DRESSER-RAND GROUP INC.

Transcription

1 DRESSER-RAND GROUP INC. FORM 10-Q (Quarterly Report) Filed 11/14/2005 For Period Ending 9/30/2005 Address PAUL CLARK DRIVE OLEAN, New York Telephone (716) CIK Fiscal Year 12/31

2 Securities and Exchange Commission Washington, D.C Form 10-Q Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2005 Transition Report under Section 13 or 15(d) of the Exchange Act For the Transition Period from to Commission file number Dresser-Rand Group Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Paul Clark Drive Olean, NY (Address of principal executive offices) (Zip Code) (716) (Registrant s telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) 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 No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No No The number of shares of common stock, $.01 par value, outstanding as of November 1, 2005, was 85,444,897.

3 DRESSER-RAND GROUP INC. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Consolidated Statement of Operations (Successor) and Combined Statement of Operations (Predecessor) for the three months and nine months ended September 30, 2005, (Successor) and 2004 (Predecessor) 3 Consolidated Balance Sheet at September 30, 2005, and December 31, Consolidated Statement of Cash Flows (Successor) and Combined Statement of Cash Flows (Predecessor) for the nine months ended September 30, 2005, (Successor) and 2004 (Predecessor) 5 Notes to Consolidated and Combined Financial Statements at September 30, Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure about Market Risk 24 Item 4. Controls and Procedures PART II. OTHER INFORMATION Item 1. Legal Proceedings 27 Item 5. Other Information 27 Item 6. Exhibits 28 Signatures 29 Exhibits Page 2 of 30

4 PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DRESSER-RAND GROUP INC. CONSOLIDATED STATEMENT OF OPERATIONS (SUCCESSOR) AND COMBINED STATEMENT OF OPERATIONS (PREDECESSOR) (Unaudited; dollars in thousands, except per share amounts) Successor Three months ended September 30, 2005 Predecessor Three months ended September 30, 2004 Successor Nine months ended September 30, 2005 Predecessor Nine months ended September 30, 2004 Net sales of products $ 258,065 $ 166,798 $ 683,656 $ 506,187 Net sales of services 51,694 49, , ,354 Net sales to affiliates 657 1,639 Other operating revenue 444 1,314 Total 309, , , ,494 Cost of products sold 192, , , ,024 Cost of services sold 40,050 35, , ,216 Cost of products sold to affiliates Total 232, , , ,208 Gross profit 76,905 57, , ,286 Selling and administrative expenses 39,814 32, , ,493 Research and development expenses 1,249 1,603 4,745 4,695 Income from operations 35,842 22,480 65,316 43,098 Interest (expense) income, net (14,966) 1,204 (44,619) 2,306 Early redemption premium on debt (3,688) (3,688) Other expense, net (978) (89) (1,558) (2,754) Income before income taxes 16,210 23,595 15,451 42,650 Provision for income taxes 5,776 2,543 10,560 4,918 Net income $ 10,434 $ 21,052 $ 4,891 $ 37,732 Net income per share: Basic and diluted $ 0.15 $ 0.08 Shares used in computing net income per share: Basic and diluted 71,904,027 60,178,986 See accompanying notes to consolidated and combined financial statements. Page 3 of 30

5 DRESSER-RAND GROUP INC. CONSOLIDATED BALANCE SHEET (SUCCESSOR) (dollars in thousands, except per share amounts) September 30, 2005 December 31, 2004 (unaudited) Assets Current assets Cash and cash equivalents $ 109,504 $ 111,500 Accounts receivable, less allowance for doubtful accounts of $8,757 in 2005 and $14,569 in , ,479 Inventories, net 163, ,873 Prepaid expenses 18,842 14,256 Deferred income taxes 11,817 7,445 Total current assets 528, ,553 Investments in and advances to partially owned companies - at equity 12,448 Property, plant and equipment, less accumulated depreciation of $21,137 in 2005 and $3,949 in , ,764 Goodwill 399, ,330 Intangible assets, net 472, ,587 Other assets 26,559 34,392 Total assets $ 1,660,373 $ 1,751,074 Liabilities and Shareholders Equity Current liabilities Accounts payable and accruals $ 297,450 $ 271,275 Customer advance payments 113,988 38,661 Income taxes payable 5,000 12,977 Loans payable 63 2,734 Current maturities of long-term debt 4,015 Total current liabilities 416, ,662 Deferred income taxes 29,743 27,287 Postemployment and other employee benefit liabilities 112, ,640 Long-term debt 599, ,664 Other noncurrent liabilities 15,915 12,924 Total liabilities 1,173,844 1,298,177 Commitments and contingencies (Notes 7 through 10) Shareholders Equity Common stock, $0.01 par value, 250,000,000 shares authorized in 2005 and 101,200,000 shares in 2004; 85,444,897 shares issued and outstanding Additional paid in capital 492, ,642 Retained earnings 12,120 7,229 Accumulated other comprehensive (loss) income (18,671) 8,484 Total shareholders equity 486, ,897 Total liabilities and shareholders equity $ 1,660,373 $ 1,751,074 See accompanying notes to consolidated and combined financial statements. Page 4 of 30

6 DRESSER-RAND GROUP INC. CONSOLIDATED STATEMENT OF CASH FLOWS (SUCCESSOR) AND COMBINED STATEMENT OF CASH FLOWS (PREDECESSOR) (Unaudited; dollars in thousands) Successor Nine months ended September 30, 2005 Predecessor Nine months ended September 30, 2004 Cash flows from operating activities Net income $ 4,891 $ 37,732 Adjustments to arrive at net cash provided by (used in) operating activities: Depreciation and amortization 48,045 20,284 Amortization of deferred financing costs 8,627 Provision for (adjustment to) allowance for doubtful accounts (1,373) 3,181 Provision for losses on inventory 2,743 5,209 Deferred income taxes (2,459) 5,404 Employee Compensation 3,237 Other (3,323) 1,098 (Increase) decrease in: Accounts receivable 48,362 48,624 Inventories 13,003 (23,209) Other current and noncurrent assets (9,965) (14,046) Increase (decrease) in: Accounts payable and accruals 8,372 (19,545) Customer advance payments 75,838 18,604 Other current and noncurrent liabilities 26,386 (18,852) Net cash provided by (used in) operating activities 222,384 64,484 Cash flows from investing activities Capital expenditures (10,747) (4,532) Acquisitions (57,218) Proceeds from equity investment dispositions 10,000 Proceeds from sales of property, plant and equipment 244 1,723 Proceeds from sale of marketable securities 1,037 Net cash provided by investing activities (57,721 ) (1,772 ) Cash flows from financing activities Proceeds from (payments of) short-term borrowings (2,638) (991) Proceeds from (payments of) long term debt (211,162) (21) Proceeds from initial public offering - net 608,925 Cash dividend paid (557,686) Proceeds from sale of stock to employees 1,420 Changes in due to (from) affiliates (49,760) Net cash (used in) provided by financing activities (161,141 ) (50,772 ) Effect of exchange rate changes on cash (5,518 ) (203 ) Net increase (decrease) in cash and cash equivalents (1,996 ) 11,737 Cash and cash equivalents, beginning of the period 111,500 41,537 Cash and cash equivalents, end of period $ 109,504 $ 53,274

