Dresser-Rand Group (DRC)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission File Number: 001-32586

DRESSER-RAND GROUP INC.

(Exact name of registrant as specified in its charter)

1200 West Sam Houston Parkway, No.

Houston, Texas 77043

(Address Of Principal Executive Offices)

(713) 467-2221

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

(Title of class)

     Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes o         No þ

     Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes o         No þ

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ         No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

     Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    o         Accelerated filer    o         Non-accelerated filer    þ

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes o         No þ

     The Registrant’s common stock began trading on the New York Stock Exchange on August 5, 2005. As such, the Registrant has not completed its second fiscal quarter in which its common equity was publicly traded. As of March 15, 2006, the aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold of $23.67 per share, was approximately $2.0 billion.

     There were 85,478,511 shares of common stock outstanding on March 15, 2006.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s Definitive Proxy Statement for its 2006 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part III.

TABLE OF CONTENTS

Overview

      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. 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 this Form 10-K, we refer to this acquisition as the “Acquisition” and the term “Transactions” means, collectively, the Acquisition and the related financings to fund the Acquisition.

      Unless the context otherwise indicates, as used in this Form 10-K, (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 Transaction, (ii) 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 (iii) 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.

      We are among the largest global suppliers of rotating equipment solutions to the worldwide oil, gas, petrochemical and process industries. In 2005, approximately 94% of our revenues were generated from oil and gas infrastructure spending and 52% of our total 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 40% 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 140 countries. We operate globally with manufacturing facilities in the United States, France, Germany, Norway, India and Brazil. 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.

      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:

      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 $13 billion. We believe that we are well positioned to benefit from a variety of long-term trends driving demand in our industry, including:

Recent Developments

      On January 26, 2005, we filed an initial registration statement to register a potential secondary offering of our common stock by D-R Interholding, LLC. If that offering occurs, most of the proceeds will be received by affiliates of First Reserve and, depending on the final size of that offering, we may no longer be a “controlled company” within the meaning of the New York Stock Exchange rules. In addition, certain members of our management will receive a portion of the proceeds from any such offering.

      We approved a restructuring plan for our steam turbine business in connection with our acquisition of certain assets of Tuthill Energy Systems (TES) in September 2005. The plan is expected to result in annual operating synergies of approximately $15 million. In 2006, we expect to realize operating synergies of approximately $10.5 million, which we expect will be partially offset by approximately $4.5 million of integration expenses. Additionally, we expect to record a non-cash curtailment gain in the first quarter of 2006 of approximately $12 million. This gain results from a reduction in the estimated future cash costs of certain previously recorded retiree healthcare benefits.

      During the first quarter of 2006, we reduced our term debt by $50 million. As a result, we expect to incur an additional non-cash charge relating to the write-off of unamortized debt issuance costs of approximately $1.1 million. Annual interest expense is expected to be reduced by approximately $2.8 million.

      On March 7, 2006, we announced our intent to extend our test capabilities by constructing a new liquefied natural gas (LNG) test facility in Le Havre, France. We expect that the potential project will require an investment of approximately $24 million, which may be funded from a variety of sources.

Business Strategy

      In 2005, approximately 94% of our revenues were generated from energy infrastructure and oilfield spending. Additionally, 52% of our total 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 few 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 Marathon Oil Corporation and Shell Chemicals (USA). In addition, we are a preferred, non-exclusive supplier to other alliance partners, including BP, Statoil, ConocoPhillips, ExxonMobil, Chevron, Petrobras, Pemex, Kinder Morgan, Valero, Praxair, Dynegy, Fluor, Enex, PDVSA, 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 OEM’s, 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 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 year ended December 31, 2005 improved substantially as compared to the year ended December 31, 2004. 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:

      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.

Dresser-Rand Major Product Categories

      Turbo Products. We are a leading supplier of turbomachinery for the oil and gas industries worldwide. In 2005, in North America new unit turbomachinery bookings, we were the leader, and continued to rank in the top three in worldwide market share.

      Turbo products sales represented 50.8%, 48.7% and 62.5% of our total revenues for the fiscal years ended 2005, 2004 and 2003, 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 44 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 2005, 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 28.7%, 32.3% and 23.1% of our total revenues for the fiscal years ended 2005, 2004 and 2003, 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 20.5%, 19.0% and 14.4% of our total revenues for the fiscal years ended 2005, 2004 and 2003, 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 kilowatts 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.

