implied or express duty to us or you regarding the approval or disapproval of these transactions. In addition, to the extent permitted by law, the stockholders agreement specifically provides that First Reserve and its affiliates may engage in material business transactions with us, pursue acquisition opportunities that may be complementary to us or make investments in companies that compete directly or indirectly against us, and will not be deemed to breach any fiduciary duty.


	We are a “controlled company” within the meaning of the New York Stock Exchange rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

Upon completion of this offering, First Reserve will continue to control a majority of our outstanding common stock. As a result, we are a “controlled company” within the meaning of the New York Stock Exchange corporate governance standards. Under the New York Stock Exchange rules, a company of which

more than 50% of the voting power is held by another company is a “controlled company” and may elect not to comply with certain New York Stock Exchange corporate governance requirements, including (1) the requirement that a majority of the board of directors consist of independent directors, (2) the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (3) the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors nor will our nominating and corporate governance and compensation committees consist entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the New York Stock Exchange corporate governance requirements.


	*Our historical financial information may not be comparable to future periods and some of it has not been audited or reviewed.*

The historical financial information included in this prospectus may not necessarily reflect our results of operations, financial position and cash flows in the future or the results of operations, financial position and cash flows that would have occurred if we had been a separate, independent entity during the periods presented. The historical financial information included in this prospectus does not reflect the many significant changes that have occurred in our capital structure, funding and operations as a result of the transactions or the additional costs we incur in operating as an independent company. For example, funds required for working capital and other cash needs historically were obtained from Ingersoll-Rand on an interest-free, intercompany basis without any debt service requirement. Furthermore, we were a limited partnership in the United States until October 29, 2004 and generally did not pay income taxes, but have since become subject to income taxes. The historical financial information included in this prospectus for the one month period ended January 31, 2000 and the eleven month period ended December 31, 2000 has not been audited or reviewed by an independent accountant.


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

Although we have a substantial operating history, prior to the acquisition we were not operating as a stand-alone company. As a result of the acquisition, we no longer have access to the borrowing capacity, cash flow, assets and services of Ingersoll-Rand and its other affiliates as we did while under Ingersoll-Rand’s control. We are a significantly smaller company than Ingersoll-Rand, with significantly fewer resources and less diversified operations. Consequently, our results of operations are more susceptible than those of Ingersoll-Rand to competitive and market factors specific to our business.

In addition, we entered into a transition services agreement with Ingersoll-Rand in connection with the acquisition whereby Ingersoll-Rand agreed to provide us with certain services including, among others, compensation delivery services, health and welfare administration, pension administration, legal services and other services. Once the transition periods specified in the transition services agreement have expired, or if Ingersoll-Rand does not or is unable to perform its obligations under the transition services agreement, we will be required to provide these services ourselves or to obtain substitute arrangements with third parties. We may be unable to provide these services due to financial or other constraints or be unable to implement substitute arrangements on terms that are favorable to us, or at all.


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

Because some of our products are used in systems that handle toxic or hazardous substances, a failure or alleged failure of certain of our products have resulted in and in the future could result in claims against our company for product liability, including property damage, personal injury damage and consequential damages. Further, we may be subject to potentially material liabilities relating to claims alleging personal injury as a result of hazardous substances incorporated into our products.


	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 success depends in part on our proprietary technology. We rely on a combination of patent, copyright, trademark, trade secret laws, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. If we fail to successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating results. We may be required to spend significant resources to monitor and police our intellectual property rights. Similarly, if we were to infringe on the intellectual property rights of others, our competitive position could suffer. Furthermore, we cannot assure you that any pending patent application or trademark application held by us will result in an issued patent or registered trademark, or that any issued or registered patents or trademarks will not be challenged, invalidated, circumvented or rendered unenforceable. Also, others may develop technologies that are similar or superior to our technology, duplicate or reverse engineer our technology or design around the patents owned or licensed by us.

Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products infringe their intellectual property rights. Any litigation or claims brought by or against us, whether with or without merit, or whether successful or not, could result in substantial costs and diversion of our resources, which could have a material adverse effect on our business, financial condition or results of operation. Any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual property and proprietary rights, subject us to significant liabilities, require us to seek licenses on unfavorable terms, prevent us from manufacturing or selling products and require us to redesign or, in the case of trademark claims, rename our products, any of which could have a material adverse effect on our business, financial condition and results of operations.


	*Our brand name may be subject to confusion.*

Our company’s name and principal mark is a combination of the names of our founder companies, Dresser Industries, Inc. and Ingersoll-Rand. We have acquired rights to use the “Rand” portion of our principal mark from Ingersoll-Rand, and the rights to use the “Dresser” portion of our name from Dresser, Inc., the successor of Dresser Industries, Inc., and an affiliate of First Reserve. If we lose the right to use either the “Dresser” or “Rand” portion of our name, our ability to build our brand identity could be negatively affected.

The common stock and certain debt securities of Ingersoll-Rand and certain debt securities of Dresser, Inc. are publicly traded in the United States. Acts or omissions by these unaffiliated companies may adversely affect the value of the “Dresser” and “Rand” brand names or the trading prices of our common stock. In addition, press and other third-party announcements or rumors relating to any of these unaffiliated companies may adversely affect the market prices of our common stock and demand for our services and products, even though the events announced or rumored may not relate to us, which in turn could adversely affect our results of operations and financial condition.


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

We supply products to the natural gas industry, which is subject to inherent risks, including equipment defects, malfunctions and failures and natural disasters resulting in uncontrollable flows of gas or well fluids, fires and explosions. These risks may expose our clients to liability for personal injury, wrongful death, property damage, pollution and other environmental damage. We also may become involved in litigation related to such matters. If our clients suffer damages as a result of the occurrence of such events, they may reduce their orders from us. Our business, consolidated financial condition, results of operations and cash flows could be materially adversely affected as a result of such risks.

Risks Related to Our Leverage


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

Our financial performance could be affected by our substantial indebtedness. As of March 31, 2005, our total indebtedness was approximately $733 million. In addition, we had approximately $125 million of borrowing capacity under the revolving portion of our senior secured credit facility after giving effect to approximately $175 million of outstanding letters of credit. We may also incur additional indebtedness in the future.

Our high level of indebtedness could have important consequences, including, but not limited to:


	•	making it more difficult to generate sufficient cash flows 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.

Our net cash flow generated from operating activities was $42.0 million, $51.0 million, $57.7 million, $17.9 million and $118.5 million for 2002, 2003, the period from January 1, 2004 through October 29, 2004, the period from October 30, 2004 through December 31, 2004 and the three months ended March 31, 2005, respectively. Our high level of indebtedness requires that we use a substantial portion of our cash flow from operations to pay principal of, and interest on, our indebtedness, which will reduce the availability of cash to fund working capital requirements, capital expenditures, research and development or other general corporate or business activities, including future acquisitions.

In addition, a substantial portion of our indebtedness bears interest at variable rates. If market interest rates increase, debt service on our variable-rate debt will rise, which would adversely affect our cash flow.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to sell assets, seek additional capital or seek to restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.


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

Our ability to make payments on and to refinance our debt, and to fund planned capital expenditures and research and development efforts, will depend on our ability to generate cash. Our ability to generate cash is subject to economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior secured credit facility or otherwise in an amount sufficient to enable us to pay our debt, or to fund our other liquidity needs. We may need to refinance all or a portion of our debt on or before maturity. We might be unable to refinance any of our debt, including our senior secured credit facility or the notes, on commercially reasonable terms.


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

Our senior secured credit facility and the indenture governing our notes contain a number of significant restrictions and covenants that limit our ability to:


	•	incur liens;

	•	borrow money, guarantee debt and, in the case of restricted subsidiaries, sell preferred stock;

	•	issue redeemable preferred stock;

	•	pay dividends;

	•	make redemptions and repurchases of certain capital stock;

	•	make capital expenditures and specified types of investments;

	•	prepay, redeem or repurchase subordinated debt;

	•	sell assets or engage in acquisitions, mergers, consolidations and asset dispositions;

	•	amend material agreements;

	•	change the nature of our business;

	•	engage in affiliate transactions; and

	•	restrict dividends or other payments from restricted subsidiaries.

The senior secured credit facility also requires us to comply with specified financial ratios and tests, including but not limited to, a maximum consolidated net leverage ratio and a minimum consolidated interest coverage ratio.

These covenants could materially and adversely affect our ability to finance our future operations or capital needs. Furthermore, they may restrict our ability to expand, pursue our business strategies and otherwise conduct our business. Our ability to comply with these covenants may be affected by circumstances and events beyond our control, such as prevailing economic conditions and changes in regulations, and we cannot be sure that we will be able to comply. A breach of these covenants could result in a default under the indenture governing the notes and/or the senior secured credit facility. If there were an event of default under the indenture governing the notes and/or the senior secured credit facility, the affected creditors could cause all amounts borrowed under these instruments to be due and payable immediately. Additionally, if we fail to repay indebtedness under our senior secured credit facility when it becomes due, the lenders under the senior secured credit facility could proceed against the assets and capital stock which we have pledged to them as security. Our assets and cash flow might not be sufficient to repay our outstanding debt in the event of a default.


	Because most of the proceeds from this offering will be used to pay a dividend to our current stockholders, only a small portion of the proceeds will be used to repay our existing debt and none of such proceeds will be used to further invest in our business.

We estimate that the net proceeds from the sale by us of the shares of common stock being offered hereby, after deducting underwriting discounts, will be approximately $533.0 million. We intend to use approximately $55.1 million of the net proceeds to repay certain indebtedness. We intend to use net proceeds of approximately $477.9 million to pay a dividend to our stockholders existing immediately prior to the offering. This leaves no proceeds to further invest in and grow our business. See “Use of Proceeds.”

Risks Related To This Offering


	*There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity.*

Prior to this offering, there has not been a public market for our common stock. Our common stock has been approved for listing on the New York Stock Exchange, subject to official notice of issuance. However, we cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the New York Stock Exchange or otherwise or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The

initial public offering price for the shares was determined by negotiations between us and the representatives of the underwriters based on numerous factors that we discuss in the “Underwriting” section of this prospectus and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common stock at prices equal to or greater than the price you paid in this offering.


	*Future sales of our shares could depress the market price of our common stock.*

The market price of our common stock could decline as a result of sales of a large number of shares of common stock in the market after the offering or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

We, D-R Interholding, LLC, our executive officers and directors and affiliates of First Reserve have agreed with the underwriters not to sell, dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock, subject to specified exceptions, during the period from the date of this prospectus continuing through the date that is 180 days after the date of this prospectus, except with the prior written consent of Morgan Stanley & Co. Incorporated and Citigroup Global Markets Inc. See “Underwriting.”

After this offering, we will have 85,444,887 shares of common stock outstanding. Of those shares, the 27,000,000 shares we are offering will be freely tradable. The 54,394,897 shares that were outstanding immediately prior to this offering, plus up to an additional 4,050,000 shares, adjusted for the elimination of any fractional shares, that will be dividended to our existing stockholders in the event the over-allotment option is not exercised in full, will be eligible for resale from time to time after the expiration of the 180-day lock-up period, subject to contractual and Securities Act restrictions. None of those shares may currently be resold under Rule 144(k) without regard to volume limitations and no shares may currently be sold subject to volume, manner of sale and other conditions of Rule 144. After the expiration of the 180-day lock-up period, First Reserve and their affiliates, which collectively beneficially own approximately 53.3 million shares (approximately 57.3 million shares in the event the over-allotment option is not exercised), will have the ability to cause us to register the resale of their shares and certain other holders of our unregistered common stock will be able to participate in such registration.


	*The market price of our common stock may be volatile, which could cause the value of your investment to decline.*

Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common stock in spite of our operating performance. In addition, our operating results could be below the expectations of securities analysts and investors, and in response, the market price of our common stock could decrease significantly. As a result, the market price of our common stock could decline below the initial public offering price. You may be unable to resell your shares of our common stock at or above the initial public offering price. Among other factors that could affect our stock price are:


	•	actual or anticipated variations in operating results;

	•	changes in 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 the 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 or other strategic initiatives.

In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could

result in substantial costs and a diversion of management attention and resources, which could significantly harm our profitability and reputation.


	*The book value of shares of common stock purchased in the offering will be immediately diluted and may be subject to additional dilution in the future.*

The initial public offering price per share of our common stock is substantially higher than our pro forma net tangible book value per common share immediately after the offering. As a result, you may pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. Investors who purchase common stock in the offering will be diluted by $25.61 per share after giving effect to the sale of shares of common stock in this offering, assuming the dividend of 4,050,000 shares, adjusted for the elimination of any fractional shares, to the existing stockholders in the event the over-allotment option is not exercised. If we grant options in the future to our employees, and those options are exercised or other issuances of common stock are made, there will be further dilution.


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

Provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law could make it more difficult for a third party to acquire us. Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions. For example, our amended and restated certificate of incorporation authorizes our board of directors to determine the rights, preferences, privileges and restrictions of unissued series of preferred stock, without any vote or action by our stockholders. Thus, our board of directors can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of our common stock. These rights may have the effect of delaying or deterring a change of control of our company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. See “Description of Capital Stock.”

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes “forward-looking statements.” These forward looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditure, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical information. When used in this prospectus, the words “anticipates,” “believes,” “expects,” “intends” and similar expressions identify such forward-looking statements. Although we believe that such statements are based on reasonable assumptions, these forward-looking statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. These factors, risks and uncertainties include, among others, the following:


	•	material weaknesses in our internal controls;

	•	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 and other risks associated with our international sales and operations;

	•	loss of our senior management;

	•	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 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 prospectus.

Our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them does, what impact they will have on our results of operations and financial condition. We undertake no obligation to update or revise forward-looking statements which may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.

MARKET AND INDUSTRY DATA

The data included in this prospectus regarding industry size and relative industry position are based on a variety of sources, including company research, third-party studies and surveys, industry and general publications and estimates based on our knowledge and experience in the industry in which we operate. These sources include publications by the International Compressed Air and Allied Machinery Committee, the National Electrical Manufacturers Association, the Gas Processors Association, the Gas Processors Suppliers Association, the Hydrocarbon Processing Industry, the Energy Information Administration, the National Petroleum Council, the National Petrochemical and Refiners Association, the American Petroleum Institute, Oil & Gas Journal magazine, Diesel and Gas Turbine World magazine, the International Energy Agency as well as information derived from our technology enabled selling system, D-R Avenue, and our CRM system, Client Interface Response System. Our estimates have been based on information obtained from our clients, suppliers, trade and business organizations and other contacts in the industry. We believe these estimates to be reliable as of the respective date of each report and as of the date of this prospectus. However, this information may prove to be inaccurate due to the method by which such sources may have obtained their data or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. Forecasts are particularly likely to be inaccurate, especially over long periods of time. As an example of the unpredictable nature of these forecasts, in 1983, the U.S. Department of Energy forecast that oil would cost $74 per barrel in 1995; however, the price of oil in 1995 was actually $17 per barrel. In addition, we do not know what assumptions regarding general economic growth were used in preparing the forecasts we cite.

THE TRANSACTIONS

The following contains summaries of the terms of the material agreements that were entered into in connection with the acquisition. The descriptions of such agreements do not purport to be complete and are qualified in their entirety by reference to such agreements. Such agreements have been filed as exhibits to the registration statement of which this prospectus is a part.

The Acquisition


	*General*

On August 25, 2004, Dresser-Rand Holdings, LLC entered into an equity purchase agreement with Ingersoll-Rand to purchase all of the equity interests in the Dresser-Rand Entities for approximately $1.13 billion. The acquisition closed on October 29, 2004.

In order to determine the post-closing purchase price adjustments, the agreement required that Ingersoll-Rand deliver to Dresser-Rand Holdings, LLC, shortly before the closing date, an estimated net cash statement and an estimated client prepayments statement, and within 90 days of the closing date, a closing working capital statement, a closing net cash statement and a closing client prepayments statement. If the parties do not agree on the appropriate adjustments within a specified time period, the determination will be referred to an independent accounting firm for resolution. The purchase price will be increased or decreased to account for any difference between:


	•	the final net working capital amount and $149,677,999;

	•	the final net cash amount and the estimated net cash amount; and

	•	the final client prepayments amount and the estimated client prepayments amount.

As of April 11, 2005, Ingersoll-Rand had provided all three closing statements, resulting in a purchase price reduction of $2.4 million, which is subject to final approval and agreement from Dresser-Rand Holdings, LLC and has been reflected in the historical financial information included in this prospectus. We anticipate final agreement on the purchase price adjustment will be reached sometime during the third quarter of 2005.

In addition, the following additional amounts were paid to Dresser-Rand Holdings, LLC at, or following, the closing date: (1) $17.0 million, which amount equals certain retiree welfare benefits less certain overdue receivables, (2) $25.9 million with respect to defined benefit pension fund deficiencies in defined pension plans and (3) $4.6 million for supplemental management compensation earned during the first ten months of 2004.

In connection with the acquisition, funds affiliated with First Reserve contributed an aggregate of $430.0 million to Dresser-Rand Holdings, LLC, our indirect parent, in exchange for all the membership interests in Dresser-Rand Holdings, LLC. Pursuant to an agreement reached with management prior to our acquisition by funds affiliated with First Reserve, certain members of management were offered the opportunity in October 2004 to acquire common units in Dresser-Rand Holdings, LLC at the same price per unit paid by the funds affiliated with First Reserve in connection with the acquisition. Executives who purchased common units were also issued profit units in Dresser-Rand Holdings, LLC, which permit them to indirectly share in appreciation in the value of our shares. After a period of several weeks to evaluate the offer, certain of our executive officers, including our Chief Executive Officer and each of our four other most highly compensated executive officers availed themselves of this opportunity in November and invested cash equity in Dresser-Rand Holdings, LLC, which commensurately reduced First Reserve’s percentage interest in Dresser-Rand Holdings, LLC. Dresser-Rand Holdings, LLC used First Reserve’s equity contribution, borrowings under the senior secured credit facility and the proceeds from the notes offering to fund the acquisition and to pay fees and expenses related to the transactions.


	*The Equity Purchase Agreement*

The equity purchase agreement contains customary seller representations and warranties, customary buyer representations and warranties and customary covenants and other agreements between the sellers and Dresser-Rand Holdings, LLC.

The equity purchase agreement provides for indemnification for losses relating to specified events, circumstances and matters. The sellers have agreed to indemnify Dresser-Rand Holdings, LLC for certain liabilities, including:


	•	any losses arising from the inaccuracy or breach of certain representations and warranties of the sellers contained in the equity purchase agreement;

	•	any losses arising from breaches or defaults in the performance of any covenant, undertaking or other agreement or obligation of the sellers pursuant to the equity purchase agreement;

	•	any claim related to the sale or use of products containing asbestos;

	•	any claim for personal injury or property damage alleging defect in design, manufacture, materials or workmanship, or an alleged failure to exercise reasonable care in repair, service or maintenance, or failure to warn or provide adequate warning relating to the Dresser-Rand Entities’ products shipped prior to the closing;

	•	specified pre-closing taxes; and

	•	specified environmental liabilities.

The equity purchase agreement does not allow Dresser-Rand Holdings, LLC to make a claim for indemnification for any loss relating to a breach of a representation or warranty or covenant unless the losses for any claim or series of related claims exceed a de minimus limitation of $50,000 (other than for losses relating to several specified representations and warranties not subject to the de minimis limitation). The sellers’ indemnification obligations with respect to breaches of representations and warranties and covenants are subject to a “basket” of $18 million in damages (other than for losses relating to several specified representations and warranties and covenants not subject to this basket). After Dresser-Rand Holdings, LLC has incurred damages as a result of breaches of representations and warranties contained in the equity purchase agreement that are in excess of the basket, the sellers are required to indemnify Dresser-Rand Holdings, LLC up to a cap of 33¹/3% of the purchase price (other than for losses relating to several specified representations and warranties and covenants not subject to the cap). Asbestos liability and products liability are not subject to the cap or basket, and taxes are not subject to either the cap, the basket or the de minimis limitation. Claims for breach of representations and warranties generally expire after 18 months, although breaches of the environmental and tax representations and warranties expired at closing, and several specified representations and warranties survive without limitations.

The equity purchase agreement provides that, with the exception of non-Superfund off-site liabilities and non-asbestos environmental tort cases, which have a three-year time limit for a claim to be filed, Ingersoll-Rand will remain responsible without time limit for certain specified known environmental liabilities that exist as of the closing date. Each of these liabilities is to be placed on The Environmental Remediation and Compliance Schedule to the equity purchase agreement (the “Final Schedule”). We will be responsible for all liabilities that were not identified prior to the closing date and placed on the Final Schedule. To determine which matters will be included on the Final Schedule, we conducted Phase I and Phase II assessments at 30 Dresser-Rand Entity facilities.

The equity purchase agreement provides that the Final Schedule will include all noncompliance and contamination matters identified in the Phase I and Phase II assessments that the parties agree should be included thereon. A contamination matter will be included on the Final Schedule if it meets one of several standards, the most important of which is that if such contamination matter were known by the applicable governmental authority, that authority would be expected to require a response action (which is broadly defined to include not only cleanup, but investigation and monitoring). For purposes of inclusion on the Final Schedule, contamination matters are broadly defined to include each known point of contamination plus all

additional contamination associated with, or identified during an investigation of, such known point of contamination. Pursuant to the equity purchase agreement, Ingersoll-Rand is responsible for all response actions associated with the contamination matters and must perform such response actions diligently. However, to the extent contamination at leased properties was caused by a third party and to the extent contamination at owned properties resulted from the migration of releases caused by a third party, Ingersoll-Rand is only required to conduct response actions after being ordered to do so by a governmental authority.


	*Ancillary Agreements*

The parties have entered into agreements governing several of their relationships following the closing, including a transition services agreement, supply agreement and license agreement. Funds affiliated with First Reserve and certain management employees have entered into an amended and restated limited liability company agreement which governs the rights of the funds affiliated with First Reserve with respect to their limited liability company interests in Dresser-Rand Holdings, LLC, and provides specific rights to the management investors of Dresser-Rand Holdings, LLC. Our existing stockholders have also entered into a stockholders’ agreement. See “Certain Related Party Transactions.”


	The Financing

In connection with the acquisition, funds affiliated with First Reserve contributed $430 million in cash to Dresser-Rand Holdings, LLC, which used this cash to fund a portion of the purchase price of the equity interests in the Dresser-Rand Entities. Immediately following the consummation of the transactions, Dresser-Rand Holdings, LLC, a holding company owned by funds affiliated with First Reserve, owned all of the capital stock of D-R Interholding, LLC, which in turn owned 100% of the issuer’s outstanding shares of capital stock (before giving effect to subsequent purchases of shares by certain management employees). The remainder of the cash needed to finance the acquisition, including related fees and expenses, was provided by the offering of the notes and the borrowings under the senior secured credit facility provided by affiliates of the underwriters, as joint bookrunners, lead arrangers or lenders, and a syndicate of banks and other financial institutions. Our senior secured credit facility consists of a $395 million term loan portion and a $300 million revolving portion. Following the closing date of the transactions, the term loan portion of the senior secured credit facility was fully funded and as of March 31, 2005 we had approximately $125 million of borrowing capacity under the revolving portion of our senior secured credit facility, subject to certain conditions, after giving effect to approximately $175 million of outstanding letters of credit.

The following table illustrates the approximate sources and uses for the acquisition.


Sources				Uses

(In millions)
Senior secured credit facility:(1)				Purchase of equity interests of the
	Revolving credit facility(2)	$	5.0	Dresser-Rand Entities(3)	$	1,125.1
	Term Loan B		395.0	Cash		91.4
Senior subordinated notes			420.0	Existing indebtedness		2.9
Existing indebtedness			2.9	Financing fees and expenses		33.5
Equity invested by First Reserve			430.0

Total Sources of Funds		$	1,252.9	Total Uses of Funds	$	1,252.9


(1)	Of the $395 million Term Loan B facility, €78.5 million is denominated in Euros.

(2)	As of March 31, 2005, we had approximately $125 million available for borrowing under the revolving portion of the senior secured credit facility, subject to certain conditions, after giving effect to approximately $175 million of outstanding letters of credit.


(3)	First Reserve and Ingersoll-Rand agreed to a gross cash purchase price of $1.2 billion for the acquisition, subject to working capital and other post-closing adjustments.

Equity Sponsor

First Reserve Corporation is the leading private equity firm specializing in the energy industry with $4.7 billion under management in four active funds. Founded in 1980, First Reserve was the first private equity investment firm to actively pursue building a broadly diversified investment portfolio within the energy and energy-related sectors and has made investments totaling over $3.0 billion in over 80 principal transactions. The current management team has been in place since 1983, and First Reserve’s investment team collectively has over 250 years of energy investment experience. Other past and present First Reserve portfolio companies include Alpha Natural Resources, Cal Dive International, Chicago Bridge & Iron, Dresser, Inc., Foundation Coal Corporation, Maverick Tube Corporation, National Oilwell, Natural Resource Partners, Pride International, Superior Energy Services and Weatherford International.

Corporate Structure

The following chart summarizes our current corporate structure.


(1)	D-R Interholding, LLC owns 99.7% of Dresser-Rand Group Inc.’s outstanding shares of capital stock. Certain of our employees collectively own the remaining 0.3% of Dresser-Rand Group Inc.’s outstanding shares of capital stock.

(2)	There are nine domestic subsidiaries of which seven are operating subsidiaries.

(3)	There are 42 foreign subsidiaries of which 35 are operating subsidiaries.

USE OF PROCEEDS

We estimate that the net proceeds from the sale by us of the shares of common stock being offered hereby, after deducting underwriting discounts, will be approximately $533.0 million. We intend to use approximately $55.1 million of the net proceeds to redeem $50.0 million face value of the $420 million aggregate principal amount of our 7³/8% senior subordinated notes due 2014, including the payment of the applicable redemption premium and accrued interest to the expected redemption date. The proceeds from the 7³/8% senior subordinated notes were used, together with other related financings, to finance the acquisition and to pay related transaction fees and expenses incurred in connection with the acquisition and the related financings. We intend to use net proceeds of approximately $477.9 million to pay a dividend to our stockholders existing immediately prior to the offering, consisting of affiliates of First Reserve and certain members of senior management. Of such amount, approximately $468.6 million will be received by affiliates of First Reserve. In addition, approximately $6.7 million will be received by certain of our executive officers, consisting of Mr. Volpe ($2,180,487), Mr. Anthony ($1,044,708), Mr. Riordan ($545,122), Mr. Nye ($272,563), Mr. Dickson ($544,895), Mr. Rossi ($547,610), Mr. Chevrier ($283,246), Ms. Powers ($981,222) and Mr. Rinicella ($332,509), and approximately $2.6 million will be received by 30 other employees in the aggregate. We will pay the estimated offering expenses of $2.4 million out of cash on hand.

We also intend to use the net proceeds we receive from any shares sold pursuant to the underwriters’ over-allotment option, after deducting underwriting discounts, to pay an additional dividend to our existing stockholders. In the event the underwriters fully exercise their over-allotment option, the amount of this dividend will be approximately $79.9 million. Of such amount, approximately $78.4 million will be received by affiliates of First Reserve. In addition, approximately $1.1 million will be received by certain of our executive officers, consisting of Mr. Volpe ($364,762), Mr. Anthony ($174,764), Mr. Riordan ($91,191), Mr. Nye ($45,596), Mr. Dickson ($91,153), Mr. Rossi ($91,607), Mr. Chevrier ($47,383), Ms. Powers ($164,143) and Mr. Rinicella ($55,624), and approximately $0.4 million will be received by 30 other employees in the aggregate.

Some of the underwriters or their affiliates may from time to time hold some of the 7³/8% senior subordinated notes through ordinary trading or market-making activities. In the event that an underwriter or affiliate holds any notes on the record date for the redemption, such entity may receive a portion of the proceeds from this offering. The trustee under the indenture governing the notes will select the appropriate method of selecting the notes for redemption, which we expect will approximate a pro rata redemption.

DIVIDEND POLICY

Immediately prior to the consummation of this offering, we intend to declare three dividends, which will be payable to our stockholders existing prior to the offering.


	•	The first dividend will be a cash dividend of $477.9 million, which we will pay to our existing stockholders out of a portion of the proceeds from this offering.

	•	The second dividend will be a cash dividend of up to $79.9 million, which we will pay to our existing stockholders with the net proceeds from the shares sold pursuant to the underwriters’ over-allotment option, if exercised.

	•	The third dividend will be a stock dividend of up to 4,050,000 shares of our common stock, adjusted for the elimination of any fractional shares, which we will pay to our existing stockholders, the terms of which will require that shortly after the expiration of the underwriters’ over-allotment option (assuming the option is not exercised in full), we issue to our existing stockholders the number of shares equal to (x) the number of additional shares the underwriters have an option to purchase minus (y) the actual number of shares the underwriters purchase from us pursuant to that option.

The purpose of the cash dividend described in the first bullet above is to distribute a portion of the proceeds from this offering to our existing stockholders. As the intended use of proceeds from the exercise of the over-allotment option by the underwriters is a dividend to our existing owners, we have assumed that the investors will factor into their analysis the dilutive effect of those shares being issued and the proceeds being dividended out of our company by reducing their valuation of our company. Accordingly, in the event the

option is not exercised, we have contemplated that the shares subject to the option will be dividended to our existing owners as described in the third bullet above. Such stock dividend would have the same dilutive effect as selling those shares upon the exercise of the over-allotment option and dividending the proceeds to our existing owners.

Other than the dividends described above, we do not currently intend to pay any cash dividends on our common stock, and instead intend to retain earnings, if any, for future operations and debt reduction. The amounts available to us to pay cash dividends will be restricted by our senior secured credit facility. The indenture governing our notes also limits our ability to pay dividends. On July 18, 2005, we amended our senior secured credit facility to remove certain restrictions on our ability to consummate the offering and use the proceeds as described in “Use of Proceeds.” Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant.

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2005 (1) on an actual basis and (2) on an as adjusted basis to reflect:


	•	the sale by us of approximately 27,000,000 shares of our common stock in this offering, after deducting underwriting discounts and estimated offering expenses;

	•	the application of the estimated net proceeds as described in “Use of Proceeds;”

	•	the 0.537314-for-one reverse stock split we expect to effect immediately prior to the consummation of the offering; and

	•	the stock dividend of 4,050,000 additional shares, adjusted for the elimination of any fractional shares, to our existing stockholders shortly after the expiration of the underwriters’ over-allotment option, assuming no exercise of that option.

The information in this table should be read in conjunction with “The Transactions,” “Unaudited Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated and combined financial statements and accompanying notes thereto included elsewhere in this prospectus. The table excludes cash and cash equivalents as of March 31, 2005 of $151.3 million, on an actual basis and $148.9 million on an as adjusted basis. We had cash and cash equivalents of $176.2 million as of June 30, 2005.


			As of March 31, 2005

			Actual			As Adjusted

			(Unaudited)
			(In millions)
Debt:
	Senior secured credit facility:
		Revolving credit facility(1)	$	—		$	—
		Term loan facility		310.3			310.3
	Senior subordinated notes due 2014			420.0			370.0
	Other debt			2.7			2.7

Total debt(2)				733.0			683.0

Stockholders’ equity:
	Common stock, par value $0.01 per share, 101,200,000 shares authorized, actual and 250,000,000 shares authorized, as adjusted, 100,908,116 shares issued and outstanding, actual and 85,269,297 shares issued and outstanding, as adjusted for the offering and the reverse stock split			1.0			0.9
	Additional paid-in capital			436.4			489.3
	Retained earnings (accumulated deficit)			3.2			(0.2	)
	Accumulated other comprehensive loss			(5.3	)		(5.3	)

	Total stockholders’ equity			435.3			484.7

	Total capitalization		$	1,168.3		$	1,167.7


(1)	As of March 31, 2005, we had approximately $125 million available for borrowing under the revolving portion of the senior secured credit facility, subject to certain conditions, after giving effect to approximately $175 million of letters of credit outstanding thereunder. See “The Transactions” and “Description of Indebtedness.”

(2)	We expect to redeem $50.0 million aggregate principal amount of our notes with the use of a portion of the proceeds from this offering. In addition, we repaid $38.1 million of debt during the second quarter, resulting, after translation of foreign currency debt, in total debt of $689.7 million as of June 30, 2005 (actual) and $639.7 million (as adjusted).

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share after this offering. The net tangible book value per share presented below is equal to the amount of our total tangible assets (total assets less intangible assets) less total liabilities as of March 31, 2005, divided by the number of shares of our common stock that would have been held by our existing stockholders had (i) the 0.537314-for-one reverse stock split we expect to effect immediately prior to the consummation of the offering and (ii) the stock dividend of 4,050,000 additional shares, adjusted for the elimination of any fractional shares, to our existing stockholders shortly after the expiration of the underwriters’ over-allotment option, assuming no exercise of that option, been made as of March 31, 2005. As of March 31, 2005, prior to giving effect to the offering, we had a net tangible book deficit of $(442.6) million, or $(8.16) per share. On a pro forma basis, after giving effect to:



	•	the sale of 27,000,000 shares of common stock in this offering;



	•	the payment of the $477.9 million dividend that we intend to declare prior to the consummation of this offering to the existing stockholders;


	•	the application of the estimated net proceeds as described in “Use of Proceeds;” and

	•	the effect of the other pro forma adjustments,

our pro forma net tangible book deficit as of March 31, 2005 would have been $(393.2) million, or $(4.61) per share of common stock. This represents an immediate increase in net tangible book value of $3.55 per share to existing stockholders and an immediate dilution in net tangible book value of $25.61 per share to new investors.

The following table illustrates this dilution on a per share basis:


Initial public offering price per share					$	21.00
	Net tangible book deficit per share as of March 31, 2005	$	(8.16	)
	Increase in net tangible book value per share attributable to this offering		3.55

Pro forma net tangible book deficit per share after the offering						(4.61	)

Dilution per share to new investors					$	25.61

We will reduce the number of shares that we will issue to our existing stockholders in the stock dividend described in the first paragraph above by the number of shares sold to the underwriters pursuant to their over-allotment option. We will also pay to our existing stockholders a cash dividend equal to all proceeds we receive from any such sale to the underwriters. As a result, our pro forma net tangible book value will not be affected by the underwriters’ exercise of their over-allotment option.

The following table summarizes, on the same pro forma basis as of March 31, 2005, the total number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by the existing stockholders and by new investors purchasing shares in this offering:


							Total
		Shares Purchased					Consideration
													Average Price
		Number		Percent			Amount			Percent			Per Share

		(In millions)
Existing stockholders			58,269,297		68.3	%	$	(40.8	)		(7.8	)%	$	(0.70	)
New investors			27,000,000		31.7			567.0			107.8			21.00

	Total		85,269,297		100.0	%	$	526.2			100.0	%		6.17

Total consideration and average price per share paid by the existing stockholders in the table above give effect to the $477.9 million dividend and the stock dividend of 4,050,000 shares, adjusted for the elimination of

any fractional shares, we intend to pay to the existing stockholders in connection with this offering. As the table indicates, the total consideration for the existing stockholders’ shares is $(40.8) million, with an average share price of $(0.70), which means that the existing stockholders in the aggregate will have received $40.8 million more than they originally invested.

The number of shares held by existing stockholders will be reduced to the extent the underwriters exercise their over-allotment option. If the underwriters fully exercise their option, the existing stockholders will own a total of 54,219,297 shares or approximately 63.6% of our total outstanding shares which will decrease the average price paid by the existing stockholders per share, after giving effect to the additional cash dividend of $79.9 million, to $(2.32).

To the extent that we grant options to our employees in the future, and those options are exercised or other issuances of common stock are made, there will be further dilution to new investors.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information has been derived by the application of pro forma adjustments to the historical combined financial statements for the period from January 1, 2004 through October 29, 2004 and our consolidated financial statements as of March 31, 2005 and for the period from October 30, 2004 through December 31, 2004 and for the three months ending March 31, 2005. The unaudited pro forma statements of operations for the year ended December 31, 2004 and the three months ended March 31, 2005 give effect to (i) the purchase of the Dresser-Rand Entities, (ii) the notes offering of October 29, 2004, (iii) the other related financing transactions and (iv) the offering and the estimated use of proceeds therefrom, as if they had been consummated on January 1, 2004. The unaudited pro forma balance sheet as of March 31, 2005 gives effect to this offering as if it had occurred on March 31, 2005. The adjustments necessary to fairly present this pro forma financial information have been made based on available information and in the opinion of management are reasonable and are described in the accompanying notes. The unaudited pro forma financial information should not be considered indicative of actual results that would have been achieved had these transactions been consummated on the respective dates indicated and do not purport to indicate results of operations as of any future date or for any future period. We cannot assure you that the assumptions used in the preparation of the unaudited pro forma financial information will prove to be correct. You should read the unaudited pro forma financial information together with “Risk Factors,” “Use of Proceeds,” “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated and combined financial statements and the notes thereto included elsewhere in this prospectus.

DRESSER-RAND GROUP INC.

UNAUDITED PRO FORMA BALANCE SHEET

As of March 31, 2005


					Offering
			Historical		Adjustments			Pro Forma

			(In thousands)
Assets
Current Assets
	Cash and cash equivalents		$	151,317	$	(2,375	)(a)	$	148,942
	Accounts receivable, less allowance for doubtful accounts of $13,791			183,210		—			183,210
	Inventories			175,181		—			175,181
	Prepaid expenses			18,429		—			18,429
	Deferred income taxes			8,295		—			8,295

		Total current assets		536,432		(2,375	)		534,057

Investments in and advances with partially owned equity companies				2,912		—			2,912
Property, plant and equipment, net				220,499		—			220,499
Goodwill				411,186		—			411,186
Intangible assets, net				466,676		—			466,676
Other assets				31,609		(2,045	)(b)		29,564

		Total assets	$	1,669,314	$	(4,420	)	$	1,664,894


Liabilities and Stockholders’ Equity
Current liabilities
	Accounts payable and accruals		$	262,323	$	(1,536	)(c)	$	260,787
	Customer advance payments			79,718		—			79,718
	Income taxes payable			12,411		(2,293	)(b)		10,118
	Loans			2,731		—			2,731
	Current maturities of long term debt			—		—			—

		Total current liabilities		357,183		(3,829	)		353,354

Deferred income taxes				22,371		—			22,371
Postemployment and other employee benefit liabilities				112,004		—			112,004
Long-term debt				310,273		—			310,273
Senior subordinated notes				420,000		(50,000	)(b)		370,000
Other noncurrent liabilities				12,179		—			12,179

		Total liabilities		1,234,010		(53,829	)		1,180,181
Stockholders’ equity				435,304		49,409	(a)(b)(d)		484,713

		Total liabilities and stockholders’ equity	$	1,669,314	$	(4,420	)	$	1,664,894


(a)	Reflects payment, using cash on-hand, of $2.4 million of expenses in connection with this offering.


(b)	Reflects the use of a portion of the proceeds from the offering, net of fees and expenses, to repay $50.0 million of our senior subordinated notes and the related estimated write off of $2.0 million of unamortized deferred debt issuance costs ($1.2 million after tax) and incur prepayment penalties of $3.7 million ($2.2 million after tax). See “Use of Proceeds.”


(c)	Reflects accrued interest from November 1, 2005 through March 31, 2005 of $1.5 million.


(d)	Reflects the assumed gross proceeds of $567.0 million from the offering, net of fees of $34.0 million. Also reflects payment of the estimated offering expenses of $2.4 million out of cash on hand. On a pro forma basis as of March 31, 2005, $477.9 million of the net proceeds from the offering is assumed to be used to pay a dividend to our existing stockholders. See “Use of Proceeds.”

DRESSER-RAND GROUP INC.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

Year Ended December 31, 2004


		Predecessor		Successor

		For the Period		For the Period
		January 1		October 30									Pro Forma
		through		through						Offering and			Year Ended
		October 29,		December 31,			Pro Forma			Other			December 31,
		2004(1)		2004(2)			Adjustments(3)			Adjustments(3)			2004

		(In thousands except share and per share data)
Total revenues		$	715,495	$	199,907		$	—		$	—		$	915,402
Cost of goods sold			538,042		149,564			(508	)(a)		—			704,497
								(7,458	)(b)
								2,918	(c)
								24,220	(d)
								(2,281	)(e)

Gross profit			177,453		50,343			(16,891	)		—			210,905
Selling and administrative expenses			122,700		21,499			(127	)(a)		—			143,094
								(1,864	)(b)
								154	(c)
								732	(f)
Research and development expenses			5,670		1,040			—			—			6,710
Write-off of purchased in-process research and development assets			—		1,800			(1,800	)(g)		—			—

Operating income			49,083		26,004			(13,986	)		—			61,101
Interest income (expense), net			3,156		(9,654	)		(47,506	)(h)		3,901	(j)		(50,103	)
Other income (expense), net			1,882		(1,846	)		—			—			36

Income (loss) before income taxes			54,121		14,504			(61,492	)		3,901			11,034
(Benefit) provision for income taxes			11,970		7,275			(4,730	)(i)		1,482	(i)		15,997

Net income(loss)		$	42,151	$	7,229		$	(56,762	)	$	2,419		$	(4,963	)

Basic and Diluted Earnings Per Share Data(4)(5)(6)
	Earnings per share			$	0.07								$	(0.06	)

	Weighted average shares				100,115,080									84,843,188

Our capital structure changed significantly as a result of the October 29, 2004 acquisition and the concurrent refinancing of debt. Due to required purchase accounting adjustments relating to such transaction the consolidated financial and other information for the period subsequent to the acquisition (the “Successor” period) is not comparable to such information for the periods prior to the acquisition (the “Predecessor” periods). The pro forma information, including the allocation of the purchase price, is based on management’s estimates and valuations of the tangible and intangible assets being acquired.


(1)	The amounts in this column represent the reported results of Dresser-Rand Company, our predecessor company, from January 1, 2004 through October 29, 2004.

(2)	The amounts in this column represent the reported results of Dresser-Rand Group Inc., the successor, from October 30, 2004 through December 31, 2004.

(3)	The amounts in these columns represent the adjustments to reflect the pro forma impact of the transactions.


(a)	Reflects the adjustment to historical expense for the change in pension expense due to Ingersoll-Rand’s retention of pension assets and obligations for one pension plan that was reflected in our historical combined statements as well as the results of actuarial valuations performed as of the transaction date for the portion retained by us.

(b)	Reflects the adjustment to historical expense for the change in postretirement benefits other than pension expense due to Ingersoll-Rand’s retention of the obligations for all employees who are retired or eligible to retire as well as the results of actuarial valuations performed as of the transaction date for the portion retained by us.

(c)	Reflects the adjustment to historical expense for the change in depreciation expense due to the revaluation of our property, plant and equipment in purchase accounting. Annual depreciation expense under the new basis of accounting is estimated to be $23,574, of which $3,929 was recognized during the period from October 30, 2004 through December 31, 2004. Depreciation expense under the old basis of accounting of $16,573 was recognized during the period from January 1, 2004 through October 29, 2004, resulting in a pro forma adjustment of $3,072. We estimate that 95% of our depreciation expense is recorded in cost of goods sold, and 5% of our depreciation expense is recorded in selling, general and administrative expenses.

(d)	Reflects the adjustment to historical expense for the change in amortization expense due to the revaluation of our identifiable intangible assets in purchase accounting. Annual amortization expense under the new basis of accounting is estimated to be $42,702, of which $12,340 was recognized during the period from October 30, 2004 through December 31, 2004. Amortization expense under the old basis of accounting of $6,142 was recognized during the period from January 1, 2004 through October 29, 2004, resulting in a pro forma adjustment of $24,220 to cost of goods sold.

(e)	Reflects a $2,281 reduction in cost of goods sold relating to the non-recurring amortization of the step-up in inventory basis to fair market value, for inventory that was sold during the period from October 30, 2004 through December 31, 2004.

(f)	Reflects the adjustment to historical expense for new compensation contracts with management. In conjunction with the transactions, we entered into a new employment agreement with our President and Chief Executive Officer, and certain of our executives who acquired common units in Dresser-Rand Holdings, LLC were issued profit units in Dresser-Rand Holdings, LLC, which permit them to indirectly share in appreciation in the value of our shares. The new employment agreement increases the annual compensation of our President and Chief Executive Officer by $150, $25 of which was reflected in the period from October 30, 2004 through December 31, 2004. The annual compensation expense associated with the profit units is $682, $75 of which was reflected in the period from October 30, 2004 through December 31, 2004.

(g)	Reflects a $1,800 reduction in selling, general and administrative expenses relating to the non-recurring write-off of the value allocated to purchased in-process research and development, which was recognized during the period from October 30, 2004 through December 31, 2004.


(h)	The adjustment to interest expense reflects the following:


			Adjustment for Period
	Annual		January 1, 2004 through
	Expense		October 29, 2004

Interest expense on letters of credit issued with our new revolving credit facility (at 2.5%)	$	3,584	$	2,987
Commitment fee on our revolving credit facility (at 0.5%)		783		653
Interest expense on our Term Loan B (at 4.3%)		17,201		14,365
Interest expense on the notes (at 7.375%)		30,975		25,813
Amortization of debt issuance costs		4,425		3,688

Total interest adjustment	$	56,968	$	47,506


	Interest expense on average outstanding letters of credit of $133.4 million in 2004 was 2.5%. A change of ¹/8 percentage point in interest rates on the aggregate amount outstanding under our new revolving credit facility and term loan B would change annual interest expense by $497.


(i)	Reflects the income tax effect of our pro forma adjustments to the income statement. We used a statutory tax rate of 38% for adjustments recorded at U.S. entities and the statutory tax rate of each foreign country for adjustments recorded at foreign entities. However, the pro forma income tax expense also reflects a full valuation allowance on the net income tax benefit generated in the United States.

(j)	In connection with the offering, we intend to use approximately $55.1 million of the net proceeds to redeem $50.0 million of the $420 million aggregate principal amount of our notes due 2014, including the payment of the applicable redemption premium and accrued interest. The annualized interest savings resulting from the redemption would be $3.7 million, the annualized reduction in amortization of deferred financing fees would be $0.2 million, and we will incur a one-time charge of $1.9 million ($1.2 million after tax) from the write-off of deferred financing fees and incur prepayment penalties of $3.7 million ($2.2 million after tax).


(4)	Historical basic and diluted earnings per share data has not been presented for the Predecessor because the Predecessor did not operate as a separate legal entity from Ingersoll-Rand.

(5)	For the Successor, basic and diluted earnings per share is calculated by dividing net earnings by the weighted average shares outstanding adjusted to reflect the 1,006,092.87-for-one stock split effected in February 2005.

(6)	Unaudited pro forma basic and diluted earnings per share have been calculated in accordance with the SEC rules for initial public offerings. These rules require that the weighted average share calculation give retroactive effect to any changes in our capital structure as well as the number of shares whose sale proceeds would be necessary to repay any debt or to pay any dividend as reflected in the pro forma adjustments. Therefore, pro forma weighted average shares for purposes of the unaudited pro forma basic and diluted earnings per share calculation, has been adjusted to reflect (i) the 0.537314-for-one reverse stock split we expect to effect immediately prior to the consummation of the offering and (ii) the stock dividend of 4,050,000 shares, adjusted for the elimination of any fractional shares, to our existing stockholders that will be made shortly after the expiration of the underwriters’ over-allotment option assuming no exercise of that option, and includes 27,000,000 shares of our common stock being offered hereby and the stock dividend of 4,050,000 shares.

DRESSER-RAND GROUP INC.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

Three Months Ended March 31, 2005


								Offering
					Pro Forma			and Other
		Historical(1)			Adjustments(2)			Adjustments(2)			Pro Forma

		(In thousands except share and per share data)
Total revenues		$	234,000		$	—		$	—		$	234,000
Cost of goods sold			186,291			(2,920	)(a)		—			183,371

Gross profit			47,709			2,920			—			50,629
Selling and administrative expenses			37,361			—			—			37,361
Research and development expenses			1,632			—			—			1,632

Operating income			8,716			2,920						11,636
Interest expense, net			(15,233	)		—			975	(c)		(14,258	)
Other expense, net			(180	)		—			—			(180	)

Loss before income taxes			(6,697	)		2,920			975			(2,802	)
Benefit for income taxes			(2,679	)		1,168	(b)		390	(b)		(1,121	)

Net loss		$	(4,018	)	$	1,752		$	585		$	(1,681	)

Basic and Diluted Loss Per Share Data(3)(4)
	Loss per share	$	(0.04	)							$	(0.02	)

	Weighted average shares		100,908,116									85,269,297


(1)	The amounts in this column represent the reported results of Dresser-Rand Group Inc., the successor, from January 1, 2005 through March 31, 2005.

(2)	The amounts in these columns represent the adjustments to reflect the pro forma impact of the transactions.


	(a)	Reflects a $2.9 million reduction in cost of goods sold relating to the non-recurring amortization of the step-up in inventory basis to fair market value, for inventory that was sold during the period from January 1, 2005 through March 31, 2005.

	(b)	Reflects the income tax effect of our pro forma adjustments to the income statement. We used an effective tax rate of 40% on a worldwide basis.

	(c)	In connection with the offering, we intend to use approximately $55.1 million of the net proceeds to redeem $50.0 million of the $420 million aggregate principal amount of our 7³/8% senior subordinated notes due 2014, including the payment of the applicable redemption premium and accrued interest. The annualized interest savings resulting from the redemption would be $3.7 million, the annualized reduction in amortization of deferred financing fee would be $0.2 million, and we will incur a one-time charge of $1.9 million from the write-off of deferred financing fees ($1.2 million after tax) and incur prepayment penalties of $3.7 million ($2.2 million after tax).


(3)	Basic and diluted earnings per share is calculated by dividing net earnings by the weighted average shares outstanding adjusted to reflect the 1,006,092.87-for-one stock split effected in February 2005.