7 See accompanying notes to consolidated and combined financial statements. Page 5 of 30

8 DRESSER-RAND GROUP INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 1. Basis of presentation The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and notes required by such principles applicable to annual financial statements. These financial statements are unaudited but, in the opinion of management, contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial position and results of operations. These financial statements should be read in conjunction with our other filings with the Securities and Exchange Commission. Operating results for the 2005 periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, On October 29, 2004, pursuant to an Equity Purchase Agreement with Dresser-Rand Holdings, LLC, we acquired from Ingersoll-Rand Company Limited, LLC, ( I-R ) the Dresser-Rand Company and the operations of Dresser-Rand Canada, Inc. and Dresser-Rand GmbH (the Acquisition ). We used the proceeds from $430 million sale of common stock, borrowings of $420 million in senior subordinated notes and borrowings of $395 million under our senior secured credit facility to fund the Acquisition. The Acquisition of the Dresser-Rand entities was accounted for under the purchase method of accounting. As a result, the financial results presented for 2004 represent the ( Predecessor ) and the financial results presented for the period subsequent to the Acquisition represent the Successor entity (the Successor ). 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. To clarify and emphasize that the Successor financial statements have been presented on new basis of accounting, we have separated Predecessor and Successor financial statements with a vertical black line, where appropriate. 2. Recently issued accounting standards In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, Inventory Costs, an Amendment of Accounting Research Bulletin No. 43, and Chapter 4. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight handling costs and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance in this statement is effective for inventory costs incurred during fiscal years beginning after June 15, The adoption of this statement is not anticipated to have a material impact on our financial reporting. In December 2004, the FASB issued SFAS No. 123R, Share-Based Payments, that is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in exchange for equity. We have elected to early adopt the provisions of SFAS 123R as of October 30, As a result, we recognized compensation cost in relation to share-based compensation arrangements of $380,000 and $3,237,000 for the three months and nine months ended September 30, 2005, respectively. In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets, an Amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions. SFAS No. 153 eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets in paragraph 21 (b) of APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for exchanges occurring in fiscal years beginning after June 15, Page 6 of 30

9 DRESSER-RAND GROUP INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) In March 2005, the FASB issued Interpretation No. 47, an interpretation of SFAS No. 143, Accounting for Conditional Asset Retirement Obligations. Interpretation No. 47 requires that a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may not be within our control be recognized as a liability at the fair value of a conditional asset retirement obligation, if the fair value of the liability can be reasonably estimated. SFAS No. 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation. This Interpretation is effective for our December 31, 2005 financial statements. We are currently assessing the impact the Interpretation will have on our financial position and results of operation. In May 2005, the FASB issued SFAS No.154, Accounting Changes and Error Corrections. SFAS No.154 provides guidance on the accounting for and reporting of changes and error corrections. This statement is effective for fiscal years beginning after December 31, Sale of common stock On August 10, 2005, we completed our initial public offering of 31,050,000 shares of our common stock for net proceeds of $608.9 million. On September 12, 2005, we used $55.0 million of the net proceeds to redeem $50.0 million face value amount of our 7-3/8% senior subordinated notes due 2014, and to pay the applicable redemption premium of $3.7 million and accrued interest of $1.3 million to the redemption date. Our Board of Directors approved the payment of a dividend on August 11, 2005, of the remaining net proceeds, excluding certain related costs, of $557.7 million ($10.26 per share) to our stockholders existing immediately prior to the offering, consisting of affiliates of First Reserve Corporation and certain members of senior management. 4. Acquisitions On September 8, 2005, we acquired from Tuthill Corporation certain assets of its Tuthill Energy Systems Division ( TES ). TES is an international manufacturer of single and multi-stage steam turbines and portable ventilators under the Coppus, Murray and Nadrowski brands which complement our steam turbine business. The current estimated cost of TES is approximately $57.0 million, net of $4.0 million cash acquired, subject to future adjustments for agreement on the final working capital at the closing date and other related matters. We have preliminarily allocated the cost based on current estimates of the fair value of assets acquired and liabilities assumed as follows (in thousands): Accounts receivable $ 13,458 Inventory net 7,690 Prepaid expenses and other current assets 208 Total current assets 21,356 Property, plant and equipment, net 20,319 Intangible assets and goodwill 28,414 Total assets acquired 70,089 Accounts payable and accruals 10,570 Other liabilities 2,501 Total liabilities assumed 13,071 Cash paid net $ 57,018 The above amounts are estimates as final appraisals and other required information to determine final cost and assign fair values have not been received. Also, certain restructuring of operations will be necessary to obtain appropriate synergies in the combined steam turbine business. Accordingly, the above amounts may be revised when all required information is obtained and the restructuring plan is finalized which is expected to be accomplished during the fourth quarter of Pro forma financial information, assuming that TES had been acquired at the beginning of each period for which an income statement is presented, has not been presented because the effect on our results for these periods was not considered material. TES results have been included in our financial results since September 8, 2005, and were not material to the results of operations for the three months and nine months ended September 30, Page 7 of 30

10 DRESSER-RAND GROUP INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) During the third quarter of 2005, we purchased the other 50% of our Multiphase Power and Processing Technologies (MppT) joint venture for a payment of $200,000 and an agreement to pay $300,000 on April 1, 2006, and $425,000 on April 1, The net present value of the total consideration is $876,000, bringing our total investment in MppT to $2.9 million at the date of the purchase. MppT owns patents and technology for inline, compact, gas-liquid scrubbers. 5. Intangible assets and goodwill The cost and related accumulated amortization of intangible assets were: September 30, 2005 December 31, 2004 (In thousands) Cost Accumulated amortization Cost Accumulated amortization (unaudited) Trade names $ 89,692 $ 1,903 $ 82,700 $ 344 Customer relationships 232,648 5, , Software and technology 158,765 7, ,653 1,304 Other amortizable intangible assets 33,640 28,066 31,828 9,756 Total $ 514,745 $ 42,466 $ 491,927 $ 12,340 Changes in cost in the above table from December 31, 2004 to September 30, 2005, arose from translation adjustments and the amounts related to the TES and MppT acquisitions. Such TES amounts are subject to change when final appraisals are received. Amortization of intangible assets for the three months and nine months ended September 30, 2005, was $8.4 million and $30.1 million, respectively. The changes in goodwill for the nine months ended September 30, 2005, were: Balance at December 31, 2004 $ 423,330 TES acquisition $ 5,120 Translation adjustments (29,164) Balance at September 30, 2005 $ 399,286 The goodwill from the TES acquisition is subject to change when the final appraisals are received and the working capital adjustment is finalized. Page 8 of 30