      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 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 $184 million in 2005.

      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:

      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 approximately 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 approximately 100 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 140 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, India, Germany and Brazil.

      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 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. In 2005, no client exceeded 5% of total net revenues. In 2004, PDVSA totaled 6.5%. In 2003, BP totaled 10.8% and Statoil totaled 8.1%.

      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 Marathon Oil Corporation and Shell Chemicals (USA). We also have preferred, non-exclusive supplier alliances with BP, Statoil, ConocoPhillips, ExxonMobil, Chevron, Petrobras, Pemex, Kinder Morgan, Valero, Praxair, Dynegy, Fluor, Enex, PDVSA, and Duke Energy.

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 6 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, 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

      Our research and development expenses were $5.7 million, $2.8 million and $7.1 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 year ended December 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 December 31, 2005, we had 5,277 employees worldwide. Of our employees, approximately 65% are located in the United States. Approximately 35% of our employees in the United States are covered by collective bargaining agreements. A new collective bargaining agreement with IAM Moore Lodge #1580 that represents employees at our Wellsville, New York facility was recently ratified. None of our material collective bargaining agreements will expire through the end of 2006, and one will expire in each of 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 35% of our employees belong to industry or national labor unions. We believe that our relations with our employees are good.

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.

      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.

      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.

Additional Information

      We file annual, quarterly and current reports, amendments to these reports, proxy statement and other information with the United States Securities and Exchange Commission (“SEC”). Our SEC filings may be accessed and read through our website at www.dresser-rand.com or through the SEC’s website at www.sec.gov. All documents we file are also available at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

      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 material weaknesses in internal control over financial reporting exist.

      Our management has identified significant deficiencies which, taken in the aggregate, amount to material weaknesses in our internal control over financial reporting. Management believes that many of these are as a result of our transition from a subsidiary of a multinational company to a stand alone entity. Our management identified a number of factors contributing to our conclusion that we have material weaknesses in internal control over financial reporting, including the following:

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

      While we have taken certain actions to address the deficiencies identified, additional measures will be necessary and these measures, along with other measures we expect to take to improve our internal controls over financial reporting, may not be sufficient to address the deficiencies identified or ensure that our internal control over financial reporting is effective. If we are unable to provide reliable and timely financial external reports, our business and prospects could suffer material adverse effects. 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 control over financial reporting. 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 control. We may not be able to complete the required management assessment by our reporting deadline. An inability to complete and document this assessment by the reporting deadline would result in us receiving something other than an unqualified report from our auditors with respect to our internal control over financial reporting. 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 control over financial reporting was effective, which would result in the inability of our external auditors to deliver an unqualified report, or any report, on our internal control over financial reporting. Inferior internal control over financial reporting could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.

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

      We continue to have deficiencies in our internal control over financial reporting with respect to our Brazilian subsidiary.

      The initial public offering resulted in our becoming subject to reporting and other obligations under the Securities Exchange Act of 1934 as amended (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.

      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. Such downturns, or the perception that they may occur, could have a significant negative impact on the market price of our senior subordinated notes and our common stock.

      We estimate that we currently provide approximately 50% of the supplier-provided aftermarket parts and services needs of our own manufactured equipment base and approximately 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.

      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 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:

      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.

      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, 2005, 42% of our net revenue was derived from North America, 13% from Latin America, 19% from Europe, 11% from Asia Pacific and 15% from the Middle East and Africa. Accordingly, our future results could be harmed by a variety of factors, including:

      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 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 price of our senior subordinated notes and our common stock. Further, certain U.S. states have 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 prices of our senior subordinated notes and our common stock.

      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 senior subordinated 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.

      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 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 0.06% of our consolidated revenues for the years 2000 through 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.

      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 25 years. In addition, there is significant demand in our industry for qualified engineers and mechanics. Further, several members of our management will be receiving a significant amount of the net proceeds from the potential secondary offering of our common stock by D-R Interholding, LLC as well as from any future secondary offerings. We cannot assure you that we will be able to retain all of our current senior management personnel and to attract and retain other personnel, including qualified mechanics and engineers, necessary for the development of our business. The loss of the services of senior management and other 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.