(4)	Unaudited pro forma basic and diluted earnings per share have been calculated in accordance with the SEC rules for initial public offerings. These rules require that the weighted average share calculation give retroactive effect to any changes in our capital structure as well as the number of shares whose sale proceeds would be necessary to repay any debt or to pay any dividend as reflected in the pro forma adjustments. Therefore, pro forma weighted average shares for purposes of the unaudited pro forma basic and diluted earnings per share calculation, has been adjusted to reflect (i) the 0.537314-for-one reverse stock split we expect to effect immediately prior to the consummation of the offering and (ii) the stock dividend of 4,050,000 shares, adjusted for the elimination of any fractional shares, to our existing stockholders that will be made shortly after the expiration of the underwriters’ over-allotment option assuming no exercise of that option, and includes 27,000,000 shares of our common stock being offered hereby and the stock dividend of 4,050,000 shares.

SELECTED HISTORICAL FINANCIAL INFORMATION

Prior to the closing of the transactions on October 29, 2004, Dresser-Rand Group Inc. did not have any assets, liabilities or results of operations. Therefore, the selected historical combined financial information as of and for the years ended December 31, 2001, 2002, and 2003 and the period from January 1, 2004 through October 29, 2004 has been derived from the audited combined financial statements of the Dresser-Rand Entities (the predecessor to Dresser-Rand Group Inc.), which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. The selected historical consolidated financial information as of December 31, 2004 and for the period from October 30, 2004 (our date of inception) through December 31, 2004 has been derived from the audited consolidated financial statements of Dresser-Rand Group Inc. The audited financial statements for the years ended December 31, 2002 and 2003, for the period from January 1, 2004 through October 29, 2004, for the period from October 30, 2004 through December 31, 2004 and as of December 31, 2003 and 2004 are included elsewhere in this prospectus. The selected historical combined balance sheet information as of December 31, 2001 and the selected historical combined statement of operations information for the year ended December 31, 2001 have been derived from the Dresser-Rand Entities’ audited combined financial statements, which are not included in this prospectus. The selected historical combined balance sheet information as of December 31, 2000 and the selected historical combined statement of operations information for the one month ended January 31, 2000 and the eleven months ended December 31, 2000 have been derived from the Dresser-Rand Entities’ unaudited combined financial statements, which are not included in this prospectus. The selected historical combined financial information for the three months ended March 31, 2004 has been derived from the Dresser-Rand Entities’ unaudited combined financial statements included elsewhere in this prospectus, which have been prepared on a basis consistent with the audited financials included elsewhere in this prospectus. The selected historical consolidated financial information as of and for the three months ended March 31, 2005 has been derived from Dresser-Rand Group Inc.’s unaudited consolidated financial statements included elsewhere in this prospectus which have been prepared on a basis consistent with the audited financials included elsewhere in this prospectus. In the opinion of management, such unaudited financial information reflects all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods. Prior to February 2000, Dresser-Rand Company was jointly owned by Ingersoll-Rand (49%) and Halliburton Industries (51%) under the terms of a joint venture agreement. Halliburton exercised a put option in the joint venture agreement which required Ingersoll-Rand to purchase Halliburton’s 51% interest in Dresser-Rand Company. The purchase was completed on February 2, 2000. Accordingly, the results of operations are separately stated for the eleven months ended December 31, 2000 to reflect the new ownership structure and related changes in the underlying accounts of the Dresser-Rand Entities resulting from the purchase transaction.

You should read the following table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated and combined financial statements and the notes thereto included elsewhere in this prospectus.


		Predecessor																					Successor

																	Period						Period
		1 Month			11 Months												January 1			Three Months			October 30			Three Months
		Ended			Ended			Year Ended December 31,									through			Ended			through			Ended
		January 31,			December 31,												October 29,			March 31,			December 31,			March 31,
		2000			2000			2001			2002			2003			2004			2004			2004			2005

		(In thousands, except share and per share data)
Statement of Operations Data:
Net sales, third parties		$			$			$	873,885		$	1,026,753		$	1,332,242		$	712,483		$	169,435		$	199,907		$	234,000
Net sales to affiliates									2,837			1,841			1,439			1,845			626			—			—
Other operating revenue									—			2,759			1,669			1,167			287			—			—

	Total revenues		42,690			777,754			876,722			1,031,353			1,335,350			715,495			170,348			199,907			234,000
Cost of goods sold									714,093			865,858			1,132,047			538,042			122,765			149,564			186,291

Gross profit									162,629			165,495			203,303			177,453			47,583			50,343			47,709
Selling and administrative expenses									132,755			138,484			156,129			122,700			39,636			21,499			37,361
Research and development expenses									6,969			8,044			8,107			5,670			1,524			1,040			1,632
Write-off of purchased in-process research and development assets									—			—			—			—			—			1,800			—
Restructuring charges(1)									2,137			5,185			—			—			—			—			—

Operating income									20,768			13,782			39,067			49,083			6,423			26,004			8,716
Interest income (expense), net									(302	)		(776	)		1,938			3,156			(297	)		(9,654	)		(15,233	)
Other income (expense), net									3,150			15,000			(9,202	)		1,882			(2,385	)		(1,846	)		(180	)

Income (loss) from continuing operations before income taxes									23,616			28,006			31,803			54,121			3,741			14,504			(6,697	)
Provision (benefit) for income taxes(2)									14,781			11,910			11,438			11,970			431			7,275			(2,679	)

Income (loss) from continuing operations			(12,498	)		(20,331	)		8,835			16,096			20,365			42,151			3,310			7,229			(4,018	)
Discontinued Operations:
	Earnings from discontinued operations, net								—			—			—			—			—			—			—
	Gain on disposal of discontinued operations, net								—			—			—			—			—			—			—

Net income (loss)		$	(11,577	)	$	33,939		$	8,835		$	16,096		$	20,365		$	42,151		$	3,310		$	7,229		$	(4,018	)

Earnings (loss) per share data(3)(4):
Basic earnings (loss) per share:
	Net income (loss)																						$	0.07		$	(0.04	)
	Weighted average shares																							100,115,080			100,908,116
Cash flow data:
Cash flows provided by (used in) operating activities								$	57,837		$	42,029		$	50,963		$	57,729		$	(29,270	)	$	17,948		$	118,467
Cash flows provided by (used in) investing activities									(15,896	)		3,813			(7,089	)		(4,907	)		172			(1,126,939	)		8,357
Cash flows provided by (used in) financing activities									(42,937	)		(18,759	)		(63,487	)		(52,030	)		28,355			1,217,099			(86,260	)


		Predecessor								Successor

		As of December 31,								As of		As of
										December 31,		March 31,
		2000		2001		2002		2003		2004		2005

		(In thousands)
Balance Sheet Data:
Cash and cash equivalents		$		$	31,377	$	59,619	$	41,537	$	111,500	$	151,317
Total assets			1,030,072		1,052,741		1,119,464		1,063,875		1,751,074		1,669,314
Debt:
	Current portion of long-term debt				52		2,631		3,716		6,749		2,731
	Long-term debt, net of current maturities				260		1,254		213		396,664		310,273
	Senior subordinated notes				—		—		—		420,000		420,000
Total debt			4,685		312		3,885		3,929		823,413		733,004
Partnership interest					588,450		526,710		565,035		—		—
Stockholders’ equity					—		—		—		452,897		435,304


(1)	Includes severance expenses and facility exit costs associated with our corporate restructuring activities.

(2)	On the closing date of the transactions we became a corporation. Prior to that time, in the United States, we were a partnership. The information presented does not give effect to the income taxes we would have been required to recognize if we 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 we would have been required to pay if we were organized as a corporation during these periods and also includes other pro forma adjustments related to the acquisition of Dresser-Rand Company by First Reserve on October 29, 2004.

(3)	Historical basic and diluted earnings per share data has not been presented for the Predecessor because the Predecessor did not operate as a separate legal entity from Ingersoll-Rand.

(4)	For the Successor, basic and diluted earnings per share is calculated by dividing net earnings by the weighted average shares outstanding adjusted to reflect the 1,006,092.87-for-one stock split effected in February 2005.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The statements in this discussion regarding the industry outlook, our expectations regarding the future performance of our business, and the other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in the “Risk Factors” section. You should read the following discussion together with the sections entitled “Forward-Looking Statements,” “Risk Factors” and our historical consolidated and combined financial statements and notes included elsewhere in this prospectus.

Overview

We are among the largest global suppliers of rotating equipment solutions to the worldwide oil, gas, petrochemical and industrial process industries. Our segments are new units and aftermarket parts and services. Our services and products are used for a wide range of applications, including oil and gas production, refinery processes, natural gas processing, pipelines, petrochemical production, high-pressure field injection and enhanced oil recovery. We also serve general industrial markets including paper, steel, sugar, distributed power and government markets.

We operate globally with manufacturing facilities in the United States, France, Germany, Norway, India and Brazil. We provide a wide array of products and services to our worldwide client base in over 105 countries from our 57 global locations in 11 U.S. states and 24 countries. Our total combined revenues by geographic region for the year ended December 31, 2004 consisted of North America (39%), Latin America (18%), Europe (15%), Asia Pacific (13%) and the Middle East and Africa (15%). For the three months ended March 31, 2005, our revenue by geographic region consisted of North America (44%), Latin America (11%), Europe (12%), Asia Pacific (13%) and the Middle East and Africa (20%).

Corporate History

On December 31, 1986, Dresser Industries, Inc. and Ingersoll-Rand (collectively, the partners) entered into a partnership agreement for the formation of Dresser-Rand Company, a New York general partnership owned 50% by Dresser Industries, Inc. and 50% by Ingersoll-Rand. The partners contributed substantially all of the operating assets and certain related liabilities, which comprised their worldwide reciprocating compressor, steam turbine and turbo-machinery businesses. The net assets contributed by the partners were recorded by Dresser-Rand Company at amounts approximating their historical values. Dresser-Rand Company commenced operations on January 1, 1987. On October 1, 1992 Dresser Industries, Inc. acquired a 1% equity interest from Dresser-Rand Company to increase its ownership to 51% of Dresser-Rand Company.

In September 1999, Dresser Industries, Inc. merged with Halliburton Industries. Accordingly, Dresser Industries, Inc.’s ownership interest in Dresser-Rand Company transferred to Halliburton Industries on that date. On February 2, 2000, a wholly-owned subsidiary of Ingersoll-Rand purchased Halliburton Industries’ 51% interest in Dresser-Rand Company for a net purchase price of approximately $543 million. Dresser-Rand Company’s combined financial statements reflect Ingersoll-Rand’s additional basis in Dresser-Rand Company. Dresser-Rand Company formerly operated as an operating business unit of Ingersoll-Rand.

On August 25, 2004, Dresser-Rand Holdings, LLC, our indirect parent and an affiliate of First Reserve, entered into an equity purchase agreement with Ingersoll-Rand to purchase all of the equity interests in the Dresser-Rand Entities for $1.13 billion. The acquisition closed on October 29, 2004. In connection with the acquisition, funds affiliated with First Reserve contributed $430 million in cash as equity to Dresser-Rand Holdings, LLC, which used this cash to fund a portion of the purchase price for the Dresser-Rand Entities. The remainder of the cash needed to finance the acquisition, including related fees and expenses, was provided by borrowings of $420 million in senior subordinated notes due 2014 and under a $695 million senior secured credit facility. The senior secured credit facility consists of a $395 million term loan portion and a $300 million revolving portion.

At the time of the acquisition, our equity capitalization consisted of 100 shares of common stock at an initial cost of $4.3 million per share. This high per share price made certain contemplated management

investment and incentive arrangements difficult to effectuate; therefore, in February 2005, we gave effect to a 1,006,092.87-for-one stock split to achieve a price per share equivalent to price per unit of Dresser-Rand Holdings, LLC as of the date of the acquisition. As a result of this stock split, we had 100,931,211 shares outstanding at March 31, 2005.

The consolidated financial statements reflect our financial position as of March 31, 2005 and December 31, 2004 and our results of operations and cash flows for the three months ended March 31, 2005 and for the period from October 30, 2004 to December 31, 2004, and the financial position of our predecessor entity, on a combined basis, as of March 31, 2004 and December 31, 2003 and its results of operations and cash flows for the three months ended March 31, 2004, for the period from January 1, 2004 to October 29, 2004 and for the years ended December 31, 2003 and 2002.

The preparation of the Predecessor financial statements was based on certain assumptions and estimates, including allocations of costs from Ingersoll-Rand, which the Predecessor believed were reasonable. This financial information may not, however, necessarily reflect the results of operations, financial positions and cash flows that would have occurred if our Predecessor had been a separate, stand-alone entity during the periods presented.

In connection with the transactions, we incurred substantial indebtedness, interest expense and repayment obligations. The interest expense relating to this debt will adversely affect our net income. In addition, we accounted for the acquisition under the purchase method of accounting, which resulted in an increase in depreciation and amortization above historical levels. As a result of the transactions, we incurred a number of one-time fees and expenses of approximately $33.5 million. See “The Transactions.”

Streamlining Actions

Since the fourth quarter of 2002, we adopted a number of restructuring and productivity improvement programs across our entire company. An important element in these programs was headcount reductions. As of September 30, 2002, our worldwide headcount was 5,942 employees. From September 30, 2002 to December 31, 2003, we reduced our headcount, on a worldwide basis, by 1,061 employees. By December 31, 2004, we had reduced our headcount by an additional 250 employees to 4,631. An additional element of our restructuring plan was our streamlining of administrative functions. For example, we consolidated the management of three of our factories in New York under one management team. We continue to seek and implement cost-saving measures on an on-going basis.

Effects of Currency Fluctuations

We conduct operations in over 105 countries. Therefore, our results of operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk whenever we or our subsidiaries enter into either a large purchase or sales transaction using a currency other than the local currency of the transacting entity. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant local currency and then translated into U.S. dollars for inclusion in our historical consolidated financial statements. Exchange rates between these currencies and U.S. dollars in recent years have fluctuated significantly and may continue to do so in the future. The majority of our revenues and costs are denominated in U.S. dollars, with euro-related revenues and costs also being significant. The net appreciation of the euro against the U.S. dollar over the 2002 to 2004 period has had the impact of increasing sales, cost of sales and selling and administrative expenses, as reported in U.S. dollars in our historical consolidated and combined financial statements. Historically, we have engaged in hedging strategies from time to time to reduce the effect of currency fluctuations on specific transactions. However, we have not sought to hedge currency translation risk. We expect to continue to engage in hedging strategies going forward. These strategies do not qualify for hedge accounting treatment and therefore, significant declines in the value of the euro relative to the U.S. dollar could have a material adverse effect on our financial condition and our ability to meet interest and principal payments on U.S. dollar denominated debt, including the notes and borrowings under the senior secured credit facility.

Revenues

Our revenues are primarily generated through the sale of new units and aftermarket parts and services. Revenues from the sale of new units and revamps (the overhauling of installed units) are recognized under the completed contract method. Under this method, revenue and profits on contracts are recognized when the contracts are completed or substantially complete. Revenues from aftermarket parts and services are recognized as the parts are shipped and services are rendered. Revenues have historically been driven by volume, rather than price, and are sensitive to foreign currency fluctuations.

Cost of Sales

Cost of sales includes raw materials and plant and related work force costs, freight and warehousing, as well as product engineering.

Selling and Administrative Expenses

Selling expenses consist of costs associated with marketing and sales. Administrative expenses are primarily management, accounting, corporate allocations and legal costs.

Non-cash Compensation Expense

In May 2005, three members of senior management purchased 303,735 common units of Dresser-Rand Holdings, LLC for an aggregate purchase price of $1.3 million and were also granted 1,000,000 profit units (comprised of 300,000 service units and 700,000 exit units). The sale of these common units and the grant of the profit units may have been made at below market prices. As a result, the company expects to take additional charges related to the sale of the common units and granting of the service units of $2.5 million and $0.085 million, respectively, in the second quarter. The Company expects to incur an additional $0.5 million of non-cash compensation expense per year over the five-year vesting period of the service units. No additional charges related to the granting of the exit units are anticipated for 2005 due to inherent limiting factors related to the exit unit plan.

Charges Related to Deferred Financing Fees

We expect to incur a one-time charge of approximately $1.0 million from the write-off of deferred financing fees in the second quarter of 2005 as a result of principal payments of $35.5 million on our senior secured credit facility. In addition, we expect to incur a one-time charge of $1.9 million ($1.2 million after tax) from the write-off of deferred financing fees and incur prepayment penalties of $3.7 million ($2.2 million after tax) in the third quarter of 2005 as a result of the redemption of $50.0 million aggregate principal amount of our notes with the use of a portion of the proceeds from this offering.

Research and Development Expenses

Research and development expenses include payroll, employee benefits, and other labor related costs, facilities, workstations and software costs associated with product development. These costs are expensed as incurred. Expenses for major projects are carefully evaluated to manage return on investment requirements. We expect that our research and development spending will continue in line with historical levels.

Other Income (Expense)

Other income (expense) includes those items that are non-operating in nature. Examples of items reported as other income (expense) are insurance proceeds, equity in earnings in partially-owned affiliates, casualty losses, government grants and the impact of currency fluctuations.

Depreciation and Amortization

Property, plant and equipment is reported at cost less accumulated depreciation, which is generally provided using the straight-line method over the estimated useful lives of the assets. Expenditures for

improvements that extend the life of the asset are generally capitalized. Intangible assets primarily consist of amounts allocated to customer relationships, software and technology, trade names and other intangibles. All of the intangible assets are amortized over their estimated useful lives.

Income Taxes

For the Predecessor periods presented, certain of the Dresser-Rand Entities were accounted for as a partnership and were not required to provide for income taxes, since all partnership income and losses were allocated to the partners for inclusion in their respective financial statements. In connection with the transactions, the assets of the former partnership are now subject to corporate income taxes. For income tax purposes, the former partnership assets have been recorded at, and will be depreciated based upon their fair market value at the time of the transaction instead of the historical amount. On October 29, 2004, our business became subject to income tax, which has impacted our results of operations for the three months ended March 31, 2005 and for the period from October 30, 2004 through December 31, 2004 and will affect our results in the future.

For the Predecessor periods presented and prior to the transactions, certain of our operations were subject to U.S. or foreign income taxes. After the transactions, all of our operations are subject to U.S. or foreign income taxes. In preparing our financial statements, we have determined the tax provision of those operations on a separate company basis.

Bookings and Backlog


	*New Units*

Bookings represent orders placed during the period, whether or not filled. The elapsed time from booking to completion of performance may be up to 15 months (or longer for less frequent major projects). The backlog of unfilled orders includes amounts based on signed contracts as well as agreed letters of authorization which management has determined are likely to be performed. Although backlog represents only business that is considered firm, cancellations or scope adjustments may occur. In certain cases, cancellation of a contract provides us with the opportunity to bill for certain incurred costs and penalties. Backlog is adjusted to reflect project cancellations, deferrals, currency fluctuations and revised project scope.


	*Aftermarket Parts and Services*

Bookings represent orders placed during the period, whether or not filled. Backlog primarily consists of unfilled parts orders, with open repair and field service orders comprising a small part of the backlog. The cancellation of an order for parts can generally be made without penalty.

Controls over Inventory

During the third quarter of 2003, a management review identified an issue relating to work-in-process inventory at two of our manufacturing locations. It was determined that certain work-in-process inventory had not been properly relieved upon shipment during the time period from 1999 through 2003, resulting in an overstatement of inventory. Management immediately began an extensive, in-depth review of our accounts and records. As a consequence of these problems, we implemented an internal review of the functions and processes at the two plants that were involved, identified gaps in our internal controls and put in place remedial measures. At the end of this review and remediation process, our auditors determined that we had successfully eliminated the weakness in our inventory controls.

Letters of Credit, Bank Guarantees and Surety Bonds

In the ordinary course of our business, we make use of letters of credit, bank guarantees and surety bonds. We use both performance bonds, ensuring the performance of our obligations under various contracts to which we are a party, and advance payments bonds, which ensure that clients that place purchase orders with us and make advance payments under such contracts are reimbursed to the extent we fail to deliver under the contract. Under the revolving portion of our senior secured credit facility, we are entitled to have up to $300 million of letters of credit outstanding at any time, subject to certain conditions.

Basis of Presentation

The acquisition of the Dresser–Rand Entities was accounted for under the purchase method of accounting. As a result, the financial data presented for 2004 include a predecessor period from January 1, 2004 through October 29, 2004 and a successor period from October 30, 2004 through December 31, 2004. As a result of the acquisition, the consolidated statement of operations for the successor period includes interest and amortization expense resulting from the notes and senior secured credit facility, and depreciation of plant and equipment and amortization of intangible assets related to the acquisition. Further, as a result of purchase accounting, the fair values of our assets on the date of the acquisition became their new cost basis. Results of operations for the successor period is affected by the newly established cost basis of these assets. We allocated the acquisition consideration to the tangible and intangible assets acquired and liabilities assumed by us based upon their respective fair values as of the date of the acquisition, which resulted in a significant change in our annual depreciation and amortization expenses.

The accompanying financial statements for the periods prior to the acquisition are labeled as “Predecessor” and the period subsequent to the acquisition are labeled as “Successor.”


	*Successor*

Our consolidated financial statements for the three months ended March 31, 2005 and for the period from October 30, 2004 through December 31, 2004 include the accounts of Dresser-Rand Group Inc. and its wholly-owned subsidiaries. Included in these periods are fair value adjustments to assets and liabilities, including inventory, goodwill, other intangible assets and property, plant and equipment. Also included is the corresponding effect that these adjustments had to cost of sales, depreciation and amortization expenses.


	*Predecessor*

The combined financial statements for the three months ended March 31, 2004, the period from January 1, 2004 through October 29, 2004 and for the years ended December 31, 2003 and 2002 include the accounts and activities of the Predecessor. Partially-owned companies have been accounted for under the equity method. Dresser-Rand’s financial statements reflect costs that have been allocated by Ingersoll-Rand prior to the consummation of the acquisition. As a result of recording these amounts, our predecessor’s combined financial statements for these periods may not be indicative of the results that would be presented if we had operated as an independent, stand-alone entity.

Results of Operations


	*Total Company*


	*Three Months Ended March 31, 2005 (Successor) Compared to the Three Months Ended March 31, 2004 (Predecessor)*

The following table presents selected historical financial information for the three months ended March 31, 2005 and March 31, 2004. Amounts are also presented as a percentage of total revenues. The two

columns under period-to-period change show the dollar change and percentage change from the three months ended March 31, 2004 to the three months ended March 31, 2005.


						Successor
	Predecessor
											Period-to-Period
											Change
	Three Months					Three Months
	Ended					Ended					2004 to
	March 31, 2004					March 31, 2005					2005			Change

	(Dollars in millions)
Statement of Operations Data:
Total revenues	$	170.3		100.0	%	$	234.0		100.0	%	$	63.7			37.4	%
Cost of goods sold		122.8		72.1			186.3		79.6			63.5			51.7

Gross profit		47.5		27.9			47.7		20.4			0.2			0.4
Selling and administrative expenses		39.6		23.3			37.4		16.0			(2.2	)		(5.6	)
Research and development expenses		1.5		0.9			1.6		0.7			0.1			6.7

Operating income		6.4		3.7			8.7		3.7			2.3			35.9
Interest expense, net		(0.3	)	(0.2	)		(15.2	)	(6.5	)		(14.9	)		4,966.7
Other expense, net		(2.4	)	(1.4	)		(0.2	)	(0.1	)		2.2			(91.7	)

Income (loss) before income taxes		3.7		2.1			(6.7	)	(2.9	)		(10.4	)		(281.1	)
Provision (benefit) for income taxes		0.4		0.2			(2.7	)	(1.2	)		(3.1	)		(775.0	)

Net income (loss)	$	3.3		1.9	%	$	(4.0	)	(1.7	)%	$	(7.3	)		(221.2	)%

Total Revenues. Total revenues increased by $63.7 million, or 37.4%, to $234.0 million for the three months ended March 31, 2005 from $170.3 million for the same period in 2004. Revenue from the new units segment increased $44.5 million or 101.6% to $88.3 million for the three months ended March 31, 2005 as compared to $43.8 million for the three months ended March 31, 2004. This increase was primarily attributable to increased revenues from our North American operations, which experienced a $33.7 million increase in overall revenue, the majority of which was related to new units revenue. This increase resulted from increased bookings during the last three quarters of 2004 combined with increased order levels during the first quarter of 2005. Additionally, shipments in 2004 were reduced as discussed in the 2004 to 2003 year-over-year comparison under revenue. Revenue from the aftermarket parts and services segment increased by $19.2 million, or 15.2%, to $145.7 million for the three months ended March 31, 2005 as compared to the $126.5 million in revenue generated during the same period in 2004. The increase was primarily attributable to an increase in the backlog of 12.1% at December 31, 2004 compared to December 31, 2003.

Cost of goods sold. Cost of goods sold was $186.3 million for the three months ended March 31, 2005, a $63.5 million increase over the same period in 2004. As a percentage of revenues, cost of goods sold increased to 79.6% from 72.1% for the same period in 2004. The increase was mainly attributable to the following: (i) 70% of the sales increase was for lower margin products such as units, packaging and buyouts, (ii) $13.6 million of purchase accounting expenses were recognized during the first quarter of 2005, reflecting additional depreciation and amortization of $10.7 million and the write-off of the step-up value of inventory of $2.9 million, (iii) our warranty reserve based on historical warranty claims produced an aggregate reduction of the warranty reserve of $2.2 million during the first quarter of 2004 and (iv) we reduced cost of goods sold for the first quarter of 2004 for a product liability lawsuit which was overturned in appellate court, reversing the initial ruling of $4.5 million.

Gross Profit. Gross profit increased by $0.2 million to $47.7 million for the three months ended March 31, 2005 from $47.5 million for the same period in 2004. As a percentage of revenues, gross profit declined to 20.4% for the period in 2005 from the 27.9% for the period in 2004, due to the factors mentioned above.

Selling and administrative expenses. Selling and administrative expenses decreased by $2.2 million to $37.4 million for the three months ended March 31, 2005 from $39.6 million for the same period in 2004 as a result of our efforts to streamline our administrative operations through headcount reductions. In conjunction

with the establishment of corporate functions for the stand alone company, shared services increased $3.0 million during the first quarter of 2005, however, $7.8 million of administrative expenses allocated to us from Ingersoll-Rand during the first quarter of 2004 was no longer applicable in 2005. This decrease was partially offset by an increase in third-party commissions as a result of the increase in revenues.

Research and development. Research and development expenses for the three months ended March 31, 2005 and 2004 were $1.6 million and $1.5 million, respectively.

Operating income. Operating income increased by $2.3 million to $8.7 million for the three months ended March 31, 2005 from $6.4 million for the same period in 2004. This increase was primarily attributable to the factors contributing to the increased sales volume and decreased selling and administrative expenses, as discussed above.

Interest expense, net. Interest income (expense), net was $15.2 million for the three months ended March 31, 2005 and $0.3 million for the same period in 2004. Interest expense of $16.0 million was incurred for the first quarter of 2005 on the outstanding principal of the senior secured credit facility and long-term debt. See “The Transactions.”

Other expense, net. Other income (expense), net for the three months ended March 31, 2005, was $(0.2) million, a $2.2 million decrease in net expense from $(2.4) million for the same period in 2004. The decrease in net expense was attributable to the recognition of net currency gains of $0.2 million in the first quarter of 2005 as opposed to the $1.8 million in foreign currency losses recorded in the first quarter of 2004.

The following table depicts the components of other income (expense), net for the periods presented.


	Predecessor			Successor
	Three Months			Three Months
	Ended			Ended
	March 31, 2004			March 31, 2005

	(In millions)
Foreign currency gains (losses)	$	(1.8	)	$	0.2
Equity losses		(0.5	)		(0.4	)
All other expenses, net		(0.1	)		(0.0	)

Total other income (expense), net	$	(2.4	)	$	(0.2	)

Provision (benefit) for income taxes. The income tax benefit for the three months ended March 31, 2005 was $2.7 million, resulting in an effective rate of 40.0%. This compared to an income tax provision of $0.4 million for the three months ended March 31, 2004, resulting in an effective rate of 11.5%. The rate increased primarily because the Predecessor period reflected the non-taxable partnership structure in existence for most of the domestic operations of the Company. Other differences between the statutory U.S. federal tax rate of 35% and the effective tax rate are attributable to foreign tax rate differences, valuation allowances, state and local income taxes, and various credits and nondeductible expenditures.

Bookings and backlog. Bookings represent orders placed during the three months ended March 31, 2005, whether or not filled. Backlog as of any date represents the number of orders left unfilled as of that date. Bookings during this first quarter of 2005 were $450.3 million, 73.7% higher than the $259.2 million in bookings for the period in 2004. The backlog at March 31, 2005 was $851.6 million compared to $520.0 million at March 31, 2004, a 63.8% increase. This increase is due to several large orders received during the period. The five largest new unit orders in the three months ended March 31, 2005 amounted to $166 million compared to $45 million for the five largest new unit orders for the same period in 2004.


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

The following table presents selected historical financial information for the period from October 30, 2004 through December 31, 2004, for the period from January 1, 2004 through October 29, 2004 and for the year ended December 31, 2003. Amounts are also presented as a percentage of total revenues.


	Predecessor									Successor

						For the Period
						January 1				For the Period
	Year Ended					through				October 30 through
	December 31, 2003					October 29, 2004				December 31, 2004

	(Dollars in millions)
Statement of Operations Data:
Total revenues	$	1,335.4		100.0	%	$	715.5	100.0	%	$	199.9		100.0	%
Cost of goods sold		1,132.1		84.8			538.0	75.2			149.6		74.8

Gross profit		203.3		15.2			177.5	24.8			50.3		25.2
Selling and administrative expenses		156.1		11.7			122.7	17.1			21.5		10.8
Research and development expenses		8.1		0.6			5.7	0.8			1.0		0.5
Write-off of purchased in-process research and development		0.0		0.0			0.0	0.0			1.8		0.9

Operating income		39.1		2.9			49.1	6.9			26.0		13.0
Interest income (expense), net		1.9		0.1			3.1	0.4			(9.7	)	(4.8	)
Other income (expense), net		(9.2	)	(0.6	)		1.9	0.3			(1.8	)	(0.9	)

Income before income taxes		31.8		2.4			54.1	7.6			14.5		7.3
Provision for income taxes		11.4		0.9			11.9	1.7			7.3		3.7

Net income	$	20.4		1.5	%	$	42.2	5.9	%	$	7.2		3.6	%

Total Revenues. Total revenues were $199.9 million for the period from October 30, 2004 through December 31, 2004 and $715.5 million for the period from January 1, 2004 through October 29, 2004 compared to $1,335.4 million for the year ended December 31, 2003. The decrease in revenues of $420.0 million was primarily from the new units segment and was attributable to the following factors: (1) our decision to start charging customers a margin with respect to third-party equipment that we had been purchasing on their behalf on a cost only basis (we refer to such purchases as “buyouts”) resulting in certain customers purchasing such equipment directly; this led to reduction in revenue for buyouts of $12.4 million and $55.4 million for the period from October 30, 2004 through December 31, 2004 and for the period from January 1, 2004 through October 29, 2004, respectively, from $263.8 million for the year ended December 31, 2003 and (2) revenue decreases in other new units sold totaling $251.7 million due to an unusually high level of orders shipped in the prior year which was in part due to the large backlog of orders at the end of 2002. This backlog consisted of large orders for North Sea and Gulf of Mexico projects as well as large orders for the U.S. Government which were shipped in 2003. The invoicing of these projects in 2003 created a low backlog at the end of 2003, a 48% reduction from 2002, thereby reducing shipments in 2004. The shipments of orders is largely dependent on the timing of the completion of the order, and therefore this volume decrease in new units revenues in 2004 is not necessarily indicative of future trends. Additionally, the oil and gas industry can be cyclical with regard to sales of units caused by the price of oil and the buying cycles of our larger clients for major projects. The decrease in revenues from new units was offset by the aftermarket parts and services segment revenues which were $570.1 million in 2004 compared to $542.4 million in 2003. This increase in revenue reflects our continuing efforts to expand the breadth of aftermarket services available to our customers.

Cost of goods sold. Cost of goods sold was $149.6 million, $538.0 million and $1,132.1 million for the period from October 30, 2004 through December 31, 2004, the period from January 1, 2004 through October 29, 2004, and the year ended December 31, 2003, respectively. Cost of goods sold as a percentage of revenues decreased 10.0 percentage points to 74.8% for the period from October 30, 2004 through

December 31, 2004, and decreased 9.6 percentage points to 75.2% for the period from January 1, 2004 through October 29, 2004, from 84.8% for the year ended December 31, 2003. This improvement in 2004 was primarily due to three factors. First, we began charging customers a margin on third-party equipment referred to as buyouts. This change resulted in the cost of goods sold declining as a percentage of revenues. Second, higher-margin aftermarket parts and services revenues increased for the two periods in 2004 compared to the year ended December 31, 2003. Third, manufacturing efficiencies were achieved through workforce reductions, supply chain management initiatives and capacity rationalization efforts. As mentioned previously, we embarked on a series of headcount reductions since the fourth quarter of 2002. During 2004, total headcount decreased by 250, or 5.1%. Also impacting 2004 results were the workforce reductions initiated in 2003. These reductions amounted to 968 employees, from 5,849 to 4,881, or 16.5%. The year-over-year savings associated with workforce reductions are reflected in the financial statements beginning in the month following the reduction. Supply chain management efforts resulted in year-over-year savings of approximately 2.0%. Concerning capacity rationalization, our results reflect the closure of two under-performing repair centers as well as the continued improvement of the New York State factories now under common management. Our results also improved due to the settlement of a product liability lawsuit in an appellate court judgment reversing the initial ruling against us of $4.5 million, which was credited to cost of goods sold in the period from January 1, 2004 through October 29, 2004. Partially offsetting these factors were additional costs related to purchase accounting adjustments which increased costs of goods sold by $15.6 million for the period from October 30, 2004 through December 31, 2004, and an additional $2.1 million reserve for obsolete and slow moving inventory recognized in the period from January 1, 2004 through October 29, 2004, which was sold for scrap in the same period.

Gross Profit. Gross profit was 25.2% for the period from October 30, 2004 through December 31, 2004 and 24.8% for the period from January 1, 2004 through October 29, 2004 compared to 15.2% for the year ended December 31, 2003. The increase is attributable to the factors mentioned above.

Selling and administrative expenses. Selling and administrative expenses of $21.5 million and $122.7 million, respectively, for the period from October 30, 2004 through December 31, 2004 and for the period from January 1, 2004 through October 29, 2004, decreased from $156.1 million in the year ended December 31, 2003 as a result of our efforts to streamline our administrative operations by reducing headcount and a reduction in third-party commissions due to decreased revenues. In addition, information technology costs allocated to selling and administrative expenses decreased in the period from October 30, 2004 through December 31, 2004 and the period from January 1, 2004 through October 29, 2004.

Research and development expenses. Total research and development expenses were $1.0 million for the period from October 30, 2004 through December 31, 2004 and $5.7 million for the period from January 1, 2004 through October 29, 2004 compared to $8.1 million for the year ended December 31, 2003. This decrease was due to the allocation of resources to production jobs due to the increased incoming order activity during 2004.

Write-off of purchased in-process research and development assets. As a result of the transactions, we wrote off $1.8 million of purchased in-process research and development assets in the period from October 30, 2004 through December 31, 2004. This write-off was a one-time event and is not comparable to past or future periods.

Operating income. Operating income for the period from October 30, 2004 through December 31, 2004 and for the period from January 1, 2004 through October 29, 2004 increased as a percentage of revenues to 13.0% and 6.9%, respectively, compared to 2.9% the year ended December 31, 2003. The increase is primarily attributable to the factors contributing to the increased gross margin and decreased selling and administrative expenses, as discussed above.

Interest income (expense), net. Net interest income (expense) was ($9.7) million for the period from October 30, 2004 through December 31, 2004 and $3.1 million for the period from January 1, 2004 through October 29, 2004 compared to $1.9 million for the year ended December 31, 2003. Interest expense of $10.0 million was incurred for the period from October 30, 2004 through December 31, 2004 on the outstanding principal of the senior secured credit facility and long-term debt. Interest income of $5.2 million

and $4.8 million for the period from January 1, 2004 through October 29, 2004 and the year ended December 31, 2003, respectively, was earned on loans to the predecessor parent company, which was offset by interest expense on outstanding loans.

Other income (expense), net. Other income (expense), net was $(1.8) million for the period from October 30, 2004 through December 31, 2004, $1.9 million for the period from January 1, 2004 through October 29, 2004, and $(9.2) million for the year ended December 31, 2003. The decrease in expense for the two periods in 2004 was primarily the result of $2.8 million of casualty losses in 2003 (which did not occur in 2004), related to a fire at a warehouse in Nigeria, and lower currency losses for the period from October 30, 2004 through December 31, 2004 and a currency gain for the period from January 1, 2004 through October 29, 2004.

The following table depicts the components of other income (expense), net for the periods presented.


	Predecessor						Successor

				January 1, 2004			October 30, 2004
	Year Ended			through			through
	December 31, 2003			October 29, 2004			December 31, 2004

	(In millions)
Foreign currency gains (losses)	$	(4.4	)	$	2.1		$	(1.0	)
Equity earnings		(0.1	)		(1.0	)		0.2
Casualty losses		(2.8	)		—			—
New York State grant		(1.3	)		—			—
All other		(0.6	)		0.8			(1.0	)

Total other income (expense), net	$	(9.2	)	$	1.9		$	(1.8	)

Provision for income taxes. The provision for income taxes was $7.3 million for the period from October 30, 2004 through December 31, 2004, $11.9 million for the period from January 1, 2004 through October 29, 2004, and $11.4 million for the year ended December 31, 2003, resulting in an effective rate of 50.2%, 22.1% and 36.0%, respectively. For the period from October 30, 2004 through December 31, 2004, the effective tax rate of 50.2% differed from the statutory U.S. rate of 35% primarily due to the valuation allowance recorded by U.S. operations, state and local income taxes and foreign tax rate differences. For the period from January 1, 2004 through October 29, 2004 and the year ended December 31, 2003, the effective tax rate differed from the statutory U.S. rate of 35% primarily due to partnership income or loss not taxed, foreign tax rate differences, and changes in the valuation allowance recorded by certain foreign operations. The change in the effective tax rate was primarily due to the relationship of nontaxable partnership income or loss to total income in each period.

Bookings and backlog. Bookings represent orders placed during the period, whether or not filled. Backlog as of any date represents the number of orders left unfilled as of that date. Bookings during the year ended December 31, 2004 were $1,119.2 million, 24.2% above bookings for the year ended December 31, 2003, and backlog at December 31, 2004 was $637.6 million compared to $419.9 million at December 31, 2003, a 51.8% increase. The bookings increase was seen in revenue components and was driven by strong oil and gas market activity.


	*Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002*

The following table presents selected historical financial information for the years ended December 31, 2003 and December 31, 2002. Amounts are also presented as a percentage of total revenues. The two columns under year-to-year change show the dollar change and percentage change from 2002 to 2003.


											Year-to-Year
											Change

	Year Ended					Year Ended					2002 to
	December 31, 2002					December 31, 2003					2003			Change

	(Dollars in Millions)
Statement of Operations Data:
Total revenues	$	1,031.4		100.0	%	$	1,335.4		100.0	%	$	304.0			29.5	%
Cost of goods sold		865.9		84.0			1,132.1		84.8			266.2			30.7

Gross profit		165.5		16.0			203.3		15.2			37.8			22.8
Selling and administrative expenses		138.5		13.4			156.1		11.7			17.6			12.7
Research and development expenses		8.0		0.8			8.1		0.6			0.1			1.3
Restructuring charges		5.2		0.5			0.0		0.0			(5.2	)		(100.0	)

Operating income		13.8		1.3			39.1		2.9			25.3			183.3
Interest income (expense), net		(0.8	)	(0.1	)		1.9		0.2			2.7			337.5
Other income (expense), net		15.0		1.5			(9.2	)	(0.7	)		(24.2	)		(161.3	)

Income before income taxes		28.0		2.7			31.8		2.4			3.8			13.6
Provision for income taxes		11.9		1.1			11.4		0.9			(0.5	)		(4.2	)

Net income	$	16.1		1.6	%	$	20.4		1.5	%	$	4.3			26.7	%

Total Revenues. Total revenues increased by $304.0 million, or 29.5%, to $1,335.4 million in 2003 from $1,031.4 million in 2002. The sales volume increase was almost entirely attributable to sales by the new units segments, which experienced a $294.2 million increase. This increase resulted from increases in new units sales of $149.0 million, buyouts of $112.2 million and revamps of $33.0 million. The high invoicing levels were primarily for products delivered from Le Havre, Norway and Olean that were in backlog at the end of 2002. This backlog consisted of large orders for North Sea and Gulf of Mexico projects as well as large orders for the U.S. Government. The oil and gas industry can be very cyclical with regards to sales of units, caused by the price of oil and the buying cycles of our larger clients for major projects.

Cost of goods sold. Cost of goods sold as a percentage of revenues increased slightly to 84.8% in 2003 from 84.0% in 2002. This increase was primarily due to (i) the mix shift caused by the dramatic increase in new unit shipments as mentioned above and (ii) severance costs incurred related to headcount reductions in 2003 of $6.3 million. The large mix shift was offset by improvements in the individual cost of goods sold components due to increased manufacturing efficiencies achieved through workforce reductions (5,849 to 4,881, or 16.5%) and favorable material costs achieved through supply chain management efforts.

Gross profit. Gross profit increased by $37.8 million, or 22.8%, to $203.3 million in 2003 from $165.5 million in 2002 and decreased to 15.2% of revenues in 2003 from 16.0% in 2002, due to the factors mentioned above.

Selling and administrative expenses. Selling and administrative expenses were $156.1 million and $138.5 million for 2003 and 2002, respectively. This increase was primarily attributable to corporate overhead allocations from Ingersoll-Rand which increased $13.8 million from the 2002 amount of $1.3 million to the 2003 amount of $15.1 million. During 2003, we began the process of integrating numerous functions with Ingersoll-Rand Services provided by Ingersoll-Rand in 2003, including treasury and cash management, internal audit services, tax planning and compliance, risk management services and various payroll and benefits services.

Research and development expenses. Total research and development expenses of $8.1 million in 2003 were virtually unchanged from $8.0 million in 2002.

Restructuring charges. At the end of 2002, we incurred restructuring charges of $5.2 million. The 2002 charges, primarily for workforce reductions, resulted in 2003 savings were $18.5 million in cost of sales and $1.9 million in selling and administrative expenses. No charges were incurred in 2003.

Operating income. Operating income increased by $25.3 million, or 183.3%, to $39.1 million in 2003 from $13.8 million in 2002. The increase is primarily attributable to increased volume as well as the factors contributing to the increased gross margin, as discussed above.

Interest income (expense), net. Net interest income (expense) was $1.9 million in 2003 compared to ($0.8) million in 2002. The interest income in 2003 was attributable to interest earned on receivables from Ingersoll-Rand.

Other income (expense), net. Other income (expense), net was ($9.2) million in 2003, or $24.2 million less than the $15.0 million other income reported in 2002 as depicted in the table below. During 2003, we suffered two casualty losses. The casualty losses amounted to $2.8 million, which was primarily due to a fire at our inventory warehouse in Nigeria resulting in the loss of $2.3 million. At the end of 2002, we received a training and capital grant from the New York State Empire Development Corporation, which resulted in other income of $8.0 million. In late 2003, we agreed to repay a portion of the grant due to lower-than-anticipated employment levels resulting in other expense of $1.3 million. During 2002, we received insurance proceeds as a result of a fire that destroyed a third-party facility, which warehoused patterns we use in the production process.

The following table depicts the components of other income (expense), net for the periods presented and the period over period change for each component.


	2002			2003			Change

	(In millions)
Currency losses	$	(1.1	)	$	(4.4	)	$	(3.3	)
Equity losses		(0.5	)		(0.1	)		0.4
Casualty losses		—			(2.8	)		(2.8	)
New York State grant		8.0			(1.3	)		(9.3	)
Insurance claims		10.1			—			(10.1	)
Other		(1.5	)		(0.6	)		0.9

Total other income (expense), net	$	15.0		$	(9.2	)	$	(24.2	)

Provision for income taxes. Provision for income taxes for the year ended December 31, 2003 was $11.4 million resulting in an effective rate of 36.0%. This compares to an income tax provision of $11.9 million in 2002 resulting in an effective rate of 42.5%. Our effective tax rate differed from the statutory U.S. rate of 35% primarily due to partnership income or loss not taxed, foreign tax rate differences, and changes in the valuation allowance recorded by certain foreign operations. Our effective tax rate was 36.0% and 42.5% for the years ended December 31, 2003 and 2002, respectively. The change in our effective tax rate was primarily due to the relationship of nontaxable partnership income or loss to total income in each period.

Bookings and backlog. Bookings during the year ended December 31, 2003 of $901.0 million were 13.4% below bookings for the year ended December 31, 2002, and backlog at the end of 2003 was $419.9 million compared to $826.4 million at the end of 2002, a 49.2% decrease. The decreased bookings, combined with the high revenue achieved, resulted in the decrease in backlog.


	*Segment Analysis*


	*Three Months Ended March 31, 2005 (Successor) Compared to the Three Months Ended March 31, 2004 (Predecessor)*

The following table presents selected historical financial information regarding both of our segments for the three months ended March 31, 2004 and March 31, 2005. Revenues by segment are also presented as a percentage of total revenues. The two columns under period-to-period change show the dollar change and percentage change from the three months ended March 31, 2004 to the three months ended March 31, 2005.


							Successor
		Predecessor
												Period-to-Period
												Change
							Three Months
		Three Months Ended					Ended					2004 to
		March 31, 2004					March 31, 2005					2005			Change

		(Dollars in millions)
Revenues
New units		$	43.8		25.7	%	$	88.3		37.7	%	$	44.5			101.6	%
Aftermarket parts and services			126.5		74.3			145.7		62.3			19.2			15.2

	Total revenues	$	170.3		100.0	%	$	234.0		100.0	%	$	63.7			37.4

Gross Profit
New units		$	9.7				$	3.9				$	(5.8	)		(59.8	)%
Aftermarket parts and services			37.9					43.8					5.9			15.6

	Total gross profit	$	47.6				$	47.7				$	0.1			0.2

Operating Income
New units		$	1.5				$	(6.0	)			$	(7.5	)		(500.0	)%
Aftermarket parts and services			18.7					23.8					5.1			27.3
Unallocated corporate expense			(13.8	)				(9.1	)				4.7			(34.1	)

	Total operating income	$	6.4				$	8.7				$	2.3			35.9	%


	New Units

Revenues. Revenues in the new units segment increased by $44.5 million, or 101.6%, to $88.3 million for the three months ended March 31, 2005 from $43.8 million for the same period in 2004. This was primarily attributable to increased revenues from our North American operations, which experienced a $33.7 million increase. This increase resulted from increased bookings during the latter half of 2004 combined with increased order levels during the first quarter of 2005.

Gross profit. Gross profit decreased by $5.8 million, or 59.8%, to $3.9 million for the three months ended March 31, 2005 from $9.7 million for the same period in 2004. As a percentage of segment revenues, gross profit declined sharply to 4.4% for the period in 2005 from 22.1% for the same period in 2004. The decrease was primarily due to purchase accounting adjustments totaling $4.9 million in 2005 and adjustments during the first quarter of 2004 reducing our warranty reserve by $2.2 million and the settlement of a product liability lawsuit in an appellate court judgement reversing the initial ruling of $4.5 million.

Operating income (loss). Operating income (loss) decreased by $7.5 million, to $(6.0) million for the three months ended March 31, 2005 from a profit of $1.5 million for the same period in 2004. This decrease is attributable to the change in gross profit mentioned above as well as the increased allocation of selling and administrative expenses due to the large increase in sales as compared to the aftermarket parts and services segment.

Bookings and backlog. Bookings for the three months ended March 31, 2005 were $295.5 million, 143.7% above the bookings for the same period in 2004. The backlog at March 31, 2005 was $692.7 million, or 86.6% above the $371.2 backlog at March 31, 2004. This increase is due to several large orders received during

the period. The five largest new unit orders in the three months ended March 31, 2005 amounted to $166 million compared to $45 million for the five largest new unit orders for the same period in 2004.


	Aftermarket Parts & Services

Revenues. Revenues increased by $19.2 million, or 15.2%, to $145.7 million for the three months ended March 31, 2005 from $126.5 million for the same period in 2004. Our field service business revenues increased $8.9 million or 40.8% for the three months ended March 31, 2005 compared to the same period in 2004 primarily from our domestic repairs unit, and our repairs revenues increased $3.5 million or 18.6% for the three months ended March 31, 2005 compared to the same period in 2004 primarily from our operations in France.

Gross profit. Gross profit increased by $5.9 million, or 15.6%, to $43.8 million for the three months ended March 31, 2005 from $37.9 million for the same period in 2004 as a result of the increases in volume as a result of the increase in volume referenced above. As a percentage of revenues, gross profit increased slightly to 30.1% for the three months ended March 31, 2005 from 30.0% for the same period in 2004, as a more favorable product mix, price realization and increased manufacturing efficiencies were almost fully offset by $8.7 million in purchase accounting charges.

Operating income. Operating income increased by $5.1 million, or 27.3%, to $23.8 million for the three months ended March 31, 2005 from $18.7 million for the same period in 2004. Operating income as a percentage of segment revenues increased to 16.3% for the period in 2005 from 14.8% for the same period in 2004 due to cost control initiatives, manufacturing and operating efficiencies and a more favorable product mix described above.