11 DRESSER-RAND GROUP INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) 6. Inventories Inventories were as follows: (In thousands) September 30, 2005 December 31, 2004 (unaudited) Raw materials and supplies $ 80,970 $ 60,728 Work-in-process and finished goods 289, , , ,975 Less progress payments (207,268) (94,102) Total inventories - net $ 163,371 $ 175,873 The progress payments represent payments from customers based on milestone completion schedules. Any payments received in excess of the related inventory investment are classified as Customer Advance Payments in the current liabilities section of the balance sheet. 7. Income taxes Our estimated income tax provision for the nine months ended September 30, 2005, results in an effective rate that differs from U.S. Federal statutory rate of 35% principally because, in certain tax jurisdictions, we have incurred net operating losses from inception and are currently forecasting net operating losses for As a result, we have provided a valuation allowance for the deferred tax assets in those jurisdictions on the basis that it is more likely than not, as defined by generally accepted accounting principles, that we will not realize the net operating loss assets. We will adjust that valuation allowance in the future when, based principally on attained results, it becomes more likely than not that the benefits of the net operating loss carried forward will be realized. Our effective income tax rate for the three months ended September 30, 2005, results from the difference between provision for income tax required for the nine months ended September 30, 2005, and that recorded for the six months ended June 30, Our effective income tax rate for the three months and nine months ended September 30, 2004, differed from the U.S. Federal statutory rate of 35%, primarily because the Predecessor period reflected the non-taxable partnership structure in existence for most of the domestic operations. As mentioned in Note 1, the Successor began operations as a new entity on October 29, We operate in numerous countries around the world and file tax returns as appropriate. The Acquisition was an asset purchase in the United States and a stock purchase outside the United States. The purchase price was allocated among the entities acquired based on estimated fair values. Deferred taxes were recorded to reflect the difference between the purchase price allocated to foreign entities and their underlying tax basis. Management believes that it has provided adequate estimated liabilities for taxes based on the allocation of the purchase price and its understanding of the tax laws and regulations in those countries. Since few tax returns have been filed since beginning operations and none have been audited by the appropriate taxing authorities, we could be exposed to additional income and other taxes. In October 2004, the American Jobs Creation Act of 2004 (the Act ) was enacted. The Act raises a number of issues with respect to accounting for income taxes. For companies that pay U.S. income taxes on manufacturing activities in the U.S., the Act provides a deduction from taxable income equal to a stipulated percentage of qualified income from domestic production activities. On December 21, 2004, the FASB issued guidance regarding the accounting implications of the Act related to the deduction for qualified domestic production activities which should be accounted for as a special deduction under SFAS No. 109, Accounting for Income Taxes. The guidance applies to financial statements for periods ending after the date the Act was enacted. In years in which there is U.S. taxable income starting in 2005, this essentially results in a one percentage point reduction in the statutory rate. The Act also creates a temporary incentive for U.S. multinationals to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations. As part of the sale of the Predecessor, all previously undistributed foreign earnings were deemed distributed to I-R. Accordingly, while we are still evaluating the potential impact of these dividend repatriation provisions, any amounts repatriated under the Act are not likely to be significant. Page 9 of 30

12 DRESSER-RAND GROUP INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) 8. Pension plans The components of net periodic pension cost for defined benefit pension plans are as follows: (In thousands) Successor Three months ended September 30, 2005 Predecessor Three months ended September 30, 2004 Successor Nine months ended September 30, 2005 Predecessor Nine months ended September 30, 2004 Service cost $ 1,269 $ 951 $ 3,862 $ 3,757 Interest cost 4,254 5,216 12,891 15,250 Expected return on plan assets (4,822) (6,501) (14,575) (19,126) Net amortization of unrecognized: Prior service cost Plan net losses 997 2,991 Net periodic pension cost $ 701 $ 898 $ 2,178 $ 3, Postretirement benefits other than pensions The components of net periodic postretirement benefits cost for such plans are as follows: (In thousands) Successor Three months ended September 30, 2005 Predecessor Three months ended September 30, 2004 Successor Nine months ended September 30, 2005 Predecessor Nine months ended September 30, 2004 Service cost $ 499 $ 466 $ 1,498 $ 1,444 Interest cost 684 2,734 2,052 8,411 Net amortization of unrecognized: Prior service cost (259) (775) Plan net losses 793 2,692 Net periodic postretirement benefits cost $ 1,183 $ 3,734 $ 3,550 $ 11, Commitments and contingencies As a result of the enhanced compliance processes implemented by us shortly prior to and following the Acquisition, we have recently discovered that our Brazilian subsidiary engaged in a number of transactions that resulted in steam turbine parts and services being provided to Moa Nickel S.A., a Cuban mining company jointly owned by the Government of Cuba and Sherritt International Corp., a Canadian company. Our revenues from these transactions were approximately $4 million in the aggregate since December, 1999, when we acquired a controlling interest in the Brazilian subsidiary. This amount represents approximately 0.08% of our consolidated revenues from 2000 through September 30, Of the $4 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, 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 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. Page 10 of 30