      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.

      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 2.0 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.

      As of December 31, 2005, we had 5,277 employees worldwide. Of our employees, approximately 65% are located in the United States. Approximately 35% of our employees in the United States are covered by collective bargaining agreements. A new collective bargaining agreement with IAM Moore Lodge #1580 that represents employees at our Wellsville, New York facility was recently ratified. None of our material collective bargaining agreements will expire through the end of 2006, and one will expire in each of 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 locations are unionized: Le Havre, France; Oberhausen, Germany; Kongsberg, Norway; and Naroda, India. Additionally, approximately 35% 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.

      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 our initial public 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 it 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 amended and restated certificate of incorporation or comparable organizational documents of our material subsidiaries.

      Upon completion of the potential secondary offering of our common stock by D-R Interholding, LLC, if First Reserve continues to control a majority of our outstanding common stock, we will continue to be 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. We are currently utilizing these exemptions. As a result, we do not have a majority of independent directors nor do our nominating and corporate governance and compensation committees consist entirely of independent directors. Assuming 20,000,000 shares are sold in the potential secondary offering, we will no longer be a “controlled company” because First Reserve will own less than 50% of our common stock.

      The historical financial information included in this Form 10-K 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 Form 10-K 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.

      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.

      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.

      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 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 price of our senior subordinated notes and our common stock. In addition, press and other third-party announcements or rumors relating to any of these unaffiliated companies may adversely affect the trading price of our senior subordinated notes and our common stock and the 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.

      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.

      Our financial performance could be affected by our substantial indebtedness. As of December 31, 2005, our total indebtedness was approximately $598.2 million. In addition, we had $181.2 million of letters of credit outstanding and additional borrowings available under the revolving portion of our senior secured credit facility of $168.8 million. We may also incur additional indebtedness in the future.

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

      Our net cash flow generated from operating activities was $51.0 million, $57.7 million, $17.4 million and $212.4 million for the year ended December 31, 2003, the period January 1, 2004 through October 29, 2004, the period

October 30, 2004 through December 31, 2004 and for the year ended December 31, 2005, respectively. Our high level of indebtedness requires that we use a substantial portion of our cash flow from operating activities to pay principal of 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.

      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 our senior subordinated notes, on commercially reasonable terms.

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

      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 our senior subordinated notes and/or the senior secured credit facility. If there were an event of default under the indenture governing our senior subordinated 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.

      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.

      Our corporate headquarters are located in Houston, Texas. The following table describes the material facilities owned or leased by us and our subsidiaries as of March 15, 2006.

      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, including the one described below, are not expected to have a material adverse effect on our results of operations, financial condition, liquidity or cash flows.

      Transactions by our Brazilian subsidiary. 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 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 0.06% of our consolidated revenues for the years 2000 through 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 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 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 maters to have a material adverse effect on our financial results, cash flow or liquidity. 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.

      No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2005.

PART II

(a)

      Trading in our common stock commenced on the New York Stock Exchange on August 5, 2005, under the symbol “DRC”.

      The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock reported in the New York Stock Exchange consolidated tape.

      As of March 15, 2006, there were 32 holders of record of our common stock. By including persons holding shares in broker accounts under street names, however, we estimate our stockholder base to be approximately 12,850 as of March 15, 2006.

      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 are restricted by our senior secured credit facility and the indenture governing the senior subordinated notes. 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.

      Since our incorporation in October 2004, we have issued unregistered securities in the transactions described below. These securities were offered and sold in reliance upon the exemptions provided for in Section 4(2) of the Securities Act, relating to sales not involving any public offering, Rule 506 of the Securities Act relating to sales to accredited investors and Rule 701 of the Securities Act relating to a compensatory benefit plan. The sales were made without the use of an underwriter and the certificates representing the securities sold contain a restrictive legend that prohibits transfer without registration or an applicable exemption.

      In October 2004, we were formed and issued 100 shares of our common stock to D-R Interholding, LLC for an aggregate price of $430.0 million. In November 2004, we received a capital contribution of $5.8 million from our indirect parent, Dresser-Rand Holdings, LLC, as a result of certain members of senior management purchasing common units in Dresser-Rand Holdings, LLC that permit such individuals to indirectly share in the value of the issuer’s shares. In December 2004, certain of our non-executive officers purchased a total of 321,924 shares of the issuer’s common stock for an aggregate price of $1.4 million (this purchase of shares reflects the issuer’s stock split described in the next sentence). In February 2005, we declared a 1,006,092.87-for-one stock split that resulted in D-R Interholding, LLC owning 100,609,287 shares of the issuer’s common stock.