Bookings and backlog. Bookings for the three months ended March 31, 2005 were $154.8 million, 12.2% above bookings for the same period in 2004, and backlog at March 31, 2005 was $158.9 million, or 6.7% above the backlog at March 31, 2004. This $9.8 million increase in backlog for the three months ended March 31, 2005 was a result of our increased emphasis on aftermarket parts and services sales.


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

The following table presents selected historical financial information regarding both of our segments for the period from October 30, 2004 through December 31, 2004, for the period from January 1, 2004 through October 29, 2004 and for the year ended December 31, 2003. Amounts are also presented as a percentage of total revenues.


			Predecessor										Successor

								Period from					Period from
			Year Ended					January 1 through					October 30 through
			December 31, 2003					October 29, 2004					December 31, 2004

			(Dollars in millions)
Revenues
	New units		$	793.0		59.4	%	$	267.7		37.4	%	$	77.6		38.8	%
	Aftermarket parts and services			542.4		40.6			447.8		62.6			122.3		61.2

		Total revenues	$	1,335.4		100.0	%	$	715.5		100.0	%	$	199.9		100.0	%

Gross Profit
	New units		$	39.4				$	32.3				$	9.8
	Aftermarket parts and services			163.9					145.2					40.5

		Total gross profit	$	203.3				$	177.5				$	50.3

Operating Income (Loss)
	New units		$	(11.4	)			$	(0.5	)			$	3.6
	Aftermarket parts and services			98.1					85.1					30.5
	Unallocated corporate expense			(47.6	)				(35.5	)				(8.1	)

		Total operating income	$	39.1				$	49.1				$	26.0


	New Units

Revenues. Revenues in the new units segment were $77.6 million, $267.7 million and $793.0 million for the period from October 30, 2004 through December 31, 2004, for the period from January 1, 2004 through October 29, 2004, and for the year ended December 31, 2003, respectively, and were 38.8%, 37.4% and 59.4%, respectively, as a percentage of total revenues. The decreases in revenues as a percentage of total revenues for the two periods in 2004 were primarily due to (1) our decision to start charging customers a margin on buyouts, resulting in certain customers purchasing such equipment directly; this led to reduction in buyout revenue of $12.4 million in the period from October 30, 2004 through December 31, 2004, and $55.4 million in the period from January 1, 2004 through October 29, 2004, from $263.8 million for the year ended December 31, 2003, and (2) revenue decreases in other new units sold totaling $251.7 million due to an unusually high level of orders shipped in the prior year, which was in part due to the large backlog of orders at the end of 2002. This backlog consisted of large orders for North Sea and Gulf of Mexico projects as well as large orders for the U.S. Government which were shipped in 2003. The invoicing of these projects in 2003 created a low backlog at the end of 2003, a 48% reduction from 2002, thereby reducing shipments in 2004. The shipments of orders is largely dependent on the timing of the completion of the order, and therefore this volume decrease in new units revenues in 2004 is not necessarily indicative of future trends. Additionally, the oil and gas industry can be cyclical with regard to sales of units caused by the price of oil and the buying cycles of our larger clients for major projects. Invoicings in any given year are typically highly dependent on the beginning of the year backlog. See “Bookings and backlog” discussions below for current trends.

Gross profit. Gross profit for new units as a percentage of new unit segment revenues increased to 12.6% for the period from October 30, 2004 through December 31, 2004 and to 12.1% for the period from January 1, 2004 through October 29, 2004 from 5.0% for the year ended December 31, 2003. This improvement was primarily due to the two factors discussed above. First, we began charging customers a margin on third-party equipment referred to as buyouts. Second, manufacturing efficiencies were achieved through productivity initiatives, workforce and capacity rationalization efforts including a reduction in headcount and cost reductions in supply chain management.

Operating income. Operating income (loss) was $3.6 million, ($0.5) million and ($11.4) million for the period from October 30, 2004 through December 31, 2004, for the period from January 1, 2004 through October 29, 2004, and for the year ended December 31, 2003, respectively. As a percentage of segment revenues, operating income (loss) improved compared to the year ended December 31, 2003 primarily due to the increase in the gross profit percentage over 2003 and was partially offset by higher selling and administrative expenses as a percentage of revenues for the period from January 1, 2004 through October 29, 2004. Selling and administrative expenses increased as a percentage of revenues due to the decline in revenues.

Bookings and backlog. Bookings for the twelve months ended December 31, 2004 were $536.9 million, 38.2% above the bookings in 2003, and backlog at December 31, 2004 was $489.3 million, or 70.1% above the backlog at December 31, 2003. As previously mentioned, bookings were favorably impacted by the strong oil and gas market. This fact, coupled with the low invoicings level during 2004, resulted in a large increase in backlog.


	Aftermarket Parts & Services

Revenues. Revenues were $122.3 million, $447.8 million and $542.4 million for the period from October 30, 2004 through December 31, 2004, for the period from January 1, 2004 through October 29, 2004, and for the year ended December 31, 2003, respectively, and were 61.2%, 62.6% and 40.6%, respectively, as a percentage of total revenues. Total combined revenues in 2004 increased by $27.7 million, or 5.1%, from $542.4 million for the year ended December 31, 2003 primarily due to an increase in parts sales, which accounted for $24.2 million of the increase. Services revenue increased slightly by $3.6 million; however, after discounting the affect of the $20.2 million turn-key project in 2003 (see 2003 compared to 2002 below), services increased approximately 12.6%. This segment’s revenues are primarily generated through the large installed base of equipment worldwide and, therefore, are not subject to the fluctuations in volume to the same extent as the new units segment, which is dependent on new projects from major oil and gas clients. The increase in revenues was driven by a combination of factors including (i) annual price increases; (ii) proactive marketing of new aftermarket solutions; and (iii) improved on-line delivery performance and reduced lead times to delivery.

Gross profit. Gross profit as a percentage of aftermarket parts and services segment revenues increased to 33.1% for the period from October 30, 2004 through December 31, 2004 and to 32.4% for the period from January 1, 2004 through October 29, 2004, from 30.2% for the year ended December 31, 2003, as a result of the increase in sales volume and the improvement in gross margins partially achieved through price increases, and due to a more favorable product mix (as parts has a greater margin than services), the price realizations mentioned above and the headcount reductions previously discussed.

Operating income. Operating income was $30.5 million, $85.1 million and $98.1 million for the period from October 30, 2004 through December 31, 2004, for the period from January 1, 2004 through October 29, 2004, and for the year ended December 31, 2003, respectively. Operating income as a percentage of aftermarket parts and services segment revenues increased to 24.9% for the period from October 30, 2004 through December 31, 2004 and to 19.0% for the period from January 1, 2004 through October 29, 2004 from 18.1% for the year ended December 31, 2003 due to improvements in gross profit in both periods in 2004, in addition to reduced selling and administrative expenses. The majority of selling and administrative expenses are fixed and, as revenue decreases, the expenses increase as a percentage of revenue.

Bookings and backlog. Bookings during the twelve months ended December 31, 2004 were $582.3 million, 13.6% above bookings for the same period in 2003, and backlog at December 31, 2004 was $148.3 million, or 12.2% above the backlog at December 31, 2003. This increase in bookings in 2004 was a result of our increased emphasis on aftermarket parts and services sales and the impact of economic and political unrest in Nigeria, Venezuela and the Middle East, which depressed bookings in this segment in the 2003 period. During 2004, the spare parts business in Venezuela and the Middle East returned to normal levels. Civil unrest continues to depress the repairs business in Nigeria.


	*Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002*

The following table presents selected historical financial information regarding both of our segments for each of the years ended December 31, 2003 and 2002, respectively. Revenues by segments show dollars in millions and are also presented as a percentage of total revenues. The two columns under year-to-year change show the dollar and percentage change from 2002 to 2003.


															Year-to-Year
															Change

															2002 to
			2002			%			2003			%			2003			Change

			(Dollars in millions)
Revenues
	New units		$	498.8			48.4	%	$	793.0			59.4	%	$	294.2			59.0	%
	Aftermarket parts and services			532.6			51.6			542.4			40.6			9.8			1.8

		Total revenues	$	1,031.4			100.0	%	$	1,335.4			100.0	%	$	304.0			29.5	%

Gross Profit
	New units		$	7.7					$	39.4					$	31.7			411.7	%
	Aftermarket parts and services			157.8						163.9						6.1			3.9

		Total gross profit	$	165.5					$	203.3					$	37.8			22.8	%

Operating Income (loss)
	New units		$	(32.8	)				$	(11.4	)				$	21.4			65.2	%
	Aftermarket parts and services			85.7						98.1						12.4			14.5
	Unallocated corporate expense			(39.1	)					(47.6	)					(8.5	)		(21.7	)

Total operating income (loss)			$	13.8					$	39.1					$	25.3			183.3	%


	New Units.

Revenues. Revenues increased by $294.2 million, or 59.0%, to $793.0 million in 2003 from $498.8 million in 2002 due to strong shipments resulting from large bookings achieved in 2001 and 2002. Buyouts accounted for $112.2 million of the increase. For buyout orders booked before 2003, no margin was earned.

Gross profit. Gross profit increased by $31.7 million, or 411.7%, to $39.4 million in 2003 from $7.7 million in 2002. As a percentage of segment revenues, gross profit increased to 5.0% in 2003 from 1.5% in 2002 primarily due to improved operating efficiencies incurred as a result of headcount reduction.

Operating income (loss). Operating loss decreased by $21.4 million, to a loss of $(11.4) million in 2003 from a loss of $(32.8) million in 2002. As a percentage of segment revenues, operating income improved primarily due to the factors mentioned above.

Bookings and backlog. Bookings during the year ended December 31, 2003 were $388.5 million, or 22.2% below bookings for 2002, and backlog at December 31, 2003 was $287.7 million, or 56% below the unusually high level in 2002 of $656.9 million. As mentioned previously, the new units business is driven by the dynamics of the oil and gas industry, which is driven by the price of oil and gas and consequent changes in capital expenditures by the major oil and gas companies worldwide. Our strong new units bookings in 2001 and 2002 were invoiced in 2003. The high invoicing level combined with the lull in booking due to political unrest in Venezuela, Nigeria and the Middle East resulted in a much lower backlog at year end 2003 as compared to 2002.


	Aftermarket Parts and Services

Revenues. Revenues increased by $9.8 million, or 1.8%, to $542.4 million in 2003 from $532.6 million in 2002. This increase was attributable to the large increase in field service activity due to an increase of $28.3 million primarily due to a $20 million service agreement in 2003. These revenues were offset by decreases in parts of $8.9 million and repair of $12.6 million due to the delay in orders as a result of political and economic unrest in Nigeria, Venezuela and the Middle East.

Gross profit. Gross profit increased by $6.1 million, or 3.9%, to $163.9 million in 2003 from $157.8 million in 2002 as a result of the increase in volume and the improvement of gross margins. As a percentage of revenues, gross profit increased to 30.2% in 2003 from 29.6% in 2002 due to a more favorable product mix, price realization and increased manufacturing efficiencies.

Operating income. Operating income increased by $12.4 million, or 14.5%, to $98.1 million in 2003 from $85.7 million in 2002. Despite the modest increase in revenues, operating income as a percentage of revenues increased to 18.1% in 2003 from 16.1% in 2002 due to cost control initiatives, manufacturing and operating efficiencies and a more favorable product mix.

Bookings and backlog. Bookings during the twelve month period ended December 31, 2003 were $512.5 million, 5.3% below 2002, and backlog at December 31, 2003 was $132.2 million, or 22.0% below 2002. The 2003 bookings were adversely impacted by geopolitical issues in Venezuela, the Middle East and Nigeria. The slowdown in bookings combined with the accelerated shipments of backlog resulted in lower backlog levels at year end 2003 compared to 2002.

Liquidity and Capital Resources

Historically, our primary source of cash has been from operations. Prior to the closing of the transactions, our Predecessor participated in Ingersoll-Rand’s centralized treasury management system whereby, in certain countries, our Predecessor’s cash receipts were remitted to Ingersoll-Rand and Ingersoll-Rand funded our Predecessor’s cash disbursements. Our Predecessor’s primary cash disbursements were for capital expenditures and working capital. Following the consummation of the transactions, we initially relied upon a transition services agreement with Ingersoll-Rand to provide these services until we could establish our own cash management system. As of April 2, 2005, we were no longer reliant upon Ingersoll-Rand for any cash management services.

Cash and cash equivalents at March 31, 2005 were $151.3 million, an increase of approximately $39.8 million compared to the balance as of December 31, 2004 of $111.5 million. The increase was primarily the result of cash provided by operating activities of $118.5 million reduced by payments on long term debt of $85.7 million.

Net cash provided by operating activities for the three months ended March 31, 2005 was $118.5 million, which compares to net cash used in operating activities of $29.3 million for the same period in 2004. The increase of $147.8 in net cash flow provided by operating activities was mainly from changes in working capital. The most significant fluctuations in the changes in working capital for the three months ended March 31, 2005 concerned accounts receivable and customer advance payments, a component of other current and noncurrent liabilities.

Accounts receivable at March 31, 2005 were $183.2 million, an $81.7 million or 30.8% decrease from December 31, 2004 as we collected $30.5 million due from Ingersoll-Rand and benefited from increased collection efforts from our North American $(11.5) million, European $(19.5) million, and South American $(8.7) million operations.

Customer advance payments at March 31, 2005 was $79.7 million, a $41.0 million, or 105.9%, increase over $38.7 million at December 31, 2004. The increase was a result of our increased efforts to collect customer payments in line with or ahead of the costs of inventory work-in-process, beginning in the first quarter of 2005.

Net cash flow provided by investing activities for the three months ended March 31, 2005 was $8.4 million, which compares to $0.2 million for the same period in 2004. The increase of $8.2 million was primarily due to the sale of our investment in a partially owned equity in the three months ended March 31, 2005.

Net cash used in financing activities was $86.3 million for the three months ended March 31, 2005 compared to net cash provided by financing activities of $28.4 million for the three months ended March 31, 2004. This decrease of $114.7 million related primarily to payments on long term debt of $85.7 during the three months ended March 31, 2005 and a decrease primarily relating to the impact of the net change in intercompany accounts with Ingersoll-Rand of $29.4 million in the three months ended March 31, 2004.

Net cash flows provided by operating activities were $17.9 million, $57.7 million, $51.0 million, and $42.0 million for the period from October 30, 2004 through December 31, 2004, the period from January 1, 2004 through October 29, 2004, and the years ended December 31, 2003 and 2002, respectively, mainly due to profitable results of operations and changes in working capital. Changes in working capital was primarily affected by accounts receivable, inventories, predecessor affiliated loans and receivables, customer advance payments, and accounts payable and accrued liabilities.

Accounts receivable increased $22.9 million to $264.9 million at December 31, 2004 from $242.0 million at December 31, 2003 primarily due to pension and other receivables from Ingersoll-Rand of $32.9 million recorded as a result of the transactions. The offsetting decrease in accounts receivable is primarily due to lower revenues in the fourth quarter of 2004 compared to 2003 for the Norway operations, and due to a reduction in the year-end accounts receivable balance for Nigeria. Inventories increased by $42.5 million or 31.9% to $175.9 million at December 31, 2004 compared to $133.4 million at December 31, 2003 for the following reasons: (1) finished goods and work-in-progress inventories on hand at year-end were $209.2 million at December 31, 2004 compared to $142.1 million at December 31, 2003, an increase of $67.1 million or 47.2% primarily due to the large increase in backlog; and (2) raw materials inventories decreased $6.6 million as a result of our continued efforts to reduce slow moving inventories and dispose of obsolete inventories. Loans and receivables due from Ingersoll-Rand of $228.2 million and loans payable to Ingersoll-Rand of $14.8 million at December 31, 2003 were extinguished as a result of the transactions. Accounts payable and accruals decreased $20.6 million primarily due to the retention by Ingersoll-Rand of a portion of the liability for post retirement benefits for those employees who were retired and retirement-eligible employees.

Inventories decreased by $121.6 million to $133.4 million at December 31, 2003 compared to $255.0 million at December 31, 2002 due to a decrease in the number of bookings in 2003 compared to 2002, and due to increased sales in 2003 resulting in a higher relief of inventories than replenishment. Loans and

receivables due from Ingersoll-Rand of $228.2 million at December 31, 2003 increased from $153.2 million at December 31, 2002 as a result of transferring funds to Ingersoll-Rand for cash management purposes discussed above. Customer advance payments decreased by $74.8 million at December 31, 2003 compared to December 31, 2002 because work-in-progress and finished goods inventories decreased thereby reducing the need for customers to advance funds on in-progress orders.

For the period from October 30, 2004 through December 31, 2004, the period from January 1, 2004 through October 29, 2004, and the years ended December 31, 2003 and 2002, net cash flows provided by (used in) investing activities were $(1,126.9) million, $(4.9) million, $(7.1) million and $3.8 million, respectively, partly as a result of capital expenditures of $1.8 million, $7.7 million, $7.6 million and $13.7 million, respectively. The acquisition was $1,125.1 million in the period from October 30, 2004 through December 31, 2004. These results were also favorably affected in 2002 by the receipt of insurance proceeds of $10.1 million.

For the period from October 30 through December 31, 2004, net cash flow provided by financing activities was $1,217.1 million, $420.0 million of which was from the proceeds from the offering of the notes, $395.0 million of which was from additional long-term debt, and $437.1 million of which was from proceeds from the issuance of common units and common stock. For the period from January 1 through October 29, 2004, and the years ended December 31, 2003 and 2002, net cash flows used in financing activities were $52.0 million, $63.5 million, and $18.8 million, respectively, primarily relating to the impact of the net change in intercompany accounts with Ingersoll-Rand. Additionally, dividends of $8.2 million and $5.1 million were paid in 2002 and in the period from January 1 through October 29, 2004, respectively.

Our Predecessor had approximately $44.3 million of cash on the closing date, subject to closing adjustments. Our primary cash uses will be to fund principal and interest payments on our debt, and for working capital and capital expenditures. Interest expense was $10.0 million for the period from October 30, 2004 through December 31, 2004. Our interest expense, after giving effect to the transactions, for the twelve month period ended December 31, 2004 would have been approximately $53.4 million. We expect to fund these cash needs with operating cash flow and borrowings under the revolving credit portion of our senior secured credit facility.

As part of the transactions, we incurred debt of $820.0 million under the notes and the senior secured credit facility, assumed approximately $2.9 million of debt in foreign locations, and have additional borrowing capacity of $300.0 million under the revolving credit portion of the senior secured credit facility, subject to certain conditions. At March 31, 2005, of the $300.0 million of capacity, $175.3 million was used for outstanding letters of credit. The senior secured credit facility requires, among other covenants, that a minimum consolidated net interest coverage ratio and a maximum consolidated net leverage ratio be maintained.

The interest rates applicable under the Term B and revolving credit portion of our senior secured credit facility vary based on LIBOR and EURIBOR and our leverage ratio. The interest rate on the senior subordinated notes is fixed at 7³/8%.

The $395.0 million of term loans under the senior secured credit facility have fixed amortization of principal required to be repaid quarterly beginning on December 31, 2004 in an amount equal to ¹/4 of 1% of the amount of principal outstanding. In addition, we are also required to make additional mandatory prepayments of principal with any excess cash flow (as defined in the senior secured credit facility), if any. See “Description of Indebtedness.”

Our capital expenditures have averaged $10.3 million per year over the past three years. We expect that our capital expenditures going forward will continue to approximate 1.0% of sales.

Our ability to make payments on and to refinance our indebtedness, including the notes, and to fund planned capital expenditures and research and development efforts, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. As of March 31, 2005, we had cash of $151 million, working capital, including cash, of $179 million, and the ability to borrow approximately $125 million. In

connection with the matters described in “Risk Factors — Risks Related to Our Business — In the past, our Brazilian subsidiary has engaged in business transactions involving a Cuban entity that could subject us to potential sanctions,” to the extent we violated any regulations, we may be subject to fines. We do not expect any such fines to be material to our liquidity or financial condition. Although we cannot assume you that we will continue to generate comparable levels of cash and working capital from operations, based on our current and anticipated levels of operations and conditions in our markets and industry, we believe that our cash flow from operations, available cash and available borrowings under the senior secured credit facility will be adequate to meet our working capital, capital expenditures, debt service and other funding requirements for the next twelve months and our long-term future contractual obligations.

Quantitative and Qualitative Disclosures About Market Risk

Our results of operations are affected by fluctuations in the value of local currencies in which we transact business. We record the effect of non-U.S. dollar currency transactions when we translate the non-U.S. subsidiaries’ financial statements into U.S. dollars using exchange rates as they exist at the end of each month. The effect on our results of operations of fluctuations in currency exchange rates depends on various currency exchange rates and the magnitude of the transactions completed in currencies other than the U.S. dollar. Net foreign currency losses (gains) were $(0.2) million for the three months ended March 31, 2005 compared to $1.8 million for the three months ended March 31, 2004. Net foreign currency losses (gains) were $1.0 million, ($2.1) million, $4.4 million and $1.1 million for the periods from October 30, 2004 through December 31, 2004 and January 1, 2004 through October 29, 2004, and the years ended December 31, 2003 and 2002, respectively.

We enter into financial instruments to mitigate the impact of changes in currency exchange rates that may result from long-term customer contracts where we deem appropriate.

We have interest rate risk related to the term loan portion of our senior secured credit facility as the interest rate on the principal outstanding on the loans is variable. A 1% increase in the interest rate would have the effect of increasing interest expense by $3.1 million annually (based on the outstanding principal balance at March 31, 2005).

Contractual Obligations

The following is a summary of our significant future contractual obligations by year as of December 31, 2004:


	Payments Due by Period

			Less than						More than
	Total		1 Year		1-3 Years		3-5 Years		5 Years

	(In thousands)
Long-term debt obligations(1)	$	820,679	$	4,015	$	8,235	$	8,030	$	800,399
Operating lease obligations		15,700		7,100		7,800		800		—
Loans payable		2,734		2,734		—		—		—
License agreement		4,000		444		889		889		1,778

Total	$	843,113	$	14,293	$	16,924	$	9,719	$	802,177


(1)	Principally includes amortization payments required to be made under our senior secured credit facility, as well as the notes. See “Description of Indebtedness.”

Covenant Compliance

We believe that our senior secured credit facility and the indenture governing our outstanding notes are material agreements, that the covenants are material terms of these agreements and that information about the covenants is material to an investor’s understanding of our financial condition and liquidity. The breach of covenants in the senior secured credit facility that are tied to ratios based on Adjusted EBITDA, as defined

below, could result in a default under the senior secured credit facility and the lenders could elect to declare all amounts borrowed due and payable. Any such acceleration would also result in a default under our indenture. Additionally, under the senior secured credit facilities and indenture, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Adjusted EBITDA.

Covenant levels and pro forma ratios for the four quarters ended March 31, 2005 are as follows:


				March 31,
				2005
	Covenant Level			Ratio

Senior Secured Credit Facility(1)
Minimum Adjusted EBITDA to cash interest ratio		1.75	x		2.95x
Maximum total debt to Adjusted EBITDA ratio		6.75	x		3.70x
Indenture(2)
Minimum pro forma Adjusted EBITDA to pro forma fixed charge ratio required to incur additional debt pursuant to ratio provisions(3)		2.0	x		3.16x


(1)	Our senior secured credit facility requires us to maintain an Adjusted EBITDA to cash interest ratio starting at a minimum of 1.75x and a total debt to Adjusted EBITDA ratio starting at a maximum of 6.75x. Failure to satisfy these ratio requirements would constitute a default under the senior secured credit facility. If lenders under the senior secured credit facility failed to waive any such default, repayment obligations under the senior secured credit facility could be accelerated, which would also constitute a default under the indenture.

(2)	Our ability to incur additional debt and make certain restricted payments under our indenture, subject to specified exceptions, is tied to an Adjusted EBITDA to fixed charge ratio of at least 2.0 to 1.

(3)	The ratio is calculated giving pro forma effect to the acquisition and the incurrences of debt under the indenture and the senior secured credit facility.

Adjusted EBITDA as used herein is defined as net income before interest expense, provision for income taxes, depreciation and amortization and further adjusted to exclude non-recurring items, non-cash items and other adjustments permitted in calculating covenants contained in the related senior secured credit facility and indenture governing the notes, as shown in the table below. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors to demonstrate compliance with financing covenants. The presentation of Adjusted EBITDA, a non-GAAP financial measure, and ratios based thereon, do not comply with accounting principles generally accepted in the United States.


	Predecessor										Successor

						Period			Three		Period		Three
	Year Ended December					January 1			Months		October 30		Months			Four Quarters
	31,					through			Ended		through		Ended			Ended
						October 29,			March 31,		December 31,		March 31,			March 31,
	2002		2003			2004			2004		2004		2005			2005(a)

	(In thousands)
Net income (loss)	$	16,096	$	20,365		$	42,151		$	3,310	$	7,229	$	(4,018	)	$	42,052
(Benefit) provision for income taxes		11,910		11,438			11,970			431		7,275		(2,679	)		16,135
Interest (income) expense, net		776		(1,938	)		(3,156	)		297		9,654		15,233			21,434
Depreciation and amortization		33,822		29,109			22,715			7,033		16,269		16,951			48,902

EBITDA		62,604		58,974			73,680			11,071		40,427		25,487			128,523


	Predecessor												Successor

							Period			Three			Period			Three
	Year Ended December						January 1			Months			October 30			Months			Four Quarters
	31,						through			Ended			through			Ended			Ended
							October 29,			March 31,			December 31,			March 31,			March 31,
	2002			2003			2004			2004			2004			2005			2005(a)

	(In thousands)
Net reduction in SFAS 106 expense(b)		8,512			10,033			9,322			3,178			—			—			6,144
Excess (additional) corporate allocation(c)		(4,876	)		3,816			2,122			626			—			—			1,496
Removal of incremental corporate overhead(d)		—			5,091			8,025			5,844			—			—			2,181
Restructuring severance(e)		5,185			—			—			—			—			—			—
Productivity measures(f)		—			11,696			4,679			3,470			(62	)		—			1,147
Pension(g)		(2,317	)		8,079			1,529			511			—			—			1,018
Nigeria loss contract(h)		—			4,843			6,437			1,818			206			—			4,825
Nigeria casualty losses(i)		—			2,750			—			—			—			—			—
Provision for obsolete material(j)		—			3,300			2,100			1,000			—			—			1,100
New York State grant(k)		(8,000	)		1,289			—			—			—			—			—
Equity (earnings) losses(l)		479			133			1,013			582			(194	)		411			648
Insurance claim(m)		(10,145	)		—			—			—			—			—			—
Settlement of product liability claim(n)		—			—			(4,500	)		(4,500	)		—			—			—
China receivables(o)		—			—			970			—			—			—			970
Write-off of purchased in-process research and development assets		—			—			—			—			1,800			—			1,800
Inventory step-up write-off(p)		—			—			—			—			2,281			2,920			5,201
Other expense (income)(q)		1,535			(2,976	)		(826	)		15			1,017			(54	)		122
Compensation adjustment(r)		(150	)		(150	)		(125	)		(37	)		—			—			(88	)

Adjusted EBITDA	$	52,827		$	106,878		$	104,426		$	23,578		$	45,475		$	28,764		$	155,087


(a)		Reflects the combination of financial information for the Predecessor and Successor periods as required by the covenants of our senior secured credit facility and the indenture governing the notes.

(b)		Reflects the adjustment to historical expense for the change in postretirement benefits other than pension expense due to Ingersoll-Rand’s retention of the obligations for all employees who are retired or eligible to retire as well as the results of actuarial valuations performed as of the transaction date for the portion retained by us.

(c)		Reflects the difference between the corporate overhead expenses allocated to us by Ingersoll-Rand and our estimated annual stand-alone expenses.

(d)		Reflects adjustment for removal of incremental corporate allocation initiated in 2003 by Ingersoll-Rand.


(e)		Reflects severance expenses associated with our efficiency initiatives. Subsequent to 2002, these expenses were included in cost of goods sold and selling and administrative expenses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

(f)		Reflects severance expenses associated with our efficiency initiatives. The expenses were included in the cost of goods sold and selling and administrative expenses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

(g)		Reflects an adjustment for additional funding of certain pension plans and the elimination of actuarial losses through purchase accounting.

(h)		Reflects losses under (i) a contract imposed on the business by Halliburton Industries terminated at the end of 2004 and (ii) a contract in Nigeria we were forced to exit because of force majeure.

(i)		Reflects losses of inventory stocks resulting from a fire in a warehouse in Nigeria.

(j)		Offsets impact of decision to increase obsolete and slow moving inventory reserve level. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

(k)		Reflects one-time income from a New York State grant for the year ended December 31, 2002, and one-time charge related to refunding a portion of the grant in the year ended December 31, 2003. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

(l)		Non-cash (gains) losses in joint ventures.

(m)		Reflects gains from the settlement of an insurance claim relating to a fire that occurred in 2000.

(n)		Reflects one-time gain from settlement of a legal claim. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

(o)		Reflects write-off of receivables related to business closure.

(p)		As a result of the transactions, we wrote up inventory in the amount of $7.4 million. Of this amount, $2.3 million was expensed in the two-month period from October 30, 2004 through December 31, 2004, and $2.9 million was expensed in the three months ended March 31, 2005.

(q)		Non-operating income and expense and other non-cash charges and credits. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

(r)		Reflects increased compensation expense for our Chief Executive Officer.

Recent Accounting Pronouncements

In December 2004, the FASB released SFAS 123R, Share-Based Payments, that is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” This statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. We have elected to early adopt the provisions of SFAS 123R as of October 30, 2004. As a result, we recognized compensation cost in relation to share-based compensation arrangements of $75,000 for the period from October 30, 2004 through December 31, 2004.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an Amendment of Accounting Research Bulletin No. 43, Chapter 4.” SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight handling costs and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance in this statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this statement is not expected to have a material impact on our financial reporting and disclosures.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21 (b) of APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement

is effective for fiscal years beginning after June 15, 2005. The adoption of this statement is not expected to have a material impact on our financial reporting and disclosures.

In March 2005, the FASB released FASB Interpretation No. 47, entitled “Accounting for Conditional Asset Retirement Obligations.” This Interpretation is effective no later than our December 31, 2005 financial statements. We are currently assessing the impact the Interpretation will have on our financial position and results of operation.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. This statement is effective for fiscal years beginning after December 15, 2005.

Employee Benefit Plans


	Pensions

We contributed a discretionary amount of $14.4 million to our pension plans in 2003, $33.3 million for the period from January 1, 2004 through October 29, 2004, $0.5 million from the period from October 30, 2004 through December 31, 2004 and $1.3 million for the three months ended March 31, 2005. We contributed approximately $3.6 million to our non U.S. plans during 2004. Our policy is to fund an amount, which could be in excess of the pension cost expensed, subject to the limitations imposed by current tax regulations.

Pension benefit payments were $17.7 million for the period from January 1, 2004 through October 29, 2004 and $2.5 million for the period from October 30, 2004 through December 31, 2004. Pension expense was $0.9 million for the three months ended March 31, 2005, $3.4 million for the period from January 1, 2004 through October 29, 2004 and $0.5 million for the period from October 30, 2004 through December 31, 2004.


	Postretirement Benefits Other Than Pensions

We fund postretirement benefit costs principally on a pay-as-you-go basis. Benefit payments for postretirement benefits, which reflect future service, as appropriate, are expected to be paid as follows: $22,000 in 2005, $82,000 in 2006, $213,000 in 2007, $491,000 in 2008, and $11.7 million for the years 2009 through 2014.

In connection with the transactions, Ingersoll-Rand has agreed to retain all postretirement benefit obligations with respect to our employees who were retired or were eligible to retire on or prior to the consummation of the transactions. Our postretirement benefit obligations decreased by approximately 67% as a result of Ingersoll-Rand’s retention of these obligations.

Critical Accounting Policies

The notes to the financial statements include a summary of significant accounting policies and methods used in the preparation of the consolidated financial statements and the following summarizes what we believe are the critical accounting policies and methods we use:


	•	Revenue recognition — We use the completed contract method for recognizing revenue for our long-term contracts. This method recognizes revenue when the contract is substantially completed as opposed to the percentage-of-completion method which recognizes revenue as the contract progresses. If we use the percentage-of-completion method to recognize revenue, revenue would be recognized in periods prior to substantial completion of the contract.


	The completed contract method requires the use of estimates as to the future costs that will be incurred related to the contract. These costs include material, labor and overhead. Factors influencing these future costs include the availability of materials and skilled laborers.


	•	Inventories — We purchase materials for the manufacture of components for use in our contracts and for use by our aftermarket parts and services business. The decision to purchase a set quantity of a particular item is influenced by several factors including: current and projected cost; future estimated availability; existing and projected contracts to produce certain items; and the estimated needs for our aftermarkets parts and services business. We value our inventory at the lower of cost or market value. We estimate the net realizable value of our inventories and establish reserves to reduce the carrying amount of these inventories as necessary.


	•	Employee benefit plans — We provide a range of benefits to employees and retired employees, including pensions, postretirement, postemployment and health care benefits. Determining the cost associated with such benefits is dependent on various actuarial assumptions, including discount rates, expected return on plan assets, compensation increases, employee mortality and turnover rates, and health care cost trend rates. Independent actuaries perform the required calculations to determine expense in accordance with U.S. generally accepted accounting principles. Actual results may differ from the actuarial assumptions and are generally accumulated and amortized over future periods. We review our actuarial assumptions at each measurement date and make modifications to the assumptions based on then current rates and trends if appropriate to do so. The discount rate, the rate of compensation increase and the expected long-term rates of return on plan assets are determined as of the measurement date. The discount rate reflects a rate at which pension benefits could be effectively settled. The discount rate is established and based primarily on the yields of high quality fixed-income investments available and expected to be available during the period to maturity of the pension and postretirement benefits. We also review the yields reported by Moody’s on AA corporate bonds as of the measurement date. The rate of compensation increase is dependent on expected future compensation levels. The expected long-term rates of return are projected to be the rates of return to be earned over the period until the benefits are paid. Accordingly, the long-term rates of return should reflect the rates of return on present investments, expected contributions to be received during the current year and on reinvestments over the period. The rates of return utilized reflect the expected rates of return during the periods for which the payment of benefits is deferred. The expected long-term rate of return on plan assets used is based on what is realistically achievable based on the types of assets held by the plans and the plan’s investment policy. We review each plan and its returns and asset allocations to determine the appropriate expected long-term rate of return on plan assets to be used. At the end of 2002, we believed a revision to our long-term expectations for returns was necessary based upon the market performance experienced in 2001 and 2002. We believe that the assumptions utilized in recording our obligations under our plans are reasonable based on input from our actuaries, outside investment advisors, and information as to assumptions used by plan sponsors.


	A 1% change in the medical trend rate assumed for postretirement benefits would have the following effects for the period from October 30 through December 31, 2004 and at December 31, 2004, respectively:


	1% Increase		1% Decrease

	(In thousands of dollars)
Effect on total service and interest cost components	$	166	$	(130	)
Effect of postretirement benefit obligations		10,144		(8,014	)


	•	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 reserves when, in conjunction with our internal and external counsel, we determine that a liability is both probable and estimable. In many cases, the liability is not fixed or capped when we first record a liability for a particular site. Factors that affect the recorded amount of the liability in future years include: our participation percentage due to a settlement by or bankruptcy of other potentially responsible parties; a change in the environmental laws requiring more stringent requirements; a change in the estimate of future costs that will be incurred to remediate the site; and changes in technology related to environmental remediation. We have property and casualty insurance to cover such liabilities, but there is no guarantee that the coverage will be sufficient.

We have accrued liabilities for product liability claims, including workers’ compensation matters and product warranty issues. We have recorded reserves in the financial statements related to these matters, which are developed using input derived from actuarial estimates and historical and anticipated experience data depending on the nature of the reserve. We believe our estimated reserves are reasonable. If the level of claims changes or if the cost to provide the benefits related to these claims should change, our estimate of the underlying liability may change.


	•	Goodwill and other intangible assets — We have significant goodwill and other intangible assets on our balance sheet. The valuation and classification of these assets and the assignment of amortization lives involves significant judgments and the use of estimates. The testing of these intangible assets under established accounting guidelines for impairment also requires significant use of judgment and assumptions, particularly as it relates to the identification of reporting units and the determination of fair market value. These estimated fair market values are based on estimates of future cash flows of our businesses. Factors affecting these future cash flows include: the continued market acceptance of the products and services offered by our businesses; the development of new products and services by our businesses and the underlying cost of development; the future cost structure of our businesses; and future technological changes. Our goodwill and other intangible assets are tested and reviewed for impairment on an annual basis or when there is a significant change in circumstances. We believe that our use of estimates and assumptions are reasonable and comply with generally accepted accounting principles. Changes in business conditions could potentially require future adjustments to these valuations.

The preparation of all financial statements includes the use of estimates and assumptions that affect a number of amounts included in our financial statements. If actual amounts are ultimately different from previous estimates, the revisions are included in our results for the period in which the actual amounts become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year, have not had a significant impact on the consolidated financial statements.

INDUSTRY OVERVIEW

Compression is a process whereby a volume of gas or liquid at an existing pressure is moved to a desired higher pressure. Compression is required at many steps of the oil and natural gas production and processing cycle: at the wellhead, at gathering lines, in pipelines, in storage systems, and at refineries and processing facilities.

Upstream

Over the life of an oil and gas well, reservoir pressure and deliverability typically decline as reserves are extracted. With respect to gas, as the natural reservoir pressure of the well declines below the line pressure of the gas gathering or pipeline system used to transport the product, gas no longer flows naturally in those facilities. At this time, compression equipment is applied to increase and overcome the pressure into the system. Compression is also used for enhanced oil production via secondary or tertiary recovery techniques, such as by re-injecting gas to lift oil or maintain reservoir pressure, increasing the reservoir production rate and yield.

Midstream

Midstream applications involve the transmission and storage of hydrocarbons. As gas is transported through a pipeline, compressor units are applied along the pipeline to manage the flow of natural gas through the pipeline to its destination.

Upon reaching a processing facility, crude oil and natural gas are generally impure and not marketable as produced at the wellhead. Processing equipment is used to separate oil, gas and water and to remove various contaminants in preparation for further processing. This processing involves chemical reactions at specific temperatures, volumes and pressures. Compression is integral to affect these processes.

Compression is also used in gas storage projects to inject gas into underground reservoirs during off-peak seasons for withdrawal later during periods of high demand.

Downstream/ Industrial

In refining and petrochemical applications, oil and gas are further treated to create a wide range of fuels, industrial gases and chemicals. In refineries, compression is integral to producing fuels such as gasoline, jet fuel, diesel and heating oil from crude oil.

In late 1999, the Clean Air & Water Act was legislated with a Tier 2 revision to reduce the sulfur content of gasoline and diesel by mid-2006. The Clean Air Act, Tier 2 impacts all domestic refiners and international suppliers who ship to the U.S. with respect to sulfur, toxins, diesel and gasoline fuels emissions, and air and water purity. These regulations are driving increased use of compression equipment in the refinery industry as such products are integral to the processes that allow the production of fuels that meet the more stringent emissions standards set forth by the U.S. Environmental Protection Agency.

Other downstream compression applications are found in the petrochemical industry where hydrocarbon raw material (primarily crude oil and natural gas) are processed into products such as ethylene, propylene, ammonia or methanol for the production of end use products like fertilizer, plastics and fibers.

Rotating Equipment Industry

The rotating equipment and services industry manufactures and services a wide range of technologically advanced equipment, including centrifugal and reciprocating compressors, steam and gas turbines, expanders and control systems. Demand for these solutions comes from a wide variety of large end markets, including the three major segments of the oil and gas industries (upstream, involving the production of oil and gas; midstream, involving the preparation and transportation of natural gas and liquids for future use; and downstream, involving refining), and the petrochemical, chemical, general industrial and power industries.

The rotating equipment industry includes a wide and diverse range of products, which can be grouped into two distinct categories:


	•	“standard” equipment, based on a single, non-custom design, used for low-horsepower, lower-pressure and lower-volume applications in wellhead production from onshore or shallow-water offshore platform production; and

	•	custom-engineered equipment, built to customer specifications, engineered for the specific operating environment and application in which it will be put to use. This equipment is generally used in high-pressure/volume applications, typically consists of large equipment packages, and is generally used in large scale production operations including mission-critical applications in deepwater offshore sites, major pipeline and storage systems and large processing and refining facilities and liquefying natural gas.

Most of our revenues are generated from the sale and servicing of this second category of rotating equipment. We estimate that the worldwide aggregate annual value of new unit sales of the classes of equipment we manufacture and the aftermarket parts and services needs of the installed base of such equipment (both in-house and outsourced) is approximately $10 billion.

Our industry is typically divided into two segments: new unit sales and aftermarket parts and services.

New Units

New unit sales includes the engineering, manufacturing and sales of reciprocating and centrifugal compressors, steam and gas turbines, expanders and control systems.


	•	*Reciprocating Compressors.* Reciprocating compressors use traditional piston and cylinder design to increase pressure within a chamber. Typically, reciprocating compressors are used in lower volume/higher compression ratio applications, including refinery processes, natural gas gathering and processing, extraction of natural gas liquids, chemical and refrigeration processes, and natural gas, ethylene, carbon dioxide and natural gas pipelines.

	•	*Centrifugal Compressors.* Centrifugal compressors are a class of turbomachinery that uses a series of graduated impellers to increase pressure. Centrifugal compressors are typically used in a variety of higher-volume/lower compression ratio, and low and high pressure applications, including oil and gas production, liquid natural gas, gas to liquid, synfuels, and process applications similar to reciprocating compressors.

	•	*Turbines.* Steam and gas turbines are typically used as prime movers for mechanical and electrical drive applications including compressors, pumps, fans, blowers, and electrical generators.

Since many of the units we sell are placed in critical applications for clients, it is important that this equipment functions efficiently, reliably and at a low cost. For this reason we believe that clients are focused on reducing the total cost of ownership throughout the life cycle of the equipment, and typically seek the most advanced technology in order to increase operating efficiency. Additionally, with units having a typical operating life of 30 years or more, units have substantial long term parts and services needs over their operating lives. For this reason we also believe clients consider quality and breadth of aftermarket support in selecting a supplier of rotating equipment.

Aftermarket Parts and Services

With operational lives measured in decades, there is a substantial installed base of compressors and related equipment in operation worldwide. Over their operating life cycle, these units have substantial parts and servicing needs. In addition, the units are typically completely revamped on a periodic basis. Clients purchase parts and upgrades either from the OEM or third-party providers. Repair, maintenance, and revamp service needs are met through a combination of client inhouse resources, OEMs and third-party service providers. Clients are increasingly outsourcing their services, as outsourcing affords clients greater financial and operating flexibility by reducing their investment in maintenance personnel while providing them technically proficient service resources with strong product experience. When selecting an aftermarket service

provider, clients typically seek suppliers who can provide responsive and reliable service and solutions, from locally based service centers, across their entire installed base.

Industry Conditions

Overall demand for compression products and services is generally linked to oil and natural gas consumption, both domestically and internationally. We believe that the rotating equipment and aftermarket services industry continues to have significant growth potential due to the following factors:


	•	natural gas consumption worldwide is forecasted to increase at an annual average growth rate of 2.4% per year from 2001-2030 as a result of worldwide economic growth and the recognition of natural gas as a clean air fuel;

	•	increased demand for forecasted natural gas is driving substantial growth in spending on liquefied natural gas infrastructure; forecast spending on LNG plant equipment for 2005-2008 is $13.4 billion, 155% more than was spent on such equipment from 1964-2004;

	•	decline rates associated with maturing natural gas fields in the United States (as reflected in the graph below) and other countries have resulted in increased requirements for compression products and services to maintain commercially viable levels of production;


	•	the refining sector continues to experience demand pressures as current refinery capacity is reaching a peak;

	•	environmental laws such as the Clean Air Act and the curtailing of the prior practice of flaring gas will increase the demand for compression products and services;

	•	the production of natural gas and oil worldwide, as reflected in the graph below, will continue to grow as a result of increasing demand for fossil fuels; and


	•	continued development of pipeline infrastructure, as reflected in the graph below, particularly in Asia and Latin America, and increased privatization of state-owned energy producers internationally, are leading to increased outsourcing of compression services.

We believe that rotating equipment solutions providers with global scale will be well positioned to participate in a disproportionately high share of the future growth in this industry as customers increasingly shift their business to the handful of companies with the ability to fulfill the full range of equipment and service needs worldwide.

Industry Stability

Demand for compressors and related products and aftermarket services is generally less affected by short-term market cycles and oil and gas price volatility than the financial performance of companies operating in other sectors of the oilfield services industry because:


	•	the demand for rotating equipment solutions is tied primarily to oil and natural gas consumption, which is generally less cyclical in nature than exploration activities;

	•	rotating equipment is typically required for (i) oil and gas to be delivered from the wellhead to end-users, and (ii) end users to be able to process the oil and gas;

	•	the customer base for rotating equipment solutions covers a wide range of end markets; and

	•	demand for rotating equipment and services is geographically diversified.

Adding to this stability is the fact that, while rotating equipment often must be specifically engineered or reconfigured to meet the unique demands of our customers, the fundamental technology of compression equipment has not experienced significant technological change.

The foregoing information includes projections, or “forward-looking statements.” Projections are inherently uncertain; actual events will differ from the projections. Forecasts are particularly likely to be inaccurate, especially over long periods of time. See “Risk Factors” for factors that could cause actual results to vary from results referred to in the forward-looking statements above. See “Market and Industry Data.”

BUSINESS

We are among the largest global suppliers of rotating equipment solutions to the worldwide oil, gas, petrochemical and process industries. In 2004, approximately 94% of our combined revenues were generated from oil and gas infrastructure spending and 62% of our total combined revenues were generated by our aftermarket parts and services segment, with the remainder generated by our new units segment. Our services and products are used for a wide range of applications, including oil and gas production, high-pressure field injection and enhanced oil recovery, pipelines, refinery processes, natural gas processing, and petrochemical production. We believe we have the largest installed base in the world of the classes of equipment we manufacture, with approximately 38% of the total installed base of equipment in operation. Our installed base of equipment includes such well-recognized brand names as Dresser-Rand, Dresser-Clark, Worthington, Turbodyne and Terry. We provide a full range of aftermarket parts and services to this installed base through our global network of 24 service and support centers covering 105 countries. Our extensive and diverse client base consists of most major independent oil and gas producers and distributors worldwide, national oil and gas companies, and chemical and industrial companies. Our clients include Royal Dutch Shell, ExxonMobil, BP, Statoil, Chevron, Petrobras, Pemex, PDVSA, Conoco, Lukoil, Marathon and Dow Chemical. No single client has represented more than 5% of our total revenues over any consecutive two-year period.

We operate globally with manufacturing facilities in the United States, France, Germany, Norway, India and Brazil. We have one of the broadest sales and services networks in the industry, with locations in all of the major international energy markets, established coverage of 105 countries, and over 4,600 employees worldwide. We believe our recent financial performance demonstrates our ability to improve our results through on-going commitment to operational excellence, as well as through the growth of our services-centered, solutions-based business model. For the year ended December 31, 2003 we generated net income of $20.4 million and EBITDA of $59.0 million. For the period from January 1, 2004 through October 29, 2004 and the period from October 30, 2004 through December 31, 2004 we generated net income of $42.2 million and $7.2 million, respectively, and EBITDA of $73.7 million and $40.4 million, respectively. For the three months ended March 31, 2004 and March 31, 2005, we generated net income (loss) of $3.3 million and $(4.0) million and EBITDA of $11.1 million and $25.5 million, respectively. This reflects the impact of both our growth-oriented business realignment and our continued focus on operating efficiency. Our backlog at December 31, 2004 was $637.6 million compared to $419.9 million at December 31, 2003. Our backlog increased from $520.0 million at March 31, 2004 to $851.6 million at March 31, 2005, of which we expect $250.1 million not to be filled by December 31, 2005.

We continue to evolve our business toward a solutions-based service offering that combines our industry-leading technology, proprietary worldwide service center network and deep product expertise. This approach drives our growth as we offer integrated service solutions that help our clients maximize returns on their production and processing equipment. We believe our business model and alliance-based approach align us with our clients who are shifting from purchasing isolated units and services on a transactional basis to choosing service providers that can help optimize performance over the entire life cycle of their equipment. Our alliance program encompasses both the provision of new units and/or services, and we offer our clients a dedicated team, streamlined engineering and procurement process and a life cycle approach to manufacturing, operating and maintaining their equipment, whether originally manufactured by us or by a third party. In our alliances, we are either the exclusive or preferred supplier of equipment and aftermarket parts and services to a client. Our alliances enable us to:


	•	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.

The markets in which we operate are large and fragmented. We estimate that the worldwide aggregate annual value of new unit sales of the classes of equipment we manufacture and the aftermarket parts and

services needs of the installed base of such equipment (both in-house and outsourced) is approximately $10 billion. We believe that we are well positioned to benefit from a variety of long-term trends driving demand in our industry, including:


	•	the trend to increased outsourcing of equipment maintenance and operation;

	•	the maturation of producing fields worldwide, which requires increasing use of compression equipment to maintain production levels;

	•	the substantial increase in demand for natural gas, which is driving growth in gas production, storage and transmission infrastructure;

	•	regulatory and environmental initiatives, including clean fuel legislation and stricter emissions controls worldwide;

	•	the aging installed base of equipment, which is increasing demand for aftermarket parts and services, revamps and upgrades;

	•	increasing construction of natural gas production, storage and transportation infrastructure; and

	•	the increased worldwide demand for fuel and feedstock resulting from economic growth.