13 DRESSER-RAND GROUP INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) We are involved in various litigation, claims and administrative proceedings, including environmental matters, arising in the normal course of business. Amounts recorded for identified contingent liabilities are estimates, which are regularly reviewed and adjusted to reflect additional information when it becomes available. Subject to the uncertainties inherent in estimating future costs for contingent liabilities, management believes that any future adjustments to recorded amounts, with respect to these currently known contingencies, would not have a material effect on the financial condition, results of operations, liquidity or cash flows of the Company or Predecessor for any year. In connection with the Acquisition, the Equity Purchase Agreement provides that, with the exception of non-superfund off-site liabilities and non-asbestos environmental tort claims which have a three year limit for a claim to be filed, I-R will remain responsible without time limitations for known environmental conditions as of the Closing Date that meet certain requirements set forth in the Equity Purchase Agreement. The most important of these requirements is that with regard to environmental contamination, regulatory authorities would be expected to require investigation or remediation if they knew about the contamination. The Company and I-R have agreed on many, but not all, of the matters for which I-R will remain responsible. The remaining issues to be resolved are not expected to be material. In 2002, the Predecessor received $10.0 million of grant funds from the New York Empire State Development Corporation ( ESDC ). The grants were designated to provide resources for workforce development and capital equipment. The Predecessor recorded $8.0 million of these grants as income in other income (expense) and $2.0 million as a reduction in basis of acquired property and equipment in The grant vests ratably over a five-year period commencing in 2001 and concluding in 2005, based on certain criteria. Prior to the end of 2003, the Predecessor and ESDC restructured the grant to reflect the then existing business environment that reduced the original $10.0 million to $8.4 million. On the basis of the adjusted grant level, the Predecessor agreed to reimburse ESDC in the amount of $1.6 million, ratably, over a threeyear period, beginning in December The restructured ESDC grant provides, among other conditions, that we meet certain employment levels at December 31 of each year; otherwise, we could be obligated to reimburse the ESDC a portion of the grant. Management expects that it will meet the required employment level on December 31, Warranty accruals We maintain a product warranty liability that represents estimated future claims for equipment, parts and services covered during a warranty period. A warranty liability is provided at the time of revenue recognition based on historical experience and adjusted as required. The following table represents the changes in the product warranty liability: Nine Months ended (In thousands) Successor September 30, 2005 Predecessor September 30, 2004 Balance, beginning of period $ 21,078 $ 23,699 Provisions for warranties issued during the period 9,350 6,599 Adjustments to warranties issued in prior periods 1,436 (426) Payments during the period (9,379) (10,850) Translation adjustments (1,266) 960 Balance, end of period $ 21,219 $ 19,982 Page 11 of 30

14 12. Other comprehensive (loss) income DRESSER-RAND GROUP INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) The components of other comprehensive (loss) income are as follows: (In thousands) Successor Three months ended September 30, 2005 Predecessor Three months ended September 30, 2004 Successor Nine months ended September 30, 2005 Predecessor Nine months ended September 30, 2004 Net (loss) income $ 10,434 $ 21,052 $ 4,891 $ 37,732 Other comprehensive (loss) income: Change in value of cash flow hedge Foreign currency translation adjustment (2,560) 2,389 (27,155) 4,394 Comprehensive (loss) income $ 7,874 $ 23,470 $ (22,264 ) $ 42,297 The components of accumulated other comprehensive (loss) income are as follows: (In thousands) September 30, 2005 December 31, 2004 (unaudited) Minimum pension liability $ (922) $ (922) Foreign currency translation adjustment (17,749) 9,406 Accumulated other comprehensive (loss) income $ (18,671 ) $ 8,484 Page 12 of 30

15 13. Segment information: DRESSER-RAND GROUP INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) We have two reportable segments based on the engineering and production processes, and the products and services provided by each segment as follows: 1) New Units are highly engineered solutions to new customer requests. The segment includes engineering, manufacturing, sales and administrative support. 2) Aftermarket Parts and Services consist of aftermarket support solutions for the existing population of installed equipment. The segment includes engineering, manufacturing, sales and administrative support. 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), research and development expenses, and restructuring charges. Assets that are directly assigned to the two reportable segments include trade accounts receivable, net inventories, and goodwill. Unallocable assets include cash, prepaid expenses, deferred taxes, property, plant and equipment, and intangibles. (In thousands) Successor Three months ended September 30, 2005 Predecessor Three months ended September 30, 2004 Successor Nine months ended September 30, 2005 Predecessor Nine months ended September 30, 2004 Sales New units $ 162,587 $ 85,913 $ 399,044 $ 256,590 Aftermarket parts and services 147, , , ,904 Total $ 309,759 $ 217,263 $ 846,237 $ 657,494 Operating Income New units $ 8,342 $ 345 $ 4,713 $ 2,007 Aftermarket parts and services 38,417 29,788 93,197 72,858 Unallocable (10,917) (7,653) (32,594) (31,767) Total $ 35,842 $ 22,480 $ 65,316 $ 43,098 Depreciation and Amortization New units $ 7,799 $ 2,717 $ 22,499 $ 8,438 Aftermarket parts and services 6,636 3,594 25,546 11,846 Total $ 14,435 $ 6,311 $ 48,045 $ 20,284 Total Assets New units $ 249,075 $ 249,075 Aftermarket parts and services 529, ,025 Unallocable 882, ,273 Total $ 1,660,373 $ 1,660,373 Page 13 of 30

16 14. Stockholders equity: DRESSER-RAND GROUP INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Changes in stockholders equity for nine months ended September 30, 2005, were: (In thousands) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Total Balances at December 31, 2004 $ 542 $ 436,642 $ 7,229 $ 8,484 $ 452,897 Net income 4,891 4,891 Stock-based employee compensation 2 4,655 4,657 Currency translation (27,155) (27,155) IPO net proceeds , ,925 Cash dividends (557,686) (557,686) Balances at September 30, 2005 $ 854 $ 492,226 $ 12,120 $ (18,671 ) $ 486, Changes in existing financing arrangements: On August 26, 2005, we increased the availability under the revolving credit portion of our senior credit facility from $300 million to $350 million. Page 14 of 30

17 DRESSER-RAND GROUP INC. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We are a global supplier 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 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, and have 24 service and support centers worldwide. We have sales and services locations in all of the major international energy markets and established coverage of 105 countries. New Units. We manufacture highly-engineered turbo and reciprocating compression equipment and steam turbines. Our products are customdesigned to client specifications for long-life, critical applications. Aftermarket Parts and Services. We offer a range of aftermarket parts and services, including installation, maintenance, monitoring, operation, repairs, overhauls and upgrades. With a typical operating life of 30 years or more, rotating equipment requires substantial aftermarket parts and services over its operating life. The cumulative revenues from these aftermarket activities often significantly exceed the initial purchase price of a new unit. Results of Operations Three months ended September 30, 2005 Successor compared to three months ended September 30, 2004 Predecessor Successor Predecessor Period to Period Change (In thousands) Three Months Ended September 30, 2005 Three Months Ended September 30, to 2005 Change Statement of Operations Data: Sales, net $ % $ % $ % Cost of goods sold % % % Gross profit % % % Selling and administrative expenses % % % Research and development expenses % % (0.4) (22.1)% Operating income % % % Interest (expense) income, net (14.9 ) (4.9 )% % (16.1 ) N/M Other (expense), net (4.7 ) (1.5 )% (0.1 ) 0.0 % (4.6 ) N/M Income (loss) before income taxes % % (7.4) (31.3)% Provision for income taxes % % % Net income $ % $ % $ (10.7 ) (50.4 )% Page 15 of 30