      In May 2005, we issued 303,735 shares of our common stock to D-R Interholding, LLC for an aggregate price of $1.3 million as a result of certain members of senior management purchasing common units in Dresser-Rand Holdings, LLC that permit such individuals to indirectly share in the value of the our shares.

      In August 2005, we declared a 0.537314-for-one reverse stock split.

(b)

      On August 10, 2005, we completed an initial public offering of 31,050,000 shares of our common stock, including 4,050,000 shares sold pursuant to an underwriters’ option to purchase additional shares, at a price of $21.00 per share. The effective date of the Registrant Statement on Form S-1 (File number 333-124963) for registering the shares was August 4, 2005. Net proceeds from the offering, after deducting underwriting discounts of $39.1 million and related expenses, were $608.9 million.

      Approximately $557.8 million of the net proceeds was used to pay a dividend to our stockholders existing immediately prior to the initial public offering. The remaining $55.0 million of the net proceeds was used to redeem $50.0 million of the $420 million aggregate principal amount of our 7³/8 % senior subordinated notes due 2014, including applicable early redemption premium of $3.7 million and accrued interest through the redemption date of $1.3 million.

(c)

      We did not repurchase any of our common stock in 2005 and have no plans to in the foreseeable future.

      The following selected financial information as of and for the periods indicated has been derived from consolidated or combined financial statements that have been audited by PricewaterhouseCoopers LLP, an independent registered accounting firm. You should read the following information, together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated and combined financial statements and the notes thereto included elsewhere in this Form 10-K.

“Safe Harbor” Statement Under Private Securities Litigation Reform Act of 1995

      This Form 10-K includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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 Form 10-K, 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:

      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.

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 140 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 year ended December 31, 2005, our revenue by geographic region consisted of North America 42%, Latin America 13%, Europe 19%, Asia Pacific 11% and the Middle East and Africa 15%.

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 which consisted of a $395 million term loan portion and a $300 million revolving portion. On August 26, 2005, we increased the $300 million revolving portion of our senior secured credit facility to $350 million.

      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.”

Effects of Currency Fluctuations

      We conduct operations in over 140 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.

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 equity in earnings in partially-owned affiliates 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 year ended December 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

      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.

      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.

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 $350 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 information for the periods prior to the acquisition are labeled as “Predecessor” and the period subsequent to the acquisition are labeled as “Successor.”

      Our consolidated financial statements for the year ended December 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.

      The combined financial statements for the period from January 1, 2004 through October 29, 2004 and for the year ended December 31, 2003, 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

      There were significant differences in the basis of financial reporting between the Successor and Predecessor periods as a result of the Acquisition on October 29, 2004, and the resultant application of purchase accounting to the assets and liabilities acquired.

      Total revenues. The worldwide market demand for oil and gas products continued to increase in 2005, which in turn increased the demand for our products and services. Total revenues were $1,208.2 million for the year ended December 31, 2005 compared to $199.9 million for the period October 30 through December 31, 2004 and $715.5 million for the period January 1 through October 29, 2004. The increase compared to the combined periods of 2004 was primarily in the new units segment.

      Cost of goods sold. Cost of goods sold was $921.0 million, $149.6 million and $538.0 million, respectively, for the year ended December 31, 2005, the period from October 30 through December 31, 2004 and the period from January 1

through October 29, 2004. Cost of goods sold increased compared to the combined periods of 2004. This was attributed to the combination of higher 2005 revenues, revenue mix change (the higher cost new units segment was 47.6% of total revenues in 2005 versus 38.8% for the period from October 30 through December 31, 2004 and 37.4% for the period from January 1 through October 29, 2004), and purchase accounting (including increased depreciation and amortization). As a percentage of revenues, cost of goods sold increased slightly to 76.2% for 2005 from 74.8% for the period from October 30 through December 31, 2004 and from 75.2% for the period from January 1 through October 29, 2004. The increase was primarily due to the adverse revenues mix change and purchase accounting expense (in the year ended December 31,2005 and in the period from October 30 through December 31, 2004).