Competitive Strengths

Global Presence and Market Leadership. We believe that our broad portfolio of products and services, global presence, strong brand recognition, track record of innovation and reputation for quality and performance, combined with established coverage of 105 countries, provide us with a significant advantage in competition for business from large, multinational customers. We operate in all of the world’s significant energy markets and believe that we are a leading provider in most of the markets we serve.

Largest Installed Base in the Industry. As of December 31, 2004, we estimate that there were more than 77,000 of our units in operation. We believe this represents approximately 38% of all the units in our classes of products that are currently in operation, and is the largest installed base of such equipment in the industry. This significant scale advantage offers a number of competitive benefits, including:


	•	a significant opportunity to grow our aftermarket parts and services business as a result of the portion of our installed base currently serviced by clients in-house, combined with an industry trend toward outsourcing;

	•	a substantial source of stable, recurring, defensible high-margin aftermarket revenue from the significant parts and services requirements of units over their long operational lives and clients’ general preference for OEM parts and services; and

	•	the capacity to support both a high level of reinvestment in research and development and a global service center network that is difficult for competitors with a smaller installed base to match.

Largest Network of Service and Support Centers. We have 24 service and support centers employing approximately 1,000 service personnel in 14 countries, providing coverage in 105 countries and offering a broad range of support services. Because many aftermarket parts and services sales decisions are made by clients at the local plant level, on the basis of supplier expertise, local presence and response time, we believe that our global network puts us in position to win aftermarket business by responding quickly to client service needs with local resources and OEM product knowledge and experience. This network helps us to protect and grow our aftermarket parts and services business.

Leading Technology Platform. We have a long history of technology leadership and innovation in our industry. Our research efforts center around leading technologies that maximize operating performance by increasing efficiency, durability, reliability and versatility. We are focused on developing new platform products, enhancing our existing platforms, and developing upgrades that can be offered to our existing installed base of units. For example, in the mid-1990s we spent approximately five years and over $60 million to develop our DATUM turbo compressor platform offerings. We believe this platform is more efficient than

competing offerings, offers clients the lowest total cost of ownership, reduces emissions and noise levels and improves ease and speed of maintenance. In addition, we have brought to market numerous upgrades to our installed base in the past several years, including emission control equipment, performance and maintenance enhancers, and a suite of remote monitoring instrumentation.

Fastest Cycle Time. We believe we generally have the fastest cycle time in the industry among manufacturers in our product range. Our short cycle time, the time from order booking to unit delivery, is valuable to the client and provides us with a competitive advantage. For example, the rules based design of our DATUM compressor platform, combined with our proprietary product Configurator software, allow us to shorten the front-end specification, design and engineering phases of the manufacturing process typically by one-third, thereby reducing the overall delivery time to our clients. On a typical oil and gas project, this can reduce unit delivery time by as much as twelve weeks, thus reducing project costs and providing earlier start-up of the production equipment.

Substantial Investment in Systems. We view systems and processes as key elements in providing rapid, high quality, differentiated service. We have invested substantial resources to develop a number of key proprietary systems, including:


	•	Configurator. Our proprietary system for automating the preliminary engineering phase of designing a product to client specifications and automatically generating design drawings and bills of materials, which enables us to reduce costs and reduce by more than two months the typical industry cycle time of 12-14 months.

	•	D-R Avenue. Part of our Client Relationship Management (CRM) system, D-R Avenue is a recently deployed proprietary database with information on our installed base of equipment as well as the equipment of some of our competitors, including type, location, age, application, and maintenance history. This database positions us to better serve our clients and grow our aftermarket parts and services business by leveraging our knowledge and resources through a proactive sales approach.

	•	Client Interface and Response System (CIRS). Part of our CRM system, this proprietary client relationship system allows clients to log any technical support or service requests they have into our system, automatically directs the request to both our field-based account manager and the most appropriate subject-matter expert in our company, and tracks our follow up on the client request. This provides the client with rapid access to the most knowledgeable personnel in our organization, and allows us to effectively monitor and manage our responsiveness to client requests.

	•	Skills Registry. This database contains profiles of our service personnel, including education, training, experience, performance and safety records, and language skills. We frequently provide clients with profiles of our proposed service personnel, allowing them the opportunity to preapprove members of their service team.

	•	TES. We use a Siebel-based technology enabled selling tool (TES), which allows us to systematically manage the entire sales cycle from lead generation to order booking on a global basis. This system provides productivity gains in our business processes associated with opportunity management, data collection and analysis, market intelligence, and communication associated with our clients and markets.

Strong and Experienced Management Team. Our management team has a demonstrated track record of financial and operational achievement. The management team has an average of 17 years experience with us, including our CEO who has been with us for 24 years, and has extensive industry experience and longstanding customer relationships. This management team has been responsible for the successful services revenue growth and cost reduction initiatives that have driven our increased profitability.

Attractive Business Model. Our business model has several attractive features, including:


	•	Strong, Stable Cash Flow with Low Growth Capital Requirements. As a result of the recurring revenue from our aftermarket parts and services business, progress payments from customers that limit our need for additional working capital as we grow, and the moderate capital expenditures needed to

support our services-based growth model, our business generates strong, recurring cash flows. Our cash flow from (used for) operations was $118.5 million for the three months ended March 31, 2005 compared to $(29.3) million for the same period in 2004. Our cash flow from operations was $51.0 million, $57.7 million and $17.9 million, for the year ended December 31, 2003, the period from January 1, 2004 through October 29, 2004 and the period from October 30, 2004 through December 31, 2004, respectively.

• Visibility. We have a high degree of visibility into our forecasted financial performance. A substantial portion of our new unit orders is booked six to nine months in advance of delivery. As of March 31, 2005 and March 31, 2004, our new units backlog was $692.7 million and $371.2 million, respectively, representing an 86.6% increase. As of December 31, 2004 and December 31, 2003, our new units backlog was $489.3 million and $287.7 million, respectively, representing a 70.1% increase. Since December 2000, our new units backlog has consistently exceeded 80% of our next twelve month new units revenues. Customers may cancel an order at any time. Upon cancellation, customers are contractually obligated to pay us an amount sufficient to cover our costs and commitments incurred through the date of cancellation, plus a profit margin. Since 2003, only two orders have been cancelled for a net aggregate amount of approximately $733,000.

Business Strategy

In 2004, approximately 94% of our combined revenues were generated from energy infrastructure and oilfield spending. Additionally, 62% of our total combined revenues were generated by our aftermarket parts and services business. We intend to continue to focus on the oilfield, natural gas and energy sectors and thus expect to capitalize on the expected long-term growth in equipment and services investment, especially related to natural gas, in these sectors. Specifically, we intend to:

Increase Sales of Aftermarket Parts and Services to Existing Installed Base. The substantial portion of the aftermarkets parts and services needs of our existing installed base of equipment that we currently do not, or only partially, service represents a significant opportunity for growth. We believe the market has a general preference for aftermarket OEM parts and services. We are implementing a proactive approach to aftermarket parts and services sales that capitalizes on our knowledge of the installed base of our own and our competitors’ equipment. By using D-R Avenue, we are in a position to be able to identify technology upgrades that improve the performance of our clients’ assets and to proactively suggest upgrade and revamp projects that clients may not have considered. We are upgrading our service response by integrating the expertise of our factory-based product engineers with the client-oriented service personnel in the field through our CIRS system. The CIRS system significantly enhances our ability to rapidly and accurately respond to any technical support or service request from our clients. We believe our premium service level will result in continued growth of sales of aftermarket parts and services.

Expand Aftermarket Parts and Services Business to Non-Dresser-Rand OEM Equipment. We believe the aftermarket parts and services market for non-Dresser-Rand equipment represents a significant growth opportunity that we have only just begun to pursue on a systematic basis. As a result of the knowledge and expertise derived from our long history and experience servicing the largest installed base in the industry, combined with our extensive investment in technology, we have a proven process of applying our technology and processes to improve the operating efficiency and performance of our competitors’ products. Additionally, with the largest global network of full-capability service centers, we are often in a position to provide quick response to clients and to offer local service. We believe these are important service differentiators for our clients. Through the D-R Avenue project, we have assembled a significant amount of data on competitors’ installed equipment base, and we intend to capitalize on our knowledge, our broad network of service centers, flexible technology and existing relationships with most major industry participants to grow our aftermarket parts and services solutions for non-Dresser-Rand equipment.

Grow Alliances. As a result of the need to improve efficiency in a competitive global economy, oil and gas companies are frequently consolidating their supplier relationships and seeking alliances with suppliers, shifting from purchasing units and services on an individual transactional basis to choosing service providers

that can help them optimize performance over the entire life cycle of their equipment. In the past three years, we have seen a high level of interest among our clients in seeking alliances with us, and we have entered into agreements with more than 30 of our major clients. We plan to leverage our market leadership, global presence and comprehensive range of products and services to continue to take advantage of this trend by pursuing new client alliances as well as strengthening our existing alliances. We currently are the only alliance partner for rotating equipment with Statoil, Marathon Ashland Petroleum and Shell Chemicals (USA). In addition, we are a preferred, non-exclusive supplier to other alliance partners, including BP, ConocoPhillips, ExxonMobil and Duke Energy.

Expand our Performance-Based Long-Term Service Contracts. We are growing the outsourced services market with our performance-based operations and maintenance solutions (known as our Availability+ program), which are designed to offer clients significant value (improved equipment performance, decreased life cycle cost and higher availability levels) versus the traditional services and products approach. These contracts generally represent multiyear, recurring revenue opportunities for us that typically include a performance-based element to the service provided. We offer these contracts for most of the markets that we serve.

Introduce New and Innovative Products and Technologies. We believe we are an industry leader in introducing new, value-added technology. Product innovation has historically provided, and we believe will continue to provide, significant opportunities to increase revenues from both new product sales and upgrades to our, and other OEMs’, installed base of equipment. Many of our products utilize innovative technology that lowers operating costs, improves convenience and increases reliability and performance. Examples of recent new offerings include adapting the DATUM compressor platform for the revamping of other OEM equipment, a new design of dry-gas seals and bearings, and a new generation of multiphase turbo separators. We recently have introduced a complete line of remote-monitoring and control instrumentation that offers significant performance benefits to clients and enhances our operations and maintenance services offering. We plan to continue developing innovative products, including new compressor platforms for subsea and underground applications, which would further open up new markets to us.

Continue to Improve Profitability. We continually seek to improve our financial and operating performance through cost savings and productivity improvements. Since the fourth quarter of 2002, we adopted a number of restructuring programs across our entire company. An important element in these programs was process innovation that permitted us to streamline our operations. As a result, from September 30, 2002 through December 31, 2004, we consolidated eight facilities and reduced headcount from 5,942 to 4,631 employees. As a result of our business realignment toward our aftermarket parts and services segment, our lean manufacturing initiatives and our decision to begin charging customers a margin on third-party equipment they ask us to package with our own units, our operating income per employee (based on the average number of employees in each period) for the three months ended March 31, 2005 and the year ended December 31, 2004 improved substantially as compared to the three months ended March 31, 2004 and the year ended December 31, 2003. We are focused on continuing to improve our cost position in every area of our business, and we believe there is substantial opportunity to further increase our productivity in the future.

Selectively Pursue Acquisitions. We intend to continue our disciplined pursuit of acquisition opportunities that fit our business strategy. We expect to make acquisitions within the energy sector that add new products or technologies to our portfolio, provide us with access to new markets or enhance our current market positions. Given our size and the large number of small companies in our industry and related industries, we believe we are well positioned to be an industry consolidator over time.

Services and Products

We design, manufacture and market highly engineered rotating equipment and services sold primarily to the worldwide oil, gas, petrochemical and industrial process industries. Our segments are new units and aftermarket parts and services. The following charts show the proportion of our revenue generated by segment, geography and end market for the periods indicated:


	*New Units*

We are a leading manufacturer of highly-engineered turbo and reciprocating compression equipment and steam turbines and also manufacture special-purpose gas turbines. Our new unit products are built to client specifications for long-life, critical applications. The following is a description of the new unit products that we currently offer.

Turbo Products. We are a leading supplier of turbomachinery for the oil and gas industries worldwide. In 2004, in North America new unit turbomachinery sales, we were the leader, and continued to rank in the top three in worldwide market share. Turbo products sales represented 48.7%, 62.5% and 53.4% of our total revenues for the fiscal years ended 2004, 2003 and 2002, respectively. Centrifugal compressors utilize turbomachinery technology that employs a series of graduated impellers to increase pressure. Generally, these centrifugal compressors are used to re-inject natural gases into petroleum fields to increase field pressures for added petroleum recovery. In addition, centrifugal compression is used to separate the composition of various gases in process applications to extract specific gases. These compressors are also used to provide the compression needed to increase pressures required to transport gases between gas sources through pipelines.

Applications for our turbo products include gas lift and injection, gas gathering, storage and transmission, synthetic fuels, ethylene, fertilizer, refineries and chemical production.

In 1995, we introduced the DATUM product line, which incorporates enhanced engineering features that provide significant operating and maintenance benefits for our clients. The DATUM is a comprehensive line of radial and axial split, modular and scalable construction, for flows to 500,000 cubic feet per minute (CFM), and discharge pressures to over 10,000 pounds per square inch gauge (psig). In some applications, a single DATUM compressor can compress greater flows per frame size than a comparable existing product offering, resulting in the capability to handle the same pressure ratio with less frames. The DATUM product line also offers improved rotor stability characteristics. DATUM compressors are available in 14 frame sizes. In addition to the DATUM centrifugal compressor line, we manufacture a line of axial flow compressors, legacy centrifugal compressors, hot-gas expanders, gas and power turbines and control systems.

In addition, we offer a variety of gas turbines ranging in power capacity from approximately 1.5 to 60 megawatts (MW), which support driver needs for various centrifugal compressor product lines, as well as for power generation applications.

Reciprocating Compressors. We are a leading supplier of reciprocating compressors, offering products ranging from medium to high speed separable units driven by engines to large slow speed motor driven process reciprocating compressors. In 2004, in North America new unit reciprocating compressor sales, we were the clear leader, and continued to rank in the top three in worldwide market share. Reciprocating compressor sales represented 32.3%, 23.1% and 28.8% of our total revenues for the fiscal years ended 2004, 2003 and 2002, respectively. Reciprocating compressors use a traditional piston and cylinder design engine to increase pressure within a chamber. Typically, reciprocating compressors are used in lower volume/higher compression ratio applications. We offer 11 models of process reciprocating compressors, with power capacity ranging from 5 to 45,000 HP, and pressures ranging from vacuum to 60,000 psig. We offer six models of separable compressors, with power ratings to 10,500 HP. Applications for our reciprocating compressors include refiner processes, natural gas transmission and processing, high pressure injection, pipelines, production, natural gas liquid recovery, gas gathering, gas lift, gas reinjection and fuel gas booster.

Steam Turbines. We are a leading supplier of standard and engineered mechanical drive steam turbines and turbine generator sets. Steam turbines represented 19.0%, 14.4% and 17.8% of our total revenues for the fiscal years ended 2004, 2003 and 2002, respectively. Steam turbines use steam from power plant or process applications and expand it through nozzles and fixed and rotating vanes, converting the steam energy into mechanical energy of rotation. We are one of the few remaining North American manufacturers of standard and engineered multi-stage steam turbines. Our mechanical drive steam turbine models have power capacity ranging from 2 to 75,000 HP and are used primarily to drive pumps, fans, blowers and compressors. Our models that have power capacity up to 75,000 kW are used to drive electrical generators. Our steam turbines are used in a variety of industries, including oil and gas, refining, petrochemical, chemical, pulp and paper, electrical power production and utilities, sugar and palm oil. We also build equipment for universities, municipalities and hospitals. We are the sole supplier to the United States Navy of steam turbines for aircraft carrier propulsion.


	Revamp/Upgrade Opportunities

In addition to supplying new rotating units, there are significant opportunities for us to supply engineered revamp and upgrade services to the installed base of rotating equipment.

Revamp services involve significant improvement of the aerodynamic performance of rotating machinery by incorporating newer technology to enhance equipment efficiency, durability or capacity. For example, steam turbine revamps involve modifying the original steam flow path components to match new operating specifications such as horsepower, speed and steam condition.

Upgrade services are offered on all our lines of rotating equipment, either in conjunction with revamps or on a stand alone basis. Upgrades are offered to provide the latest applicable technology components for the equipment to improve durability, reliability, and/or availability. Typical upgrades include replacement of

components such as governors, bearings, seals, pistons, electronic control devices, and retrofitting of existing lubrication, sealing and control systems with newer technology.

Our proactive efforts to educate our clients on improved revamp technologies to our DATUM line has proven to offer significant growth potential with attractive margins. We have the support systems in place, including our technology platform and service facilities and our cost effective Configurator platform, for preparing accurate proposals, to take advantage of the growth potential in this market. In addition, we believe our alliance relationships will allow us to create new revamp opportunities.


	New Product Development

New product development is an important part of our business. We believe we are an industry leader in introducing new, value-added technology. Our investment in research and development has resulted in numerous technology upgrades focused on aftermarket parts and services growth. Our recent new product development includes adapting the DATUM compressor platform for revamping of other OEM equipment, a new design of dry-gas seals and bearings, and a new generation of multiphase turbo separators. We have recently introduced a complete suite package of remote monitoring and control instrumentation that offers significant performance benefits to clients and enhances our operations and maintenance services offering. We plan to continue developing innovative products, including new compressor platforms for subsea and underground applications, which would be first-in-class products opening up new markets.

We believe clients are increasingly choosing their suppliers based upon capability to custom engineer, manufacture and deliver reliable high-performance products, with the lowest total cost of ownership, in the shortest cycle time, and to provide timely, locally based service and support. Our client alliance sales have increased substantially as a result of our ability to meet these client requirements. For example, the proportion of our combined core centrifugal and process reciprocating new unit revenues from client alliances has increased from approximately $17 million in 2000 to approximately $98 million in 2004.


	*Aftermarket Parts and Services*

The aftermarket parts and services segment provides us with long-term growth opportunities and a steady stream of recurring revenues and cash flow. With a typical operating life of 30 years or more, rotating equipment requires substantial aftermarket parts and services needs over its operating life. Parts and services activities tend to realize higher margins than new unit sales. Additionally, the cumulative revenues from these aftermarket activities often exceed the initial purchase price of the unit, which in many cases is as low as five percent of the total life cycle cost of the unit to the client. Our aftermarket parts and services business offers a range of services designed to enable clients to maximize their return on assets by optimizing the performance of their mission-critical rotating equipment. We offer a broad range of aftermarket parts and services, including:


	•	Replacement Parts

	•	Equipment Repair & Rerates

	•	Field Service Turnaround

	•	Equipment Installation

	•	U.S. Navy Service & Repair

	•	Applied Technology

	•	Operation and Maintenance Contracts

	•	Long-Term Service Agreements

	•	Rotor Storage

	•	Special Coatings/ Weldings


	•	Condition Monitoring

	•	Product Training

	•	Controls Retrofit

	•	Turnkey Installation/ Project Management

	•	Equipment Technology Upgrades

	•	Site/ Reliability Audits

We believe we have the largest installed base of the classes of equipment we manufacture and the largest associated aftermarket parts and services business in the industry. Many of the units we manufacture are unique and highly engineered and require knowledge of their design and performance characteristics to service. We estimate that we currently provide approximately 50% of the supplier-provided aftermarket parts and services needs of our own manufactured equipment base, and less than two percent of the aftermarket parts and services needs of the equipment base of other manufacturers. We focus on a global offering of technologically advanced aftermarket products and services, and as a result, our aftermarket activities tend to be concentrated on the provision of higher-value added parts and upgrades, and the delivery of sophisticated operating, repair, and overhaul services. Smaller independent companies tend to focus on local markets and have a more basic aftermarket offering.

We believe clients generally show a preference for purchasing aftermarket parts and services from the OEM of a unit. A significant portion of our installed base is serviced in-house by our clients. However, we believe there is an increasing trend for clients to outsource this activity, driven by declining in-house expertise, cost efficiency and the superior service levels and operating performance offered by OEM service providers. We do not believe that a material portion of our installed base is serviced by any single third-party provider. The steady demand from our installed base for parts and aftermarket services represents a stable source of recurring revenues and cash flow. Moreover, with our value-based solutions strategy, we have a demonstrated track record of growth in this segment as a result of our focus on expanding our service offerings into new areas, including servicing other OEMs’ installed base of equipment, developing new technology upgrades and increasing our penetration of higher volume-added services to our own installed base.

Because equipment in our industry typically has a multi-decade operational life, we believe aftermarket parts and services capability is a key element in both new unit purchasing decisions and sales of service contracts. Given the critical role played by the equipment we sell, customers place a great deal of importance on a supplier’s ability to provide rapid, comprehensive service, and we believe that the aftermarket parts and services business represents a significant long-term growth opportunity. We believe important factors for our clients include a broad product range servicing capability, the ability to provide technology upgrades, local presence and rapid response time. We offer a comprehensive range of aftermarket parts and services, including installation, maintenance, monitoring, operation, repairs, overhauls and upgrades. We provide our solutions to our clients through a proprietary network of 24 service and support centers in 14 countries, employing approximately 1,000 service personnel, servicing our own and other OEMs’ turbo and reciprocating compressors as well as steam and gas turbines. Our coverage area of service centers servicing both turbo and reciprocating compressors is approximately 50% larger than that of our next closest competitor.

Sales and Marketing

We market our services and products worldwide through our established sales presence in over 20 countries. In addition, in certain countries in which we do business, we sell our services and products through distributors. Our sales force is comprised of over 350 direct sales/service personnel and a global network of 85 independent representatives, as well as 24 service and support centers in 14 countries who sell our products and provide service and aftermarket support to our installed base locally in 105 countries.

Manufacturing and Engineering Design

Our manufacturing processes generally consist of fabrication, machining, component assembly and testing. Many of our products are designed, manufactured and produced to order and are often built to clients’ specifications for long-life, mission-critical applications. To improve quality and productivity, we are implementing a variety of manufacturing strategies including focus factories, low cost manufacturing, and integrated supply chain management. With the introduction of the Configurator, we have reduced cycle times of engineering designs by approximately one-third, which we believe to be one of the lowest cycle times in the industry. In addition, we have been successful in outsourcing the fabrication of subassemblies and components of our products, such as lube oil consoles and gas seal panels, whenever costs are significantly lower and quality is comparable to our own manufacturing. Our manufacturing operations are conducted in nine locations around the world. We have major manufacturing plants outside the United States in France, Norway and Germany.

We strive to manufacture the highest quality products and are committed to improve the quality and efficiency of our products and processes. For example, we have established a full-time worldwide process innovation team of 80 employees who work across our various departments, including engineering, finance, purchasing and others, and who are focused on providing our clients with faster and improved configured solutions, short service response times, improved cycle times and on-time-delivery. The team uses a combination of operational performance and continuous improvement tools from Lean Enterprise, 6 Sigma, Value Engineering/ Value Analysis, Total Quality Management, plus other value-creation and change management methodologies. Our aggressive focus on product quality is essential due to the strict performance requirements for our final products. All of our plants are certified in compliance with ISO 9001, with several also holding ISO 14001.

We manufacture many of the components included in our products. The principal raw materials required for the manufacture of our products are purchased from numerous suppliers, and we believe that available sources of supply will generally be sufficient for our needs for the foreseeable future.

Clients

Our clients include most of the world’s major and national oil companies, large, independent refiners, major energy companies, multinational engineering and construction companies, process and petrochemical companies, the United States government, and other businesses operating in certain process industries. Our extensive and diverse client base consists of most major public, private and government energy companies worldwide and includes BP, Chevron, Statoil, ExxonMobil, Lukoil, Sinopec, Shell Chemical, Duke Energy and U.S. and foreign governments. While orders in our industry tend to be large, no single client has represented more than 5% of our total revenues over any consecutive two year period, and only in 2003 has a single client represented greater than 10% of our total net revenues. In 2003, BP represented 10.8% of our total revenues.

We believe our business model aligns us with our clients who are shifting from purchasing isolated units and services on an individual transactional basis to choosing service providers that can help optimize performance over the entire life cycle of their equipment. We are responding to this demand by moving to an alliance-based approach. An alliance can encompass the provision of new units and/or services, whereby we offer our clients a dedicated, experienced team, streamlined engineering and procurement processes, and a life cycle approach to operating and maintaining their equipment. Pursuant to the terms of an alliance agreement, we become the client’s exclusive or preferred supplier of rotating equipment and aftermarket parts and services which gives us an advantage in obtaining new business from that client. Our client alliance agreements include frame agreements, preferred supplier agreements, and blanket purchasing agreements. The alliance agreements are generally terminable upon 30 days’ notice without penalty, and therefore do not assure a long-term business relationship. We have so far entered more than 30 significant alliances, and currently are the only alliance partner for like rotating equipment with exclusive alliances with Statoil, Marathon Ashland and Shell Chemicals (USA). We also have preferred, non-exclusive supplier alliances with ConocoPhillips, ExxonMobil, Duke Energy and BP.

Competition

We encounter competition in all areas of our business, principally in the new units segment. We compete against products manufactured by both U.S. and non-U.S. companies. The principal methods of competition in these markets relate to product performance, client service, product lead times, global reach, brand reputation, breadth of product line, quality of aftermarket service and support and price. We believe the significant capital required to construct new manufacturing facilities, the production volumes required to maintain low unit costs, the need to secure a broad range of reliable raw material and intermediate material supplies, the significant technical knowledge required to develop high-performance products, applications and processes and the need to develop close, integrated relationships with clients serve as disincentives for new market entrants. Some of our existing competitors, however, have greater financial and other resources than we do.

Over the last 20 years, the turbo compressor industry has consolidated from more than 15 to 7 of our larger competitors, the reciprocating compressor industry has consolidated from more than 12 to 7 of our larger competitors and the steam turbine industry has consolidated from more than 18 to 7 of our larger competitors. Our larger competitors in the new unit segment of the turbo compressor industry include General Electric/ Nuovo Pignone, Siemens, Solar Turbines, Inc., Rolls-Royce Group plc, Elliott/ Ebara, Mitsubishi Heavy Industries and Man Turbo (GHH); in the reciprocating compressor industry include General Electric/ Nuovo Pignone, Burckhardt Compression, Neuman & Esser, Peter Brotherhood Ltd., Ariel Corp., Thomassen and Mitsui; and in the steam turbine industry include Elliott/Ebara, Siemens, General Electric/ Nuovo Pignone, Mitsubishi Heavy Industries, Tuthill Energy Systems, Shin Nippon and Kühnle, Kopp & Kausch.

In our aftermarket parts and services segment, we compete with our major competitors as discussed above, small independent local providers and our clients’ in-house service providers. However, we believe there is an increasing trend for clients to outsource services, driven by declining in-house expertise, cost efficiency and the superior service levels and operating performance offered by OEM knowledgeable service providers.

Research and Development

We typically spend about one percent of our revenues on research and development each year. Our research and development expenses were $5.7 million, $1.0 million and $1.6 million for the period from January 1, 2004 through October 29, 2004, for the period from October 30, 2004 through December 31, 2004 and for the three months ended March 31, 2005, respectively. We believe current expenditures are adequate to sustain ongoing research and development activities. It is our policy to make a substantial investment in research and development each year in order to maintain our product and services leadership positions. We have developed many of the technology and product breakthroughs in our markets, and manufacture some of the most advanced products available in each of our product lines. We believe we have significant opportunities for growth by developing new services and products that offer our clients greater performance and significant cost savings. We are also actively involved in research and development programs designed to improve existing products and manufacturing methods.

Employees

As of March 31, 2005, we had 4,680 employees worldwide. Of our employees, approximately 64% are located in the United States. Approximately 36% of our employees in the United States are covered by collective bargaining agreements. None of our material collective bargaining agreements will expire through the end of 2005, and one will expire in each of 2006, 2007 and 2008. In addition, we have an agreement with the United Brotherhood of Carpenters and Joiners of America whereby we hire skilled trade workers on a contract-by-contract basis. Our contract with the United Brotherhood of Carpenters and Joiners of America can be terminated by either party with 90 days prior written notice. Our operations in the following countries are unionized: Le Havre, France; Oberhausen, Germany; Kongsberg, Norway; and Naroda, India. Additionally, overseas, approximately 42% of our employees belong to industry or national labor unions. We believe that our relations with our employees are good.

Properties and Facilities

Our corporate headquarters are located in Olean, New York. The following table describes the material facilities owned or leased by us and our subsidiaries as of March 31, 2005:

Approx.

Location

Status

Square Feet

Type

Painted Post, New York

Owned/Leased

840,000

Manufacturing and services

Olean, New York

Owned/Leased

970,000

Manufacturing and services

Wellsville, New York

Owned/Leased

380,000

Manufacturing and services

Campinas, Brazil

Owned

36,870

Manufacturing and services

Kongsberg, Norway

Leased

104,000

Manufacturing and services

Le Havre, France

Owned/Leased

866,000

Manufacturing and services

Naroda, India

Leased

102,000

Manufacturing and services

Oberhausen, Germany

Owned

75,000

Manufacturing and services

Houston, Texas

Owned

115,800

Services

Houston, Texas

Owned

45,900

Controls

Houston, Texas

Owned

77,800

Warehouse and offices

Environmental and Government Regulation

Manufacturers, such as our company, are subject to extensive environmental laws and regulations concerning, among other things, emissions to the air, discharges to land, surface water and subsurface water, the generation, handling, storage, transportation, treatment and disposal of waste and other materials, and the remediation of environmental pollution relating to such companies’ (past and present) properties and operations. Costs and expenses under such environmental laws incidental to ongoing operations are generally included within operating budgets. Potential costs and expenses may also be incurred in connection with the repair or upgrade of facilities to meet existing or new requirements under environmental laws. In many instances, the ultimate costs under environmental laws and the time period during which such costs are likely to be incurred are difficult to predict. We do not believe that our liabilities in connection with compliance issues will have a material adverse effect on us.

Various federal, state and local laws and regulations impose liability on current or previous real property owners or operators for the cost of investigating, cleaning up or removing contamination caused by hazardous or toxic substances at the property. In addition, such laws impose liability for such costs on persons who disposed of or arranged for the disposal of hazardous substances at third-party sites. Such liability may be imposed without regard to the legality of the original actions and without regard to whether we knew of, or were responsible for, the presence of such hazardous or toxic substances, and such liability may be joint and several with other parties. If the liability is joint and several, we could be responsible for payment of the full amount of the liability, whether or not any other responsible party is also liable.

We have sent wastes from our operations to various third-party waste disposal sites. From time to time we receive notices from representatives of governmental agencies and private parties contending that we are potentially liable for a portion of the investigation and remediation costs and damages at such third-party sites. We do not believe that our liabilities in connection with such third-party sites, either individually or in the aggregate, will have a material adverse effect on us.

The equity purchase agreement provides that, with the exception of non-Superfund off-site liabilities and non-asbestos environmental tort cases, which have a three-year time limit for a claim to be filed, Ingersoll-Rand will remain responsible without time limit for certain specified known environmental liabilities that exist as of the closing date. Each of these liabilities is to be placed on the Environmental Remediation and Compliance Schedule to the equity purchase agreement (the “Final Schedule”). We will be responsible for all liabilities that were not identified prior to the closing date and placed on the Final Schedule. To determine which matters will be included on the Final Schedule, we conducted Phase I and Phase II assessments at 30 of the Dresser-Rand Entities’ facilities.

included thereon. A contamination matter will be included on the Final Schedule if it meets one of several standards, the most important of which is that if such contamination matter were known by the applicable governmental authority, that authority would be expected to require a response action (which is broadly defined to include not only cleanup, but investigation and monitoring). For purposes of inclusion on the Final Schedule, contamination matters are broadly defined to include each known point of contamination plus all additional contamination associated with, or identified during an investigation of, such known point of contamination. Pursuant to the equity purchase agreement, Ingersoll-Rand is responsible for all response actions associated with the contamination matters and must perform such response actions diligently. However, to the extent contamination at leased properties was caused by a third party and to the extent contamination at owned properties resulted from the migration of releases caused by a third party, Ingersoll-Rand is only required to conduct response actions after being ordered to do so by a governmental authority.

If the parties cannot agree whether a noncompliance or contamination matter should be included on the Final Schedule, they shall resolve the issue pursuant to an arbitration provision that is included in the equity purchase agreement. To date, the parties have reached agreement with respect to the inclusion on the Final Schedule of many of the matters identified in the Phase I and Phase II assessments. Ingersoll-Rand, however, has taken the position that certain identified matters should not be included on the schedule because, according to Ingersoll-Rand, they do not constitute violations of law; the violations of law have already been corrected; or, with respect to contamination matters, the regulatory authorities would not require a response action if they knew of such matters. The parties are currently negotiating to resolve these outstanding matters and, to date, the parties have resolved all but a small number of them. We do not believe any of the outstanding items are material.

Intellectual Property

We rely on a combination of patent, trademark, copyright and trade secret laws, employee and third-party nondisclosure/confidentiality agreements and license agreements to protect our intellectual property. We sell most of our products under a number of registered trade names brand names and registered trademarks which we believe are widely recognized in the industry.

In addition, many of our products and technologies are protected by patents. Except for our company’s name and principal mark “Dresser-Rand,” no single patent, trademark or trade name is material to our business as a whole. We anticipate we will apply for additional patents in the future as we develop new products and processes. Any issued patents that cover our proprietary technology may not provide us with substantial protection or be commercially beneficial to us. The issuance of a patent is not conclusive as to its validity or its enforceability. If we are unable to protect our patented technologies, our competitors could commercialize our technologies. Competitors may also be able to design around our patents. In addition, we may also face claims that our products, services, or operations infringe patent or other intellectual property rights of others.

With respect to proprietary know-how, we rely on trade secret protection and confidentiality agreements. Monitoring the unauthorized use of our proprietary technology is difficult, and the steps we have taken may not prevent unauthorized use of such technology. The proprietary disclosure or misappropriation of our trade secrets could harm our ability to protect our rights and our competitive position.

Our company’s name and principal mark is a combination of the names of our founder companies, Dresser Industries, Inc. and Ingersoll-Rand. We have acquired rights to use the “Rand” portion of our principal mark from Ingersoll-Rand, and the rights to use the “Dresser” portion of our name from Dresser, Inc., the successor of Dresser Industries, Inc, and an affiliate of First Reserve. If we lose the right to use either the “Dresser” or “Rand” portion of our name, our ability to build our brand identity could be negatively affected.

Legal Proceedings

In the normal course of business, we are involved in a variety of lawsuits, claims and legal proceedings, including commercial and contract disputes, employment matters, product liability claims, environmental liabilities and intellectual property disputes. In our opinion, pending legal matters are not expected to have a material adverse effect on our results of operations, financial condition, liquidity or cash flows.

MANAGEMENT

Directors and Executive Officers

The following table sets forth the name, age as of August 4, 2005 and position of each person that serves as an executive officer or director of our company.


Name	Age		Position

Vincent R. Volpe Jr.		47	President, Chief Executive Officer and Director
Leonard M. Anthony		51	Executive Vice President and Chief Financial Officer
Stephen A. Riordan		45	Vice President Finance
Walter J. Nye		50	Executive Vice President, Worldwide Product Services
Bradford W. Dickson		50	Executive Vice President, New Equipment Worldwide
Christopher Rossi		41	Vice President and General Manager, North American Operations
Jean-Francois Chevrier		58	Vice President and General Manager, European Operations
Elizabeth C. Powers		46	Vice President and Chief Administrative Officer
Randy D. Rinicella		48	Vice President, General Counsel and Secretary
Lonnie A. Arnett		59	Vice President, Controller and Chief Accounting Officer
William E. Macaulay		59	Chairman of the Board of Directors
Thomas J. Sikorski		44	Director
Mark A. McComiskey		32	Director
Kenneth W. Moore		36	Director
Michael L. Underwood		61	Director

Vincent R. Volpe Jr. is our President and Chief Executive Officer and has served as a member of our board of directors since the acquisition in October 2004. Mr. Volpe has been with Dresser-Rand Company and its predecessor companies since 1981. He has held positions in Engineering, Marketing and Operations residing and working in various countries, including: Applications Engineer in Caracas, Venezuela; Vice President Dresser-Rand Japan in Tokyo, Japan; Vice President Marketing and Engineering Steam and Turbo Products; Executive Vice President European Operations in Le Havre, France; and President Dresser-Rand Europe in London, U.K. Mr. Volpe returned to Olean in January 1997 and became President of Dresser-Rand Company’s Turbo Product Division, a position he held until September 2000. In April 1999, he assumed the additional role of Chief Operating Officer for Dresser-Rand Company, responsible for worldwide manufacturing, technology and supply chain management, serving in that position until September 2000. Mr. Volpe became President and Chief Executive Officer of Dresser-Rand Company in September 2000. He is proficient in five languages. Mr. Volpe earned a BS in Mechanical Engineering and a BA in German literature, both from Lehigh University.

Leonard M. Anthony has been our Executive Vice President and Chief Financial Officer since April 2005. Prior to that, he served as Chief Financial Officer of International Steel Group Inc. since May 2003. He has over 25 years of financial management experience. He joined Bethlehem Steel Corporation, an integrated steel producer in 1979 and advanced through increasingly responsible financial management positions. He served as Corporate Credit Manager of Bethlehem Steel Corporation from October 1985 to October 1986, Director of Financial Services from November 1986 to November 1990, Director Risk Management from December 1990 to February 1993, Manager Financial Planning from March 1993 to March 1995, Assistant Treasurer from March 1995 to March 1998, Vice President and Treasurer from October 1999 to September 2001 and Senior Vice President Finance and Chief Financial Officer from October 2001 to May 2003. In October 2001, Bethlehem Steel filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Mr. Anthony earned a BS in Accounting from Pennsylvania State

University, an MBA from the Wharton School of the University of Pennsylvania and an AMP from the Harvard Business School.

Stephen A. Riordan has been our Vice President Finance since April 2005. Mr. Riordan served as Chief Financial Officer from October 2004 to April 2005. Prior to that, Mr. Riordan served as Vice President Finance from January 2003 to October 2004. From January 1998 until December 2002, Mr. Riordan worked as an independent consultant to numerous Ingersoll-Rand business units both domestically and internationally. Mr. Riordan joined Ingersoll-Rand in 1981 and spent sixteen years in the finance function in positions of increasing responsibility. From May 1993 until November 1997, Mr. Riordan was the Worldwide Division Controller for Ingersoll-Rand’s European Paving Equipment business unit in Germany. Mr. Riordan earned his CPA and is presently a Certified Management Accountant. Mr. Riordan possesses a BS in Accountancy from Bentley College and an MBA from Lehigh University.

Walter J. Nye has been our Executive Vice President, Worldwide Product Services since the acquisition in October 2004. Mr. Nye has been with Dresser-Rand Company and its predecessor companies since 1975. He has held numerous positions of increasing responsibility including Controller, Turbo Products Division; President, Dresser-Rand Services Division; and most recently served as Executive Vice President, Product Services from October 1997 until October 2004. Prior to this appointment, Mr. Nye served as Controller for Worldwide Turbo Operations. He has worldwide responsibility for our aftermarket parts and services business, including sales, repairs, field technical support, services and solutions. He has also been active in the involvement in Olean Turbo world class manufacturing investment program, reengineering, business strategy and cost reduction. Mr. Nye earned a BA from St. Bonaventure University and a Certificate in Management Accounting.

Bradford W. Dickson has been our Executive Vice President, New Equipment Worldwide since the acquisition in October 2004. Mr. Dickson has been with Dresser-Rand Company and its predecessor companies since 1977. He has held various leadership positions in International Sales, Marketing, and Project Management for Dresser-Rand Company and its predecessors, including three years located in Caracas, Venezuela managing the Venezuelan and Colombian Operations. From January 1999 to August 2000, Mr. Dickson served as Executive Vice President, Latin America, and served as Executive Vice President, The Americas Region, from August 2000 to April 2002. From April 2002 to July 2003, Mr. Dickson served as Executive Vice President, The Americas and Asia Pacific Regions. From July 2003 to October 2004, he served as Executive Vice President, responsible for all company new equipment sales worldwide, and also carries responsibility for Corporate Marketing and the Government Business Unit. Mr. Dickson has over 27 years of experience in the global energy industry working with compressors and turbines for process, oil and gas applications. Mr. Dickson earned a BS in Engineering from the University of Illinois and an MBA from the University of Southern California’s Marshall School of Business.

Christopher Rossi has been our Vice President and General Manager, North American Operations since the acquisition in October 2004. Mr. Rossi has been with Dresser-Rand Company and its predecessor companies since 1987. He has held various leadership positions within Dresser-Rand Company in the areas of Engineering, Production, Materials Management, and Supply Chain Management. From October 2003 to October 2004, Mr. Rossi was Vice President and General Manager, North American Operations, responsible for all U.S. plants, and worldwide Development Engineering. Mr. Rossi served as Vice President, Supply Chain Management Worldwide from March 1998 to January 2001, and as Vice President and General Manager Painted Post Operation from February 2001 to October 2003. Mr. Rossi earned a BSME from Virginia Tech and an MBA in Corporate Finance and Operations Management from the University of Rochester’s Simon School of Business.

Jean-Francois Chevrier has been our Vice President and General Manager, European Operations since the acquisition in October 2004. Mr. Chevrier has been with Dresser-Rand Company and its predecessor companies since 1990. He has held the positions of Operations Manager in Le Havre, France; Director, Special Projects in Olean, New York; and General Manager Turbo Products, Europe. From March 1997 to July 2000, he held the position of Vice President & General Manager, French Operations. From August 2000 to October 2004, Mr. Chevrier served as the Vice President & General Manager for European Operations in Le Havre, France, which included responsibility for our businesses and plants in Oberhausen, Germany, and

Kongsberg, Norway. Prior to joining Dresser-Rand Company, Mr. Chevrier held various leadership positions at a Peugeot subsidiary, specializing in military and aerospace hydraulic equipment. Mr. Chevrier earned a BSME from Tarbes University in France.

Elizabeth C. Powers has been our Vice President and Chief Administrative Officer since April 2005. Prior to that, Ms. Powers served as Vice President, Human Resources since the acquisition in October 2004 and as Vice President, Human Resources of Dresser-Rand Company from October 2004 to April 2004. Ms. Powers was the Vice President for Ingersoll-Rand’s Global Business Service from January 1999 until January 2003. In this capacity, she was responsible for directing the design of worldwide benefits, as well as establishing the Human Resource Shared Services organization for Ingersoll-Rand. Ms. Powers left Ingersoll-Rand on a leave of absence from January 2003 until March 2004. Ms. Powers has been with Dresser-Rand Company and its predecessor companies since 1986. She has held various Human Resource positions in Dresser-Rand Company since the start of the joint venture and has also worked as Director and Vice President of Human Resources in various Ingersoll-Rand businesses. From 1994 to 1998, Ms. Powers served as worldwide Vice President, Human Resources, Production Equipment Group. She has also served on the Board of Rx Intelligence. Ms. Powers earned a BS from Cornell University’s School of Industrial & Labor Relations.

Randy D. Rinicella has been our Vice President, General Counsel and Secretary since April 2005. Prior to that, Mr. Rinicella was a shareholder at the law firm of Buchanan Ingersoll PC from January 2004 until April 2005. From March 2002 until January 2004, Mr. Rinicella was a partner at the law firm of Roetzel & Andress. Previously, Mr. Rinicella was with the law firm of Reminger & Reminger as a partner from January 1999 until March 2002, and as an associate from March 1995 to January 1999, and was Senior Corporate Counsel at Reliance Electric Company from October 1990 until March 1995. Mr. Rinicella earned a BS in Management from Case Western Reserve University, a JD from the Cleveland Marshall College of Law and an MBA from Cleveland State University.

Lonnie A. Arnett has been our Vice President, Controller and Chief Accounting Office since June 2005. Prior to that, he served as Vice President, Controller and Chief Accounting Officer for International Steel Group Inc. since November 2003. From May 1984 to October 2003, Mr. Arnett served as Vice President, Controller and Chief Accounting Officer of Bethlehem Steel Corporation. In October 2001, Bethlehem Steel filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Mr. Arnett held financial leadership positions in auditing and as Corporate Controller at Armco from April 1977 to April 1984. He also led a variety of audit engagements for Deloitte & Co., now Deloitte and Touche, from June 1968 to March 1977. Mr. Arnett is a CPA and earned a B.S. in Accounting from Western Kentucky University and an AMP from Harvard Business School.

William E. Macaulay has been the Chairman of our board of directors since the acquisition in October 2004. Mr. Macaulay is the Chairman and Chief Executive Officer of First Reserve, which he joined in 1983. Prior to joining First Reserve, Mr. Macaulay was a co-founder of Meridien Capital Company, a private equity buyout firm. From 1972 to 1982, Mr. Macaulay was with Oppenheimer & Co., Inc., where he served as Director of Corporate Finance, with responsibility for investing Oppenheimer’s capital in private equity transactions, as a General Partner and member of the Management Committee of Oppenheimer & Co., as well as President of Oppenheimer Energy Corporation. Mr. Macaulay serves as Chairman of Foundation Coal Holdings, Inc., a coal company. He also serves as a director of Alpha Natural Resources, Inc., a coal company, Dresser, Inc., an equipment and services company serving the energy industry, and Weatherford International, Inc., an oilfield service company.

Thomas J. Sikorski has been a member of our board of directors since the acquisition in October 2004. Mr. Sikorski is a Managing Director of First Reserve, which he joined in April 2002. Prior to joining First Reserve, Mr. Sikorski was a partner with Windward Capital, a New York-based private equity firm. Windward was initially the merchant banking arm of CSFB/MetLife. Prior to being a co-founder of Windward in 1994, Mr. Sikorski was a Director at MetLife Private Equity Investments and a Vice President in the CSFB Private Equity Group. Mr. Sikorski also serves as a director of Dresser, Inc., an equipment and service company serving the energy industry.

Mark A. McComiskey has been a member of our board of directors since the acquisition in October 2004. Mr. McComiskey is a Vice President of First Reserve and joined that firm in June 2004. Prior to joining First Reserve, Mr. McComiskey was a principal at Clayton, Dubilier and Rice Inc., a private equity firm, from June 2000 until May 2004. Previously, Mr. McComiskey was an attorney at the international law firm of Debevoise & Plimpton LLP from October 1997 until June 2000.

Kenneth W. Moore has been a member of our board of directors since the acquisition in October 2004. Mr. Moore is a Director of First Reserve and joined that firm in January 2004. Before joining First Reserve, Mr. Moore was a Vice President at Morgan Stanley, an investment bank, from 2000 until 2004. Prior to joining Morgan Stanley, Mr. Moore was an Associate at Chase Securities from 1998 until 2000.

Michael L. Underwood has been a member of our board of directors since August 2005. He has over 35 years of accounting experience. He joined Arthur Andersen LLP in 1968 and advanced through accounting positions of increasing responsibility. He served as Staff, Senior or Manager from February 1968 to September 1978 and he served as Partner from September 1978 to June 2002 where he led a variety of audit engagements and served as an advisory partner for public manufacturing companies. From June 2002 to June 2003, Mr. Underwood served as Director at Deloitte & Touche LLP where he conducted Sarbanes-Oxley training, among other things. Mr. Underwood earned both a BS and a Masters in Accounting from the University of Illinois.

Composition of the Board of Directors after this Offering

Our board of directors currently consists of six directors, including one independent director, Mr. Underwood. We expect to add a second independent director within three months after the first date the registration statement is effective and one additional independent director to our board within twelve months after the registration statement is effective.

We will be a “controlled company” under the New York Stock Exchange corporate governance rules because First Reserve will continue to own more than 50% of our common stock after the offering. As a result, we will be eligible for exemptions from provisions of these rules requiring a majority of independent directors, nominating and corporate governance and compensation committees composed entirely of independent directors and written charters addressing specified matters. We intend take advantage of these exemptions. In the event that we cease to be a controlled company within the meaning of these rules, we will be required to comply with these provisions within the transition periods specified in the New York Stock Exchange corporate governance rules.

Committees of the Board of Directors

Our board of directors currently has an audit committee, a compensation committee and a nominating and corporate governance committee.

Audit Committee

Our audit committee currently consists of Mark A. McComiskey, Kenneth W. Moore and Michael L. Underwood. Mr. Underwood is an independent member and a “financial expert” as such term is defined in Item 401(h) of the Regulation S-K. We expect that our audit committee will consist of three independent directors within the transition periods specified in Rule 10A-3 under the Exchange Act. The audit committee is governed by a written charter which will be reviewed, and amended if necessary, on an annual basis. The audit committee’s responsibilities include (1) recommending the hiring or termination of independent auditors and approving any non-audit work performed by such auditor, (2) approving the overall scope of the audit, (3) assisting the board in monitoring the integrity of our financial statements, the independent accountant’s qualifications and independence, the performance of the independent accountants and our internal audit function and our compliance with legal and regulatory requirements, (4) annually reviewing an independent auditors’ report describing the auditing firms’ internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review, of the auditing firm, (5) discussing the annual audited financial and quarterly statements with management and the independent auditor, (6) discussing earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies, (7) discussing policies with respect to risk assessment and risk management, (8) meeting separately, periodically, with management, internal auditors and the independent auditor,

(9) reviewing with the independent auditor any audit problems or difficulties and management’s response, (10) setting clear hiring policies for employees or former employees of the independent auditors, (11) annually reviewing the adequacy of the audit committee’s written charter, (12) reviewing with management any legal matters that may have a material impact on us and (13) reporting regularly to the full board of directors.

The board of directors has approved and adopted a Code of Business Conduct for all employees and an additional Code of Ethics for all of our executives and financial officers, copies of which will be available at no cost upon written request by our stockholders.