18 DRESSER-RAND GROUP INC. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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. Sales. The worldwide market demand for oil and gas products continues to increase in 2005 which has increased the demand for our products and services. Total sales increased by $92.5 million, or 42.6% for the three months ended September 30, 2005, compared to the same period in Our backlog increased 48.9% at September 30, 2005, compared to September 30, Cost of goods sold. As a percentage of sales, cost of goods sold increased slightly to 75.2% for the three months ended September 30, 2005, from 73.7% for the same period in Cost of goods sold increased due to volume and mix by $8.1 million from costs related to purchase accounting which were recognized during the third quarter of 2005, reflecting additional depreciation and amortization. Selling and administrative expenses. Selling and administrative expenses increased by $6.8 million for the three months ended September 30, 2005, from the same period in 2004, but decreased as a percentage of sales. Establishing corporate functions for the stand alone company was the principal cause of a $5.7 million direct increase in expenses during the third quarter of 2005 compared to $2.2 million of administrative expenses allocated to us from Ingersoll-Rand during the third quarter of An additional $1.7 million of increases were the result of the consolidation of TES and expenses related to the acquisition. Research and development. Research and development expenses for the three months ended September 30, 2005, and 2004 were $1.2 million and $1.6 million, respectively. Operating income. Improved volume along with productivity improvements were the principal causes of the increase in operating income of $13.3 million to $35.8 million for the three months ended September 30, 2005, from $22.5 million for the same period in Interest (expense) income, net. Interest expense was $14.9 million for the three months ended September 30, 2005, compared to interest income of $1.2 million for the same period in The difference was primarily from interest on the outstanding principal of the senior secured credit facility and the senior subordinated notes issued in connection with the Acquisition. The 2005 period also included $2.8 million additional amortization of deferred financing fees related to the accelerated payment of long-term debt during the period. We were obligated to use commercially reasonable efforts to register the notes under the Securities Act and consummate an exchange offer no later than August 25, We were unable to register the notes by that date. Accordingly, the annual interest on the notes increased by (1).25% for the first 90 days following August 25, 2005, increasing our interest expense by about $90,000 during the three months ended September 30, 2005, and (2) will increase by.25% at the beginning of each subsequent 90-day period, up to a maximum of 1% until all such registration defaults are cured. We will now be required to incorporate financial information through September 30, 2005, into any registration statement filed with the Securities and Exchange Commission. 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. Provision for income taxes. Provision for income taxes for the three months ended September 30, 2005, resulted from the difference between the provision for income tax required for the nine months ended September 30, 2005, and that recorded for the six months ended June 30, The provision results in an effective tax rate that differs from the U.S. Federal statutory rate of 35% principally because of current and forecasted net operating losses in certain tax jurisdictions. As a result, we have provided a valuation allowance for that deferred tax asset on the basis that it is more likely than not that we will not realize that asset. The effective tax rate for the three months ended September 30, 2004, differs from the U.S. Federal statutory rate of 35% primarily because the Predecessor period reflected the non-taxable partnership structure in existence for most of the domestic operations. Bookings and backlog. Bookings represent the value of firm orders placed during the three months ended September 30, 2005, whether or not filled. Backlog as of any date represents the firm orders left unfilled as of that date. Bookings during this third quarter of 2005 were $288.9 million, slightly lower than the $289.0 million in bookings for the period in The backlog at September 30, 2005, was $872.8 million compared to $586.2 million at September 30, 2004, a 48.9% increase. This increase is attributable to increased demand in the new units segment. Page 16 of 30

19 DRESSER-RAND GROUP INC. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Segment Analysis - three months ended September 30, 2005 Successor compared to three months ended September 30, 2004 Predecessor Successor Predecessor Period to Period Change (In thousands) Three Months Ended September 30, 2005 Three Months Ended September 30, to 2005 Change Sales, net New units $ % $ % $ % Aftermarket parts and services % % % $ % $ % $ % Gross Profit New units $ 21.5 $ 10.5 $ % Aftermarket parts and services % Total gross profit $ 76.9 $ 57.1 $ % Operating Income New units $ 8.3 $ 0.3 $ 8.0 N/M Aftermarket parts and services % Unallocated corporate expense (10.9) (7.6) (3.3) 42.6 % Total operating income $ 35.8 $ 22.5 $ % New Units Sales. Sales in the segment increased $76.7 million for the three months ended September 30, 2005, compared to the same period in The increase is primarily attributable to higher backlog coming into the period, as orders typically have lead times from as little as three months to over twelve months depending on the complexity of the configuration. Gross profit. Gross profit increased by $11.0 million for the three months ended September 30, 2005, compared to the same period in As a percentage of segment revenues, gross profit increased slightly to 13.2% for the period in 2005 from 12.3% for the same period in The increase was primarily due to margins on buyouts and a reduction in costs primarily due to improved direct labor and engineering absorption, no severance costs in 2005 and a reduction in the provisions for obsolete and slow moving inventory. Gross profit increases were offset by additional depreciation and amortization from purchase accounting recognized in the third quarter of Operating income. Operating income increased by $8.0 million for the three months ended September 30, 2005, compared to the same period in This increase is attributable to the $ 11.0 million change in gross profit mentioned above reduced by a $3.0 million increase in the allocation of selling and administrative expenses due to the increase in sales. Bookings and backlog. Bookings for the three months ended September 30, 2005, were $121.3 million, 16.0% below the bookings for the same period in The decline is attributable to a very large order booked in The backlog at September 30, 2005, was $687.3 million, or 64.5% above the $417.8 million backlog at September 30, This increase is attributable to increased worldwide demand. Aftermarket Parts and Services Sales. Sales increased by $15.8 million, or 12.0%, for the three months ended September 30, 2005, compared to the same period in 2004 primarily from higher parts sales.