      Gross profit. Gross profit was 23.8% for the year ended December 31, 2005 compared to 25.2% and 24.8%, respectively, for the period from October 30 through December 31, 2004 and for the period from January 1 through October 29, 2004. The decrease is attributable to the factors above.

      Selling and administrative expenses. Selling and administrative expenses of $164.0 million for the year ended December 31, 2005 increased from $21.5 million and $122.7 million, respectively, for the period from October 30 through December 31, 2004 and for the period from January 1 through October 29, 2004. Establishing corporate functions for the stand alone company was the principal cause of a $3.2 million increase in headquarters expenses during 2005 compared to administrative expenses allocated to us from Ingersoll-Rand during 2004. An additional $6.7 million of the increase was the result of the acquisition of TES. The remaining increase was due to the increased support costs associated with higher revenues. Selling and administrative expenses increased as a percentage of revenues to 13.6% for 2005 compared to 10.8% for the period from October 30 through December 31, 2004, but decreased compared to 17.1% for the period from January 1 through October 29, 2004.

      Research and development expenses. Total research and development expenses for the year ended December 31, 2005 were $7.1 million compared to $2.8 million and $5.7 million, respectively, for the period from October 30 through December 31, 2004 and for the period from January 1 through October 29, 2004. The decrease from the combined periods of 2004 was due to the increased booking rate that caused reassignment of some research and development resources to customer order engineering tasks.

      Operating income. Operating income was $116.1 million for the year ended December 31, 2005 compared to $26.0 million for the period from October 30 through December 31, 2004 and $49.1 million for the period from January 1 through October 29, 2004. The increase compared to the combined periods of 2004 was primarily from increased revenues and the operating leverage effect of higher revenues on fixed costs. As a percentage of revenues, operating income for the year ended December 31, 2005, was 9.6% compared to 13.0% and 6.9%, respectively, for the period from October 30 through December 31, 2004 and for the period January 1 through October 29, 2004.

      Interest income (expense), net. Net interest income (expense) was $(57.0) million for the year ended December 31, 2005, compared to $(9.7) million for the period from October 30 through December 31, 2004 and $3.1 million for the period January 1 through October 29, 2004. Interest expense is primarily on the outstanding principal of the senior secured credit facility and the senior subordinated notes issued in connection with the Acquisition. Interest expense for 2005 included $9.5 million in amortization of deferred financing fees, of which $5.5 million was accelerated amortization due to the payment of $211 million in long-term debt in the period. Deferred financing fees were $0.7 million for the period from October 30 through December 31, 2004.

      Early redemption premium on debt. We used a portion of the proceeds from our initial public offering to prepay $50 million of our notes incurring a premium payment of $3.7 million in 2005.

      Other income (expense), net. Other (expense) was $(2.8) million for the year ended December 31, 2005 compared to $(1.8) million for the period from October 30 through December 31, 2004 and income of $1.9 million for the period from January 1 through October 29, 2004. The increase in expense is primarily the result of greater currency losses in the year ended December 31, 2005 compared to the period from October 30 through December 31, 2004 and currency gains for the period from January 1 through October 29, 2004.

      Provision for income taxes. Provision for income taxes for the year ended December 31, 2005 was $15.5 million and differs from the U.S. Federal statutory rate of 35% principally because of extraterritorial income exclusion in the U.S. related to export sales, stock compensation and the removal of the valuation allowance related to the deferred tax asset in the U.S. because it is now considered to be more likely than not that the asset will be realized based on the weight of currently available evidence. This compares to the provision for taxes of $7.3 million for the period from October 30 through December 31, 2004 and $11.9 million for the period from January 1 through October 29, 2004. The effective tax rate for the two periods in 2004 differs from the U.S. Federal statutory rate of 35% primarily because of foreign operations taxed at different rates, state and local income taxes, valuation allowances, extraterritorial income exclusion and non-taxable partnership income.

      Bookings and backlog. Bookings for the year ended December 31, 2005 of $1,446.2 million compared to $218.0 million for the period from October 30 through December 31, 2004 and $901.2 million for the period from January 1 through October 29, 2004. Backlog at December 31, 2005 of $884.7 million compared to $637.6 million at December 31, 2004. The increase in both metrics was due to increased worldwide demand in the new units segment.