Compensation Committee

Our current compensation committee consists of Mark A. McComiskey, who serves as chairman, Kenneth W. Moore and Vincent R. Volpe Jr. The compensation committee is responsible for (1) reviewing key employee compensation policies, plans and programs, (2) reviewing and approving the compensation of our chief executive officer and other executive officers, (3) developing and recommending to the board of directors compensation for board members, (4) reviewing and approving employment contracts and other similar arrangements between us and our executive officers, (5) reviewing and consulting with the chief executive officer on the selection of officers and evaluation of executive performance and other related matters, (6) administration of stock plans and other incentive compensation plans, (7) overseeing compliance with any applicable compensation reporting requirements of the SEC, (8) approving the appointment and removal of trustees and investment managers for pension fund assets, (9) retaining consultants to advise the committee on executive compensation practices and policies and (10) handling such other matters that are specifically delegated to the compensation committee by the board of directors from time to time.

Nominating and Corporate Governance Committee

Our current nominating and corporate governance committee consists of Mark A. McComiskey, Thomas J. Sikorski and Vincent R. Volpe Jr. The nominating and corporate governance committee’s responsibilities include (1) developing and recommending criteria for selecting new directors, (2) screening and recommending to the board of directors individuals qualified to become directors, (3) overseeing evaluations of the board of directors, its members and committees of the board of directors and (4) establishing criteria for and leading the annual performance self-evaluation of the board of directors and each committee.

Director Compensation

None of our directors currently receives any additional compensation for serving as a director or as a member or chair of a committee of the board of directors. In conjunction with this offering, we added an independent director to our board and plan to pay our independent directors an annual retainer of $36,000 in cash and $30,000 in restricted stock pursuant to the 2005 Directors Stock Incentive Plan. We also plan to pay independent directors a fee of $10,000 for acting as committee chairs ($15,000 for serving as audit committee chair). For each of the first six board or committee meetings our independent directors attend in person, they will earn a fee of $4,000, and for any additional meetings they attend in person or for any meeting they attend telephonically, they will be paid a fee of $1,000. In addition, we intend to implement the 2005 Directors Stock Incentive Plan, under which our independent directors may opt to receive shares of our common stock in lieu of any cash directors’ fees.

Compensation Committee Interlocks and Insider Participation

Vincent Volpe Jr., our president and Chief Executive Officer, has served as a member of our compensation committee since October 2004. The entire board of directors, excluding Mr. Volpe, determines Mr. Volpe’s compensation.

Executive Compensation


	*Summary Compensation Table*

The following summary compensation table sets forth information concerning compensation earned in 2004 and 2003, by our chief executive officer and our other four most highly compensated executive officers at the end of the last fiscal year. All references to stock under “Executive Compensation” refer to shares of common stock of Ingersoll-Rand and all references to “plans” refer to executive compensation plans of Ingersoll-Rand. As of the consummation of the acquisition, our management ceased to participate in such plans.


										Long-Term Compensation

														Payouts
										Awards

				Annual Compensation										Long-Term
										Restricted		Number of Securities		Incentive
								Other Annual		Stock		Underlying		Plan		All Other
Name and Principal Position		Year		Salary ($)		Bonus ($)(1)		Compensation ($)		Award(s) ($)		Option/SARs (#)($)		Payouts		Compensation(4)($)

Vincent R. Volpe Jr.			2004		375,000		865,593		—		—		20,430		—		1,330,000
	President and Chief		2003		349,999		713,646		—		—		20,900		—		—
	Executive Officer
Walter J. Nye			2004		224,561		129,000		—		—		9,970		—		334,476
	Executive Vice President,		2003		211,866		98,500		—		—		9,720		—		—
	Worldwide Product Services
Stephen A. Riordan			2004		193,722		124,800		—		—		5,280		—		283,932
	Vice President Finance(2)		2003		173,016		100,000		—		—		5,000		—		—
Bradford W. Dickson			2004		193,923		122,100		—		—		7,130		—		284,400
	Executive Vice President,		2003		181,290		86,967		—		—		6,820		—		—
	New Equipment Worldwide
Jean-Francois Chevrier			2004		210,728		108,300		—		—		6,860		—		302,782
	Vice President, European		2003		186,480		78,944		—		—		6,510		—		—
	Operations(3)

(1)

This column reflects both amounts earned as annual bonuses and under the Performance Share Program. The Performance Share Program provides annual awards based on a combination of the achievement of strategic initiatives and annual financial performance. Payments are made in cash unless previously deferred into the Executive Deferral Plan. The Performance Share Program was discontinued at December 31, 2004. The amounts earned as bonuses and under the Performance Share Program were as follows:


					Performance Share
Name	Year		Bonus ($)		Program ($)

Vincent R. Volpe Jr		2004		440,100		425,493
		2003		282,400		431,246


(2)	Mr. Riordan was Vice President Finance from January 2003 through October 2004 and acted as the Chief Financial Officer from October 2004 through April 2005.

(3)	The average dollar to euro exchange rate for 2003 and 2004 was used to reflect earnings and bonus for Mr. Chevrier.

(4)

To reward selected key employees in the event of a successful sale of Dresser-Rand Company, Ingersoll-Rand established a sales incentive program. Each of Mr. Riordan, Mr. Nye, Mr. Dickson and Mr. Chevrier received, pursuant to the program, payments from Ingersoll-Rand equal to 100% of their total cash compensation (annual base salary plus annual target bonus amount) as of the date of the acquisition. In addition, all participants in the program had their unvested stock options, or stock equivalency rights for non-U.S. employees, in Ingersoll-Rand vest immediately as of October 29, 2004, the date of the acquisition. In

addition, Mr. Volpe received payments from Ingersoll-Rand pursuant to the sales incentive program equal to two times his total cash compensation (annual base salary plus annual target bonus amount) as of the date of the acquisition and his unvested stock options vested as of October 29, 2004.


	*Stock Options and Stock Appreciation Rights of Ingersoll-Rand*

The following table sets forth information concerning the grant of stock options of Ingersoll-Rand to our Chief Executive Officer and each of our other four most highly compensated executive officers during the last fiscal year.


										Grant Date
	Individual Grants									Value

	Number of
	Securities		Percent of Total
	Underlying		Options/SARs							Grant Date
	Options/SARs		Granted to			Exercise or				Present
	Granted		Employees in			Base				Value ($)
Name	(#)(a)		Fiscal Year			Price ($/SH)		Expiration Date (b)		(c)

Vincent R. Volpe Jr.		20,430		0.57	%	$	64.37		October 31, 2007	$	22.74
Walter J. Nye		9,970		0.28			64.37		October 31, 2007		22.74
Stephen A. Riordan		5,280		0.15			64.37		October 31, 2007		22.74
Bradford W. Dickson		7,130		0.20			64.37		October 31, 2007		22.74
Jean-Francois Chevrier		6,860		0.19			64.37		October 31, 2007		22.74


(a)	Options/ SARs issued by Ingersoll-Rand prior to the date of the acquisition.

(b)	Options became exercisable as of October 31, 2004. Unexercised options/ SARs have no financial impact on us.

(c)	Ingersoll-Rand estimated the average fair value of the options granted during the period from January 1, 2004 through October 29, 2004 at $22.74 on the date of grant, using the Black-Scholes option-pricing model, which included the following assumptions:


Dividend yield	1.19	%
Volatility	39.34	%
Risk-free interest rate	3.28	%
Expected life	5 years


	*Exercise of Options and Stock Appreciation Rights of Ingersoll-Rand*

The following table sets forth information concerning the exercise of stock options of Ingersoll-Rand during 2004 by each of our chief executive officer and our other four most highly compensated executive officers and the 2004 year-end value of unexercised options.


					Number of Securities
					Underlying Unexercised				Value of Unexercised
					Options/SARs				In-the-Money
					at Fiscal Year-End				Options/SARs
	Shares				(#)(a)				at Fiscal Year-End ($) (b)
	Acquired on		Value
Name	Exercise (#)		Realized ($)		Exercisable		Unexercisable		Exercisable		Unexercisable

Vincent R. Volpe Jr.		122,297	$	2,813,262		—		—	$	—	$	—
Walter J. Nye		13,115		417,301		34,333		—		1,006,191		—
Stephen A. Riordan		—		—		10,280		—		290,387		—
Bradford W. Dickson		18,600		442,458		13,033		—		439,311		—
Jean-Francois Chevrier		9,649		335,708		14,135		—		351,196		—


(a)	Options/ SARs issued by Ingersoll-Rand prior to the date of the acquisition.


(b)		Unexercised options/ SARs have no financial impact on us.

Pension Plan

Prior to March 31, 1998, our Predecessor sponsored qualified and nonqualified defined benefit pension plans for salaried employees. The benefits under these plans were based on final average pay and service at retirement, subject to applicable offsets.

Effective March 31, 1998, our Predecessor amended the qualified and nonqualified defined benefit pension plans to cease benefit accruals as of that date. That is, for employees hired prior to March 31, 1998, their accrued benefits were frozen and no additional accruals due to service and or pay were granted. Employees hired after March 31, 1998 were not eligible to participate in any defined benefit pension plans.

Messrs. Volpe, Nye and Dickson have estimated monthly accrued pension benefits of $2,500, $2,100 and $1,800, respectively. These benefit amounts are payable at age 65 as a single life annuity and represent the benefit payable from both the qualified and nonqualified defined benefit pension plans. These benefits amounts are fixed obligations of the successor and will not increase with future pay and/or service levels. Messrs. Riordan and Chevrier are not entitled to any benefits under our qualified or nonqualified pension plans.

Employment Agreements

On October 27, 2004, we entered into an employment agreement with Vincent R. Volpe, pursuant to which Mr. Volpe serves as our President and Chief Executive Officer. Mr. Volpe’s employment agreement has an indefinite term. During the term of his agreement, Mr. Volpe is entitled to an annual base salary of not less than $500,000. Mr. Volpe is also eligible to receive a performance based bonus for each year during the term of his employment agreement, with a target bonus of up to 100% of his base salary, payable, at Mr. Volpe’s election, in cash, shares of common stock or a combination thereof. Mr. Volpe’s total compensation will be reviewed at least once every twelve months by our board of directors. For 2004, in addition to his annual bonus, we paid Mr. Volpe a one-time special bonus equal to the bonus that would have been paid to Mr. Volpe with respect to such year pursuant to the Ingersoll-Rand Performance Share Program at the same time as provided by such program.

If Mr. Volpe’s employment is terminated by us without “cause” or if Mr. Volpe resigns for “good reason” (as such terms are defined in the employment agreement), Mr. Volpe will receive (a) a severance payment equal to twice his base salary, (b) the accrued but unpaid salary through the date of termination, (b) the accrued but unpaid bonus earned for fiscal years prior to the fiscal year of termination, (c) the maximum target annual bonus for the fiscal year of termination, prorated to the amount of time actually employed during such year and (d) continued medical, dental, disability and life insurance coverage for two years following the date of termination. To the extent Mr. Volpe is entitled to receive severance, he is subject to a provision in his employment agreement prohibiting him from competing with us. If Mr. Volpe’s employment is terminated by us for “cause” or if Mr. Volpe resigns without “good reason,” we can elect to enforce a provision in his employment agreement prohibiting him from competing with us for a period of up to two years following such termination provided that we pay Mr. Volpe his base salary for such two-year period.

Mr. Volpe purchased $1,999,992 of common units of Dresser-Rand Holdings, LLC at the same price paid per unit by funds affiliated with First Reserve in connection with the acquisition. In addition, Mr. Volpe received grants of profit units of Dresser-Rand Holdings, LLC that permit him to indirectly share in appreciation in the value of our shares and which are subject to the terms and conditions of the Amended and Restated Limited Liability Company Agreement of Dresser-Rand Holdings, LLC. If Mr. Volpe’s employment is terminated by us, Dresser-Rand Holdings, LLC may elect to liquidate his common units in exchange for shares of our common stock having an equivalent total value. If Mr. Volpe resigns for “good reason” or is terminated without cause and Dresser-Rand Holdings, LLC does not elect to convert his common units to common shares, he may require Dresser-Rand Holdings, LLC to do so and require Dresser-Rand Holdings, LLC to repurchase those shares.

An employment agreement was entered into with Mr. Jean-Francois Chevrier on July 25, 1990, pursuant to which Mr. Chevrier serves as our Vice President & General Manager, European Operations and Chief

Executive Officer for Dresser-Rand S.A. (Le Havre, France), reporting directly to Dresser-Rand Company’s Chief Executive Officer. As of December 31, 2003, Mr. Chevrier’s annual base salary was €168,977. Mr. Chevrier is also eligible to receive an annual bonus with a target payment equal to 40% of his annual base salary (and a maximum payment equal to 60% of his annual base salary) if certain targets based on our financial results and his individual performance are met. A company car is also made available to Mr. Chevrier pursuant to the terms of his employment agreement. Mr. Chevrier’s employment agreement is subject to the Engineers and Officers of the Metal Industry National Bargaining Agreements (Convention Collective Nationale des Ingenieurs et Cadres de la Metallurgie). Pursuant to such National Bargaining Agreements, Mr. Chevrier is entitled to notice in the event that Mr. Chevrier’s employment is terminated and certain severance payments based on his age and service with us at the time of termination. Based on his current age and service, Mr. Chevrier would be entitled to six months notice prior to a termination of his employment and an additional severance payment of approximately €144,798.

Dresser-Rand Holdings, LLC Membership Interests

Pursuant to an agreement reached with management prior to our acquisition by funds affiliated with First Reserve, certain members of management were offered the opportunity in October 2004 to acquire common units in Dresser-Rand Holdings, LLC at the same price paid per unit by the funds affiliated with First Reserve in connection with the acquisition. Executives who purchased common units were also issued profit units in Dresser-Rand Holdings, LLC, which permit them to indirectly share in appreciation in the value of our shares. After a period of several weeks to evaluate the offer, certain of our executive officers, including our Chief Executive Officer and each of our four other most highly compensated executive officers, availed themselves of this opportunity in November. Our directors were not offered the opportunity to acquire common units or profit units in Dresser-Rand Holdings, LLC. The terms of the plan are set forth in the Amended and Restated Limited Liability Company Agreement of Dresser-Rand Holdings, LLC which we refer to as the Holdings LLC Agreement. Under the terms of the Holdings LLC Agreement, management members whose capital contribution exceeds $100,000 are subject to a provision not to compete with us during the period for which they provide services to us and for a period of two years thereafter. The following contains a summary of the material terms of the Holdings LLC Agreement.


	*General*

The only asset of Dresser-Rand Holdings, LLC is its ownership, through D-R Interholding, LLC, of our shares. The Holdings LLC Agreement permits the grant of the right to purchase common units to members of Dresser-Rand Holdings, LLC and the grant of profit units, consisting of one initial tranche of service units and five initial tranches of exit units, to certain management members who own common units. In October and November 2004, First Reserve, through its affiliated funds, and certain other members purchased 100,609,829 common units for an aggregate purchase price of $435.8 million. Messrs. Volpe, Nye, Riordan, Dickson and Chevrier respectively purchased 461,892, 57,737, 115,473, 115,425 and 60,000 common units in November 2004. In November 2004, Dresser-Rand Holdings, LLC issued 7,975,000 profit units to management members, with Messrs. Volpe, Nye, Riordan, Dickson and Chevrier respectively receiving 4,000,000, 400,000, 700,000, 400,000 and 400,000 of such profit units. During 2005, three additional management members became members of Dresser-Rand Holdings, LLC and purchased 303,735 common units for an aggregate purchase price of $1.3 million. These management members were also issued a total of 1,000,000 profit units. The proceeds of all common unit issuances were used to acquire, through D-R Interholding, LLC, our shares.


	*Amendment*

First Reserve may amend the Holdings LLC Agreement, provided that no amendment is permitted that would adversely affect the management members as a class without the consent of a majority in interest, excluding profit units, of the management members.


	*Units Held by Certain of our Managers*

The units of Dresser-Rand Holdings, LLC consist of common units and profit units. Each common unit is entitled to receive an identical share of the profits and losses of Dresser-Rand Holdings, LLC, which it is

anticipated will consist solely of amounts realized with respect to Dresser-Rand Holdings, LLC’s investment in our shares. Profit units consist of service units and five tranches of exit units, and, as explained in more detail below, are each generally entitled to an identical share of the profits and losses of Dresser-Rand Holdings, LLC above the benchmark amount applicable to each profit unit, although the exit units are subject to the additional condition that the applicable performance-based conditions are satisfied. The benchmark amount of $4.33 for each profit unit was set at the initial per unit cost of the common units, which equated to the value of our shares at the time of the acquisition. Because the benchmark amount was set at this amount, profit units will share in distributions from Dresser-Rand Holdings, LLC only if there is any realized gain in the value of our shares. It is anticipated that any cash received by Dresser-Rand Holdings, LLC with respect to our shares that it owns will be promptly distributed to the holders of the common units and, to the extent applicable, the profit units. It is not anticipated that this offering will result in any distribution on the profit units.

As of August 1, 2005, approximately 98.4% of common units were held by First Reserve and approximately 1.6% were held by certain members of our management. The profit units are held exclusively by members of our management.


	*Terms of the Common Units, Service Units and the Exit Unit Tranches*

The following is a summary of certain terms of the common units, service units and the five exit unit tranches and certain rights and restrictions applicable to those units.

A holder of units is entitled to one vote for each unit outstanding on a given record date, or other date as applicable, provided that if a management member ceases to provide services to or for the benefit of Dresser-Rand Holdings, LLC, the units held by such management member will cease to have voting rights. Holders of profit units generally will not be entitled to distributions in respect of such units until such time as the amounts that would otherwise have been distributed in respect of each such unit equals the benchmark amount described above, except that Dresser-Rand Holdings, LLC may advance tax distributions to help cover any allocations of taxable income to them. Once this benchmark amount is achieved, profit units will participate proportionately in distributions.

Service units vest in five equal annual installments on the first five anniversaries of the issuance date, subject to the management member’s continued service to or for the benefit of Dresser-Rand Holdings, LLC. All of the service units will vest immediately prior to the occurrence of a change of control under the Holdings LLC Agreement. This offering is not considered a change of control under the Holdings LLC Agreement. Although unvested service units are subject to forfeiture if a management member’s service terminates, management members are entitled to receive any distributions of profits and losses payable with respect to their unvested service units as long as they are providing services to or for the benefit of Dresser-Rand Holdings, LLC at the time of the distribution.

Subject to the management member’s continued service to or for the benefit of Dresser-Rand Holdings, LLC management members will be entitled to receive a distribution of profits over and above the benchmark amount on their exit units upon the occurrence of a transaction where First Reserve receives cash, cash equivalents or marketable publicly-traded securities on or with respect to its common units, if the value First Reserve receives from the transaction, or the cumulative value resulting from any prior transactions, exceeds multiples of the initial price paid by First Reserve for its units ranging from 2.25 to 3.25. Any tranche of exit units that does not become vested in a transaction described in the preceding sentence that is a change of control under the Holdings LLC Agreement will automatically be cancelled and the holder will not be entitled to any distributions with respect to such cancelled exit units. This offering will not be a change of control under the Holdings LLC Agreement, and it is not anticipated that this offering will be a transaction that will result in any distribution on the exit units because none of the multiples will be achieved.

If a management member ceases to provide services to or for the benefit of Dresser-Rand Holdings, LLC, Dresser-Rand Holdings, LLC may liquidate the management member’s units in exchange for shares of our common stock. The actual number of shares of our common stock that a management member would receive will be determined at the time, and will have the same total value as the amount the management

member would receive if Dresser-Rand Holdings, LLC were to sell all of its assets for cash and distribute the proceeds to its members.


	*Certain Rights and Restrictions Applicable to the Units*

The units held by members are not transferable for a limited period of time except in certain circumstances. In addition, units held by management members may be repurchased by Dresser-Rand Holdings, LLC, and in certain cases, First Reserve, in the event that a management member is subject to an involuntary transfer of his or her units or if a management member receives a bona fide offer to purchase his or her units and such management member wants to accept such offer. First Reserve has the ability to force members to sell their units along with First Reserve if First Reserve decides to sell its units. Under certain conditions, First Reserve may convert each member’s units into an economically equivalent amount of security interests of the successor entity in connection with an initial public offering under the Holdings LLC Agreement.

The management members that hold units are entitled to participate in certain sales by First Reserve. In addition, many of the restrictions on transfer will cease to apply in the event of an initial public offering under the Holdings LLC Agreement.

2005 Stock Incentive Plan

Our board of directors has adopted, and our stockholders have approved, our 2005 Stock Incentive Plan. The 2005 Stock Incentive Plan is administered by our compensation committee, which has broad discretion to determine the current or prospective officers, employees and consultants that will receive awards, the type of awards to be granted, and the terms of such awards. Awards under the 2005 Stock Incentive Plan may be of stock options, stock appreciation rights and similar awards that are measured based on appreciation of our share price over a threshold level, or other similar awards that are based on the full value of our shares. No stock options, stock appreciation rights or other similar awards may be exercisable later than the tenth anniversary of the award grant date.

A total of approximately 4.3 million shares of our common stock will be available for awards under the 2005 Stock Incentive Plan and the 2005 Directors Plan. As a general rule, only shares that are actually issued under an award are counted against this limit. Therefore, if (and to the extent that) an award is forfeited or terminates unexercised, or if it is settled for cash or otherwise settled without the issuance of common stock (including where shares are withheld to satisfy withholding obligations), the shares underlying the award will again be available for future awards.

Our compensation committee will determine the terms or conditions upon which awards will vest. This may include vesting based on continuous employment, vesting based on the attainment of one or more performance criteria, or vesting based on such other conditions as our compensation committee may determine. Our compensation committee may impose special provisions relating to the treatment of outstanding awards upon a change in control of our company (as defined in the 2005 Stock Incentive Plan). Among other things, our compensation committee may provide for the acceleration of vesting, for a cash payment in settlement of awards and/or for the assumption or substitution of awards following the change in control. Our compensation committee may also determine whether dividends or equivalent payments will be made with respect to outstanding awards, whether any such payments will be made in cash or shares on a current or deferred basis, and whether such payments are subject to vesting.

A participant’s termination of employment will typically have important consequences on outstanding awards under the 2005 Stock Incentive Plan (although our compensation committee will have broad authority to waive the consequences of a termination of employment). Unless our compensation committee determines otherwise, participants will become vested in any outstanding stock options, stock appreciation rights or other similar awards based on appreciation of our shares if their employment terminates by reason of death or disability (as defined in the 2005 Stock Incentive Plan), and will forfeit any such unvested awards if their employment terminates for any other reason. Unless our compensation committee determines otherwise, participants will become vested in a pro-rata portion (based on the number of days employed during the

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vesting period) of any award of shares or similar awards if their employment terminates by reason of death or disability (as defined in the 2005 Stock Incentive Plan), and will forfeit outstanding awards of shares or similar awards if their employment terminates for any other reason. Participants will forfeit vested and unvested awards if their employment is terminated for cause (as defined in the 2005 Stock Incentive Plan). If any award is held by a participant in the 2005 Stock Incentive Plan who the compensation committee believes is a “specified employee” under Section 409A of the Code, payment or a settlement of any award may be delayed for six months and one day after the termination of employment of the participant.

In connection with any stock dividend, stock split, share combination, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares or other event similarly affecting our common stock, our compensation committee will, in a manner it deems appropriate, equitably adjust any or all of (i) the number and type of shares that are available under the 2005 Stock Incentive Plan or that are subject to outstanding options or other awards, (ii) the grant or exercise price of outstanding awards and (iii) the performance period or performance criteria applicable to any outstanding awards. In addition, our compensation committee may also provide for a cash payment in settlement of outstanding awards as a result of such transactions.

Awards under the 2005 Stock Incentive Plan will generally not be assignable or transferable other than by will or by the laws of descent and distribution, although our compensation committee may permit certain transfers to the participant’s family members or to certain entities controlled by the participant or his or her family members.

The 2005 Stock Incentive Plan will expire on the day prior to the first meeting of our stockholders in 2009 at which directors will be elected, and our board of directors or our compensation committee may at any time, and from time to time, amend, modify or terminate the 2005 Stock Incentive Plan with any amendment, subject to stockholder approval if required by law. An amendment or termination of the 2005 Stock Incentive Plan may not materially adversely affect any outstanding award held by a participant without the participant’s consent.

Section 162(m) of the Code. Section 162(m) of the Code generally limits the ability of a public corporation to deduct compensation greater than $1,000,000 paid with respect to a particular year to an individual who is, on the last day of that year, the corporation’s chief executive officer or one of its four other most highly compensated executive officers, other than compensation that is “performance based” within the meaning of Section 162(m). Under a special rule that applies to corporations that become public through an initial public offering, this limitation generally will not apply to compensation that is paid pursuant to the 2005 Stock Incentive Plan before the first meeting of our stockholders in 2009 at which directors will be elected.

2005 Directors Stock Incentive Plan

Our board of directors has adopted, and our stockholders have approved, our 2005 Directors Plan for our directors who are not also our officers or employees, or officers or employees of First Reserve. The 2005 Directors Plan is administered by our board of directors.

A total of approximately 4.3 million shares of our common stock will be available for awards under the 2005 Directors Plan and the 2005 Stock Incentive Plan. Shares subject to awards that are forfeited will again be available for future awards under the 2005 Directors Plan. In connection with any stock dividend, stock split, share combination, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares or other event similarly affecting our common stock, our board of directors will, in a manner it deems appropriate, equitably adjust the number and type of shares that are available under the 2005 Directors Plan or that are subject to outstanding awards. In addition, our board of directors may also provide for a cash payment in settlement of outstanding awards as a result of such transactions.

There will be two types of awards of shares under the 2005 Directors Plan. Eligible directors will receive a grant of shares effective upon the consummation of this offering with a value of $30,000 to be calculated using the per share price in this offering and an annual grant immediately following the first regular meeting of our

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board of directors in any year the 2005 Directors Plan is in effect. Shares subject to this annual grant will become vested in four equal installments on the first day of each of the first four calendar quarters following the grant date, subject to the director remaining in office on each vesting date. Shares subject to the annual grant will also become vested upon a director’s death or disability (as defined in the 2005 Directors Plan), or upon a change in control of our Company (as defined in the 2005 Directors Plan). The aggregate value of the shares subject to the annual grant is initially expected to be $30,000, although our board of directors (or an authorized committee thereof) may increase or decrease the value of the annual grant from time to time.

Eligible directors may also elect to have any portion of their cash fees for services as a director paid in shares under the 2005 Directors Plan. Such elective awards will be fully vested, and will contain such other terms as determined by our board of directors.

Dividends or equivalent payments will be made with respect to all shares subject to awards under the 2005 Directors Plan, and our board of directors will determine whether and to what extent such payments will be paid currently to, or credited to an account of the eligible directors.

In the event of a change in control of our company (as defined in the 2005 Directors Plan), our board of directors may provide for a cash payment in settlement of awards, or for the assumption or substitution of awards following the change in control.

Awards under the 2005 Directors Plan will generally not be assignable or transferable other than by will or by the laws of descent and distribution, except that our board of directors may permit certain transfers to eligible director’s family members or to certain entities controlled by the eligible director or his or her family members.

Our board of directors may at any time, and from time to time, amend, modify or terminate the 2005 Director’s Plan, as long as such actions do not materially adversely affect any outstanding award held by an eligible director without the director’s consent. Our board of directors will determine whether stockholder approval of any amendments to the 2005 Directors Plan will be required, and will seek such approval if necessary.

Annual Incentive Plan

Our board of directors has adopted an annual performance incentive plan that will provide for the award of incentive bonuses to our named executive officers and certain of our other officers and employees. The annual incentive plan will be administered by our compensation committee, which may delegate its authority except to the extent that it relates to the compensation of any of our executive officers or other individuals whose compensation the board of directors or the compensation committee reasonably believes may become subject to Section 162(m) of the Code. The determination of the compensation committee on all matters relating to the annual incentive plan will be final and binding on us, participants and all other interested parties.

Each year our compensation committee will select the eligible participants in the annual incentive plan and establish target incentive bonuses and performance objectives for a participant or group of participants. The actual bonus payable to a participant — which may equal, exceed or be less than the target bonus — will be determined based on whether the applicable performance objectives are met, exceeded or not met. Performance objectives may be based on one or more of the following criteria: (i) revenue growth; (ii) earnings before interest, taxes, depreciation and amortization; (iii) earnings before interest, taxes and amortization; (iv) operating income; (v) pre-or after-tax income; (vi) cash flow; (vii) cash flow per share; (viii) net earnings; (ix) earnings per share; (x) return on equity; (xi) return on invested capital; (xii) return on assets; (xiii) economic value added (or an equivalent metric); (xiv) share price performance; (xv) total stockholder return; (xvi) improvement in or attainment of expense levels; (xvii) improvement in or attainment of working capital levels; (xviii) debt reduction; or (xix) any other criteria our compensation committee in its sole discretion deems appropriate. The maximum bonus payable under the plan to a participant in any year is $3,000,000.

Bonuses will generally be payable as soon as practicable after the compensation committee certifies that the applicable performance criteria have been obtained. Bonuses will generally be payable only if the

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participant remains employed with us through the date of payment, subject to the discretion of the compensation committee to provide for the payment of full or partial bonuses upon certain terminations of employment and to any rights individual participants may have under their employment agreements to receive an annual bonus for the year their employment terminates.

In addition, the compensation committee may require that a portion of a participant’s annual incentive bonus be payable in shares of common stock, options or other stock-based awards granted under our 2005 Stock Incentive Plan described above, which awards may also be subject to forfeiture, vesting or other restrictions determined by the compensation committee.

The annual incentive plan will expire on the day prior to the date of the first meeting of our stockholders in 2009 at which directors will be elected. However, the compensation committee may at any time amend, suspend, discontinue or terminate the annual incentive plan, provided that any such amendment, suspension, discontinuance or termination does not adversely affect participants’ rights to, or interest in, any award granted prior to the date of such action without their written consent.

Section 162(m) of the Code. Section 162(m) of the Code generally limits the ability of a public corporation to deduct compensation greater than $1,000,000 paid with respect to a particular year to an individual who is, on the last day of that year, the corporation’s chief executive officer or one of its four other most highly compensated executive officers, other than compensation that is “performance based” within the meaning of Section 162(m). Under a special rule that applies to corporations that become public through an initial public offering, this limitation generally will not apply to compensation that is paid pursuant to the Annual Incentive Plan before the first meeting of our stockholders in 2009 at which directors will be elected.

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PRINCIPAL STOCKHOLDERS

The information in the first table below reflects the number of shares of our common stock that correspond to each named holder’s beneficial interest. The first table and accompanying footnotes show information regarding the beneficial ownership of our common stock before this offering and after this offering, by (i) each person known by us to beneficially own more than 5% of the outstanding common stock and (ii) all directors and executive officers as a group.

The number of shares and percentages of beneficial ownership and economic interest before the offering set forth in both tables below are based on shares of our common stock issued and outstanding as of July 15, 2005 and after giving effect to (i) the 1,006,092.87-for-one stock split effected in February 2005 and (ii) the 0.537314-for-one reverse stock split we expect to effect immediately prior to the consummation of this offering. The number of shares and percentages of beneficial ownership and economic interest after the offering are based on 85,444,887 shares of our common stock to be issued and outstanding after this offering, including 4,050,000 shares, adjusted for the elimination of any fractional shares, that will be dividended to our existing stockholders assuming no exercise of the underwriters’ over-allotment option.


						Shares Beneficially Owned After This Offering

	Shares Beneficially					Assuming the					Assuming the
	Owned Immediately					Underwriters’ Option Is					Underwriters’ Option Is
	Prior to this Offering					Not Exercised(1)					Exercised in Full

			Percent of					Percent of					Percent of
Name of Beneficial Owner	Number		Common			Number		Common			Number		Common

Dresser-Rand Holdings, LLC(2)		54,221,932		99.7	%		58,259,053		68.2	%		54,221,932		63.5	%
Directors and executive officers as a group (15 persons)(3)		—		—			—		—			—		—


(1)	We will grant the underwriters an option to purchase up to an additional 4,050,000 shares in this offering. Immediately prior to the consummation of this offering, we will declare a stock dividend, the terms of which will require that shortly after the expiration of the underwriters’ over-allotment option (assuming the option is not exercised in full) we issue to our existing stockholders the number of shares equal to (x) the number of additional shares the underwriters have an option to purchase minus (y) the actual number of shares the underwriters purchase from us pursuant to that option.

(2)	99.7% of our common stock is owned by D-R Interholding, LLC, which in turn is 100% owned by Dresser-Rand Holdings, LLC. The remaining 0.3% of our shares not held by D-R Interholding, LLC are held directly by members of our management who are not directors or named executive officers and thus are not named in the table. Dresser-Rand Holdings, LLC is controlled by First Reserve Fund IX, L.P. (“Fund IX”) and First Reserve Fund X, L.P. (“Fund X”). First Reserve GP IX, L.P. (“GP IX”) is the general partner of Fund IX. First Reserve GP IX, Inc. (“GP IX Inc.”) is the general partner of GP IX. First Reserve GP X, L.P. (“GP X”) is the general partner of Fund X. First Reserve GP X, Inc. (“GP X, Inc.”) is the general partner of GP X. First Reserve Corporation is the adviser to Fund IX and Fund X. The officers for GP IX, GP IX Inc., GP X and GP X Inc. are William E. Macaulay, John A. Hill, Ben A. Guill, Thomas R. Denison, J.W.G. (Will) Honeybourne, Alex T. Krueger, Thomas J. Sikorski, Jennifer C. Zarrilli, Craig M. Jarchow, Kenneth W. Moore, Catia Cesari, Timothy H. Day, Joseph Robert Edwards, Mark A. McComiskey, J. Hardy Murchison, Glenn J. Payne, Kristin A. Custar, Brian K. Lee, Bingfeng Leng, Timothy K. O’Keeffe, Anne E. Gold, Valerie A. Thomason and Damien T. J. Harris, who are all employees of First Reserve. Decisions with respect to voting and investments are made by the Investment Committee of First Reserve, made up of a subset of these officers that includes the officers named above except for Ms. Thomason and Mr. Harris. With respect to investments held by these entities, decisions with respect to operations oversight are made by the subset of these officers that work most closely on a given investment, which includes Messrs. Macaulay, McComiskey, Moore and Sikorski in the case of Dresser-Rand Group Inc. The address of GP IX, Inc., GP IX, Fund IX, GP X, Inc., GP X, Fund X and First Reserve Corporation is c/o First Reserve Corporation, One Lafayette Place, Greenwich, CT 06830.

(3)	Because members of senior management hold their interests in units of Dresser-Rand Holdings, LLC, which is controlled by First Reserve, they are not deemed to beneficially own the common stock of Dresser-Rand Group Inc. in which they have an economic interest.

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In addition to the beneficial ownership of our common stock set forth in the table above, First Reserve and certain of our directors and named executive officers own an economic interest in our common stock indirectly through membership units in Dresser-Rand Holdings, LLC. The information in the table below reflects the number of shares of our common stock that correspond to each named holder’s economic interest. The following table and accompanying footnotes show information regarding the economic interest of our common stock before this offering and after this offering, by (i) each person known by us to hold an economic interest in more than 5% of the outstanding common stock, (ii) each of our directors, (iii) each named executive officer and (iv) all directors and executive officers as a group. Unless otherwise indicated, the address of each person named in the table below is c/o Dresser-Rand Group Inc., Paul Clark Drive, Olean, New York 14760.


					Economic Interest Held
					After This Offering

	Economic Interest Held				Assuming the				Assuming the
	Immediately Prior to				Underwriters’ Option Is				Underwriters’ Option Is
	This Offering				Not Exercised(1)				Exercised in Full

			Percent of				Percent of				Percent of
			Common				Common				Common
Name of Economic Interest Holder	Number		Stock		Number		Stock		Number		Stock

First Reserve Fund X, L.P.		32,250,422		59.3%		34,651,644		40.6%		32,250,422		37.7%
First Reserve Fund IX, L.P.		21,086,814		38.8		22,656,844		26.5		21,086,814		24.7
Vincent R. Volpe Jr.		248,179		*		266,658		*		248,179		*
Leonard M. Anthony		118,906		*		127,760		*		118,906		*
Stephen A. Riordan		62,044		*		66,664		*		62,044		*
Walter J. Nye		31,022		*		33,333		*		31,022		*
Bradford W. Dickson		62,019		*		66,637		*		62,019		*
Christopher Rossi		62,328		*		66,969		*		62,328		*
Jean-Francois Chevrier		32,238		*		34,639		*		32,238		*
Elizabeth C. Powers		111,681		*		119,996		*		111,681		*
Randy D. Rinicella		37,845		*		40,663		*		37,845		*
Lonnie A. Arnett		—		—		—		—		—		—
William E. Macaulay(2)		—		—		—		—		—		—
Thomas J. Sikorski(2)		—		—		—		—		—		—
Mark A. McComiskey(2)		—		—		—		—		—		—
Kenneth W. Moore(2)		—		—		—		—		—		—
Michael L. Underwood		—		—		—		—		—		—
Directors and executive officers as a group (15 persons)		766,262		1.4%		823,319		1.0%		766,262		*


*	Less than 1% of outstanding common stock.



(1)	We will grant the underwriters an option to purchase up to an additional 4,050,000 shares in this offering. Immediately prior to the consummation of this offering, we will declare a stock dividend, the terms of which will require that shortly after the expiration of the underwriters’ over-allotment option (assuming the option is not exercised in full) we issue to our existing stockholders the number of shares equal to (x) the number of additional shares the underwriters have an option to purchase minus (y) the actual number of shares the underwriters purchase from us pursuant to that option.


(2)	Mr. Macaulay is the Chairman, Chief Executive Officer and a member of the board of directors of First Reserve Corporation, GP IX, Inc. and GP X, Inc. Mr. Sikorski is a Managing Director of First Reserve Corporation, GP IX, Inc. and GP X, Inc. Mr. Moore is a Director of First Reserve Corporation, GP IX, Inc. and GP X, Inc. Mr. McComiskey is a Vice President of First Reserve Corporation, GP IX, Inc. and GP X, Inc. Messrs. Macaulay, Sikorski, Moore and McComiskey all disclaim beneficial ownership of any common stock owned by such entities or their affiliates. The address of GP IX, Inc., GP X, Inc., GP IX, GP X, Fund IX, Fund X, William E. Macaulay, Thomas J. Sikorski, Mark A. McComiskey and Kenneth W. Moore is c/o First Reserve Corporation, One Lafayette Place, Greenwich, CT 06830.

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CERTAIN RELATED PARTY TRANSACTIONS

Amended and Restated Limited Liability Company Agreement of Dresser-Rand Holdings, LLC

In connection with the acquisition, Dresser-Rand Holdings, LLC, our indirect parent, amended and restated its limited liability company agreement, governing, among other things, the terms under which senior management acquired common units and profit units in Dresser-Rand Holdings, LLC. For a summary of the material terms of the Holdings LLC Agreement, see “Management — Dresser-Rand Holdings, LLC Membership Interests.”

Stockholders Agreement

In connection with the acquisition, we entered into a stockholders agreement with First Reserve and certain management stockholders, which was amended and restated in connection with this offering. The stockholders agreement provides that our board of directors will consist of six members upon the consummation of this offering. The board may be subsequently expanded by vote of the board to include additional directors, including such additional independent directors as may be required by applicable securities laws or the rules of any exchange on which shares of our common stock are traded. The stockholders agreement provides that for so long as First Reserve holds at least 5% of the outstanding shares of our common stock, it may designate all of the nominees for election to our board of directors other than any independent directors. All stockholders that are a party to the stockholders agreement are obligated to vote their shares in favor of such nominees. Independent directors will be designated for nomination by our board of directors, however such independent nominees must be reasonably acceptable to First Reserve for so long as its holds at least 5% of the outstanding shares of our common stock. Our board of directors currently consists of our Chief Executive Officer, four other directors nominated by First Reserve and Michael L. Underwood.

For so long as First Reserve holds at least 20% of the outstanding shares of our common stock, many significant decisions involving us require the approval of a majority of our board of directors and at least one director designated for nomination by First Reserve who is also an officer of First Reserve Corporation. For example, the following transactions are subject to such approval requirements: any acquisition or sale of assets involving amounts in excess of one percent of sales during any twelve month period, or any acquisition of another business or any equity of another entity; any merger, consolidation, substantial sale of assets or dissolution involving us or any of our material subsidiaries; any declaration of dividends; the issuance of common stock or other securities of us or any of our material subsidiaries; and any amendment to our amended and restated certificate of incorporation or comparable organizational documents of our material subsidiaries. Although state law is ambiguous regarding the extent to which fiduciary duties can be waived by contract, to the extent permitted by law, First Reserve has no implied or express duty to us or you regarding the approval or disapproval of these transactions. In addition, to the extent permitted by law, the stockholders agreement specifically provides that First Reserve and its affiliates may engage in material business transactions with us, pursue acquisition opportunities that may be complementary to us or make investments in companies that compete directly or indirectly against us, and will not be deemed to breach any fiduciary duty.

The stockholders agreement provides that First Reserve will have the ability to require us to register its shares of our common stock and may also require us to make available shelf registration statements permitting sales of shares into the market from time to time over an extended period. In addition, in connection with other registered offerings by us, holders of shares of our common stock who are parties to the stockholders agreement will have the ability to exercise certain piggyback registration rights with respect to their shares. Also, we are obligated to pay the fees associated with any public offering of shares held by First Reserve and management stockholders.

The stockholders agreement provides that shares of common stock held by management stockholders are subject to a general prohibition on transfer. Furthermore any proposed transfers of our common stock by a management stockholder (other than affiliates of First Reserve) will be subject to a right of first refusal by us and First Reserve. The stockholders agreement grants to management stockholders “tag-along” rights, and to First Reserve, “drag-along” rights, in each case in connection with transfers by First Reserve of our common stock. The

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stockholders agreement also provides that if a management stockholder’s employment is terminated, both we and First Reserve have the right to repurchase such management stockholder’s shares. All of the provisions of the stockholders agreement described in this paragraph will cease to apply following the offering.

The stockholders agreement has an indefinite term. The stockholders agreement may generally be terminated or amended with the written consent of the stockholders holding a majority of the shares of our common stock subject to the agreement; however, any amendment that materially and disproportionately prejudices an individual stockholder or a discrete group of stockholders must be consented to in writing by such individual or group.

Transition Services Agreement

In connection with the acquisition, we and Ingersoll-Rand entered into a transition services agreement as of the closing to facilitate consistent service and satisfaction for our clients. Ingersoll-Rand provides services as requested by us, including, among others, compensation delivery services, health and welfare administration, pension administration, legal services and other services, and agreed upon between the parties. All third-party costs associated with the services are our responsibility, whether paid by Ingersoll-Rand or passed directly on to us.

The provision of services commenced on the closing date and will terminate on the first anniversary of the closing date; provided, however, that we may cancel any service upon 30 days’ written notice of cancellation and Ingersoll-Rand may cease to provide a service upon 90 days’ written notice to us if Ingersoll-Rand ceases to provide such services to all of Ingersoll-Rand’s subsidiaries, divisions and business units.

Supply Agreement

We entered into a supply agreement with Ingersoll-Rand, expiring on December 31, 2009, whereby we supply Ingersoll-Rand with certain assembly units (an “FRG”) for Ingersoll-Rand’s “PET Star 4” product. There are no minimum order quantities under this agreement.

License Agreement

As contemplated by the equity purchase agreement, Dresser-Rand Company and Dresser-Rand A.S., each an indirect wholly-owned subsidiary of the issuer, agreed to certain covenants with and granted intellectual property rights related to the development of Ingersoll-Rand’s 250 kilowatt microturbine to Ingersoll-Rand Energy Systems Corporation and the Energy Systems Division of Ingersoll-Rand. Pursuant to the terms of the license agreement, Energy Systems was granted a non-exclusive, worldwide right and license (without the right to sublicense) to practice and use any intellectual property owned by Dresser-Rand Company or Dresser-Rand A.S. relating to the 250 kilowatt microturbines, and to manufacture, use, market and sell microturbines with a generating capacity of 1,000 kilowatts or less. The license was granted without royalties.

Dresser Name

Our company’s name and principal mark is a combination of the names of our founder companies, Dresser Industries, Inc. and Ingersoll-Rand. We have acquired perpetual rights to use the “Rand” portion of our principal mark from Ingersoll-Rand as part of the sale agreement. Although initially owned by Dresser Industries, Inc., in the merger of Dresser Industries, Inc. with and into Halliburton, Halliburton acquired all of the rights to the use of the name “Dresser.” When Halliburton sold its Dresser Equipment Group in April of 2001, Halliburton also sold the right to the “Dresser” name, subject to existing licenses and certain limitations. The Dresser-Rand Entities held one of those existing licenses, which has since expired. In connection with the recent sale of the Dresser-Rand Entities by Ingersoll-Rand, we negotiated a replacement license for the right to use the “Dresser” name in our business from Dresser, Inc. (f/k/a Dresser Equipment Group), an affiliate of First Reserve, in perpetuity, for consideration of $1 million plus an additional $4 million payable over the next 9 years.

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DESCRIPTION OF INDEBTEDNESS

Senior Secured Credit Facility


	*Overview*

In connection with the transactions, we entered into a senior secured credit facility with Citicorp North America, Inc., as administrative agent, Citigroup Global Markets Inc., as joint lead arranger and joint book manager, Morgan Stanley Senior Funding, Inc., as joint lead arranger, joint book manager and co-syndication agent, UBS Securities LLC, as joint lead arranger, joint book manager and co-syndication agent, and each lender party thereto.

The senior secured credit facility provides senior secured financing of $695 million, consisting of:


	•	a $395 million term loan facility (with a €78.5 million sub-facility); and

	•	a $300 million revolving credit facility (with a sub-facility denominated in euros in an amount not to exceed the equivalent of $200 million and in sterling in an amount not to exceed the equivalent of $75 million).

The term loan portion of our senior secured credit facility was fully funded and on March 31, 2005 we had approximately $125 million of borrowing capacity under the revolving portion of our senior secured credit facility, subject to certain conditions, after giving effect to approximately $175 million of outstanding letters of credit.

Upon the occurrence of certain events, we may request an increase to the existing term loan facility and/or the existing revolving credit facility in an aggregate amount not to exceed $200 million, subject to receipt of commitments by existing lenders or other financial institutions reasonably acceptable to the administrative agent.

We and certain of our foreign subsidiaries are the borrowers for the term loan facility and the revolving credit facility. The foreign subsidiary borrowers are referred to herein as Euro Borrowers. The revolving credit facility includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as swingline loans.


	*Interest Rate and Fees*

The U.S. dollar denominated borrowings under the senior secured credit facility bear interest at a rate equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the highest of (1) the rate that the administrative agent announces from time to time as its prime or base commercial lending rate, (2) the three month certificate of deposit rate plus ¹/2 of 1% and (3) the federal funds rate plus ¹/2 of 1% or (b) a LIBOR rate determined by reference to the costs of funds for deposits in U.S. dollars for the interest period relevant to such borrowing adjusted for certain additional costs. Euro borrowings under the senior secured credit facility bear interest at a rate equal to an applicable margin plus, a EURIBOR rate determined by reference to the costs of funds for deposits in euros for the interest period relevant to such borrowing adjusted for certain additional costs. Borrowings in a foreign currency, other than Euros under the senior secured credit facility, bear interest at a rate equal to an applicable margin, plus a LIBOR rate determined by reference to the costs of funds for deposits in the currency of such borrowing for the interest period relevant to such borrowings adjusted for certain additional costs.

The initial applicable margin for borrowings under the revolving credit facility is 1.50% with respect to base rate borrowings and 2.50% with respect to LIBOR and EURIBOR borrowings (which margin will be reduced to 1.25% and 2.25%, respectively if our leverage ratio is less than 5.0 to 1.0 but greater than or equal to 4.0 to 1.0, and to 1.00% and 2.00%, respectively if our leverage ratio is less than 4.0 to 1.0). The initial applicable margin for base

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rate borrowings under the term loan facility is 1.00%. The initial applicable margin for LIBOR borrowings and EURIBOR borrowings under the term loan facility is 2.00% and 2.50%, respectively.

In addition to paying interest on outstanding principal under the senior secured credit facility, we are required to pay a commitment fee to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. The initial commitment fee rate is 0.50% per annum (which fee will be reduced to 0.375% per annum if our leverage ratio is less than 4.0 to 1.0). We also have to pay letter of credit fees equal to the applicable margin then in effect with respect to LIBOR loans under the revolving credit facility on the face amount of each such letter of credit. We also have to pay to each bank issuing a letter of credit fees equal to ¹/4 of 1% on the face amount of each letter of credit and other customary documentary and processing charges.


	*Prepayments*

The senior secured credit facility requires us to prepay outstanding term loans, subject to certain exceptions, with:


	•	beginning in the year ending December 31, 2005, 75% (which percentage will be reduced to 50% if our leverage ratio is equal to or less than 5.00 to 1.00 and greater than 4.00 to 1.00, and to 25% if our leverage ratio is equal to or less than 4.00 to 1.00 and greater than 3.00 to 1.00, and to 0% if our leverage ratio is equal to or less than 3.00 to 1.00) of our annual excess cash flow;

	•	100% of the net cash proceeds in excess of an agreed upon amount from non-ordinary course asset sales and casualty and condemnation events, if we do not reinvest or contract to reinvest those proceeds within twelve months, subject to certain limitations;

	•	100% of the net cash proceeds of any incurrence of debt, other than certain debt permitted under the senior secured credit facility; and

	•	100% of amounts in excess of an aggregate amount of $5.0 million in respect of certain claims arising out of the Acquisition, subject to certain exceptions.