20 Page 17 of 30

21 DRESSER-RAND GROUP INC. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Gross profit. Gross profit increased by $8.8 million for the three months ended September 30, 2005, compared to the same period in 2004 as a result of the increases in sales. As a percentage of sales, gross profit increased to 37.6% for the three months ended September 30, 2005, from 35.4% for the same period in 2004, as a result of reduced allocations of costs and expenses due to the stronger growth in new unit sales. Operating income. Operating income increased by $8.6 million, or 29.0% for the three months ended September 30, 2005, compared to the same period in This increase is mainly attributable to the change in gross profit mentioned above. Bookings and backlog. Bookings for the three months ended September 30, 2005, were $167.6 million, 16.0% above bookings for the same period in Backlog at September 30, 2005, was $185.5 million, or 10.2% above the $168.4 million backlog at September 30, Nine months ended September 30, 2005 Successor compared to nine months ended September 30, 2004 Predecessor Successor Predecessor Period to Period Change (In thousands) Nine Months Ended September 30, 2005 Nine Months Ended September 30, to 2005 Change Statement of Operations Data: Sales, net $ % $ % $ % Cost of goods sold % % % Gross profit % % % Selling and administrative expenses % % % Research and development expenses % % % Operating income % % % Interest (expense) income, net (44.6 ) (5.3 )% % (47.0 ) N/M Other income (expense), net (5.2 ) (0.6 )% (2.8 ) (0.4 )% (2.4 ) 90.5 % Income (loss) before income taxes % % (27.2) (63.8)% (Benefit) Provision for income taxes % % % Net income $ % $ % $ (32.8 ) (87.0 )% Sales. The demand for oil and gas products continues to increase in 2005 driving strong demand for our products and services. Total sales increased by $188.7 million, or 28.7% for the nine months ended September 30, 2005, compared to the same period in Our backlog at December 31, 2004, increased 51.8% compared to December 31, 2003, which contributed to increased sales during this 2005 period. Cost of goods sold. As a percentage of sales, cost of goods sold increased to 77.7% for the nine months ended September 30, 2005, from 75.9% for the same period in Cost of goods sold increased by $34.4 million for adjustments related to purchase accounting which were recognized during 2005, reflecting additional depreciation and amortization and the purchase accounting value of inventory sold. Selling and administrative expenses. Selling and administrative expenses increased by $7.8 million for the nine months ended September 30, 2005, from the same period in 2004, but decreased as a percentage of sales. Establishing corporate functions for the stand-alone company was the principal cause of a $14.8 million direct increase in expenses during the nine months ended September 30, 2005, compared to $14.6 million of administrative expenses allocated to us from Ingersoll-Rand during the period Third party commissions increased $1.2 million over 2004 due to the increase in sales. An additional $1.7 million of increases were the result of the consolidation of TES and expenses related to the acquisition. Other costs increased to support current and future growth. Research and development. Research and development expenses for the nine months ended September 30, 2005, and 2004 were $4.7 million and $4.7 million, respectively. Page 18 of 30

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23 DRESSER-RAND GROUP INC. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operating income. Operating income increased by $22.2 million to $65.3 million for the nine months ended September 30, 2005, from $43.1 million for the same period in 2004 primarily attributable to the factors discussed above regarding increased sales and gross profit partially offset by high selling and administrative expenses. Interest (expense) income, net. Interest expense was $44.6 million for the nine months ended September 30, 2005, compared to interest income of $2.4 million for the same period in The difference was primarily from interest on the outstanding principal of the senior secured credit facility and senior subordinated notes issued in connection with the Acquisition. Additionally, we are obligated to use commercially reasonable efforts to register the notes under the Securities Act and consummate an exchange offer no later than August 25, We were not able to register the notes by that date. Accordingly, the annual interest on the notes increased by (1).25% for the first 90 days following August 25, 2005, increasing our interest expense by about $90 thousand during the nine months ended September 30, 2005, and (2) will increase by.25% at the beginning of each subsequent 90-day period, up to a maximum of 1% until all such registration defaults are cured. We will now be required to incorporate financial information through September 30, 2005, into any registration statement filed with the Securities and Exchange Commission. 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. Provision for income taxes. Provision for income taxes for the nine months ended September 30, 2005, was $10.6 million and results in an effective tax rate that differs from the U.S. Federal statutory rate of 35% principally because of current and forecasted net operating losses in certain tax jurisdictions. As a result, we have provided a valuation allowance for that deferred tax asset on the basis that it is more likely than not that we will not realize that asset. The effective tax rate for the nine months ended September 30, 2004, differs from the U.S. Federal statutory rate of 35% primarily because the Predecessor period reflected the non-taxable partnership structure in existence for most of the domestic operations. Bookings and backlog. Bookings during the nine months ended September 30, 2005, were $1,036.0 million, 26.6% higher than the $818.2 million in bookings for the period in The backlog at September 30, 2005, was $872.8 million, or 48.9% above the $586.2 million backlog at September 30, The increase is attributable to increased worldwide demand in the new units segment. Page 19 of 30

24 DRESSER-RAND GROUP INC. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Segment Analysis - nine months ended September 30, 2005 Successor compared to nine months ended September 30, 2004 Predecessor Successor Predecessor Period to Period Change (In thousands) Nine Months Ended September 30, 2005 Nine Months Ended September 30, to 2005 Change Sales, net New units $ % $ % $ % Aftermarket parts and services % % % $ % $ % $ % Gross Profit New units $ 40.4 $ 31.7 $ % Aftermarket parts and services % Total gross profit $ $ $ % Operating Income New units $ 4.7 $ 2.0 $ % Aftermarket parts and services % Unallocated corporate expense (32.6) (31.8) (0.8) 2.6 % Total operating income $ 65.3 $ 43.1 $ % New Units Sales. Sales in the new units segment increased $142.4 million for the nine months ended September 30, 2005, compared to the same period in The increase is primarily attributable to higher backlog coming into the period, as orders typically have lead times from as little as three months to over twelve months depending on the complexity of the configuration. Improved new order rates also contributed. Our operations in North America, France and Norway accounted for most of this increase. Gross profit. Gross profit increased by $8.7 million for the nine months ended September 30, 2005, compared to the same period in As a percentage of segment revenues, gross profit decreased to 10.1% for the period in 2005 from 12.4% for the same period in The decrease was due to higher allocations including the additional costs related to purchase accounting recognized in the period for higher depreciation and amortization and the purchase accounting value of inventory sold. Operating income. Operating income increased by $2.7 million for the nine months ended September 30, 2005, compared to the same period in This increase is attributable to the $8.7 million increase in gross profit mentioned above, less a $6.0 million increase in the allocation of costs and expenses due to the increase in sales. Bookings. Bookings for the nine months ended September 30, 2005, were $558.3 million, 45.2% higher than the $384.5 million in bookings for the same period in Aftermarket Parts and Services Sales. Sales increased by $46.3 million, or 11.5%, for the nine months ended September 30, 2005, compared to the same period in 2004 primarily from higher parts sales. Gross profit. Gross profit increased by $21.4 million for the nine months ended September 30, 2005, compared to the same period in 2004 as a result of the increases in volume. As a percentage of sales, gross profit increased to 33.1% for the nine months ended September 30, 2005, from 31.6% for the same period in 2004, due to a more favorable product mix from increased parts revenue and lower allocations from stronger