Segment information

      We have two reportable segments based on the engineering and production processes, and the products and services provided by each segment as follows:

      Unallocable amounts represent expenses and assets that cannot be assigned directly to either reportable segment because of their nature. Unallocable expenses included Ingersoll-Rand corporate allocations (Predecessor), corporate expenses (Successor) and research and development expenses.

      Revenues. New units revenues were $576.6 million for the year ended December 31, 2005 compared to $77.6 million for the period October 30 through December 31, 2004 and $267.7 million for the period January 1 through October 29, 2004. The increase compared to the combined periods of 2004 is primarily attributable to higher

backlog at the beginning of the year ($489.3 million at December 31, 2004 versus $287.7 million at December 31, 2003). Customer orders typically have lead times from as little as three months to over twelve months depending on the engineering and manufacturing complexity of the configuration, and the lead-time for critical components. The increased booking rate also contributed to higher revenues in 2005.

      Gross profit. Gross profit of $70.9 million compared to $9.8 million for the period from October 30 through December 31, 2004, and $32.3 million for the period from January 1 through October 29, 2004. Gross profit as a percentage of segment revenues was 12.3% compared to 12.6% for the period from October 30 through December 31, 2004 and 12.1% for the period from January 1 through October 29, 2004.

      Operating income. Operating income (loss) was $20.8 million for the year ended December 31, 2005, compared to $3.6 million for the period October 30 through December 31, 2004, and $(0.5) million for the period January 1 through October 29, 2004. The increase compared to the combined periods of 2004 was due to the gross profit increase mentioned above less higher allocation of selling and administrative expense due to revenue mix. As a percentage of segment revenues, operating income at 3.6% decreased from 4.6% for the period from October 30 through December 31, 2004, but increased from (0.2)% for the period from January 1 through October 29, 2004.

      Bookings and backlog. New unit bookings for the year ended December 31, 2005 was $771.9 million compared to $121.1 million for the period from October 30 through December 31, 2004 and $415.8 million for the period from January 1 through October 29, 2004. New unit backlog at December 31, 2005 was $688.1 million compared to $489.3 million at December 31, 2004.

      Revenues. Aftermarket parts and services revenues were $631.6 million for the year ended December 31, 2005 compared to $122.3 million for the period October 30 through December 31, 2004 and $447.8 million for the period from January 1 through October 29, 2004. The increase compared to the combined periods of 2004 is primarily attributable to the higher new order-booking rate. Customer orders typically have lead times from as little as one day to over nine months depending on the nature of product or service required. The higher backlog at the beginning of the year ($148.3 million at December 31, 2004 versus $132.2 million at December 31, 2003) also contributed to higher revenues in 2005.

      Gross profit. Gross profit of $216.3 million compared to $40.5 million for the period from October 30 through December 31, 2004 and $145.2 million for the period January 1 through October 29, 2004. Gross profit as a percentage of segment revenues was 34.3% compared to 33.1% for the period October 30 through December 31, 2004 and 32.4% for the period January 1 through October 29, 2004. The increase was attributed to lower allocations due to revenue mix (aftermarket parts and services segment was 52% of total revenues in 2005 versus 62% in 2004).

      Operating income. Operating income was $141.4 million for the year ended December 31, 2005 compared to $30.6 million for the period October 30 through December 31, 2004, and $85.0 million for the period January 1 through October 29, 2004. The increase compared to the combined periods of 2004 was due to the gross profit increase mentioned above less lower allocation of selling and administrative expense due to revenue mix. As a percentage of segment revenues, operating income at 22.4% compares to 25.0% for the period October 30 through December 31, 2004, and 19.0% for the period January 1 through October 29, 2004.

      Bookings and backlog. Aftermarket parts and services bookings for the year ended December 31, 2005 was $674.3 million compared to $96.9 million for the period from October 30 through December 31, 2004 and $485.4 million for the period from January 1 through October 29, 2004. Aftermarket parts and services backlog at December 31, 2005 was $196.6 million compared to $148.3 million at December 31, 2004.

      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.

      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 revenues 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.

      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, the extraterritorial income exclusion available in the U.S. for export sales, 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.

Segment Information

      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.