The foregoing mandatory prepayments other than from excess cash flow will be applied to the remaining installments of the term loan facility on a pro rata basis. Mandatory prepayments from excess cash flow and optional prepayments will be applied to the remaining installments of the term loan facility at our direction. Each lender has the right to decline any mandatory prepayment of its term loans in which case the amount of such prepayment will be retained by us.

We may voluntarily prepay outstanding loans under the senior secured credit facility at any time without premium or penalty, other than customary “breakage” costs with respect to LIBOR or EURIBOR loans.


	*Amortization*

We are required to repay installments on the loans under the term loan facility in quarterly principal amounts equal to one quarter of 1.00% of their funded total principal amount for the first six years and six months, with the remaining amount payable on the date that is seven years from the date of the closing of the senior secured credit facility.

Principal amounts outstanding under the revolving credit facility will be due and payable in full at maturity, five years from the date of the closing of the senior secured credit facility.


	*Guarantee and Security*

All our obligations and the obligations of the Euro Borrowers under the senior secured credit facility are unconditionally guaranteed by each of our existing and future domestic wholly-owned subsidiaries (subject to exceptions with respect to immaterial subsidiaries and with respect to any guaranty that could create

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materially adverse tax consequences), and our direct parent, D-R Interholding, LLC, referred to, collectively, as Domestic Guarantors.

All our obligations under the senior secured credit facility, our guarantee of the obligations of the Euro Borrowers under the senior secured credit facility, and the guarantees of our obligations and the obligations of the Euro Borrowers under the senior secured credit facility by the Domestic Guarantors, are secured by substantially all our assets and the assets of each Domestic Guarantor, including, but not limited to, the following:


	•	subject to certain exceptions, a pledge of 100% of our capital stock and the capital stock of each direct, material domestic subsidiary owned by us or a Domestic Guarantor (other than subsidiaries substantially all of whose assets consist of stock in controlled foreign corporations) and 65% of the capital stock of each direct, material foreign subsidiary owned by us or a Domestic Guarantor and of each direct, material domestic subsidiary owned by us or a Domestic Guarantor substantially all of whose assets consist of stock in controlled foreign corporations; and

	•	subject to certain exceptions, a security interest in substantially all of the tangible and intangible assets owned by us and each Domestic Guarantor.

All obligations of each Euro Borrower under the senior secured credit facility are also unconditionally guaranteed by certain of our existing and future wholly-owned foreign subsidiaries (subject to exceptions with respect to immaterial subsidiaries and with respect to any guaranty that could create materially adverse tax or legal consequences) referred to, collectively, as Foreign Guarantors.

In addition, all obligations of each Euro Borrower under the senior secured credit facility, and the guarantees of those obligations by the applicable Foreign Guarantors, are secured by substantially all the assets of such Euro Borrower and the applicable Foreign Guarantors, including, but not limited to:


	•	subject to certain exceptions, a pledge of 100% of the capital stock of each direct, material subsidiary of such Euro Borrower and the applicable Foreign Guarantors (subject to exceptions with respect to any pledge that could create materially adverse tax or legal consequences); and

	•	subject to certain exceptions and limitations under applicable law, a security interest in substantially all of the tangible and intangible assets of such Euro Borrower and the applicable Foreign Guarantors.


	*Certain Covenants and Events of Default*

The senior secured credit facility contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability, the ability of our parent D-R Interholding, LLC, and each of its subsidiaries to:


	•	sell assets;

	•	incur additional indebtedness;

	•	prepay, redeem or repurchase other indebtedness;

	•	pay dividends and distributions or repurchase capital stock;

	•	create liens on assets;

	•	make investments, loans or advances;

	•	make capital expenditures;

	•	make amendments to any corporate documents that would be materially adverse to the lenders;

	•	make certain acquisitions;

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	•	engage in mergers or consolidations;

	•	engage in certain transactions with affiliates;

	•	amend certain material agreements governing indebtedness;

	•	change the business conducted by D-R Interholding, LLC and its subsidiaries;

	•	enter into agreements that restrict dividends from subsidiaries;

	•	enter into sale and lease-back transactions; and

	•	enter into swap agreements.

In addition, the senior secured credit facility requires us to maintain the following financial covenants:


	•	a maximum consolidated net leverage ratio; and

	•	a minimum interest coverage ratio.

The senior secured credit facility also contains certain customary affirmative covenants and events of default.

We were briefly not in compliance with our obligation under the senior secured credit facility to provide the lenders with financial statements for the year ended December 31, 2004 no later than 120 days after the end of that year. This non-compliance was remedied by delivery of the financial statements within the 30-day cure period.

On July 18, 2005, we amended our senior secured credit facility to remove certain restrictions on our ability to consummate the offering and use the proceeds as described in “Use of Proceeds.”

7³/8% Senior Subordinated Notes due 2014

General

In October 2004, we issued 7³/8% senior subordinated notes that mature on November 1, 2014 in an aggregate principal amount of $420.0 million in a private transaction not subject to the registration requirements under the Securities Act. The net proceeds from that financing were used to finance the acquisition and pay related fees and expenses.

Guarantees

The notes are guaranteed, on a senior subordinated, unsecured basis, by each of our direct and indirect wholly-owned subsidiaries that were domestic subsidiaries on the issue date.

Ranking

The notes are general unsecured senior subordinated obligations of the issuer that rank junior to the issuer’s existing and future senior indebtedness, including obligations under the senior secured credit facility, equally in right of payment with all of the issuer’s future senior subordinated debt and senior in right of payment to all of our future subordinated debt. They are effectively subordinated in right of payment to all of the issuer’s existing and future secured debt to the extent of the value of the assets securing such debt, and are structurally subordinated to all obligations of our subsidiaries that are not guarantors.

Optional Redemption

At any time prior to November 1, 2007, the issuer may on any one or more occasions redeem up to 35% of the aggregate principal amount of notes issued under the indenture (including any additional notes issued

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after the issue date) at a redemption price of 107.375% of the principal amount, plus accrued and unpaid interest and additional interest, if any, to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings (such as this offering); provided that:


	(1) at least 65% of the aggregate principal amount of notes issued under the indenture (excluding notes held by us and our subsidiaries) remains outstanding immediately after the occurrence of such redemption; and

	(2) the redemption occurs within 180 days of the date of the closing of such equity offering.

Except pursuant to the preceding paragraph or as otherwise set forth below, the notes will not be redeemable at the issuer’s option prior to November 1, 2009. We are not, however, prohibited from acquiring the notes by means other than a redemption, whether pursuant to a tender offer, open market purchase or otherwise, so long as the acquisition does not violate the terms of the indenture.

On or after November 1, 2009, the issuer may redeem all or a part of the notes at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and additional interest, if any, on the notes to be redeemed, to, but not including, the applicable redemption date, if redeemed during the twelve month period beginning on November 1 of the years indicated below, subject to the rights of holders on the relevant record date to receive interest on the relevant interest payment date:


Year	Percentage

2009		103.688%
2010		102.458%
2011		101.229%
2012 and thereafter		100.000%

In addition, at any time prior to November 1, 2009, the issuer may also redeem all or a part of the notes at a redemption price equal to 100% of the principal amount of notes to be redeemed, plus the applicable premium (an amount intended to approximate a “make-whole” price based on the price of a U.S. treasury security plus 50 basis points) as of, and accrued and unpaid interest and additional interest, if any, to, but not including, the redemption date, subject to the rights of holders on the relevant record date to receive interest due on the relevant interest payment date. Though the notes may be redeemed prior to November 1, 2009 in this way, because any “make-whole” premium would be prohibitively expensive, we do not expect to make a redemption pursuant to this provision of the indenture.

As described under “Use of Proceeds,” we intend to use approximately $55.1 million of the net proceeds from this offering to redeem a portion of the notes, including the payment of the applicable redemption premium and accrued interest, pursuant to the first paragraph under “—Optional Redemption” above at a price of 107.375%. The notes were sold to the holders by the issuer at par (100%). The trustee under the indenture governing the notes will select the appropriate method of selecting the notes for redemption, which we expect will approximate a pro rata redemption.

Change of Control

In the event of a change of control, which is defined in the indenture governing the notes, each holder of the notes will have the right to require the issuer to repurchase all or any part of such holder’s notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase.

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Covenants

The indenture governing the notes contains certain covenants that, among other things, limit our ability and the ability of some of our subsidiaries to:


	•	incur additional debt or issue certain preferred shares;

	•	pay dividends on or make distributions in respect of our or any of our restricted subsidiaries’ capital stock or make other restricted payments;

	•	make certain investments;

	•	sell certain assets;

	•	create liens on certain debt without securing the notes;

	•	consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

	•	enter into certain transactions with our affiliates; and

	•	designate our subsidiaries as unrestricted subsidiaries.

Events of Default

The indenture governing the notes also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such notes to become or to be declared to be due and payable.

As of August 1, 2005 we were in compliance in all material respects with all covenants and provisions contained under the indenture governing the notes.

Exchange Offer

We are obligated to use commercially reasonable efforts to register the notes under the Securities Act and consummate an exchange offer no later than August 25, 2005. If this requirement is not met, then the annual interest on the notes will increase by (1) 0.25% for the first 90 days following the end of such period and (2) 0.25% at the beginning of each subsequent 90 day period, up to a maximum of 1.0% until all such registration defaults are cured.

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DESCRIPTION OF CAPITAL STOCK

The following is a description of the material terms of our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect immediately prior to this offering. We refer you to the form of our amended and restated certificate of incorporation and amended and restated bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus forms a part. The description gives effect to the 0.537314-for-one reverse stock split we expect to effect immediately prior to the consummation of the offering.

Authorized Capitalization

Our authorized capital stock consists of 250,000,000 shares of common stock, par value $0.01 per share, of which 54,394,897 shares were issued and outstanding immediately prior to this offering and 10,000,000 shares of preferred stock, par value $0.01 per share, of which no shares are currently issued and outstanding. Immediately following the completion of this offering, we will have 85,444,887 shares of common stock outstanding (including 4,050,000 shares, adjusted for the elimination of any fractional shares, that will be dividended to our stockholders existing immediately prior to this offering, consisting of affiliates of First Reserve and certain members of senior management, assuming the underwriters do not exercise their over-allotment option). Immediately following completion of the offering, there will be no shares of preferred stock outstanding.


	*Common Stock*

Voting Rights. Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. The holders of common stock do not have cumulative voting rights in the election of directors.

Dividend Rights. Subject to the rights of the holders of any preferred stock that may be outstanding, holders of our common stock are entitled to receive dividends as may be declared by our Board of Directors out of funds legally available to pay dividends. Dividends upon the common stock of the corporation may be declared by the board of directors at any regular or special meeting, and may be paid in cash, in property, or in shares of capital stock. Before payment of any dividend, there may be set aside out of any of our funds available for dividends, such sums as the board of directors deems proper as reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any of our property, or for any proper purpose, and the board of directors may modify or abolish any such reserve. Our senior secured credit facility and the indenture governing the senior subordinated notes impose restrictions on our ability to declare dividends with respect to our common stock.

Liquidation Rights. Upon liquidation, dissolution or winding up, any business combination or a sale or disposition of all or substantially all of the assets, the holders of common stock are entitled to receive ratably the assets available for distribution to the stockholders after payment of liabilities and the liquidation preference of any of our outstanding preferred stock.

Other Matters. The common stock has no preemptive or conversion rights and is not subject to further calls or assessment by us. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of our common stock, including the common stock offered in this offering, are fully paid and non-assessable.

Preferred Stock

Our amended and restated certificate of incorporation authorizes our board of directors to establish one or more series of preferred stock and to determine, with respect to any series of preferred stock, the terms and rights of that series, including:


	•	the designation of the series;

	•	the number of shares of the series, which our board may, except where otherwise provided in the preferred stock designation, increase or decrease, but not below the number of shares then outstanding;

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	•	whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series;

	•	the dates at which dividends, if any, will be payable;

	•	the redemption rights and price or prices, if any, for shares of the series;

	•	the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series;

	•	the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of our company;

	•	whether the shares of the series will be convertible into shares of any other class or series, or any other security, of our company or any other corporation, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate or rates, any rate adjustments, the date or dates as of which the shares will be convertible and all other terms and conditions upon which the conversion may be made;

	•	restrictions on the issuance of shares of the same series or of any other class or series; and

	•	the voting rights, if any, of the holders of the series.

Anti-Takeover Effects of Certain Provisions of Delaware Law and our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws, which are summarized in the following paragraphs, may have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders.


	*Removal of Directors; Vacancies*

Our amended and restated certificate of incorporation and amended and restated bylaws provide that unless otherwise provided in the stockholders agreement, (i) prior to the date on which First Reserve ceases to own at least 40% of all the then outstanding shares of stock, directors may be removed for any reason upon the affirmative vote of holders of at least a majority of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class and (ii) on and after the date First Reserve ceases to own at least 40% of all the then outstanding shares of stock, directors may be removed only for cause and only upon the affirmative vote of holders of at least 75% of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. In addition, our amended and restated certificate of incorporation and amended and restated bylaws also provide that unless otherwise provided in the stockholders agreement, any vacancies on our board of directors will be filled only by the affirmative vote of a majority of the remaining directors, although less than a quorum.


	*No Cumulative Voting*

The Delaware General Corporation Law (“DGCL”) provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our amended and restated certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation does not expressly provide for cumulative voting.


	*Calling of Special Meetings of Stockholders*

Our amended and restated bylaws provide that special meetings of our stockholders may be called at any time by the board of directors or a committee of the board of directors which has been designated by the board of directors.

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	*Stockholder Action by Written Consent*

The DGCL permits stockholder action by written consent unless otherwise provided by amended and restated certificate of incorporation. Our amended and restated certificate of incorporation precludes stockholder action by written consent after the date on which First Reserve ceases to own at least 40% of all the then outstanding shares of stock.


	*Advance Notice Requirements for Stockholder Proposals and Director Nominations*

Our amended and restated bylaws provide that stockholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of stockholders must provide timely notice of their proposal in writing to the corporate secretary.

Generally, to be timely, a stockholder’s notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the date on which we first mailed our proxy materials for the preceding year’s annual meeting. Our amended and restated bylaws also specify requirements as to the form and content of a stockholder’s notice. These provisions may impede stockholders’ ability to bring matters before an annual meeting of stockholders or make nominations for directors at an annual meeting of stockholders.


	*Supermajority Provisions*

The DGCL provides generally that the affirmative vote of a majority of the outstanding shares entitled to vote is required to amend a corporation’s certificate of incorporation or bylaws, unless the certificate of incorporation requires a greater percentage. Our amended and restated certificate of incorporation provides that the following provisions in the amended and restated certificate of incorporation and amended and restated bylaws may be amended only by a vote of at least 75% of the voting power of all of the outstanding shares of our stock entitled to vote:


	•	the removal of directors;

	•	the limitation on stockholder action by written consent;

	•	the ability to call a special meeting of stockholders being vested solely in our board of directors and any committee of the board of directors which has been designated by the board of directors;

	•	the advance notice requirements for stockholder proposals and director nominations; and

	•	the amendment provision requiring that the above provisions be amended only with a 75% supermajority vote.

In addition, our amended and restated certificate of incorporation grants our board of directors the authority to amend and repeal our amended and restated bylaws without a stockholder vote in any manner not inconsistent with the laws of the State of Delaware or our amended and restated certificate of incorporation.


	*Limitations on Liability and Indemnification of Officers and Directors*

The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties. Our amended and restated certificate of incorporation includes a provision that eliminates the personal liability of directors for monetary damages for breach of fiduciary duty as a director, except


	•	for breach of duty of loyalty;

	•	for acts or omissions not in good faith or involving intentional misconduct or knowing violation of law;

	•	under Section 174 of the DGCL (unlawful dividends); or

	•	for transactions from which the director derived improper personal benefit.

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Our amended and restated certificate of incorporation and amended and restated bylaws provide that we must indemnify our directors and officers to the fullest extent authorized by the DGCL. We are also expressly authorized to carry directors’ and officers’ insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.


	*Delaware Anti-takeover Statute*

We have opted out of Section 203 of the DGCL. Subject to specified exceptions, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder. “Business combinations” include mergers, asset sales and other transactions resulting in a financial benefit to the “interested stockholder.” Subject to various exceptions, an “interested stockholder” is a person who together with his or her affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s outstanding voting stock. These restrictions generally prohibit or delay the accomplishment of mergers or other takeover or change-in-control attempts.

Transfer Agent and Registrar

The Bank of New York is the transfer agent and registrar for our common stock.

Listing

Our common stock has been approved for listing on the New York Stock Exchange under the symbol “DRC,” subject to official notice of issuance.

Authorized but Unissued Capital Stock

The DGCL does not require stockholder approval for any issuance of authorized shares. However, the listing requirements of the New York Stock Exchange, which would apply so long as our common stock is listed on the New York Stock Exchange, require stockholder approval of certain issuances equal to or exceeding 20% of the then outstanding voting power or then outstanding number of shares of common stock. These additional shares may be used for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions.

One of the effects of the existence of unissued and unreserved common stock may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for our common stock, and we cannot predict what effect, if any, market sales of shares of common stock or the availability of shares of common stock for sale will have on the market price of our common stock. Nevertheless, sales of substantial amounts of common stock in the public market, or the perception that such sales could occur, could materially and adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity or equity-related securities at a time and price that we deem appropriate.

Upon the closing of this offering, we will have outstanding an aggregate of approximately 85,444,887 million shares of common stock, including an additional 4,050,000 shares, adjusted for the elimination of any fractional shares, that will be issued upon the exercise of the underwriters’ over-allotment option, assuming no exercise of that option. Of the outstanding shares, the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our “affiliates,” as that term is defined under Rule 144 of the Securities Act, may be sold only in compliance with the limitations described below. The remaining outstanding shares of common stock will be deemed “restricted securities” as that term is defined under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or 144(k) under the Securities Act, which are summarized below.

Under our Stockholders Agreement, we may be required to register the sale of our shares held by First Reserve and certain management stockholders. Under the Stockholders Agreement, First Reserve has the right to request us to register the sale of its shares and may require us to make available shelf registration statements permitting sales of shares into the market from time to time over an extended period. In addition, First Reserve and certain management stockholders will have the ability to exercise certain piggyback registration rights in connection with registered offerings requested by First Reserve or initiated by us. Immediately after this offering, First Reserve will own 53,337,237 shares entitled to these registration rights and management will own 1,057,660 shares entitled to these registration rights. See “Certain Related Party Transactions — Stockholders Agreement.”

Rule 144

Subject to the lock-up agreements described below and the volume limitations and other conditions under Rule 144, additional shares of our common stock will be available for sale in the public market pursuant to exemptions from registration requirements as follows:


Number of Shares		Date

53,337,237		After 87 days from the date of this prospectus (subject to volume restrictions and other conditions under Rule 144 and to the lock-up agreements described below)

In addition, between November 2005 and May 2006, 1,057,660 additional shares of our common stock held by management will become available for sale in the public market pursuant to exemptions from registration requirements.

In general, under Rule 144 as currently in effect, a person (or persons whose shares are required to be aggregated), including an affiliate, who has beneficially owned shares of our common stock for at least one year is entitled to sell in any three-month period a number of shares that does not exceed the greater of:


	•	1% of the then-outstanding shares of common stock; and

	•	the average weekly reported volume of trading in the common stock on the New York Stock Exchange during the four calendar weeks preceding the date on which notice of sale is filed, subject to restrictions.

Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

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Rule 144(k)

In addition, a person who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, would be entitled to sell those shares under Rule 144(k) without regard to the manner of sale, public information, volume limitation or notice requirements of Rule 144. To the extent that our affiliates sell their shares, other than pursuant to Rule 144 or a registration statement, the purchaser’s holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate. For so long as D-R Interholding, LLC controls us, it will be deemed to be our affiliate under Rule 144(k) and may not rely on the exemption from registration under Rule 144(k).

Lock-Up Agreements

In connection with this offering, we, D-R Interholding, LLC, our executive offices, directors and affiliates of First Reserve have agreed with the underwriters, subject to certain exceptions, not to sell, dispose of or hedge any of our common stock or securities convertible into or exchangeable for shares of common stock, during the period ending 180 days after the date of this prospectus, except with the prior written consent of Morgan Stanley & Co. Incorporated and Citigroup Global Markets Inc. See “Underwriting.”

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CERTAIN UNITED STATES FEDERAL INCOME AND ESTATE TAX

CONSEQUENCES TO NON-U.S. HOLDERS

The following discussion is a summary of certain United States federal income and estate tax consequences of the purchase, ownership and disposition of our common stock as of the date hereof. Except where noted, this summary deals only with common stock that is held as a capital asset by a non-U.S. holder.

A “non-U.S. holder” means a beneficial owner of our common stock (other than a partnership) that is not for United States federal income tax purposes any of the following:


	•	an individual citizen or resident of the United States;

	•	a corporation (or any other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

	•	an estate the income of which is subject to United States federal income taxation regardless of its source; or

	•	a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

This discussion is based upon provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in United States federal income and estate tax consequences different from those summarized below. This summary does not address all aspects of United States federal income and estate taxes and does not deal with foreign, state, local or other tax considerations that may be relevant to non-U.S. holders in light of their personal circumstances. In addition, it does not represent a detailed description of the United States federal income and estate tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws (including if you are a United States expatriate, “controlled foreign corporation,” “passive foreign investment company,” corporation that accumulates earnings to avoid United States federal income tax or an investor in a partnership or other pass-through entity). We cannot assure you that a change in law will not alter significantly the tax considerations that we describe in this summary.

If a partnership holds our common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common stock, you should consult your tax advisors.

If you are considering the purchase of our common stock, you should consult your own tax advisors concerning the particular United States federal income and estate tax consequences to you of the ownership of the common stock, as well as the consequences to you arising under the laws of any other taxing jurisdiction.

Dividends

If distributions are paid on shares of our common stock, such distributions will constitute dividends for United States federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, it will constitute a return of capital that is applied against and reduces, but not below zero, a non-U.S. Holder’s adjusted tax basis in our common stock. Any remainder will constitute gain on the common stock. See “— Gain on Disposition of Common Stock.” Dividends paid to a non-U.S. holder of our common stock generally will be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the non-U.S. holder within the United States (and, where a tax treaty applies, are attributable to a United States permanent

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establishment of the non-U.S. holder) are not subject to the withholding tax, provided that certain certification and disclosure requirements are satisfied. Instead, such dividends are generally subject to United States federal income tax on a net income basis in the same manner as if the non-U.S. holder were a United States person as defined under the Code. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

A non-U.S. holder of our common stock who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will be required to (a) complete Internal Revenue Service Form W-8BEN (or other applicable form) and certify under penalty of perjury that such holder is not a United States person as defined under the Code or (b) if our common stock is held through certain foreign intermediaries, satisfy the relevant certification requirements of applicable United States Treasury regulations. Special certification and other requirements apply to certain non-U.S. holders that are entities rather than individuals.

A non-U.S. holder of our common stock eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service.

Gain on Disposition of Common Stock

Any gain realized on the disposition of our common stock generally will not be subject to United States federal income or withholding tax unless:


	•	the gain is effectively connected with a trade or business of the non-U.S. holder in the United States, and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment of the non-U.S. holder;

	•	the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or

	•	we are or have been a “United States real property holding corporation” for United States federal income tax purposes.

An individual non-U.S. holder described in the first bullet point immediately above will be subject to tax on the net gain derived from the sale under regular graduated United States federal income tax rates. An individual non-U.S. holder described in the second bullet point immediately above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States source capital losses, even though the individual is not considered a resident of the United States. If a non-U.S. holder that is a foreign corporation falls under the first bullet point immediately above, it will be subject to tax on its net gain in the same manner as if it were a United States person as defined under the Code and, in addition, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty.

We believe we are not and do not anticipate becoming a “United States real property holding corporation” for United States federal income tax purposes.

Federal Estate Tax

Common stock held by an individual non-U.S. holder at the time of death will be included in such holder’s gross estate for United States federal estate tax purposes, unless an applicable estate tax or other treaty provides otherwise.

Information Reporting and Backup Withholding

We must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may

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also be made available to the tax authorities in the country in which the non-U.S. holder resides under the provisions of an applicable income tax treaty.

A non-U.S. holder will be subject to backup withholding for dividends paid to such non-U.S. holder unless such holder certifies under penalty of perjury that it is a non-U.S. holder, and the payor does not have actual knowledge or reason to know that such holder is a United States person as defined under the Code, or such holder otherwise establishes an exemption.

Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale of our common stock within the United States or conducted through certain United States-related financial intermediaries, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code) or such owner otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s United States federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

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UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus, each of the underwriters named below have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated in the table below. Morgan Stanley & Co. Incorporated and Citigroup Global Markets Inc. are acting as joint book-running managers and, together with UBS Securities LLC, Bear, Stearns & Co. Inc., Goldman, Sachs & Co., Lehman Brothers Inc., Natexis Bleichroeder Inc., Simmons & Company International and Howard Weil Incorporated, are acting as representatives of the underwriters named below.


Underwriters		Number of Shares

Morgan Stanley & Co. Incorporated			6,981,000
Citigroup Global Markets Inc.			6,981,000
UBS Securities LLC			2,953,500
Bear, Stearns & Co. Inc.			2,685,000
Goldman, Sachs & Co.			2,685,000
Lehman Brothers Inc.			2,685,000
Natexis Bleichroeder Inc.			805,500
Simmons & Company International			671,250
Howard Weil Incorporated			402,750
Blaylock & Company, Inc.			50,000
Chatsworth Securities LLC			50,000
CMG Institutional Trading, LLC			50,000

	Total		27,000,000

The underwriters are offering the common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $0.82 a share under the public offering price. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of 4,050,000 additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to specified conditions, to purchase approximately the same percentage of additional shares of common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table.

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The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by Dresser-Rand Group Inc. Such amounts are shown assuming both no exercise and full exercise by the underwriters of their over-allotment option.


Paid by Dresser-Rand Group Inc.	No Exercise		Full Exercise

Per Share	$	1.26	$	1.26
Total	$	34,020,000	$	39,123,000

The expenses of this offering payable by us, not including the underwriting discounts and commissions, are estimated at $2.4 million.

The underwriters have informed us that they do not intend sales to accounts over which any such underwriter exercises discretionary authority to exceed five percent of the total number of shares of common stock offered by them.

Our common stock has been approved for listing on the New York Stock Exchange under the symbol “DRC,” subject to official notice of issuance.

We, D-R Interholding, LLC, our executive officers, directors and affiliates of First Reserve have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated and Citigroup Global Markets Inc. on behalf of the underwriters, none of us will, during the period ending 180 days after the date of this prospectus:


	•	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any share of common stock or any securities convertible into or exercisable or exchangeable for common stock or file any registration statement under the Securities Act of 1933 with respect to the foregoing; or

	•	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock;

whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.

The restrictions described in the previous paragraph do not apply to:


	•	the sale of shares to the underwriters pursuant to the underwriting agreement;

	•	the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing;

	•	grants, issuances, or exercises under our existing employee benefits plans;

	•	the issuance of common stock in connection with the acquisition of, or joint venture with, another company, provided that the recipient agrees to be bound by the restrictions described in the previous paragraph;

	•	transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares;

	•	transfers by any person other than us of shares of common stock or any security convertible, exchangeable for or exercisable into common stock as a bona fide gift or gifts as a result of operation of law or testate or in testate succession, provided that such transferee agrees to be bound by the restrictions described in the previous paragraph;

	•	transfers by any person other than us to a trust, partnership, limited liability company or other entity, all of the beneficial interests of which are held, directly, or indirectly by such person, provided that such transferee agrees to be bound by the restrictions described in the previous paragraph; or

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	•	distributions by any person other than us of shares of common stock or any security convertible, exchangeable for or exercisable into common stock to limited partners or stockholders of such person, provided that such distributee agrees to be bound by the restrictions described in the previous paragraph.

Prior to this offering, there has been no public market for the common stock. The initial public offering price was negotiated between us and the representatives of the underwriters. The factors considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, were Dresser-Rand Group Inc.’s historical performance, the business prospects of Dresser-Rand Group Inc., an assessment of Dresser-Rand Group Inc.’s management and the consideration of the above factors in relation to market valuation of companies in related businesses, and the price-earnings ratios, market prices of securities and other quantitative and qualitative data relating to such businesses.

In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is “covered” if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a “naked” short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional means of facilitating the offering, the underwriters may bid for, and purchase, common stock in the open market to stabilize the price of the common stock. The underwriting syndicate may also reclaim selling concessions allowed to an underwriter or a dealer for distributing common stock in the offering, if the syndicate repurchases previously distributed common stock to cover syndicate short positions, or to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of our common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because Morgan Stanley & Co. Incorporated and Citigroup Global Markets Inc. have repurchased shares of common stock sold by or for the account of such underwriter in stabilizing or short covering transactions.

Purchases to cover a short position and stabilizing transactions may have the effect of preventing or retarding a decline in the market price of Dresser-Rand Group Inc.’s stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the New York Stock Exchange, in the over-the-counter market or otherwise.

A prospectus in electronic format may be made available by one or more of the underwriters. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. The representatives will allocate shares to underwriters that may make Internet distributions on the same basis as other allocations. In addition, shares may be sold by the underwriters to securities dealers who resell shares to online brokerage account holders.

From time to time, some of the underwriters and their affiliates have provided, and may continue to provide, investment banking, commercial banking and capital raising services to us for fees and commissions that we believe are customary. Citicorp North America, Inc. acts as administrative agent, Citigroup Global Markets Inc. acts as joint lead arranger and joint book manager, Morgan Stanley Senior Funding, Inc. and UBS Securities LLC act as joint lead arrangers, joint book managers and co-syndication agents, Bear Stearns Corporate Lending Inc. and Natexis Banques Populaires act as co-documentation agents and UBS Loan Finance LLC and Citigroup International PLC are lenders under our senior secured credit facility. The

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underwriters and their affiliates have received approximately $32.0 million in aggregate commissions and fees in connection with these services.

Affiliates of certain of the underwriters have ownership interests in First Reserve Fund IX, L.P. and First Reserve Fund X, L.P., which are beneficial owners of 38.8% and 59.3%, respectively, of our common stock. Affiliates of Goldman, Sachs & Co., affiliates of Lehman Brothers Inc., an affiliate of Morgan Stanley & Co. Incorporated and an affiliate of Natexis Bleichroeder Inc. have approximate ownership interests in First Reserve Fund IX, L.P. of 4.5%, 0.8%, 0.9% and 0.4%, respectively. Affiliates of Goldman, Sachs & Co., an affiliate of UBS Securities LLC and an affiliate of Natexis Bleichroeder Inc. have approximate ownership interests in First Reserve Fund X, L.P. of 2.2%, 0.9% and 0.2%, respectively. These affiliates do not derive any voting or investment power over the shares of our common stock beneficially owned by First Reserve Fund IX, L.P. and First Reserve Fund X, L.P. from their ownership interests in such funds.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Member State it has not made and will not make an offer of the shares to the public in that Member State, except that it may, with effect from and including such date, make an offer of the shares to the public in that Member State:


	(a)	at any time to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

	(b)	at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

	(c)	at any time in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of the above, the expression an “offer of the shares to the public” in relation to any shares in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/ EC and includes any relevant implementing measure in that Member State.

United Kingdom

Each underwriter has represented and agreed that it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of the shares in circumstances in which Section 21(1) of such Act does not apply to us and it has complied and will comply with all applicable provisions of such Act with respect to anything done by it in relation to any shares in, from or otherwise involving the United Kingdom.

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VALIDITY OF THE SHARES

The validity of the issuance of the shares of common stock to be sold in this offering will be passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. Shearman & Sterling LLP, New York, New York will act as counsel to the underwriters. Shearman & Sterling LLP represents First Reserve on other matters.

EXPERTS

The consolidated financial statements as of December 31, 2004 and for the period from October 30, 2004 through December 31, 2004, and the combined financial statements as of December 31, 2003 and for the period from January 1, 2004 through October 29, 2004 and for each of the two years in the period ended December 31, 2003 included in this prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-1 under the Securities Act with respect to the issuance of shares of our common stock being offered hereby. This prospectus, which forms a part of the registration statement, does not contain all of the information set forth in the registration statement and exhibits and schedules. For further information with respect to us and the shares of our common stock, reference is made to the registration statement. Statements contained in this prospectus as to the contents of any contract or other document are summaries, and, where such contract or other document is an exhibit to the registration statement, each such statement is qualified by the provisions in such exhibit, to which reference is hereby made. We are not currently subject to the informational requirements of the Exchange Act. After the offering of the shares of our common stock, we will be subject to the informational requirements of the Exchange Act, and, in accordance therewith, will file reports and other information with the SEC. The registration statement and the exhibits and schedules to the registration statement, such reports and other information can be inspected and copied at the Public Reference Room of the SEC located at 100 F Street, N.E., Washington D.C. 20549. Copies of such materials, including copies of all or any portion of the registration statement, can be obtained from the Public Reference Room of the SEC at prescribed rates. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. Such materials may also be accessed electronically by means of the SEC’s home page on the Internet (http://www.sec.gov).

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DRESSER-RAND GROUP INC.

Index to Consolidated Financial Statements (Successor)

and Combined Financial Statements (Predecessor)


	Page

Report of Independent Registered Public Accounting Firm		F-2
Report of Independent Registered Public Accounting Firm		F-3
Consolidated Financial Statements and Predecessor Combined Financial Statements at December 31, 2004 and 2003 and for the period from October 30, 2004 through December 31, 2004, for the period January 1, 2004 through October 29, 2004, and for the years ended December 31, 2003 and 2002
Consolidated Statement of Operations (Successor) for the period from October 30, 2004 through December 31, 2004 and Combined Statements of Operations (Predecessor) for the period from January 1, 2004 through October 29, 2004 and for the years ended December 31, 2003 and 2002		F-4
Consolidated Balance Sheet (Successor) at December 31, 2004 and Combined Balance Sheet (Predecessor) at December 31, 2003		F-5
Consolidated Statement of Cash Flows (Successor) for the period from October 30, 2004 through December 31, 2004 and Combined Statements of Cash Flows (Predecessor) for the period from January 1, 2004 through October 29, 2004 and for the years ended December 31, 2003 and 2002		F-6
Consolidated Statement of Changes in Stockholders’ Equity (Successor) for the period from October 30, 2004 through December 31, 2004 and Combined Statements of Changes in Ingersoll-Rand Company Limited Partnership Interest (Predecessor) for the period from January 1, 2004 through October 29, 2004 and for the years ended December 31, 2003 and 2002		F-7
Notes to Consolidated and Combined Financial Statements		F-9
Consolidated Financial Statement and Predecessor Combined Financial Statements at March 31, 2005 and December 31, 2004 and for the three months ended March 31, 2005 and 2004 (unaudited)
Consolidated Statement of Operations (Successor) for the three months ended March 31, 2005 and Combined Statement of Operations (Predecessor) for the three months ended March 31, 2004		F-47
Consolidated Balance Sheets (Successor) at March 31, 2005 and December 31, 2004		F-48
Consolidated Statement of Cash Flows (Successor) for the three months ended March 31, 2005 and Combined Statement of Cash Flows (Predecessor) for the three months ended March 31, 2004		F-49
Notes to Consolidated and Combined Financial Statements		F-50

F-1

Report of Independent Registered Public Accounting Firm

To the Directors and Stockholders of

Dresser-Rand Group Inc.

In our opinion, the consolidated balance sheet and the related consolidated statements of operations, changes in stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Dresser-Rand Group Inc. (Successor) at December 31, 2004 and the consolidated results of its operations and cash flows for the period from October 30, 2004 through December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the period from October 30, 2004 through December 31, 2004 listed in the index appearing under item 16 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Buffalo, New York

May 12, 2005

F-2

Report of Independent Registered Public Accounting Firm

To the Directors and Stockholders of

Dresser-Rand Group Inc.

In our opinion, the combined balance sheet and the related combined statements of operations, changes in Ingersoll-Rand Company Limited partnership interest and cash flows present fairly, in all material respects, the financial position of Dresser-Rand Company (Predecessor), a wholly owned partnership of Ingersoll-Rand Company Limited, at December 31, 2003 and the combined results of their operations and cash flows for the period from January 1, 2004 through October 29, 2004 and for the years ended December 31, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the period from January 1, 2004 through October 29, 2004 and for the years ended December 31, 2003 and 2002 listed in the index appearing under item 16 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related combined financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Buffalo, New York

May 12, 2005

F-3

DRESSER-RAND GROUP INC.

CONSOLIDATED STATEMENT OF OPERATIONS (SUCCESSOR)

AND COMBINED STATEMENTS OF OPERATIONS (PREDECESSOR)


		Successor			Predecessor

							Year Ended
		Period from			Period from		December 31,
		October 30 through			January 1 through
		December 31, 2004			October 29, 2004		2003			2002

		(In thousands of dollars, except per share information)
Net sales of products to third parties		$	155,993		$	544,794	$	1,124,267		$	837,417
Net sales of services to third parties			43,914			167,689		207,975			189,336
Net sales to affiliates			—			1,845		1,439			1,841
Other operating revenue			—			1,167		1,669			2,759

	Total revenues		199,907			715,495		1,335,350			1,031,353

Cost of products sold			117,991			411,665		971,893			722,308
Cost of services sold			31,573			125,088		159,236			142,313
Cost of products sold, affiliates			—			1,289		918			1,237

Total cost of products and services sold			149,564			538,042		1,132,047			865,858

Gross Profit			50,343			177,453		203,303			165,495
Selling and administrative expenses			21,499			122,700		156,129			138,484
Research and development expenses			1,040			5,670		8,107			8,044
Write-off of purchased in-process research and development assets			1,800			—		—			—
Restructuring charges			—			—		—			5,185

	Income from operations		26,004			49,083		39,067			13,782
Interest income (expense), net			(9,654	)		3,156		1,938			(776	)
Other income (expense), net			(1,846	)		1,882		(9,202	)		15,000

	Income before income taxes		14,504			54,121		31,803			28,006
Provision for income taxes			7,275			11,970		11,438			11,910

	Net income	$	7,229		$	42,151	$	20,365		$	16,096

Weighted average common shares outstanding — basic and diluted			100,115,080

Net income per common share		$	0.07

Pro forma weighted average common shares outstanding — basic and diluted (unaudited)			122,528,446

Pro forma net income per common share (unaudited)		$	0.06

The accompanying notes are an integral part of the consolidated and combined financial statements

F-4

DRESSER-RAND GROUP INC.

CONSOLIDATED BALANCE SHEET (SUCCESSOR)

AND COMBINED BALANCE SHEET (PREDECESSOR)


			Successor		Predecessor
			December 31,		December 31,
			2004		2003

			(In thousands of dollars
			except for shares)
ASSETS
Current assets
	Cash and cash equivalents		$	111,500	$	41,537
	Marketable securities at market			—		1,037
	Accounts receivable, less allowance for doubtful accounts of $15,110 and $12,427 at 2004 and 2003			264,938		242,021
	Inventories, net			175,873		133,425
	Prepaid expenses			14,256		15,665
	Due from affiliates			—		105,346
	Loans due from affiliates			—		122,841
	Deferred income taxes			7,445		10,498

		Total current assets		574,012		672,370
Investments in and advances to partially owned equity companies				12,989		9,059
Property, plant and equipment, net				226,764		101,438
Goodwill				423,330		10,214
Intangible assets, net				479,587		254,412
Deferred income taxes				—		14,565
Other assets				34,392		1,817

		Total assets	$	1,751,074	$	1,063,875


LIABILITIES AND STOCKHOLDERS’ EQUITY/PARTNERSHIP INTEREST
Current liabilities
	Accounts payable and accruals		$	271,275	$	291,830
	Customer advance payments			38,661		18,700
	Income taxes payable			12,977		7,081
	Loans due to affiliates			—		14,811
	Loans payable			2,734		3,716
	Current maturities of long-term debt			4,015		—

		Total current liabilities		329,662		336,138
Deferred income taxes				27,287		—
Postemployment and other employee benefit liabilities				111,640		147,852
Long-term debt				396,664		213
Senior subordinated notes				420,000		—
Other noncurrent liabilities				12,924		14,637

		Total liabilities		1,298,177		498,840

Commitments and contingencies (Notes 12, 13, 14, 15, 17 and 21)
Stockholders’ Equity/ Partnership Interest
	Partnership interest			—		631,640
	Common stock, $0.01 par value, 101,200,000 shares authorized, 100,908,116 shares issued and outstanding, respectively			1,009		—
	Additional paid-in capital			436,175		—
	Retained earnings			7,229		—
	Accumulated other comprehensive income (loss)			8,484		(66,605	)

		Total stockholders’ equity/partnership interest		452,897		565,035

		Total liabilities and stockholders’ equity/partnership interest	$	1,751,074	$	1,063,875

The accompanying notes are an integral part of the consolidated and combined financial statements

F-5

DRESSER-RAND GROUP INC.

CONSOLIDATED STATEMENT OF CASH FLOW (SUCCESSOR)

AND COMBINED STATEMENTS OF CASH FLOW (PREDECESSOR)


								Predecessor
					Successor

											Year Ended
					Period from			Period from			December 31,
					October 30 through			January 1 through
					December 31, 2004			October 29, 2004			2003			2002

					(In thousands of dollars)
Cash flows from operating activities
	Net income				$	7,229		$	42,151		$	20,365		$	16,096
	Adjustments to arrive at net cash provided by operating activities:
		Restructuring charges				—			—			—			3,704
		Depreciation and amortization				16,269			22,715			29,109			33,822
		(Gain)/loss on sale of property, plant and equipment				—			(1,031	)		(31	)		(642	)
		Gain on insurance recoveries				—			—			—			(10,145	)
		Provision for losses on accounts receivable				327			3,139			3,001			2,473
		Provision (net adjustment) for losses on inventory				1,780			6,953			5,581			5,708
		Write off of purchased in-process research and development assets				1,800			—			—			—
		Minority interest, net of dividends				51			(1,247	)		(110	)		(555	)
		Equity (earnings)/losses, net				(194	)		1,013			(1,150	)		(1,235	)
		Deferred income taxes				(974	)		633			(4,901	)		945
		Other				452			—			—			—
			(Increase) decrease in:
				Accounts receivable		(30,377	)		51,074			(15,324	)		(5,173	)
				Inventories		600			(37,818	)		127,410			(35,647	)
				Other current and noncurrent assets		1,248			(4,469	)		1,288			(10,287	)
			Increase (decrease) in:
				Accounts payable		4,664			(12,976	)		(36,835	)		27,487
				Other current and noncurrent liabilities		15,073			(12,408	)		(77,440	)		15,478

				Net cash provided by operating activities		17,948			57,729			50,963			42,029

Cash flows from investing activities
	Capital expenditures					(1,791	)		(7,701	)		(7,590	)		(13,670	)
	Acquisition					(1,125,148	)		—			—			—
	Proceeds from insurance recoveries					—			—			—			10,145
	Proceeds from sales of property, plant and equipment					—			1,757			560			4,487
	(Increase) decrease in marketable securities					—			1,037			(59	)		2,851

				Net cash provided by (used in) investing activities		(1,126,939	)		(4,907	)		(7,089	)		3,813

Cash flows from financing activities
	Proceeds from short-term borrowings					—			—			462			3,073
	Payments of short-term borrowings					—			(993	)		—			—
	Proceeds from issuance of 7³/8% Senior Notes					420,000			—			—			—
	Proceeds from long-term debt					395,033			43			—			463
	Cash paid for debt issuance costs					(33,498	)		—			—			—
	Proceeds from revolver					5,000			—			—			—
	Payments of revolver					(5,000	)		—			—			—
	Payments of long-term debt					(1,013	)		(65	)		(520	)		—
	Issuance of common stock					437,109			—			—			—
	Change in due to (from) unconsolidated affiliates					(532	)		(45,918	)		(63,429	)		(14,120	)
	Dividends paid					—			(5,097	)		—			(8,175	)

				Net cash provided by (used in) financing activities		1,217,099			(52,030	)		(63,487	)		(18,759	)

Effect of exchange rate changes on cash and cash equivalents						3,392			1,930			1,531			1,159

Net increase (decrease) in cash and cash equivalents						111,500			2,722			(18,082	)		28,242
Cash and cash equivalents, beginning of the period						—			41,537			59,619			31,377

Cash and cash equivalents, end of period					$	111,500		$	44,259		$	41,537		$	59,619

The accompanying notes are an integral part of the consolidated and combined financial statements

F-6

DRESSER-RAND GROUP INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (SUCCESSOR)

AND COMBINED STATEMENTS OF CHANGES IN INGERSOLL-RAND COMPANY LIMITED PARTNERSHIP INTEREST (PREDECESSOR)


								Accumulated
								Other			Total
		Common		Additional		Retained		Comprehensive			Comprehensive
		Stock		Paid-in Capital		Earnings		Income (Loss)			Income (Loss)			Total

		(In thousands of dollars)
Successor
At October 30, 2004		$	—	$	—	$	—	$	—			—		$	—
Issuance of 100,609,287 shares of common stock to D-R Interholding, LLC (adjusted to reflect the 1,006,092.87-for-one stock split effected February 11, 2005)			1,006		434,806		—		—			—			435,812
Issuance of 298,829 shares of common stock to employees (adjusted to reflect the 1,006,092.87-for-one stock split effected February 11, 2005)			3		1,294		—		—			—			1,297
Stock based employee compensation			—		75										75
Net income			—		—		7,229		—		$	7,229			—
Other comprehensive income (loss)
	Minimum pension liability, net of tax of $590		—		—		—		(922	)		(922	)		—
	Currency translation		—		—		—		9,406			9,406			—

Total comprehensive income			—		—		—		—		$	15,713			15,713

At December 31, 2004		$	1,009	$	436,175	$	7,229	$	8,484					$	452,897

The accompanying notes are an integral part of the consolidated and combined financial statements

F-7

DRESSER-RAND GROUP INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (SUCCESSOR)

AND COMBINED STATEMENTS OF CHANGES IN INGERSOLL-RAND COMPANY LIMITED PARTNERSHIP INTEREST (PREDECESSOR)


					Accumulated
					Other			Total
		Partnership			Comprehensive			Comprehensive
		Interest			Income (Loss)			Income (Loss)			Total

		(In thousands of dollars)
Predecessor
At January 1, 2002		$	603,354		$	(14,904	)		—		$	588,450
Dividends			(8,175	)		—			—			(8,175	)
Net income			16,096			—		$	16,096			—
Other comprehensive income (loss)
	Minimum pension liability, net of tax of $4,217		—			(77,692	)		(77,692	)		—
	Currency translation		—			7,284			7,284			—
	Derivatives qualifying as cash flow hedges, net of tax of $387		—			747			747			—

Total comprehensive loss			—			—		$	(53,565	)		(53,565	)

At December 31, 2002			611,275			(84,565	)		—			526,710
Net income			20,365			—		$	20,365			—
Other comprehensive income (loss)
	Minimum pension liability, net of tax of $1,199		—			939			939			—
	Currency translation		—			17,074			17,074			—
	Derivatives qualifying as cash flow hedges, net of tax of $16		—			(53	)		(53	)		—

Total comprehensive income								$	38,325			38,325

At December 31, 2003			631,640			(66,605	)		—			565,035
Dividends			(5,097	)								(5,097	)
Net income			42,151			—		$	42,151			—
Other comprehensive income (loss)
	Minimum pension liability, net of tax of $577		—			(4,973	)		(4,973	)		—
	Currency translation		—			11,582			11,582			—
	Derivatives qualifying as cash flow hedges, net of tax of $230		—			(694	)		(694	)		—

Total comprehensive income			—			—		$	48,066			48,066

At October 29, 2004		$	668,694		$	(60,690	)				$	608,004

The accompanying notes are an integral part of the consolidated and combined financial statements

F-8

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS


1.	Business Activities and Basis of Presentation


	*Successor*

Dresser-Rand Group Inc., a company incorporated on October 1, 2004 in the State of Delaware and its subsidiaries (the “Company” or the “Successor”), commenced operations on October 30, 2004. The Company is engaged in the design, manufacture, services, sale and servicing of gas compressors, gas and steam turbines, gas expanders and associated control panels.

The Company is a majority-owned subsidiary of D-R Interholding, LLC, which is a wholly-owned subsidiary of Dresser-Rand Holdings, LLC. Dresser-Rand Holdings, LLC is owned by First Reserve Fund IX, L.P., and First Reserve Fund X, L.P. (collectively “First Reserve”) and certain members of management.


	*Predecessor*

Dresser-Rand Company (the “Predecessor”) was initially formed on December 31, 1986, when Dresser Industries, Inc. and Ingersoll-Rand entered into a partnership agreement for the formation of Dresser-Rand Company, a New York general partnership owned 50% by Dresser Industries, Inc. and 50% by Ingersoll-Rand. On October 1, 1992, Dresser Industries, Inc. purchased a 1% equity interest from Dresser-Rand Company. In September 1999, Dresser Industries, Inc. merged with Halliburton Industries. On February 2, 2000, a wholly owned subsidiary of Ingersoll-Rand purchased Halliburton Industries’ 51% interest in Dresser-Rand Company.


	*The Acquisition*

On October 29, 2004, pursuant to a purchase agreement with Dresser-Rand Holdings, LLC, dated August 25, 2004 (the “Equity Purchase Agreement”), the Company acquired from Ingersoll-Rand Company Limited (“IR”) Dresser-Rand Company and the operations of Dresser-Rand Canada, Inc. and Dresser-Rand GmbH for cash consideration of $1,125.1 million (the “Acquisition”), including estimated direct costs of the Acquisition of $10.4 million relating to investment banking, legal and other directly related charges. As of December 31, 2004, the Company had not yet received $32.9 million from IR relating to purchase price adjustments and had not yet paid $3.4 million relating to transaction costs, both of which are recorded on our balance sheet as of December 31, 2004 in accounts receivable and accounts payable and accruals, respectively. Subsequent to December 31, 2004, the Company collected all but $2.4 million of the receivable and paid substantially all of the accrued liability.