25 growth in new units. Page 20 of 30

26 DRESSER-RAND GROUP INC. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operating income. Operating income increased by $20.3 million, or 27.9% for the nine months ended September 30, 2005, compared to the same period in This increase is mainly attributable to the change in gross profit mentioned above. Bookings. Bookings for the nine months ended September 30, 2005, were $477.7 million, 10.2% above bookings for the same period in Liquidity and Capital Resources Historically, our primary source of cash has been from operations. Prior to the Acquisition, our Predecessor participated in Ingersoll-Rand s centralized treasury management system whereby, in certain countries, our Predecessor s cash receipts were remitted to I-R and I-R funded our Predecessor s cash disbursements. Our Predecessor s primary cash disbursements were for capital expenditures and working capital. Following the consummation of the Acquisition, we initially relied upon a transition services agreement with I-R to provide these services until we could establish our own cash management system. As of April 2, 2005, we were no longer reliant upon I-R for any cash management services. Net cash provided by operating activities for the nine months ended September 30, 2005, was $222.4 million, compared to $64.5 million for the same period in The increase of $157.8 million in net cash provided by operating activities was mainly from a reduction in inventories and an increase in customer advance payments. Inventories-net declined $13.0 million and customer advance payments increased $75.8 million from December 31, 2004, a result of our increased efforts to collect customer payments in line with or ahead of the costs of inventory work-in-process. In addition, other current and noncurrent liabilities increased $26.4 million for the nine months ended September 30, 2005, compared to a decrease of $18.9 million for the nine months ended September 30, This change over the periods is primarily attributable to accrued interest on new debt and other accruals related to being a stand-alone company compared to being a division of I-R. Net cash used by investing activities for the nine months ended September 30, 2005, was $57.7 million, compared to $1.8 million for the same period in Capital expenditures for the nine months ended September 30, 2005, were $10.7 million. We sold our investment in a partially owned entity in the first quarter of 2005 for $10 million. On September 8, 2005, we acquired from Tuthill Corporation certain assets of its Tuthill Energy Systems Division ( TES ). TES is an international manufacturer of single and multi-stage steam turbines and portable ventilators under the Coppus, Murray and Nadrowski brands which complement our steam turbine business. The current estimated cost of TES is approximately $57.0 million, net of $4.0 million cash acquired, subject to future adjustments for agreement on the final working capital at the closing date and other related matters. We have preliminarily allocated the cost based on current estimates of the fair value of assets acquired and liabilities assumed as follows (in thousands): Accounts receivable $ 13,458 Inventory net 7,690 Prepaid expenses and other current assets 208 Total current assets 21,356 Property, plant and equipment, net 20,319 Intangible assets and goodwill 28,414 Total assets acquired 70,089 Accounts payable and accruals 10,570 Other liabilities 2,501 Total liabilities assumed 13,071 Cash paid net $ 57,018 Page 21 of 30

27 DRESSER-RAND GROUP INC. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The above amounts are estimates as final appraisals and other required information to determine final cost and assign fair values have not been received. Also, certain restructuring of operations will be necessary to obtain appropriate synergies in the combined steam turbine business. Accordingly, the above amounts may be revised when all required information is obtained and the restructuring plan is finalized which is expected to be accomplished during the fourth quarter of Pro forma financial information, assuming that TES had been acquired at the beginning of each period for which an income statement is presented, has not been presented because the effect on our results for these periods was not considered material. TES results have been included in our financial results since September 8, 2005, and were not material to the results of operations for the three months and nine months ended September 30, During the third quarter of 2005, we purchased the other 50% of our Multiphase Power and Processing Technologies (MppT) joint venture for a payment of $200,000 and an agreement to pay $300,000 on April 1, 2006, and $425,000 on April 1, The net present value of the total consideration is $876,000, bringing our total investment in MppT to $2.9 million at the date of the purchase. MppT owns patents and technology for inline, compact, gas-liquid scrubbers. Net cash used in financing activities was $161.1 million for the nine months ended September 30, 2005, related primarily to our initial public offering and payments on long-term debt, compared to $50.8 million for the nine months ended September 30, 2004, related primarily to the impact of the net change in intercompany accounts with I-R. On August 10, 2005, we completed our initial public offering of 31,050,000 shares of our common stock for net proceeds of approximately $608.9 million. On September 12, 2005, we used approximately $55.0 million of the net proceeds to redeem $50.0 million face value amount of our 7-3/8% senior subordinated notes due 2014, including the payment of $3.7 million applicable redemption premium and $1.3 million accrued interest to the redemption date. Our Board of Directors approved the payment of a dividend on August 11, 2005, of the remaining net proceeds, excluding certain costs, of approximately $557.7 million (10.26 per share) to our stockholders existing immediately prior to the offering, consisting of affiliates of First Reserve Corporation and certain members of senior management. In addition, we have paid $161.2 million in long-term debt and $2.6 million in short-term debt for a total debt reduction during 2005 of $213.8 million. On August 26, 2005, we increased the availability under the revolving credit portion of our senior credit facility from $300 million to $350 million. As of September 30, 2005, we had a cash balance of $109.5 million and the ability to borrow $178.7 million under our $350 million senior secured revolving credit facility, as $171.3 million was used for outstanding letters of credit. Although there can be no assurances, based on our current and anticipated levels of operations and conditions in our markets and industry, we believe that our cash flow from operations, available cash and available borrowings under the senior secured revolving credit facility will be adequate to meet our working capital, capital expenditures, debt service and other funding requirements for the next twelve months and our long-term future contractual obligations. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Risk Factors Statements included or incorporated by reference in the report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of The statements may relate to our future prospects, developments and business strategies. These forward-looking statements relate to analyses and other information that are based upon forecasts of future results and estimates of amounts not determinable which involve a number of risks, uncertainties, and other factors described below and elsewhere in this Form 10-Q and in other documents we file with the SEC from time-to-time, that could cause actual results to differ materially from those stated. 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. These risks, uncertainties and factors include, without limitation: material weaknesses in our internal controls; economic or industry downturns; our inability to implement our business strategy to increase our aftermarket parts and services revenue; Page 22 of 30

28 competition in our markets; DRESSER-RAND GROUP INC. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) failure to complete or achieve the expected benefits from any future acquisitions; economic, political, currency and other risks associated with our international sales and operations; loss of our senior management; our brand name may be confused with others; environment compliance costs and liabilities; failure to maintain safety performance acceptable to our clients; failure to negotiate new collective bargaining agreements; our ability to operate as a standalone company; unexpected product claims or regulations; infringement on our intellectual property or our infringement on others intellectual property; and other factors described in this report. Page 23 of 30