The Equity Purchase Agreement contains customary provisions including representations and warranties as well as the terms on which the initial aggregate purchase price will be adjusted following the closing of the Acquisition. As of April 26, 2005, the Predecessor provided a Closing Working Capital Statement, which resulted in an estimated purchase price reduction of $2.4 million, which is subject to final approval and agreement from the Successor and is included in the purchase price estimate of $1,125.1 million. We anticipate the final agreement on the purchase price adjustment will be reached sometime during the second quarter of 2005. The purchase price was financed by (i) a $430 million equity investment from the Company’s parent company, Dresser-Rand Holdings, LLC, (ii) $395 million of term loans (see Note 11) and (iii) $420 million of senior subordinated notes (see Note 11).

The Company accounted for the Acquisition using the purchase method of accounting in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and accordingly, the Acquisition resulted in a new basis of accounting for the Successor. The Company allocated the estimated

F-9

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

purchase price based on the fair value of the assets acquired and liabilities assumed at the Acquisition date as follows:


		(In thousands of dollars)
Assets acquired:
Accounts receivable, net		$	193,944
Accounts receivable, other			32,863
Inventories			173,313
Prepaid expenses and other current assets			14,387
Property, plant and equipment			225,654
Goodwill			408,424
Intangible assets			490,519
Other assets			14,156

	Total assets acquired		1,553,260


Liabilities assumed:
Accounts payable			94,898
Other current liabilities			159,984
Short term loans			2,731
Tax liabilities			44,920
Other non-current liabilities			125,579

	Total liabilities assumed		428,112

Cash paid for Acquisition		$	1,125,148

The excess of the cost of the Company’s Acquisition of the Predecessor over the fair value of the identifiable net tangible and intangible assets acquired of $408.4 million has been allocated to goodwill, of which $272.2 million will not be deductible for income tax purposes. The Acquisition was performed by First Reserve as a part of its strategy of making diversified investments in the energy industry. The factors that contributed to a purchase price that resulted in recognition of goodwill include the Company’s global presence, proven customer service capabilities, and knowledgeable assembled workforce comprised of various executives, managers, and sales and production personnel. In accordance with SFAS No. 142, this goodwill will not be amortized but will be reviewed annually for impairment beginning in the third quarter of 2005.

The Company used expectations of future cash flows and other methods to estimate the fair values and the estimated useful lives of the acquired intangible assets. The appraisal was completed in the second quarter of 2005. Of the $490.5 million of acquired intangible assets, (i) $224.8 million was assigned based on earnings yield by customer to customer relationships that have an estimated weighted average useful life of 40 years based on a 2.5% annual attrition rate; (ii) $119.1 million was assigned using the relief from royalty method to existing technologies that have an estimated weighted average useful life of 25 years; (iii) $82.7 million was assigned using the relief from royalty method to trademarks that have an estimated weighted average useful life of 40 years; (iv) $30.6 million was assigned based on replacement cost to internally developed software that has an estimated weighted average useful life of 10 years; (v) $24.8 million was assigned using the income approach to order backlog that has an estimated weighted average useful life of 15 months; (vi) $4.4 million was assigned to a non-compete agreement that has an estimated weighted average useful life of 2 years by estimating the potential income losses that would result from the employee diverting sales to competitors; (vii) $2.3 million was allocated based on future income to a royalty agreement that has an estimated weighted average useful life of 14 months; and (viii) $1.8 million was assigned using a discounted future earnings analysis to purchased in-process research and development that was written off immediately after the Acquisition. The estimated useful lives are based on the period on which the intangible assets are expected to contribute to the future cash flows. The fair value of inventory was determined by the Company to

F-10

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

exceed the Predecessor’s historical basis by $7.4 million, which has been reflected in the purchase price allocation and will be written off over eight months.

The relief from royalty method used to value existing technologies and trademarks is an income approach based on the assumption that the Company is relieved from paying a royalty to obtain the use of these intangibles. Specific technologies acquired relate to the Company’s highly-engineered turbo and reciprocating compression equipment and steam turbines, including the DATUM turbo compressor platform.

In connection with the Acquisition, IR agreed to pay the Successor for certain unfunded pension plans and retain certain other post-retirement obligations. The amount to be paid with respect to such pension plans was equal to the excess, if any, of the aggregate liabilities (based on certain assumptions as agreed between IR and the Successor) of the pension plans over the aggregate fair market value of the assets of the pension plans, each as determined on the date of the Acquisition. As of December 31, 2004, a receivable from IR of $25.8 million was recorded by the Company with respect to such pension plans. This amount was subsequently collected in 2005. Additionally, IR retained the post-retirement medical liability for all retirees and those employees who were retirement-eligible as of October 29, 2004.


	IR Transition Services Agreement

In connection with the Acquisition, the Company and IR entered into a transition services agreement as of the closing to facilitate the delivery of consistent services. In conjunction with the agreement, IR provides services as requested by the Company, including, amongst others, compensation delivery services, health and welfare administration, pension administration, legal services and other services, as agreed upon between the parties. All third-party costs associated with the services are the Company’s responsibility, whether paid by IR or passed directly on to the Company.

The provision of services commenced on October 30, 2004 and will terminate on the first anniversary of the closing date; provided, however, that the Company may cancel any service upon 30 days’ written notice of cancellation and IR may cease to provide a service upon 90 days’ written notice to us if IR ceases to provide such services to all of IR’s subsidiaries, divisions and business units. In the period from October 30, 2004 through December 31, 2004, IR charged the Company $0.1 million for transition services covered under the agreement.


	Supply Agreement

The Company entered into a supply agreement with IR, expiring on December 31, 2009, whereby the Company supplies IR with certain assembly units (an “FRG”) for IR’s “PET Star 4” product. There are no minimum order quantities under this agreement.


	License Agreement

As contemplated by the equity purchase agreement, the Company and Dresser-Rand S.A. agreed to certain covenants with and granted intellectual property rights related to the development of IR’s 250-kilowatt micro-turbine to IR Energy Systems Corporation and the Energy Systems Division of IR. Pursuant to the terms of the license agreement, Energy Systems was granted a perpetual, fully paid up, non-exclusive, worldwide right and license (without the right to sublicense) to practice and use any intellectual property owned by the Company or Dresser-Rand S.A. relating to the 250 kilowatt micro-turbines, and to manufacture, use, market and sell micro-turbines with a generating capacity of 1,000 kilowatts or less.


	*Basis of Presentation*

The accompanying financial statements for the periods prior to the Acquisition are labeled as “Predecessor” and the period subsequent to the Acquisition is labeled as “Successor”.

F-11

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

The Successor consolidated financial statements include the operating results of the following entities:


Legal Entities		Country

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

F-12

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


Legal Entities		Country

Dresser-Rand S.A. Representative Office (Uzbekistan)		Uzbekistan
Dresser-Rand s.r.o		Czech Republic
Dresser-Rand Sales Company S.A.		Switzerland
Dresser-Rand Services B.V.		Netherlands
Dresser-Rand Services, S. de R.L. de C.V.		Mexico
Dresser-Rand Services, S.a.r.1		Switzerland
Multiphase Power and Processing Technologies, LLC		United States of America
Paragon Engineers Services, Inc.		United States of America
PT Dresser-Rand Services Indonesia		Indonesia
Turbodyne Electric Power Corporation		United States of America
UZ-DR Service Center (51% owned)		Uzbekistan

The accompanying consolidated financial statements include fair value adjustments to assets and liabilities, including inventory, goodwill, other intangible assets and property, plant and equipment. Also included is the corresponding effect these adjustments had to cost of sales, depreciation and amortization expenses. All revenues, costs, assets and liabilities directly attributable to the Company, along with the equity investments in Multiphase Power and Processing Technologies, LLC (USA) and Dresser-Rand & Enserv Services Sdn. Bhd. (Malaysia) have also been included in the consolidated financial statements.


	*Predecessor*

The Predecessor combined financial statements include the accounts of all wholly-owned and majority-owned subsidiaries of Dresser-Rand Company, as well as the operations of Dresser-Rand Canada, Inc. and Dresser-Rand GmbH, which were owned by IR, but were managed and operated by the Predecessor.


Legal Entities		Country

Dresser-Rand Company		United States of America
Dresser-Rand Canada, Inc.		Canada
Dresser-Rand Compressor Co., Ltd. Shanghai (60% owned)		China
Dresser-Rand de Mexico, S.A.		Mexico
Dresser-Rand Global Services, LLC		United States of America
Dresser-Rand Holding Company		United States of America
Dresser-Rand Asia Pacific Sdn. Bhd.		Malaysia
Dresser-Rand B.V.		Netherlands
Dresser-Rand Compressor (Suzhou) Ltd.		China
Dresser-Rand de Venezuela, S.A.		Venezuela
Dresser-Rand Japan, Ltd.		Japan
Dresser-Rand Overseas Sales Company		United States of America
Dresser-Rand Company Ltd.-UK		United Kingdom
Dresser-Rand (UK) Ltd.		United Kingdom
Dresser-Rand Sales Company S.A.		Switzerland
Dresser-Rand Services, S.a.r.l		Switzerland
Turbodyne Electric Power Corporation		United States of America
Dresser-Rand India Private Limited		India
Dresser-Rand International B.V.		Netherlands

F-13

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


Legal Entities		Country

Dresser-Rand Italia S.r.l		Italy
Dresser-Rand Machinery Repair Belgie N.V.		Belgium
Dresser-Rand Power, Inc.		United States of America
Dresser-Rand A/ S		Norway
Dresser-Rand Comercio e Industria Ltda.		Brazil
Dresser-Rand (SEA) Pte. Ltd.		Singapore
Dresser-Rand S.A. — France		France
Dresser-Rand Services B.V.		Netherlands
Dresser-Rand s.r.o.		Czech Republic
PT Dresser-Rand Services Indonesia		Indonesia
Dresser-Rand Services S.de R.L.		Mexico
Dresser-Rand do Brasil, Ltda. (75% owned)		Brazil
Dresser-Rand Ltd.		Nigeria
UZ-DR Service Center Uzneftegazmash (51% owned)		Uzbekistan
Dresser-Rand GmbH		Germany

The Predecessor combined financial statements include all revenues, costs, assets and liabilities directly attributable to the Predecessor, along with the equity investments in Multiphase Power and Processing Technologies, LLC (USA) and Dresser-Rand & Enserv Services Sdn. Bhd. (Malaysia). Allocation of costs for facilities, functions and certain services performed by IR on behalf of the Predecessor, including environmental and other risk management, internal audit, transportation services, administration of benefit and insurance programs and certain tax, legal, accounting and treasury functions have been made on the basis described in Note 3. All of the allocations and estimates in the combined financial statements are based on assumptions that the management of the Company and IR believe are reasonable.

Certain reclassifications have been made to the financial statements to ensure consistency in reporting and conformity between periods as follows: (i) the revenue and cost of sales to third parties was further classified as either sales of products or sales of services; and (ii) within cost of sales section, research and development expenses have been reclassified below gross profit.


2.	Summary of Significant Accounting Policies

A summary of significant accounting policies used in the preparation of the accompanying financial statements follows:


	*Principles of Consolidation*

The consolidated financial statements include the accounts and activities of the Company and its subsidiaries. Partially owned equity companies are accounted for under the equity method. All material intercompany transactions between entities included in the consolidated financial statements have been eliminated.


	*Principles of Combination*

The combined financial statements include the accounts and activities of the Predecessor. Partially owned equity companies are accounted for under the equity method. All material intercompany transactions between entities included in the combined financial statements have been eliminated. Transactions between

F-14

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

the Predecessor and IR and its affiliates are herein referred to as “related party” or “affiliated” transactions. Such transactions have not been eliminated.


	*Use of Estimates*

In conformity with accounting principles generally accepted in the United States of America, management has used estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Significant estimates include reserves for doubtful accounts, depreciation and amortization, inventory adjustments related to lower of cost or market, valuation of assets including goodwill and other intangible assets, product warranties, sales allowances, taxes, pensions, post employment benefits, contract losses, penalties, environmental, product liability, self insurance programs and other contingencies. Actual results could differ from those estimates.


	*Cash and Cash Equivalents*

The Company considers all highly liquid investments with a remaining maturity of three months or less at the time of purchase to be cash equivalents. These cash equivalents consist principally of money market accounts.


	*Marketable Securities*

The Company’s marketable securities have historically consisted of equity securities, all of which are held for varying and indefinite periods of time, pursuant to maturity dates, market conditions and other factors. It is the Company’s intent to maintain a liquid portfolio to take advantage of investment opportunities; therefore, all marketable securities are considered available for sale and are classified as current assets. Accordingly, the securities are stated at fair value, which at December 31, 2003 approximated the carrying value of the securities. Actual sales of securities resulting in realized gains and losses on marketable securities are included in the statement of income, as a component of “Other income (expense)” and are derived using the specific identification method for determining the cost of securities.


	*Allowance for Doubtful Accounts*

The Company establishes an allowance for estimated bad debts by applying specified percentages to the adjusted receivable aging categories. The percentage applied against the aging categories increases as the accounts become further past due. Accounts in excess of 360 days past due are generally fully reserved. In addition, the reserves are periodically reviewed for specific customer accounts identified as known collection problems due to insolvency, disputes or other collection issues.


	*Inventories*

Inventories are stated at cost, which is not in excess of net realizable value. Cost is based on the first-in, first-out, (FIFO) method. Provision is made for slow-moving, obsolete or unusable inventory.


	*Property, Plant and Equipment*

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation expense is computed principally using the straight-line method over the estimated useful lives of the assets. The useful lives of buildings range from 30 years to 50 years; the useful lives of machinery and equipment range from 5 years to 12 years. Maintenance and repairs are expensed as incurred.

F-15

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


	*Impairment of Long-Lived Assets*

In August 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets”. This standard requires that long-lived assets, such as property and equipment and purchased intangibles subject to amortization, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Under this standard, the Predecessor and the Successor have not been required to recognize impairment of long-lived assets.


	*Intangible Assets*

Effective January 1, 2002, the Predecessor adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Under the provisions of this standard, goodwill and intangible assets deemed to have indefinite lives are no longer subject to amortization, but rather are tested for impairment at least annually. SFAS No. 142 requires a two-step goodwill impairment test whereby the first step, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second test is not performed. The second step of the impairment test is performed when required and compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. SFAS No. 142 requires the carrying value of nonamortizable intangible assets to be compared to the fair value, with any excess of carrying value over fair value to be recognized as an impairment loss in continuing operations.

In connection with the adoption of SFAS No. 142, the Predecessor recognized no impairment of goodwill or intangible assets with indefinite lives. The Predecessor performed its annual assessment during the third quarters of 2003 and 2004, using two reporting units for the goodwill test. The Successor will perform its annual assessment of its goodwill, approximately $423.3 million, during the third quarter of 2005.

The Company amortizes its intangible assets with finite lives over their estimated useful lives and reviews them for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable pursuant to SFAS No. 144. See Note 8 for additional details regarding the components of intangible assets.


	*Income Taxes*


	Successor:

The Successor is a U.S. corporation holding 100% of the interest in the former partnership. All of the Successor’s operations are subject to tax in either the U.S. or a foreign jurisdiction. In preparing its consolidated financial statements, the Successor determined the tax provision for each of its operations on a country-by-country basis. Deferred taxes are provided on operating loss and credit carryforwards and temporary differences between assets and liabilities for financial reporting and tax purposes as measured by enacted tax rates expected to apply when temporary differences are settled or realized. A valuation allowance is established for deferred tax assets when it is more likely than not that a portion of the assets will not be realized.

F-16

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


	Predecessor:

The Predecessor is a partnership and generally did not provide for U.S. incomes taxes since all partnership income and losses were allocated to IR for inclusion in its income tax returns; however, a substantial portion of the Predecessor’s operations were subject to U.S. or foreign income taxes. In preparing its combined financial statements, the Predecessor determined the tax provision for those operations on a separate return basis. Deferred taxes were provided on operating loss and credit carryforwards and temporary differences between assets and liabilities for financial reporting and tax purposes as measured by enacted tax rates expected to apply when temporary differences are settled or realized. A valuation allowance was established for deferred tax assets when it was more likely than not that a portion of the assets would not be realized.


	*Product Warranty*

Warranty accruals are recorded at the time the products are sold and are estimated based upon product warranty terms and historical experience. Warranty accruals are adjusted for known or anticipated warranty claims as new information becomes available.


	*Environmental Costs*

Environmental expenditures relating to current operations are expensed or capitalized as appropriate. Expenditures relating to existing conditions caused by past operations, which do not contribute to current or future revenues, are expensed. Costs to prepare environmental site evaluations and feasibility studies are accrued when the Company commits to perform them. Liabilities for remediation costs are recorded when they are probable and reasonably estimable, generally no later than the completion of feasibility studies or the Company commitment to a plan of action. The assessment of this liability, which is calculated based on existing technology, does not reflect any offset for possible recoveries from insurance companies and is not discounted.


	*Revenue Recognition*

A significant portion of the Company’s sales are made pursuant to written contractual arrangements to design, develop, manufacture and/or modify complex products to the specifications of its customers, or to provide services related to the performance of such contracts. These contracts are accounted for in accordance with American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for the Performance of Construction-Type and certain Production-Type Contracts,” and revenues and profits recognized using the completed contract method of accounting. Under this method, revenue and profits on contracts are recorded when the contracts are complete or substantially complete. Provisions for anticipated losses on contracts are recorded in the period in which they become evident. Contracts normally take between nine and twelve months to complete. Revenue from field services is recognized as the service is performed. Revenue from repair services is recognized when the repaired unit is shipped and title and risk of loss are transferred to the customer.

The Company recognizes revenue and related cost of goods sold on a gross basis for equipment purchased as specified by the customer that is installed into the Company’s new units in accordance with Emerging Issues Task Force No. 99-19 “Reporting Revenue Gross as a Principal versus Net as an Agent.”

Customer progress payments in excess of the related investment in inventory are held as customer advance payments in accounts payable and accruals.

F-17

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


	*Research and Development Costs*

Research and development expenditures, including qualifying engineering costs, are expensed when incurred.


	*Distribution and Shipping Costs*

Amounts billed to customers for shipping and handling are classified as net sales of products and other operating revenues. Amounts incurred for shipping and handling are included in costs of products sold.


	*Comprehensive Income (Loss)*

Comprehensive income (loss) includes net income and other comprehensive income (loss), which includes, foreign currency translation adjustments, amounts relating to cash flow hedges, net of tax, and additional minimum pension liability adjustments, net of tax.


	*Foreign Currency*

Assets and liabilities of non-U.S. entities, where the local currency is the functional currency, are translated at year-end exchange rates and income and expenses are translated using average-for-the-year exchange rates. Adjustments resulting from translation are recorded in accumulated other comprehensive income and are included in net earnings only upon sale or liquidation of the underlying foreign investment.

For non-U.S. entities where the U.S. dollar is the functional currency, inventory and property balances and related income statement accounts are translated using historical exchange rates, and resulting gains and losses are credited or charged to net earnings.


	*Stock-based Compensation*

In connection with, but shortly after, the closing of the Acquisition, several of the Company’s executive officers acquired common units in Dresser-Rand Holdings, LLC at the same price paid per unit by funds affiliated with First Reserve in connection with the Acquisition. Executives who purchased common units were also issued profit units (see Note 16) in Dresser-Rand Holdings, LLC, which permit them to share in appreciation in the value of the Company’s shares. The accounting for the profit units is defined and described more fully in Note 16, Incentive Stock Plans.

The Company recognizes compensation cost for awards with only service conditions that have graded vesting schedule on a straight-line basis over the requisite service period for the entire award. However, the amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the award that is vested at that date.

The Predecessor participated in several of IR’s stock-based employee compensation plans, which are described more fully in Note 16. IR accounted for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”

The following table illustrates the effect on net income of the Predecessor if IR had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” in accordance with SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”, to stock-based

F-18

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

employee compensation. Stock options granted by the Predecessor to employees were for the purchase of Class A common stock of IR and remained obligations solely of IR following the transaction.


	Predecessor

	Period from
	January 1			Year Ended
	through			December 31,
	October 29,
	2004			2003			2002

	(In thousands of dollars)
Net income, as reported	$	42,151		$	20,365		$	16,096
Add: Stock-based employee compensation expense included in reported net income, net of tax		446			1,502			143
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of tax		(4,640	)		(4,885	)		(2,990	)

Pro forma net income	$	37,957		$	16,982		$	13,249


	*Credit Facilities*

Credit facilities have been arranged with banks whereby certain of the Company’s subsidiaries may borrow on an overdraft or short-term note basis or issue bank guarantees. Such borrowings, if collateralized, are primarily secured by D-R Interholding, LLC, the Company’s parent and various of the Company’s subsidiaries’ guarantees and carry variable interest rates ranging from 3.4% to 4.6% at December 31, 2004. The unused portion of these facilities was $156.6 million at December 31, 2004. In addition $5.0 million was drawn on the revolver at the time of acquisition, but was subsequently paid in November 2004.


	*Deferred Financing Costs*

The Company amortizes deferred financing costs to interest expense over the term of the related financing agreement using the straight-line method for costs associated with financing having a single payoff date and using a declining balance method for costs associated with financing having scheduled payoffs, each of which approximates the effective yield method (See Note 11).


	*New Accounting Standards*

In December 2004, the FASB released SFAS 123R, Share-Based Payments, that is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” This Statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The Company has elected to early adopt the provisions of SFAS 123R as of October 30, 2004. As a result, the Company recognized compensation cost in relation to share-based compensation arrangements of $75 thousand for the period from October 30, 2004 through December 31, 2004.

In May 2004, the FASB released Staff Position No. FAS 106-2 (FSP FAS 106-2) entitled, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act). The current accounting rules require a company to consider current changes in applicable laws when measuring its postretirement benefit costs and accumulated postretirement benefit obligations. The Predecessor adopted FSP FAS 106-2 as of April 1, 2004, the beginning of its second quarter. The Predecessor and its actuarial advisors determined that most benefits provided by its plan were at least actuarially equivalent to Medicare Part D. The Predecessor re-measured the effects of the Act on the accumulated projected benefit obligation as of April 1, 2004. The effect of the federal subsidy to which the

F-19

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

Company was entitled was accounted for as an actuarial gain of $13.7 million in April 2004. The subsidy had no effect on postretirement expense for 2003 or prior years.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an Amendment of Accounting Research Bulletin No. 43, Chapter 4”. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight handling costs and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance in this statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this statement is not expected to have a material impact to the Company’s financial reporting and disclosures.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29, “Accounting for Nonmonetary Transactions”. SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21 (b) of APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for fiscal years beginning after June 15, 2005. The adoption of this statement is not expected to have a material impact on the Company’s financial reporting and disclosures.


3.	Related Party Transactions


	*Successor*


	Dresser Name

The Company’s name and principal mark is a combination of the names of the Company’s founder companies, Dresser Industries, Inc. and IR. The Predecessor acquired rights to use the “Rand” portion of our principal mark from IR as part of the sale agreement. The rights to use the “Dresser” portion of the name in perpetuity were acquired from Dresser, Inc. (the successor company to Dresser Industries, Inc.), an affiliate of First Reserve in October 2004. Total consideration is $5.0 million of which $1.0 million was paid in October 2004. The remaining balance will be paid in equal annual installments of $0.4 million through October 2013. Expense is recognized ratably over the life of the agreement.


	*Predecessor*


	Intercompany Activities

IR provided the Predecessor with certain environmental and other risk management services, internal audit, legal, tax, accounting, pension fund management, transportation services, cash management and other treasury services. Many of these activities have been transferred over time from the Predecessor to IR since IR acquired 100% ownership in the Predecessor. In addition, as discussed below and in Notes 12, 13 and 16, most of the Company’s employees were eligible to participate in certain IR employee benefit programs that were sponsored and/or administered by IR or its affiliates.

The Predecessor’s use of these services and its participation in these employee benefit plans generated costs to the Predecessor. Costs and benefits relating to the services and benefit plans were charged/ credited to the Predecessor and were included in cost of goods sold, and selling and administrative expenses. Costs were allocated to the Predecessor using allocation methods that management of IR and the Predecessor believe are reasonable.

The combined financial statements reflect these costs through a corporate overhead allocation. These costs amounted to $15.3 million, $15.1 million and $1.3 million for the period from January 1, 2004 through October 31, 2004, and for the years ended December 31, 2003 and 2002, respectively. These allocations reflect

F-20

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

the growing use of IR services by the Predecessor from 2002 to 2004. The 2002 amounts include amounts for IR Sector support only. During 2003, the Predecessor began the process of integrating numerous functions with IR. Therefore, the 2003 amounts include services such as treasury and cash management, internal audit services, tax planning and compliance, risk management services, workers compensation administration, post-retirement plan administration, payroll deposit services and strategic sourcing support. Further integration took place in 2004 with additional services added such as legal counsel support, IR University training, medical plan administration and other human resource functions. Some of the allocation were based on specifically classified expenses of IR while others were allocated based on a multi-part formula utilizing common business measures such as headcount, total payroll dollars and total assets.

As mentioned above IR, provided centralized treasury functions and financing, including substantially all investing and borrowing activities for the Predecessor. As part of this practice, surplus cash was remitted to IR and IR advanced cash, as necessary, to the Predecessor. No interest was charged or paid on the net IR investment amount. Interest was charged or credited on certain notes receivable and notes payable from/to IR affiliates.

At December 31, 2003, the Predecessor had outstanding receivables due from IR affiliates of $105.3 million. Intercompany receivables are treated as current since they are due upon demand. Intercompany receivables were settled at the time of Acquisition.


	Employee Benefit Administration

The Predecessor’s employees participated in tax-qualified defined benefit pension plans and defined contribution savings plans sponsored and/or administered by IR or its affiliates. IR charged to the Predecessor its pro-rata share of administration and funding expenses incurred by IR in the operation of these plans for the benefit of employees of the Predecessor. The Predecessor is responsible for the cost of funding pension and savings plan benefits accrued by its employees. Welfare benefit programs are generally self-insured and experience-rated on the basis of Predecessor employees without regard to the claims experience of employees of other affiliated companies.


	Other Related Party Transactions

The Predecessor recorded sales of $1.8 million, $1.4 million and $1.8 million to IR and its affiliates in the period from January 1, 2004 through October 29, 2004 and in the years ended December 31, 2003 and 2002, respectively. For the period from January 1, 2004 through October 29, 2004 and the year ended December 31, 2002, the Predecessor paid dividends of $5.1 million and $8.2 million, respectively, to IR by Dresser-Rand GmbH. This amount was recorded against IR’s investment included in the Predecessor’s equity.


4.	Earnings per share


	*Successor*

Earnings per share are calculated as net income divided by the weighted average number of common shares outstanding during the period. Weighted average common shares of 100,115,080 were used to calculate earnings per share as of December 31, 2004.


	*Predecessor*

Earnings per share for the Predecessor periods, is not presented as the Predecessor did not operate as a separate legal entity of IR with its own legal structure.

F-21

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


5.	Inventories

Inventories were as follows:


			December 31,

			2004			2003
			(Successor)			(Predecessor)

			(In thousands of dollars)
Raw materials and supplies			$	60,728		$	62,207
Work-in-process and finished goods				209,247			142,050

				269,975			204,257
Less:
	Progress payments			(94,102	)		(70,832	)

		Total	$	175,873		$	133,425

The Progress payments represent payments from customers based on milestone completion schedules. Any payments received in excess of inventory investment are reclassified to “Customer Advance Payments” in the current liabilities section of the balance sheet.


6.	Investments In Partially Owned Equity Companies

The Company and Predecessor had two investments that operated in similar lines of business at December 31, 2004 and 2003. The investments in and amounts due from partially owned equity companies in which the Company’s and Predecessor’s ownership interest ranged from 40% to 50%, amounted to $10.0 million and $3.0 million, respectively at December 31, 2004 and $5.5 million and $3.6 million, respectively, at December 31, 2003. The equity in the net earnings (losses) of partially owned equity companies was $0.2 million in the period from October 30, 2004 through December 31, 2004, $(1.0) million in the period from January 1, 2004 through October 29, 2004 and $(0.1) million and $(0.5) million for the years ended December 31, 2003 and 2002, respectively and is recorded in other income/expense, net in the accompanying statements of income. The Company and Predecessor received no distributions from these investments in 2004, 2003, and 2002. Sales from the Company or Predecessor to the partially owned equity companies were not significant.

Summarized financial information for these partially owned equity companies follows:


	Successor		Predecessor

	Period from		Period from
	October 30		January 1			Year Ended
	through		through			December 31,
	December 31,		October 29,
	2004		2004			2003		2002

	(In thousands of dollars)
Net sales	$	13,460	$	56,271		$	53,337	$	56,953
Gross profit		3,725		17,857			18,890		18,596
Net income/(loss)		596		(1,849	)		310		(518	)

F-22

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


		December 31,

		2004		2003
		(Successor)		(Predecessor)

		(In thousands of dollars)
Current assets		$	24,819	$	18,855
Property, plant and equipment, net			2,303		2,748
Other assets			5,353		5,925

	Total assets	$	32,475	$	27,528

Current liabilities		$	8,298	$	3,813
Other liabilities			10,594		8,878
Total owners’ equity			13,583		14,837

	Total liabilities and owners’ equity	$	32,475	$	27,528


7.	Property, Plant and Equipment

Property, plant and equipment were as follows:


	December 31,

	2004			2003
	(Successor)			(Predecessor)

	(In thousands of dollars)
Land	$	8,156		$	5,213
Buildings and improvements		64,599		$	46,719
Machinery and equipment		157,969			128,363

		230,724			180,295
Less: Accumulated depreciation		(3,960	)		(78,857	)

Property plant and equipment, net	$	226,764		$	101,438

Depreciation expense for the period from October 30, 2004 through December 31, 2004, the period from January 1, 2004 through October 29, 2004 and the years ended December 31, 2003 and 2002 was $4.0 million, $16.6 million, $21.8 million and $27.0 million, respectively.

F-23

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


8.	Intangible Assets and Goodwill

The following table sets forth the weighted average useful life, gross amount and accumulated amortization of intangible assets:


	Successor						Predecessor

			December 31, 2004						December 31, 2003
	Weighted						Weighted
	Average		Gross		Accumulated		Average		Gross		Accumulated
	Useful Lives		Amount		Amortization		Useful Lives		Amount		Amortization

	(In thousands of dollars)
Trade names		40 years	$	82,700	$	344		Indefinite	$	34,935	$	—
Customer Relationships		40 years		227,746		936		40 years		235,824		22,657
Software		10 years		30,553		510		8 years		11,014		4,704
Existing technology		25 years		119,100		794				—		—
Order backlog		15 months		25,095		8,824				—		—
Non-compete agreement		2 years		4,413		366				—		—
Royalty agreement		14 months		2,320		566				—		—

Total			$	491,927	$	12,340			$	281,773	$	27,361

Intangible asset amortization expense for the period from October 30, 2004 through December 31, 2004, the period from January 1, 2004 through October 29, 2004 and the years ended December 31, 2003 and 2002 was $12.3 million, $6.1 million, $7.3 million and $6.8 million, respectively. Estimated intangible asset amortization expense for each of the next five fiscal years is expected to be $33.8 million in 2005, $19.0 million in 2006, $15.5 million in 2007, $15.5 million in 2008, and $15.5 million in 2009.

The following table represents the change in goodwill:


	Successor			Predecessor

	Period from			Period from
	October 30			January 1
	through			through		Year Ended
	December 31,			October 29,		December 31,
	2004			2004		2003

	(In thousands of dollars)
Beginning balance	$	408,424		$	10,214	$	10,214
Dispositions		(377	)		—		—
Translation adjustments		15,283			—		—

Ending balance	$	423,330		$	10,214	$	10,214

The disposition of goodwill represents adjustments related to the recognition of acquired tax benefits for which a valuation allowance was recorded at the acquisition date.

F-24

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


9.	Accounts Payable and Accruals

Accounts payable and accruals were as follows:


		December 31,

		2004		2003
		(Successor)		(Predecessor)

		(In thousands of dollars)
Accounts payable		$	103,822	$	104,835
Accruals:
	Payroll and benefits		31,289		25,061
	Pension and Postretirement benefits		9,706		49,849
	Contract reserves		30,702		25,359
	Warranties		21,078		23,699
	Taxes other than income		25,749		19,763
	Legal, audit and consulting		3,718		10,344
	Interest		6,216		554
	Third-party commissions		7,961		9,362
	Insurance and claims		7,679		4,095
	Other		23,355		18,909

Total accounts payable and accruals		$	271,275	$	291,830


10.	Income Taxes

Earnings before income taxes were taxed within the following jurisdictions:


					Predecessor
		Successor
					Period
		Period from			from
		October 30			January 1		Year Ended
		through			through		December 31,
		December 31,			October 29,
		2004			2004		2003			2002

		(In thousands of dollars)
United States		$	(3,562	)	$	34,058	$	(7,619	)	$	(2,198	)
Non-U.S.			18,066			20,063		39,422			30,204

	Total	$	14,504		$	54,121	$	31,803		$	28,006

F-25

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

The provision for income taxes was as follows:


			Successor			Predecessor

			Period from			Period from
			October 30			January 1			Year Ended
			through			through			December 31,
			December 31,			October 29,
			2004			2004			2003			2002

			(In thousands of dollars)
Current tax expense
	United States		$	883		$	(933	)	$	1,314		$	2,367
	Non-U.S.			7,366			12,270			15,025			8,598

		Total current		8,249			11,337			16,339			10,965

Deferred tax expense
	United States			—			(2,707	)		(404	)		2
	Non-U.S.			(974	)		3,340			(4,497	)		943

		Total deferred		(974	)		633			(4,901	)		945

		Total provision for income taxes	$	7,275		$	11,970		$	11,438		$	11,910

The provision for income taxes differs from the amount of income taxes determined by applying the applicable U.S. statutory income tax rate to pretax income, as a result of the following differences:


		Successor			Predecessor

		Period from			Period from
		October 30			January 1			Year Ended
		through			through			December 31,
		December 31,			October 29,
		2004			2004			2003			2002

Statutory U.S. rate			35.0	%		35.0	%		35.0	%		35.0	%
Increase (decrease) in rates resulting from:
	Non-U.S. operations		(4.3	)%		9.9	%		5.5	%		(7.5	)%
	State and local income taxes, net of U.S. tax		4.0	%		(0.2	)%		1.1	%		0.4	%
	Valuation allowances		11.0	%		7.2	%		(10.7	)%		6.5	%
	Nontaxable partnership income		—			(18.7	)%		9.6	%		6.6	%
	Other		4.5	%		(11.1	)%		(4.5	)%		1.5	%

Effective tax rate			50.2	%		22.1	%		36.0	%		42.5	%

F-26

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

A summary of the deferred tax accounts follows:


			December 31,

			2004			2003
			(Successor)			(Predecessor)

			(In thousands of dollars)
Current deferred assets and (liabilities)
	Differences between book and tax bases of inventories and receivables		$	3,199		$	1,826
	Differences between book and tax expense for other employee related benefits and allowances			—			403
	Other reserves and valuation allowances versus tax deductions			3,769			3,808
	Other differences between tax and financial statement values			477			4,461

		Gross current deferred tax assets		7,445			10,498

Noncurrent deferred tax assets and (liabilities)
	Tax net operating loss carryforwards			9,216			7,476
	Pension contributions in excess of book expense			12,833			10,986
	Book depreciation/amortization versus tax depreciation/amortization			(37,343	)		2,194

		Gross noncurrent deferred tax assets (liabilities)		(15,294	)		20,656
		Less: valuation allowances		(11,993	)		(6,091	)

		Total net deferred tax assets (liabilities)	$	(19,842	)	$	25,063

As of December 31, 2004 and December 31, 2003 net operating loss carryforwards of approximately $27.9 million and $27.3 million, respectively, were available to offset taxable income in future years. A portion of these carryforwards will begin to expire in 2007, while the remainder generally have unlimited carry forward periods. Valuation allowances as of December 31, 2004 and December 31, 2003 of $9.1 million and $6.1 million, respectively, have been recorded for certain carryforwards, which will likely not be realized.

As a result of the purchase of the Successor, deferred taxes have been recorded to reflect the difference between the purchase price allocation to the foreign reporting entities and their underlying tax basis. For operating loss carryforwards and other acquired tax benefits for which a valuation allowance was established at the acquisition date, when subsequently recognized, the acquired tax benefit will first reduce goodwill, then other noncurrent intangible assets on a prospective basis. Once these assets are reduced to zero, the benefit is included in income as a reduction of the income tax expense. Acquired tax benefits not recognized at the acquisition date amount to $7.2 million. During the period October 30, 2004 through December 31, 2004, the reduction in goodwill related to the recognition of such acquired tax benefits was $0.4 million.

As a result of the sale of the Predecessor, all previously undistributed foreign earnings were deemed distributed to IR as part of the Acquisition. At December 31, 2004, deferred taxes have not been provided on undistributed foreign earnings of $11.2 million, since these earnings have been, and under current plans, will continue to be permanently reinvested in these subsidiaries. It is not practicable to estimate the amount of additional taxes which may be payable upon future distribution.

The American Jobs Creation Act of 2004 introduced a one-time provision allowing U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividend-received deduction for certain dividends from controlled foreign corporations. Due to the interplay of this benefit and the Company’s overall tax position, the Company does not currently expect to avail itself of this provision.

For the predecessor periods, the tax expense reflected in the Combined Statement of Income related to Dresser-Rand UK Ltd., a United Kingdom (UK) incorporated entity, has been presented on a separate company basis as though Dresser-Rand UK Ltd. had filed stand-alone income tax returns. Under operation of

F-27

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

UK tax law, tax losses incurred by IR subsidiaries may be surrendered to Dresser-Rand UK Ltd. since they are part of a UK affiliated group. To the extent the losses surrendered to Dresser-Rand UK Ltd. have reduced the actual tax liability, the amount is presented on the Combined Balance Sheet at December 31, 2003 as an intercompany payable, not a government tax payable. No formal tax sharing agreement existed between the Predecessor and IR.


11.	Long–Term Debt


	*Senior Secured Credit Facility*

In connection with the Acquisition, the Company and certain of its foreign subsidiaries entered into the Senior Secured Credit Facility with a syndicate of lenders. The obligations of the Company under the Senior Secured Credit Facility have been guaranteed by the direct material domestic subsidiaries of the Company and the Company’s direct parent, D-R Interholding, LLC and the obligations of each foreign subsidiary borrower under the Senior Secured Credit Facility have been guaranteed by the Company, the Company’s direct parent, D-R Interholding, LLC, the direct material subsidiaries of such foreign subsidiary borrower and the direct material domestic subsidiaries of the Company. The Senior Secured Credit Facility consists of a $395.0 million term loan facility (€78.5 million of which is denominated in Euros) and a $300.0 million revolving credit facility. The term loan facility requires interest to be paid not less frequently than quarterly. In addition, at the end of each quarter the Company is required to make principal payments equal to one-quarter of one percent (0.25%) of the initial principal balance of such loans. The principal amount outstanding under the revolving credit facility is due and payable in full at maturity, at October 29, 2009. The term loan facility carried an average interest rate of 4.56% at December 31, 2004. There were no borrowings under the revolving credit facility at December 31, 2004. As of December 31, 2004, the Company had issued $143.4 million of letters of credit under the revolver.

Dollar-denominated revolving borrowings under the Senior Secured Credit Facility bear interest, at the Company’s election, at either (x) a rate equal to an applicable margin ranging from 2.0% to 2.5%, depending on the Company’s leverage ratio, plus a LIBOR rate determined by reference to the costs of funds for deposits in U.S. dollars for the interest period relevant to such borrowing adjusted for certain additional costs or (y) a rate equal to an applicable margin ranging from 1.0% to 1.5%, depending on the Company’s leverage ratio plus a base rate determined by reference to the highest of (1) the rate that the administrative agent announces from time to time as its prime or base commercial lending rate, (2) the three month certificate of deposit rate plus ¹/2 of 1% and (3) the federal funds rate plus ¹/2 of 1%. Euro-denominated revolving borrowings under the Senior Secured Credit Facility bear interest at a rate equal to an applicable margin ranging from 2.0% to 2.5%, depending on the Company’s leverage ratio, plus a EURIBOR rate determined by reference to the costs of funds for deposits in the currency of such borrowings for the interest period relevant to such borrowings adjusted for certain additional costs.

In addition to paying interest on outstanding principal under the Senior Secured Credit Facility, the Company is required to pay a commitment fee to the lenders under the revolving credit facility in respect of the un-utilized commitments at a rate ranging from 0.375% to 0.5% per annum depending on the Company’s leverage ratio. The Company will also pay letter of credit fees equal to the applicable margin then in effect with respect to LIBOR loans under the revolving credit facility on the face amount of each such letter of credit.

In general, the Senior Credit Facility requires that certain net proceeds related to the asset sales, incurrence of additional debt, casualty settlements and condemnation awards and excess cash flow may be required to be used to pay down the outstanding balance. The Company may voluntarily prepay outstanding loans under the Senior Secured Credit Facility at any time without premium or penalty, other than customary breakage costs. The Senior Secured Credit Facility contains normal and customary covenants including the provision of periodic financial information, financial tests, (including maximum net leverage and a minimum

F-28

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

interest coverage ratio) and certain other limitations governing, among others, such matters as Company’s ability to incur additional debt, grant liens on assets, make investments, acquisitions or mergers, dispose of assets, make capital expenditures, engage in transactions with affiliates, make amendments to corporate documents that would be materially adverse to lenders, and pay dividends and distributions or repurchase capital stock. The Company was temporarily out of compliance of its obligation under the senior credit facility to provide lenders financial statements for the year ended December 31, 2004 no later than 120 days after the end of that year. This was remedied by delivery of the financial statements within the 30-day cure period as provided for in the terms and conditions of the Senior Secured Credit Facility.

To fund part of the Acquisition, the Company and the foreign subsidiary borrowers borrowed the entire $395.0 million under the term loan facility. Approximately $5 million of the revolver was borrowed at the time of the acquisition. This amount was repaid prior to year end. At the time of the acquisition, the Company issued $127.7 million of letters of credit under the revolver pursuant to its obligations under the Acquisition Agreement to indemnify IR with respect to any liability incurred in connection with certain letters of credit issued by IR on behalf of the Company.


	*Senior Subordinated Notes*

In conjunction with the Acquisition, the Company issued $420.0 million of 7³/8% senior subordinated notes. The Senior Subordinated Notes mature on November 1, 2014 and bear interest at a rate of 7³/8% per annum, which is payable semi-annually in arrears on May 1 and November 1 of each year, beginning with the first payment due on May 1, 2005. The Company may redeem any of the notes beginning on November 1, 2009 at a redemption price of 103.688% of their principal amount, plus accrued interest. The redemption price will decline each year after 2009 and will be 100% of their principal amount, plus accrued interest, beginning on November 1, 2012. The Company may also redeem any of the notes at any time prior to November 1, 2009, at a redemption price equal to 100% of the principal amount of notes to be redeemed, plus a premium (based on a formula set forth in senior subordinate indenture) and accrued interest. In addition, at any time prior to November 1, 2007, the Company may redeem up to 35% of the notes at a redemption price of 107.375% of their principal amount plus accrued interest, using the proceeds from sales of certain kinds of capital stock. The Company may make such a redemption only if, after such redemption, at least 65% of the aggregate principal amount of notes originally issued under the indenture governing the notes remains outstanding.

The Senior Subordinated Notes are general unsecured obligations and are guaranteed on a senior subordinated basis by certain of the Company’s domestic subsidiaries and rank secondary to the Company’s senior credit facility. The Senior Subordinated Notes contain customary covenants including certain limitations and restrictions on the Company’s ability to incur additional indebtedness, create liens, pay dividends and make distributions in respect of capital stock, redeem capital stock, make investments or certain other restricted payments, sell assets, issue or sell stock of restricted subsidiaries, enter into transactions with affiliates and effect consolidations or mergers. The Senior Subordinated Notes also contain covenants requiring the Company to submit to the Trustee or holders of the notes certain financial reports that would be required to be filed with the SEC.

The Company is obligated to use commercially reasonable efforts to register the senior subordinated notes under the Securities Act and consummate an exchange offer no later than 300 days after the closing of the offering of the senior subordinated notes. If this requirement is not met, then the annual interest on the Senior Subordinated Notes will increase by (1) 0.25% per annum for the first 90 days following the end of such period and (2) 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum of 1.0% per annum until all such registration defaults are cured.

F-29

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

Long-term debt at each respective date consisted of the following:


	December 31,

	2004			2003
	(Successor)			(Predecessor)

	(In thousands of dollars)
Senior Subordinated Notes	$	420,000		$	—
Senior Secured Credit Facility		400,474			—
Other debt		205			213

Total long term debt		820,679			213
Less: current maturities		(4,015	)		—

Total non current long term debt	$	816,664		$	213

At December 31, 2004, the Company’s total long-term debt principal maturities were as follows:


	Senior		Senior
	Subordinated		Secured Credit		Other
	Notes		Facility*		Debt		Total

	(In thousands of dollars)
2005	$	—	$	4,015	$	—	$	4,015
2006		—		4,015		162		4,177
2007		—		4,015		43		4,058
2008		—		4,015		—		4,015
2009		—		4,015		—		4,015
2010 and after		420,000		380,399		—		800,399

	$	420,000	$	400,474	$	205	$	820,679


*	Through May 11, 2005 the Company has made payments of $111.7 million on the Senior Secured Credit Facility, as a result of which no further principal amortization payments are required prior to maturity of the facility on October 29, 2011.

The Company’s interest expense for the period from October 30, 2004 through December 31, 2004, the period from January 1, 2004 through October 29, 2004 and for the years ended December 31, 2003 and 2002 was $10.0 million, $2.0 million, $2.8 and $4.3 million, respectively. Included in these amounts are intercompany interest expense charges recognized by the Predecessor, paid to IR, for the period from January 1, 2004 through October 29, 2004 and for the years ended December 31, 2003 and 2002 of $1.2 million, $1.2 and $1.4 million, respectively.


12.	Pension Plans

The defined benefit plan covering salaried and hourly employees was frozen effective March 31, 1998. The plan was replaced with a defined contribution plan. The Company’s U.S. salaried plans generally provide benefits based on a final average earnings formula. The Company’s hourly pension plans provide benefits under flat formulas. Non-U.S. plans provide benefits based on earnings and years of service. Most of the non-U.S. plans require employee contributions based on the employee’s earnings. The Company’s policy is to fund an amount, which could be in excess of the pension cost expensed, subject to the limitations imposed by current statutes or tax regulations.

F-30

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

Information regarding the Company’s and the Predecessor’s pension plans is as follows:


			December 31,

			2004			2003
			(Successor)			(Predecessor)

			(In thousands of dollars)
Change in benefit obligations
	Benefit obligation at beginning of the period		$	308,712		$	310,172
	Service cost			870			4,643
	Interest cost			2,884			19,704
	Employee contributions			62			291
	Expenses paid			—			(207	)
	Actuarial losses			3,035			19,328
	Benefits paid			(2,464	)		(17,176	)
	Foreign exchange impact			4,399			7,995

		Benefit obligation at end of the period	$	317,498		$	344,750

Change in plan assets
	Fair value at beginning of the period		$	240,025		$	237,201
	Actual return on assets			2,460			32,813
	Company contributions			495			14,383
	Employee contributions			62			291
	Expenses paid			—			(207	)
	Benefits paid			(2,464	)		(16,533	)
	Foreign exchange impact			2,554			4,726

		Fair value of assets at end of the period	$	243,132		$	272,674


			December 31,

			2004			2003
			(Successor)			(Predecessor)

			(In thousands of dollars)
Funded status
	Plan assets less than benefit obligations		$	(74,366	)	$	(72,076	)
Unrecognized
	Net transition obligation			—			3
	Prior service costs			—			4
	Plan net losses (gains)			3,816			90,567

		Net amount recognized	$	(70,550	)	$	18,498

Costs included in the balance sheet
	Prepaid benefit cost		$	—		$	360
	Accrued benefit liability			(72,061	)		(64,311	)
	Accumulated other comprehensive income			1,511			82,449

		Net amount recognized	$	(70,550	)	$	18,498

F-31

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


			December 31,

			2004			2003
			(Successor)			(Predecessor)

Weighted-average assumptions used, benefit obligations
	Discount rate
		U.S. plans		5.750	%		6.00%
		Non-U.S. plans		5.308	%		5.75%
	Rate of compensation increase
		U.S. plans		N/A			4.00%
		Non-U.S. plans		3.75	%		3.75%

The components of the pension related expense (income) include the following:


		Successor			Predecessor

		Period from			Period from
		October 30			January 1			Year Ended
		through			through			December 31,
		December 31,			October 29,
		2004			2004			2003			2002

		(In thousands of dollars)
Service cost		$	870		$	3,801		$	4,643		$	3,871
Interest cost			2,884			16,903			19,704			19,067
Expected return on plan assets			(3,207	)		(21,173	)		(19,329	)		(23,462	)
Net amortization of unrecognized
	Transition amount		—			1			—			—
	Prior Service Cost		—			453			1			1
	Plan net losses		—			3,375			5,257			403

Net pension expense (income)		$	547		$	3,360		$	10,276		$	(120	)


		Successor			Predecessor

		Period from			Period from
		October 30			January 1			Year Ended
		through			through			December 31,
		December 31,			October 29,
		2004			2004			2003			2002

Weighted-average assumptions used, net periodic pension cost
Discount rate
	U.S. plans		5.750	%		6.00	%		6.75	%		7.25	%
	Non-U.S. plans		5.308	%		5.75	%		5.75	%		6.00	%
Rate of compensation increase
	U.S. plans		N/A			N/A			4.00	%		5.00	%
	Non-U.S. plans		3.750	%		3.75	%		3.00	%		3.00	%
Expected return on plan assets
	U.S. plans		8.500	%		8.75	%		8.75	%		9.00	%
	Non-U.S. plans		7.094	%		7.50	%		7.50	%		7.50	%

F-32

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans were $317.5 million, $306.2 million and $243.1 million, respectively, as of December 31, 2004; and $344.8 million, $335.3 million and $272.7 million, respectively, as of December 31, 2003.

The Company uses an annual measurement date of November 30 for substantially all of its pension plans for the years presented. The expected long-term rates of return on plan assets are determined as of the measurement date. 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. Historical asset return trends for the larger plans are reviewed over fifteen, ten and five years. The actual rate of return for plan assets over the last ten-and fifteen-year periods have exceeded the expected rate of return used. The Company reviews each plan and its historical returns and asset allocations to determine the appropriate expected long-term rate of return on plan assets to be used.

The weighted average asset allocations of the Company’s and the Predecessor’s pension plans by asset category are as follows:


			December 31,

			2004			2003
			(Successor)			(Predecessor)

Asset category*
	Equity securities			58.1	%		59.7	%
	Debt securities			35.0	%		27.1	%
	Other (including cash)			6.9	%		13.2	%

		Total		100.0	%		100.0	%


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

The Company’s investment objectives in managing its defined benefit plan assets are to ensure that present and future benefit obligations to all participants and beneficiaries are met as they become due; to provide a total return that, over the long-term, maximizes the ratio of the plan assets to liabilities, while minimizing the present value of required Company contributions, at the appropriate levels of risk; and to meet any statutory requirements, laws and local regulatory agencies requirements. Key investment decisions reviewed regularly are asset allocations, investment manager structure, investment managers, investment advisors and trustees or custodians. An asset/liability modeling study is used as the basis for global asset allocation decisions and updated approximately every five years or as required. The Company’s current strategic global asset allocation for its pension plans is 60% in equities securities and 40% in debt securities and cash. The Company sets upper limits and lower limits of plus or minus 5%. The rebalancing strategy is reviewed quarterly if cash flows are not sufficient to rebalance the plans and appropriate action is taken to bring the plans within the strategic allocation ranges.

The Predecessor contributed an additional $30 million in the first quarter of 2004, $9 million of which was required. The Company’s policy is to contribute the minimum required amount, as defined by law, and additional discretionary amounts up to the limitations imposed by the applicable tax codes. The Company currently projects that it will contribute approximately $10 million to its plans worldwide in 2005. Most of the non-U.S. plans require employee contributions based on the employees’ earnings.

F-33

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

Pension benefit payments, which reflect future service, as appropriate, are expected to be paid as follows: $15.7 million in 2005, $16.5 million in 2006, $17.4 million in 2007, $18.4 million in 2008, $19.6 million in 2009 and $111.7 million for the years 2010 to 2014.


	*Defined Contribution Plans*

Most of the Company’s U.S. employees are covered by savings and other defined contribution plans. Employer contributions and costs are determined based on criteria specific to the individual plans and amounted to approximately $1.9 million, $7.9 million, $8.8 million and $11.4 million for the period from October 30, 2004 through December 31, 2004, the period from January 1, 2004 through October 29, 2004, and the years ended December 31, 2003 and 2002, respectively. The Company’s and Predecessor’s costs relating to non-U.S. defined contribution plans, insured plans and other non-U.S. benefit plans were $0.1 million, $0.3 million, $0.9 million and $0.5 million for the period from October 30, 2004 through December 31, 2004, the period from January 1, 2004 through October 29, 2004, and the years ended December 31, 2003 and 2002, respectively.


13.	Postretirement Benefits other than Pensions

The Company sponsors postretirement plans that cover certain eligible U.S. employees. These plans provide for health care benefits and in some instances, life insurance benefits. Postretirement health plans generally are contributory and adjusted annually. Life insurance plans are non-contributory. In 1997, the Predecessor amended its postretirement benefit plans for salaried and hourly employees. The amendment eliminated medical benefit coverage for all future retirees except for grandfathered employees. An eligible retiree’s health care benefit coverage is coordinated with Medicare. The Company funds the postretirement benefit costs principally on a pay-as-you-go basis.

Summary information on the Company’s and the Predecessor’s plans was as follows:


			December 31,

			2004			2003
			(Successor)			(Predecessor)

			(In thousands of dollars)
Change in benefit obligations
	Benefit obligation at beginning of the period		$	46,818		$	189,183
	Service cost			301			1,935
	Interest cost			449			11,907
	Amendments			—			(9,300	)
	Actuarial losses (gains)			—			18,196
	Benefits paid			—			(11,544	)

		Benefit obligation at end of the period	$	47,568		$	200,377

Funded status
	Plan assets less than benefit obligations		$	(47,568	)	$	(200,377	)
Unrecognized
	Prior service gains			—			(9,042	)
	Plan net losses*			—			83,157

		Accrued costs in the balance sheet	$	(47,568	)	$	(126,262	)


*	Plan net losses in 2003 arose primarily from changes in discount rate and medical cost trend assumptions.

F-34

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

The components of net periodic postretirement benefits cost were as follows:


	Successor		Predecessor

	Period from		Period from
	October 30		January 1			Year Ended
	through		through			December 31,
	December 31,		October 29,
	2004		2004			2003			2002

	(In thousands of dollars)
Service cost	$	301	$	1,599		$	1,935		$	1,172
Interest cost		449		9,323			11,907			11,108
Net amortization of unrecognized prior service gains		—		(861	)		(258	)		—
Net amortization of loss		—		3,011			949			732

Net periodic postretirement benefits cost	$	750	$	13,072		$	14,533		$	13,012

Benefit payments for postretirement benefits, which reflect future service and are net of expected Medicare Part D subsidy, as appropriate, are expected to be paid as follows: $0.0 million in 2005, $0.1 million in 2006, $0.2 million in 2007, $0.5 million in 2008, $0.8 million in 2009 and $10.9 million for the years 2010 to 2014.

The Company uses an annual measurement date of November 30 for substantially all of its postretirement benefit plans for all years presented. The sale of an IR business in February 2003 was deemed to be a significant event and required a remeasurement of the postretirement benefit plan. The weighted-average assumptions used in the February 2003 remeasurement due to the sale were a discount rate of 6.50% and increases in per capita cost of covered health care benefits of 11.00% for the year, gradually reducing to 5.25% by 2009. In the fourth quarter of 2002, IR amended its postretirement benefit plans for U.S. non-bargaining employees and retirees, effective January 1, 2003. The amendments eliminated subsidized life insurance for all future retirees. The weighted-average assumptions used in the fourth quarter of 2002 remeasurement due to plan amendments were a discount rate of 6.75% and increases in per capita cost of covered health care benefits of 11.00% for the year, gradually reducing to 5.25% by 2009.


		Successor			Predecessor

		Period from			Period from
		October 30			January 1			Year Ended
		through			through			December 31,
		December 31,			October 29,
		2004			2004			2003			2002

Weighted-average discount rate assumption used to determine
	Benefit obligations at end of period		5.75	%		6.00	%		6.00	%		6.75	%
	Net periodic benefit cost for the periods ended February 15, 2003 and October 2002		N/A			N/A			6.75	%		7.25	%
	Net periodic benefit cost for the remaining period		5.75	%		6.00	%		6.50	%		6.75	%
Assumed health care cost trend rates
	Current year medical inflation		11.00	%		11.00	%		11.00	%		11.00	%
	Ultimate inflation rate		5.00	%		5.25	%		5.25	%		5.25	%
	Year that the rate reaches the ultimate trend rate		2010			2010			2010			2009

F-35

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

A 1% change in the medical trend rate assumed for postretirement benefits would have the following effects for the period from October 30 through December 31, 2004 and at December 31, 2004, respectively:


	1% Increase		1% Decrease

	(In thousands of dollars)
Effect on total service and interest cost components	$	166	$	(130	)
Effect of postretirement benefit obligations		10,144		(8,014	)


14.	Financial Instruments

The Company and the Predecessor maintained significant operations in countries other than the United States. As a result of these global activities, the Company and the Predecessor were exposed to changes in foreign currency exchange rates which affected the results of operations and financial condition. The Company and the Predecessor managed exposure to changes in foreign currency exchange rates through their normal operating and financing activities, as well as through the use of financial instruments. Generally, the only financial instruments the Company and the Predecessor utilized were forward exchange contracts.

The purpose of the Company’s and the Predecessor’s currency hedging activities was to mitigate the impact of changes in foreign currency exchange rates. The Company and the Predecessor attempted to hedge transaction exposures through natural offsets. To the extent that this was not practicable, major exposure areas considered for hedging included foreign currency denominated receivables and payables, firm committed transactions, and forecasted sales and purchases.

SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” and its amendments, became effective for the Predecessor on January 1, 2001. The statement requires all derivatives to be recognized as assets or liabilities on the balance sheet and measured at fair value. The effective portion of the hedging instrument’s gain or loss is reported to Stockholders’ Equity (as a component of Other Comprehensive Income) and is reclassified to earnings in the period during which the transaction being hedged affect’s income. Gains or losses reclassified from Stockholders’ Equity to income are classified in accordance with income treatment of the hedged transaction. The ineffective portion of a hedging derivative’s fair value change, where that derivative is used in a cash flow hedge, is recorded in current income. Classification in the Statement of Income of the ineffective portion of the hedging instrument’s gain or loss is based on the income statement classification of the transaction being hedged. If a derivative instrument does not qualify as a hedge under the applicable guidance, the change in the fair value of the derivative is immediately recognized in the Statement of Income. The fair value of forward contracts at December 31, 2004 was $1.9 million, all of which were ineffective hedges.

The counterparties to the Company’s and the Predecessor’s forward contracts comprised a number of major international financial institutions. The Company and the Predecessor could be exposed to loss in the event of non-performance by the counterparties. However, credit ratings and concentration of risk of these financial institutions were monitored on a continuing basis and presented no significant credit risk to the Company or the Predecessor.

The carrying value of cash, accounts receivable, short-term borrowings and accounts payable were a reasonable estimate of their fair value due to the short-term nature of these instruments. The carrying value of debt obligations approximates fair value.


15.	Commitments and Contingencies

In late 2000, the Predecessor entered into a contract with Shell Petroleum Development Corporation (SPDC) for the refurbishment of 20-year old compressor stations for the Nigerian Gas Company (NGC). These stations are located in the Warri district in the western part of Nigeria.

F-36

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

In August 2003, for the safety of personnel, all of the Predecessor’s employees were evacuated from Warri following consultation with independent security advisors, and as such, exercised a force majure clause in the contract with SPDC, effectively canceling the project. As a result, the Predecessor and SPDC entered into negotiations to settle all claims and costs associated with the contract. The settlement process was brought forth to the SPDC Main Tender Board. At December 31, 2004, the gross outstanding accounts receivable balance with SPDC related to the NGC contract was $15.8 million. In April 2005, Shell confirmed that the SPDC Major Tender Board had approved the Company’s claim. The receivable is classified as a current asset in trade accounts receivable as the Company expects to liquidate the receivable in 2005.

The Company is involved in various litigation, claims and administrative proceedings, including environmental matters, arising in the normal course of business. In assessing its potential environmental liability, the Company bases its estimates on current technologies and does not discount its liability or assume any insurance recoveries. 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 recovery or liability with respect to these matters would not have a material effect on the financial condition, results of operations, liquidity or cash flows of the Company or Predecessor for any year.

The Equity Purchase Agreement provides that, with the exception of non-Superfund off-site liabilities and non-asbestos environmental tort claims which have a three year limit for a claim to be filed, IR will remain responsible without time limitations for known environmental conditions as of the Closing Date that meet certain requirements set forth in the Equity Purchase Agreement. The most important of these requirements is that with regard to environmental contamination, regulatory authorities would be expected to require investigation or remediation if they knew about the contamination. The Company and IR have agreed on many, but not all, of the matters for which IR will remain responsible.

The Company is contingently liable for customs duties in certain non-U.S. countries which totaled $0.8 million at December 31, 2004. In the normal course of business, the Company has issued several direct and indirect guarantees to foreign governments related to import/export duties. Management believes these guarantees will not adversely affect the consolidated financial statements.

Certain office and warehouse facilities, transportation vehicles and data processing equipment are leased. Total rental expense was $1.5 million for the period from October 30, 2004 through December 31, 2004, $10.8 million for the period from January 1, 2004 through October 29, 2004, $11.9 million in 2003 and $14.1 million in 2002. Minimum lease payments required under non-cancelable operating leases with terms in excess of one year for the next five years and thereafter are as follows: $7.1 million in 2005, $5.4 million in 2006, $2.4 million in 2007, $0.8 million in 2008, and $0.0 million thereafter.

The product warranty liability represents estimated future claims for equipment, parts and services covered during a warranty period. A warranty reserve is provided for at the time of revenue recognition based on historical experience. Reserves are adjusted as required.

F-37

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

The following table represents the changes in the product warranty liability:


	Successor			Predecessor

	Period from			Period from
	October 30			January 1
	through			through			Year Ended
	December 31,			October 29,			December 31,
	2004			2004			2003

	(In thousands of dollars)
Beginning balance	$	20,319		$	23,699		$	21,424
Reductions for payments		(2,224	)		(12,487	)		(17,050	)
Translation		1,400			483			1,896
Changes in accrual during current period		1,583			8,624			17,429

Ending balance	$	21,078		$	20,319		$	23,699


16.	Incentive Plans


	*Successor Incentive Plan*

On December 31, 2004, the Company’s share-based compensation arrangements represent profit units issued to certain of the Company’s executives in connection with the acquisition, which is described below. The compensation cost that has been charged against income for these arrangements was approximately $75 thousand for the period from October 30, 2004 through December 31, 2004. No income tax benefit was recognized in the income statement for share-based compensation arrangements for the period from October 30, 2004 through December 31, 2004.

The amended and restated limited liability company agreement of Dresser-Rand Holdings, LLC (“Dresser-Rand Holdings, LLC Agreement”) permits the grant of the right to purchase common units to management members of Dresser-Rand Holdings, LLC and the grant of service units and exit units (collectively referred to as “profit units”), consisting of one initial tranche of service units and five initial tranches of exit units to certain management members who own common units. On November 22, 2004, and in connection with the closing of the Acquisition, several of the Company’s executive officers, including the Chief Executive Officer and four other of the most highly compensated executive officers, acquired common units in Dresser-Rand Holdings, LLC at $4.33 per unit by funds affiliated with First Reserve in connection with the Acquisition. Executives who purchased common units were also issued a total of 2,392,500 service units and five tranches of exit units totaling 5,582,500 exit units in Dresser-Rand Holdings, LLC, which permit them to share in appreciation in the value of the Company’s shares. The Company accounted for the transactions between Dresser-Rand Holdings, LLC and the Company’s executives in accordance with Staff Accounting Bulletin Topic 5T, which requires the Company to record expense for services paid by the stockholder for the benefit of the Company.

The service units were granted without any remuneration. The service units vest over a period of 5 years and have 10 year contractual terms. The service units provide for accelerated vesting if there is a change in control, as defined in the Dresser-Rand Holdings, LLC Agreement. Vested service units convert to common units of Dresser-Rand Holdings, LLC upon termination for any reason, death or disability. In certain circumstances, unvested service units will also convert into common units of Dresser-Rand Holdings, LLC.

The fair value of each service unit is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table for the period ended December 31, 2004. Expected volatilities are based on historical volatilities of several comparable guideline companies in the oil and gas compressor and turbine manufacturing industries. The Company utilized First Reserve’s historical experience to estimate the expected term within the valuation model. The risk-free interest rate is based on

F-38

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

the rate currently available for zero coupon U.S. Government issues in effect at the time of grant with a remaining term equal to the expected life of the service units being valued.


Expected volatility	36.20	%
Expected dividend yield	0	%
Expected term (in years)	4.9
Risk-free interest rate	3.18	%

As of December 31, 2004, there was $3.3 million of total unrecognized compensation cost related to the service units. The cost is expected to be recognized over a weighted-average period of 4.9 years.

The exit units were granted in a series of five tranches. Exit units are eligible for vesting upon the occurrence of certain exit events, as defined in the Dresser-Rand Holdings, LLC Agreement, including (i) funds affiliated with First Reserve receiving an amount of cash in respect of their ownership interest in Dresser-Rand Holdings, LLC that exceeds specified multiples of the equity those funds have invested in the Company, or (ii) there is both (a) a change in control, certain terminations of employment, death or disability, and (b) the fair value of the common units at the time of such an event is such that were the common units converted to cash, funds affiliated with First Reserve would receive an amount of cash that exceeds specified multiples of the equity those funds have invested in the Company. Vested exit units convert to common units of Dresser-Rand Holdings, LLC. The Company is unable to determine the fair value of the exit units, and therefore, as defined by SFAS 123R, there has not yet been a mutual understanding between the issuer and the holders of the exit units of the key terms and conditions of the exit units. As such, in substance, no grant has yet occurred. Consequently, no amount is recorded as compensation cost in the Company’s financial statements for the period from October 30, 2004 through December 31, 2004. The Company will recognize compensation expense for the exit units at the time that the key terms and conditions of the exit units can be determined.


	*Predecessor Stock Incentive Plan*

Certain employees of the Predecessor were eligible to participate in stock option plans of IR. The plans granted employees options to purchase Class A common shares of IR at prices not less than the fair market value at the date of the grant. Options become exercisable ratably over a three-year period from their date of grant and expire at the end of ten years. The plans, approved in 1998, also authorized stock appreciation rights (SARs) and stock awards, which resulted in compensation expense.

Under SFAS No. 123, compensation cost for the applicable provisions of the Predecessor incentive stock plans would be determined based upon the fair value at the grant date for awards issued. The average fair values of the options granted during the period from January 1, 2004 through October 29, 2004, and the years ended December 31, 2003, and 2002 were estimated at, $22.74, $13.10, and $14.96, respectively, on the date of grant, using the Black-Scholes option-pricing model, which included the following assumptions:


	Predecessor

	Period from
	January 1			Year Ended
	through			December 31,
	October 29,
	2004			2003			2002

Dividend yield		1.19	%		1.75	%		1.61	%
Volatility		39.34	%		39.83	%		38.85	%
Risk-free interest rate		3.28	%		3.12	%		4.69	%
Expected life		5 years			5 years			5 years

F-39

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

Changes in options outstanding under the plans were as follows:


	Shares Subject			Option Price		Weighted Average
	to Option			Range per Share		Exercise Price

Predecessor
December 31, 2001		465,476		$	40.75-53.03	$	45.94
Granted		128,465			41.81-41.81		41.81
Exercised		(1,233	)		40.25-40.75		40.75
Cancelled		(650	)		53.03-53.03		33.03

December 31, 2002		592,058			33.67-53.03		45.04
Granted		162,220			39.05		39.05
Exercised		(117,634	)		33.67-53.03		45.35
Cancelled		(23,222	)		39.05-53.05		42.91

December 31, 2003		613,422			39.05-53.03		44.25
Granted		136,610			64.37		46.96
Exercised		(82,299	)		39.05-53.03		46.14
Cancelled		(107,272	)		39.05-64.37		47.84

October 29, 2004		560,461		$	39.05-64.37	$	47.77

Stock options granted to employees were for the purchase of Class A common stock of IR and remained obligations solely of IR following the Acquisition.


17.	Significant Customers and Concentration of Credit Risk

The Company supplies equipment and services to the oil and gas industry, which is comprised of a relatively small number of consumers. Within any given year, sales can vary greatly due to the large projects that might be underway with any given oil and gas producer. During the periods from October 30, 2004 through December 31, 2004 and from January 1, 2004 through October 29, 2004 no one customer comprised more than 10% of the sales volume. In 2003, the Predecessor had one customer, whose sales were approximately 11% of total sales. In 2002 no one customer comprised more than 10% of the Predecessor’s total sales.

The Company has operations and or does business in various non-U.S. countries. It is possible that political instability, foreign currency devaluations or other unanticipated adverse events could materially affect the operations of the Company. The Company believes that it has controls and processes in place to minimize the impact such events, should they occur in the future.

F-40

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


18.	Other Income (Expense)

Other income (expense) includes the following:


		Successor			Predecessor

		Period from			Period from
		October 30			January 1			Year Ended
		through			through			December 31,
		December 31,			October 29,
		2004			2004			2003			2002

		(In thousands of dollars)
New York State Grant		$	—		$	—		$	(1,289	)	$	8,000
Equity earnings (losses) in partially owned affiliates			194			(1,013	)		(133	)		(479	)
Foreign currency gains (losses)			(1,023	)		2,069			(4,406	)		(1,131	)
Insurance claims			—			—			—			10,145
Casualty losses			—			—			(2,750	)		—
Other			(1,017	)		826			(624	)		(1,535	)

	Total other income/(expense), net	$	(1,846	)	$	1,882		$	(9,202	)	$	15,000

Casualty losses in 2003 primarily represent a loss the Predecessor experienced as a result of a fire at a warehouse in Nigeria.

In 2002, the Predecessor received $10.0 million of grant funds from the New York State Empire Development Corporation (ESDC). The grants were designated to provide resources for workforce development and capital equipment. The Predecessor recorded $8.0 million of these grants as income in other income (expense) and $2.0 million as a reduction in basis of acquired property and equipment in the 2002 accounts. The grant vests over a five-year period beginning in 2001 based on three criteria. First, the Predecessor was required to keep three factories open in New York State. Second, the Predecessor was required to relocate its headquarters to Olean, New York. Third, the Predecessor would commit to certain employment levels at each year end. The grant vests ratably over a five year period commencing in 2001 (a retroactive component of the grant) and concluding in 2005. Prior to the end of 2003, the Predecessor and ESDC restructured the grant to reflect the then existing business environment. As a result of this negotiation, the committed employment levels were adjusted from 2,500 to 2,200 and the grant was reduced from the original $10.0 million to $8.4 million. On the basis of the adjusted grant level, the Predecessor agreed to reimburse ESDC in the amount of $1.6 million, ratably, over a three-year period, beginning in December 2003. The Predecessor has recorded in the 2003 accounts $1.3 million of this reimbursement as a component of other income (expense) and $0.3 million as an adjustment to the related property and equipment. At December 31, 2004, the Company’s New York State employment level was 2,208. Management believes that the required employment levels will be maintained during 2005.

In 2002, the Predecessor settled an insurance claim associated with patterns destroyed in a fire at a supplier’s facility. The fire occurred in April 2000. The settlement resulted in a $10.1 million gain recognized in 2002.


19.	Restructuring

For the year ended December 31, 2002, the Predecessor recorded restructuring charges totaling $5.2 million for employee termination benefits in connection with reductions in workforce, closing of several non-manufacturing locations and realignment of the Predecessor’s regional structure. No additional restructuring charges were recorded in 2004 or 2003. As of December 31, 2004, the restructuring programs have resulted in the closure of non-manufacturing facilities, including sales offices, with a workforce reduction

F-41

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

of 388 employees. The provision remaining at December 31, 2003 relates to final severance payments and facility exit costs and was paid in 2004.

A reconciliation of the restructuring reserve program is as follows:


	Employee			Facility
	Termination			Exit
	Costs			Costs			Total

	(In thousands of dollars)
Predecessor
Balance at January 1, 2002	$	—		$	—		$	—
Provision		4,689			500			5,189
Cash payments		(1,485	)		—			(1,485	)

Balance at December 31, 2002		3,204			500			3,704
Cash payments		(3,104	)		(341	)		(3,445	)

Balance at December 31, 2003		100			159			259
Cash payments		(100	)		(159	)		(259	)

Balance at October 29, 2004	$	—		$	—		$	—


20.	Supplemental Cash Flow Information

Successor

Predecessor

Period from

October 30

January 1

Year Ended

through

December 31,

October 29,

2004

2003

2002

(In thousands of dollars)

Cash paid during the period for interest

2,930

888

2,195

4,244

Income taxes paid, net of refunds

3,337

7,566

8,554

16,603

Interest income includes $2.6 million, $1.7 million and $0.8 million of net interest income from IR affiliates in the period from January 1, 2004 through October 29, 2004 and the years ended December 31, 2003 and 2002, respectively. The amounts shown as cash paid for interest include payments on third-party borrowings only.


21.	Royalty Agreement

In September of 2000, the Predecessor sold to Volvo Aero Corporation (“Volvo”) the rights to provide aftermarket support for certain gas turbine engines, and certain related equipment, inventory and know-how needed for Volvo to operate the acquired aftermarket business. Under the purchase agreement, Volvo pays royalties based on revenues Volvo earns from operation of aftermarket business until December 31, 2005. The royalty agreement states that Volvo shall pay 25% of the net revenues of Volvo’s “990” aftermarket business, commencing January 1, 2002. A similar royalty was and will be paid for 2003 (25%), 2004 (30%) and 2005 (30%). Due to the nature of this agreement, an intangible was recorded on the Successor accounts in the amount of $2.3 million at the acquisition date. Pursuant to the agreement, the Predecessor recorded revenue and income of $1.2 million in the period from January 1, 2004 through October 29, 2004, $1.7 million in the year ended December 31, 2003 and $2.8 million in the year ended December 31, 2002. This revenue is recorded within the caption “Other operating revenue” in the accompanying combined income statements.

F-42

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


22.	Segment Information:

The Company has two reportable segments based on the engineering and production processes, and the products and services provided by each segment, identified as follows:


	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.

We evaluate performance based on the operating income from each segment. Operating income excludes interest, other expense such as currency losses and equity losses, and taxes.

A third category, “unallocable” is also disclosed. This category is for expenses and assets that do not belong to either reportable segment because of the nature of the expense or asset. Expenses included as “unallocable” are all IR allocations, shared services, research and development expenses, and restructuring charges, none of which are directly allocable to either of the two reportable segments. The only assets that are directly allocable to either of the two reportable segments are trade accounts receivable, net inventories, and goodwill. All other assets such as cash, prepaid expenses, deferred taxes, and long term assets are not directly allocable to either of the two reportable segments.

D-R had one customer with sales amounting to 10.8% of 2003 revenues. Revenues were in both New Units and Aftermarket Parts and Services. Supplemental information on geographic sales and long-lived assets is also provided.


	Successor			Predecessor

	Period from			Period from
	October 30			January 1
	through			through			Year Ended December 31,
	December 31,			October 29,
	2004			2004			2003			2002

	(In thousands of dollars)
Revenues
New units	$	77,607		$	267,691		$	792,974		$	498,791
Aftermarket parts and services		122,300			447,804			542,376			532,562

Total Revenues	$	199,907		$	715,495		$	1,335,350		$	1,031,353

Operating Income (Loss)
New units	$	3,567		$	(464	)	$	(11,445	)	$	(32,850	)
Aftermarket parts and services		30,571			85,039			98,159			85,696
Unallocable		(8,134	)		(35,492	)		(47,647	)		(39,064	)

Total Operating Income	$	26,004		$	49,083		$	39,067		$	13,782

Depreciation and Amortization
New units	$	5,775		$	9,201		$	16,678		$	15,758
Aftermarket parts and services		10,494			13,514			12,431			18,064

Total Depreciation and Amortization	$	16,269		$	22,715		$	29,109		$	33,822

F-43

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


	Successor		Predecessor

	Period from		Period from
	October 30		January 1
	through		through		Year Ended December 31,
	December 31,		October 29,
	2004		2004		2003		2002

	(In thousands of dollars)
Goodwill
New units	$	123,831			$	506
Aftermarket parts and services		299,499				9,708

Total Goodwill	$	423,330			$	10,214

Total Assets (including Goodwill)
New units	$	270,563			$	144,292
Aftermarket parts and services		564,253				246,166
Unallocable		916,258				673,417

Total Assets	$	1,751,074			$	1,063,875

Revenues by Destination(a)
North America	$	77,700	$	275,941	$	547,777	$	437,199
Latin America		30,660		139,898		106,635		121,527
Europe		26,591		113,461		331,366		207,769
Asia-Pacific		21,482		94,291		128,945		159,964
Middle East, Africa		43,474		91,904		220,627		104,894

Total Revenues	$	199,907	$	715,495	$	1,335,350	$	1,031,353

Long-Lived Assets by Geographic Area
North America	$	159,060			$	75,783
Latin America		2,531				1,617
Europe		58,860				18,006
Asia-Pacific		6,313				6,028
Middle East, Africa		—				4

Total Long-Lived Assets	$	226,764			$	101,438

(a)

In the period from October 30, 2004 through December 31, 2004, the sales to customers in Canada, Venezuela and Russia comprised 6.0%, 8.5% and 5.5%, respectively, of total revenues. In the period from January 1, 2004 through October 29, 2004, sales to customers in Brazil and Venezuela comprised 6.7% and 6.8%, respectively, of total revenues. In 2003, sales to customers in Norway and Libya comprised 9.6% and 5.3%, respectively, of total revenues and in 2002 sales to customers in France generated 6.1% of total revenues. No other sales within individual countries exceeded 5% of the total revenues in any year presented.

F-44

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


23.	Subsequent events

On January 19, 2005, the Company sold its interests in a partially-owned affiliate for proceeds of approximately $10 million. The carrying value of this investment as of the date of sale was approximately $10 million.


24.	Unaudited Pro Forma Net Income Per Share Attributable to Common Stockholders (Unaudited)

Pro forma basic and diluted net income per share for the period from October 30, 2004 through December 31, 2004 have been computed to give effect to dividends paid out of proceeds upon closing of the Company’s initial public offering, giving effect to the number of shares whose proceeds would be necessary to pay the dividend in excess of current period earnings.

F-45

DRESSER-RAND GROUP INC.

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

As of March 31, 2005 and

For the Three Months Ended March 31, 2005

CONSOLIDATED FINANCIAL STATEMENTS (audited)

As of December 31, 2004

COMBINED FINANCIAL STATEMENTS (unaudited)

For the Three Months Ended March 31, 2004

F-46

DRESSER-RAND GROUP INC.

CONSOLIDATED STATEMENT OF OPERATIONS (SUCCESSOR)

AND COMBINED STATEMENT OF OPERATIONS (PREDECESSOR)


		Successor			Predecessor

		Three Months			Three Months
		Ended March 31,			Ended March 31,
		2005			2004

		(unaudited)			(unaudited)
		(In thousands of dollars, except
		per share information)
Net sales of products to third parties		$	178,448		$	126,362
Net sales of services to third parties			55,552			43,073
Net sales to affiliates			—			626
Other operating revenue			—			287

	Total revenues		234,000			170,348

Cost of products sold			143,815			89,103
Cost of services sold			42,476			33,180
Cost of products sold, affiliates			—			482

Total cost of products and services sold			186,291			122,765

	Gross profit		47,709			47,583
Selling and administrative expenses			37,361			39,636
Research and development expenses			1,632			1,524

	Income from operations		8,716			6,423
Interest income (expense), net			(15,233	)		(297	)
Other income (expense), net			(180	)		(2,385	)

	Income (loss) before income taxes		(6,697	)		3,741
Provision (benefit) for income taxes			(2,679	)		431

	Net income (loss)	$	(4,018	)	$	3,310

Net loss per share:
	Basic and diluted	$	(0.04	)

Shares used in computing net loss per share:
	Basic and diluted		100,908,116

The accompanying notes are an integral part of the consolidated and combined financial statements

F-47

DRESSER-RAND GROUP INC.

CONSOLIDATED BALANCE SHEETS (SUCCESSOR)


			Pro Forma
			March 31,			March 31,			December 31,
			2005			2005			2004

			(unaudited)			(unaudited)
			(In thousands of dollars except for shares)
ASSETS
Current assets
	Cash and cash equivalents		$	151,317		$	151,317		$	111,500
	Accounts receivable, less allowance for doubtful accounts of $13,791 and $15,110 at 2005 and 2004			183,210			183,210			264,938
	Inventories, net			175,181			175,181			175,873
	Prepaid expenses			18,429			18,429			14,256
	Deferred income taxes			8,295			8,295			7,445

		Total current assets		536,432			536,432			574,012
Investments in and advances to partially owned equity companies				2,912			2,912			12,989
Property, plant and equipment, net				220,499			220,499			226,764
Goodwill				411,186			411,186			423,330
Intangible assets, net				466,676			466,676			479,587
Other assets				31,609			31,609			34,392

		Total assets	$	1,669,314		$	1,669,314		$	1,751,074


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
	Accounts payable and accruals		$	262,323		$	262,323		$	271,275
	Customer advance payments			79,718			79,718			38,661
	Income taxes payable			12,411			12,411			12,977
	Dividends payable			477,910			—			—
	Loans payable			2,731			2,731			2,734
	Current maturities of long-term debt			—			—			4,015

		Total current liabilities		835,093			357,183			329,662
Deferred income taxes				22,371			22,371			27,287
Postemployment and other employee benefit liabilities				112,004			112,004			111,640
Long-term debt				310,273			310,273			396,664
Senior subordinated notes				420,000			420,000			420,000
Other noncurrent liabilities				12,179			12,179			12,924

		Total liabilities		1,711,920			1,234,010			1,298,177
Commitments and contingencies (Notes 7, 8 and 9)
Stockholders’ Equity
	Common stock, $0.01 par value, 101,200,000 shares authorized, 100,908,116 shares issued and outstanding, respectively			1,009			1,009			1,009
	Additional paid-in capital			—			436,343			436,175
	Retained earnings (deficit)			(38,356	)		3,211			7,229
	Accumulated other comprehensive income (loss)			(5,259	)		(5,259	)		8,484

		Total stockholders’ equity		(42,606	)		435,304			452,897

		Total liabilities and stockholders’ equity	$	1,669,314		$	1,669,314		$	1,751,074

The accompanying notes are an integral part of the consolidated and combined financial statements

F-48

DRESSER-RAND GROUP INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (SUCCESSOR)

AND COMBINED STATEMENT OF CASH FLOWS (PREDECESSOR)


					Successor			Predecessor

					Three Months			Three Months
					Ended March 31,			Ended March 31,
					2005			2004

					(unaudited)			(unaudited)
					(In thousands of dollars)
Cash flows from operating activities
	Net income (loss)				$	(4,018	)	$	3,310
	Adjustments to arrive at net cash provided by (used in) operating activities:
		Depreciation and amortization				16,951			7,033
		Loss (gain) on sale/disposal of property, plant and equipment				87			(1	)
		Amortization and write-off of deferred financing costs				2,827			—
		Provision for (adjustment to) losses on accounts receivable				(870	)		67
		Provision for losses on inventory				1,403			1,020
		Minority interest, net of dividends				(326	)		(59	)
		Equity losses, net				411			582
		Deferred income taxes				(5,766	)		(1,107	)
		Other				168			—
			(Increase) decrease in:
				Accounts receivable		81,060			43,928
				Inventories		(1,178	)		(12,580	)
				Other current and noncurrent assets		136			(5,998	)
			Increase (decrease) in:
				Accounts payable		5,112			(27,571	)
				Other current and noncurrent liabilities		22,470			(37,894	)

				Net cash provided by (used in) operating activities		118,467			(29,270	)

Cash flows from investing activities
	Capital expenditures					(1,643	)		(906	)
	Proceeds from equity investment disposition					10,000			—
	Proceeds from sales of property, plant and equipment					—			41
	Proceeds from sale of marketable securities					—			1,037

				Net cash provided by investing activities		8,357			172

Cash flows from financing activities
	Proceeds from short-term borrowings					—			248
	Payments of short term borrowings					—			(729	)
	Proceeds from long-term debt					—			42
	Payments of long term debt					(85,685	)		—
	Changes in due to (from) unconsolidated affiliates					(575	)		28,794

				Net cash (used in) provided by financing activities		(86,260	)		28,355

Effect of exchange rate changes on cash and cash equivalents						(747	)		(566	)

Net increase (decrease) in cash and cash equivalents						39,817			(1,309	)
Cash and cash equivalents, beginning of the period						111,500			41,537

Cash and cash equivalents, end of period					$	151,317		$	40,228

The accompanying notes are an integral part of the consolidated and combined financial statements

F-49

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS


1.	Basis of Presentation

The accompanying unaudited consolidated financial statements as of March 31, 2005 and for the three months ended March 31, 2005, and the combined financial statements for the three months ended March 31, 2004 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

The balance sheet at December 31, 2004 has been derived from the audited consolidated financial statements of the Company.

On October 29, 2004, pursuant to a purchase agreement with Dresser-Rand Holdings, LLC, the Company acquired from Ingersoll-Rand Company Limited, LLC, (“IR”) the Dresser-Rand Company and the operations of Dresser-Rand Canada, Inc. and Dresser-Rand GmbH (the “Acquisition”). As a result of the Acquisition, the Company’s results of operations, financial position and cash flows prior to the date of the Acquisition are presented as the “Predecessor.” The financial effects of the Acquisition and the Company’s results of operations, financial position and cash flows as the surviving corporation following the Acquisition are presented as the “Successor.” To clarify and emphasize that the Successor Company has been presented on an entirely new basis of accounting, the Company has separated Predecessor and Successor operations with a vertical black line, where appropriate.


2.	Recently Issued Accounting Standards

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an Amendment of Accounting Research Bulletin No. 43, and Chapter 4”. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight handling costs and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance in this statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this statement is not expected to have a material impact to the Company’s financial reporting and disclosures.

In December 2004, the FASB released SFAS 123R, Share-Based Payments, that is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” This Statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share based payment transactions. The Company has elected to early adopt the provisions of SFAS 123R as of October 30, 2004. As a result, the Company recognized compensation cost in relation to share-based compensation arrangements of $168.1 thousand for the three months ended March 31, 2005.

In March 2005, the FASB released FASB Interpretation No. 47, entitled “Accounting for Conditional Asset Retirement Obligations”. This Interpretation is effective no later than the Company’s December 31,

F-50

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

2005 financial statements. The Company is currently assessing the impact the Interpretation will have on its financial position and results of operation.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. This statement is effective for fiscal years beginning after December 15, 2005.


3.	Inventories

Inventories were as follows:


			March 31,			December 31,
			2005			2004

			(unaudited)			(audited)
			(In thousands)
Raw materials and supplies			$	71,909		$	60,728
Work-in-process and finished goods				225,476			209,247

				297,385			269,975
Less:
	Progress payments			(122,204	)		(94,102	)

		Total inventories	$	175,181		$	175,873

The progress payments represent payments from customers based on milestone completion schedules. Any payments received in excess of inventory investment are reclassified to “Customer Advance Payments” in the current liabilities section of the balance sheet.

4. Intangible Assets and Goodwill

The following table sets forth the gross cost amount and related accumulated amortization of intangible assets:


	March 31, 2005				December 31, 2004

	Gross		Accumulated		Gross		Accumulated
	Amount		Amortization		Amount		Amortization

	(unaudited)				(audited)
	(In thousands)
Trade names	$	82,700	$	860	$	82,700	$	344
Customer Relationships		225,968		2,359		227,746		936
Software and technology		149,653		3,260		149,653		1,304
Other amortizable intangible assets		31,754		16,920		31,828		9,756

Total amortizable intangible assets	$	490,075	$	23,399	$	491,927	$	12,340

Intangible asset amortization expense for the three months ended March 31, 2005 and 2004 was $11.0 million and $1.8 million, respectively.

F-51

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

Amortization expense related to intangible assets for the remainder of fiscal year 2005 and the next five years thereafter is as follows:


Year Ended December 31,	(In millions)

2005	$	22.8
2006		19.0
2007		15.5
2008		15.5
2009		15.5
2010		15.5

The following table represents the change in goodwill:


	March 31,
	2005

	(In thousands)
Beginning balance	$	423,330
Dispositions		—
Translation adjustments		(12,144	)

Ending balance	$	411,186

The goodwill represents the portion of the purchase price allocated to the Company’s global customer service capability and assembled workforce.

5. Income Taxes

For the three months ended March 31, 2005, the Company’s effective income tax rate was 40.0% versus 11.5% for the three months ended March 31, 2004. The rate increased primarily because the Predecessor period reflected the non-taxable partnership structure in existence for most of the domestic operations of the Company. Other differences between the statutory U.S. federal tax rate of 35% and the effective tax rate are attributable to foreign tax rate differences, valuation allowances, state and local income taxes, and various credits and nondeductible expenditures.

On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the “Act”). The Act raises a number of issues with respect to accounting for income taxes. For companies that pay U.S. income taxes on manufacturing activities in the U.S., the Act provides a deduction from taxable income equal to a stipulated percentage of qualified income from domestic production activities. The Act also creates a temporary incentive for U.S. multinationals to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations. On December 21, 2004, the Financial Accounting Standards Board (“FASB”) issued guidance regarding the accounting implications of the Act related to the deduction for qualified domestic production activities should be accounted for as a special deduction under FASB Statement No. 109, “Accounting for Income Taxes”. The guidance applies to financial statements for periods ending after the date the Act was enacted. The Company is currently evaluating the effect of these provisions and expects to complete its evaluation in the fourth quarter of 2005.

F-52

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


6.	Pension Plans

The components of net periodic pension cost attributable to the Company’s and the Predecessor’s pension plans is as follows:


		Successor			Predecessor

		Three Months			Three Months
		Ended			Ended
		March 31,			March 31,
		2005			2004

		(In thousands)
Service cost		$	1,361		$	1,403
Interest cost			4,322			5,017
Expected return on plan assets			(4,737	)		(6,313	)
Net amortization of unrecognized:
	Prior service cost		—			87
	Plan net losses		—			997

Net periodic pension cost		$	946		$	1,191


7.	Postretirement Benefits Other than Pensions

The components of net periodic postretirement benefits cost attributable to the Company’s and the Predecessor’s post retirement benefit plans are as follows:


	Successor		Predecessor

	Three Months		Three Months
	Ended		Ended
	March 31,		March 31,
	2005		2004

	(In thousands)
Service cost	$	452	$	513
Interest cost		673		2,943
Net amortization of unrecognized prior service gains		—		(258	)
Net amortization of loss		—		1,105

Net periodic postretirement benefits cost	$	1,125	$	4,303


8.	Commitments and Contingencies

In August 2003, for the safety of personnel, all of the Predecessor’s employees were evacuated from Warri following consultation with independent security advisors, and as such, exercised a force majure clause in the contract with SPDC, effectively canceling the project. As a result, the Predecessor and SPDC entered into negotiations to settle all claims and costs associated with the contract. The settlement process was brought forth to the SPDC Main Tender Board. At March 31, 2005, the gross outstanding accounts receivable balance with SPDC related to the NGC contract was $15.8 million. In April 2005, Shell confirmed that the SPDC Major Tender Board had approved the Company’s claim. The receivable is classified as a current asset in trade accounts receivable as the Company expects to liquidate the receivable in 2005.

F-53

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

The Acquisition Agreement provides that, with the exception of non-Superfund off-site liabilities and non-asbestos environmental tort claims which have a three year limit for a claim to be filed, IR will remain responsible without time limitations for known environmental conditions as of the Closing Date that meet certain requirements set forth in the Equity Purchase Agreement. The most important of these requirements is that with regard to environmental contamination, regulatory authorities would be expected to require investigation or remediation if they knew about the contamination. The Company and IR have agreed on many, but not all, of the matters for which IR will remain responsible.

The Company is contingently liable for customs duties in certain non-U.S. countries which totaled $1.2 million at March 31, 2005. In the normal course of business, the Company has issued several direct and indirect guarantees to foreign governments related to import/export duties. Management believes these guarantees will not adversely affect the consolidated financial statements.

In 2002, the Predecessor received $10.0 million of grant funds from the New York State Empire Development Corporation (“ESDC”). The grants were designated to provide resources for workforce development and capital equipment. The Predecessor recorded $8.0 million of these grants as income in other income (expense) and $2.0 million as a reduction in basis of acquired property and equipment in 2002. The grant vests ratably over a five year period commencing in 2001 and concluding in 2005, based on certain criteria. Prior to the end of 2003, the Predecessor and ESDC restructured the grant to reflect the then existing business environment which reduced the original $10.0 million to $8.4 million. On the basis of the adjusted grant level, the Predecessor agreed to reimburse ESDC in the amount of $1.6 million, ratably, over a three-year period, beginning in December 2003. The restructured ESDC grant provides, among other conditions, that the Company meet certain employment levels at December 31 of each year; otherwise the Company could be obligated to reimburse the ESDC a portion of the grant. At March 31, 2005, the Company’s New York State employment level was 51 employees below the required level. Although the actual employment level fell slightly below the committed employment level at March 31, 2005, management expects that it will meet the annual required employment level at December 31, 2005.

The Company maintains a product warranty liability which represents estimated future claims for equipment, parts and services covered during a warranty period. A warranty reserve is provided for at the time of revenue recognition based on historical experience. Reserves are adjusted as required.

F-54

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

The following table represents the changes in the product warranty liability:


	Successor			Predecessor

	Three Months			Three Months
	Ended			Ended
	March 31, 2005			March 31, 2004

	(In thousands)
Beginning of period	$	21,078		$	23,699
Reductions for payments		(3,911	)		(4,575	)
Translation		40			(27	)
Changes in accrual during current period		2,643			127

End of period	$	19,850		$	19,224


9.	Other Comprehensive (Loss) Income

The components of other comprehensive (loss) income are as follows:


		Successor			Predecessor

		Three Months			Three Months
		Ended			Ended
		March 31, 2005			March 31, 2004

		(In thousands)
Net (loss) income		$	(4,018	)	$	3,310
Other comprehensive income (loss) net of tax:
	Change in value of cash flow hedge, net of tax		—			224
	Foreign currency translation adjustment		(13,743	)		999

Comprehensive (loss) income, net of tax		$	(17,761	)	$	4,533

The components of accumulated other comprehensive (loss) income are as follows:


	Successor

	Three Months
	Ended
	March 31, 2005

	(In thousands)
Minimum pension liability, net of tax	$	(922	)
Foreign currency translation adjustment		(4,337	)

Accumulated other comprehensive (loss) income, net of tax	$	(5,259	)


10.	Supplemental Cash Flow Information


	Successor		Predecessor

	Three Months		Three Months
	Ended		Ended
	March 31, 2005		March 31, 2004

	(In thousands)
Cash paid during the year for interest	$	4,030	$	155
Income taxes paid, net of refunds		2,427		4,666

F-55

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


11.	Segment Information:

The Company has two reportable segments based on the engineering and production processes, and the products and services provided by each segment, identified as follows:


	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.

We evaluate performance based on the operating income from each segment. Operating income excludes interest, other expense such as currency losses and equity losses, and taxes.

A third category, “unallocable” is also disclosed. This category is for expenses and assets that do not belong to either reportable segment because of the nature of the expense or asset.

Expenses included as “unallocable” are all IR allocations, shared services, research and development expenses, and restructuring charges, none of which are directly allocable to either of the two reportable segments. The only assets that are directly allocable to either of the two reportable segments are trade accounts receivable, net inventories, and goodwill. All other assets such as cash, prepaid expenses, deferred taxes, and long term assets are not directly allocable to either of the two reportable segments.

Revenues were in both New Units and Aftermarket Parts and Services. Supplemental information on geographic sales and long-lived assets is also provided.


	Successor			Predecessor

	Three Months			Three Months
	Ended			Ended
	March 31, 2005			March 31, 2004

	(In thousands)
Revenues
New units	$	88,265		$	43,799
Aftermarket parts and services		145,735			126,549

Total Revenues	$	234,000		$	170,348

Operating Income (Loss)
New units	$	(6,058	)	$	1,494
Aftermarket parts and services		23,844			18,723
Unallocable		(9,070	)		(13,794	)

Total Operating Income	$	8,716		$	6,423

Depreciation and Amortization
New units	$	6,451		$	1,959
Aftermarket parts and services		10,500			5,074

Total Depreciation and Amortization	$	16,951		$	7,033

Goodwill
New units	$	119,673
Aftermarket parts and services		291,513

Total Goodwill	$	411,186

F-56

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)


	Successor		Predecessor

	Three Months		Three Months
	Ended		Ended
	March 31, 2005		March 31, 2004

	(In thousands)
Total Assets (including Goodwill)
New units	$	231,899
Aftermarket parts and services		540,265
Unallocable		897,150

Total Assets	$	1,669,314

Revenues by Destination(a)
North America	$	103,258	$	69,519
Latin America		25,134		27,688
Europe		28,349		28,760
Asia-Pacific		29,984		20,205
Middle East, Africa		47,275		24,176

Total Revenues	$	234,000	$	170,348

Long-Lived Assets by Geographic Area
North America	$	155,525
Latin America		2,330
Europe		56,171
Asia-Pacific		6,469
Middle East, Africa		4

Total Long-Lived Assets	$	220,499


(a)		For the three months ended March 31, 2005, the sales to customers in United Arab Emirates, Canada and Venezuela comprised 6.9%, 5.6% and 5.4%, respectively, of total revenues. For the three months ended March 31, 2004, sales to customers in Venezuela comprised 7.9% of total revenues. No other sales within individual countries exceeded 5% of the total revenues in the periods presented.


12.	Unaudited Pro Forma Balance Sheet and Net Loss per Share

As required by Securities and Exchange Commission pronouncements, an unaudited pro forma Consolidated Balance Sheet has been presented to reflect the distribution of dividends, which will be paid out of proceeds upon closing of the Company’s initial public offering without giving effect to the proceeds.

Pro forma net loss per share, after giving effect to the number of shares whose proceeds would be necessary to pay the dividend, has not been presented in the Consolidated Statement of Operations for the three months ended March 31, 2005 as the effect on earnings per share would be anti-dilutive.

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