29 DRESSER-RAND GROUP INC. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Our results of operations are affected by fluctuations in the value of local currencies in which we transact business. We record the effect of translating our non-u.s. subsidiaries financial statements into U.S. dollars using exchange rates as they exist at the end of each month. The effect on our results of operations of fluctuations in currency exchange rates depends on various currency exchange rates and the magnitude of the transactions completed in currencies other than the U.S. dollar. The net foreign currency loss was $1.0 million for the nine months ended September 30, 2005, compared to a net currency loss $1.9 million for the nine months ended September 30, We enter into financial instruments to mitigate the impact of changes in currency exchange rates that may result from long-term customer contracts where we deem appropriate. We have interest rate risk related to the term loan portion of senior secured credit facility as the interest rate on the principal outstanding on the loans is variable. A 1% increase in the interest rate would have the affect of increasing interest expense by $2.3 million annually, based on the outstanding principal balance at September 30, Page 24 of 30

30 DRESSER-RAND GROUP INC. CONTROLS AND PROCEDURES ITEM 4. CONTROLS AND PROCEDURES The Company s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company s disclosure controls (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of September 30, In June 2004, the Public Company Accounting Oversight Board (PCAOB) adopted rules for purposes of implementing Section 404 of the Sarbanes-Oxley Act of 2002, which included revised definitions of material weaknesses and significant deficiencies in internal control over financial reporting. The PCAOB defines a material weakness as a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The new rules describe certain circumstances as being both significant deficiencies and strong indicators that a material weakness in internal control over financial reporting exists. During the transition from a subsidiary of a multinational company to a stand-alone entity, we identified a number of factors leading us to conclude that we have material weaknesses in internal control over financial reporting including the following: identification by our auditors of misstatements in internal drafts of our financial statements that were not initially identified by our internal control process, indicating a weakness with respect to our ability to properly monitor and account for non-routine transactions, and to apply GAAP in transactions subject to new or complex accounting pronouncements; the need for a Chief Financial Officer with SEC reporting experience, a Director of Financial Reporting with strong accounting and SEC reporting experience and additional skilled accounting and SEC experienced personnel to enhance the accounting department to remedy insufficient experience in public company accounting and periodic reporting matters among our existing staff; the need to develop a tax department; the need to develop a risk management department; the need to establish an internal audit department; and the need to enhance our documentation of our systems and controls. We have already taken a number of actions to begin to address the items identified including: hiring, in the third quarter of 2005, an Assistant Controller-Director Tax Worldwide hiring an experienced Chief Financial Officer with broad finance and SEC reporting experience, a Chief Accounting Officer with significant accounting experience and SEC reporting experience, a Director of Risk Management, a Director of Internal Audit and a General Counsel; changing the organizational relationship of the worldwide accounting organization so that the Controllers of the operating units report directly to our Vice-President, Controller and Chief Accounting Officer. engaging additional outside consultants to assist our personnel with internal audit work; outsourcing a substantial portion of our tax functions to a professional service firm; and engaging external resources to supplement our Section 404 evaluation efforts. Page 25 of 30

31 DRESSER-RAND GROUP INC. CONTROLS AND PROCEDURES - Continued While we have taken actions to address the items identified, additional measures will be necessary and these measures, along with other measures we expect to take to improve our internal control over financial reporting, may not be sufficient to address the issues identified by our independent auditors or ensure that our internal control over financial reporting is effective. 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 the effectiveness of our internal control over financial reporting. We have substantial effort ahead of us to complete the documentation and testing of our internal control over financial reporting and remediate any additional internal control over financial reporting deficiencies identified in these efforts. We may not be able to complete the required management assessment by our reporting deadline. An inability to complete this assessment would result in 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 not remediated, 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. Taking into consideration the previously mentioned material weaknesses in our internal control over financial reporting, our Chief Executive Officer and Chief Financial Officer have concluded that the Company s disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. There have been no other changes in the Company s internal control over financial reporting that occurred during the period covered by the report that have materially affected, or are reasonably likely to materially affect, the Company s internal control over financial reporting. Page 26 of 30

32 DRESSER-RAND GROUP INC. OTHER INFORMATION LEGAL PROCEEDINGS PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As a result of the enhanced compliance processes implemented by us shortly prior to and following the Acquisition of the Company from Ingersoll-Rand in October, 2004, we have recently discovered that our Brazilian subsidiary engaged in a number of transactions that resulted in steam turbine parts and services being provided to Moa Nickel S.A., a Cuban mining company jointly owned by the Government of Cuba and Sherritt International Corp., a Canadian company. Our revenues from these transactions were approximately $4.0 million in the aggregate since December, 1999, when we acquired a controlling interest in the Brazilian subsidiary. This amount represents approximately 0.08% of our consolidated revenues from 2000 through September 30, 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, 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 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. ITEM 5. OTHER INFORMATION On August 26, 2005, we increased the availability under the revolving credit portion of our senior credit facility from $300 million to $350 million. In connection with that increase, we entered into agreements in the forms attached as Exhibit 10.2 which Exhibit is incorporated into this Item 5 by reference. On November 10, the Company issued a press release announcing its 2005 third quarter results and conducted a webcast that included a powerpoint slide presentation. The press release, transcript of the webcast and powerpoint slide presentation are attached as Exhibit 99.1, 99.2 and 99.3, respectively, all of which are incorporated into this Item 5 by reference. These exhibits are being furnished and shall not be deemed filed with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent the registrant specifically incorporated it by reference. Page 27 of 30

33 DRESSER-RAND GROUP INC. OTHER INFORMATION EXHIBITS ITEM 6. EXHIBITS The following exhibits are filed with this report: Exhibit 3.1 Exhibit 3.2 Exhibit 10.1 Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the Registrant s Registration Statement on Form S-1 (File No ) filed with the SEC on August 2, 2005 (the Form S-1 )). Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant s Form S-1). Amendment to the Amended and Restated Limited Liability Company Agreement of Dresser-Rand Holdings, LLC effective as of June 24, 2005 (incorporated by reference to Exhibit to the Registrant s Form S-1). Exhibit 10.2 Commitment Increase Supplement dated as of August 26, 2005, to the Credit Agreement dated as of October 29, 2004, among Dresser-Rand Group Inc., the Foreign Borrowers party thereto from time to time, the lenders party thereto, Citicorp North America, Inc. as administrative agent and collateral agent, Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, each as co-syndication agent, Citigroup Global Markets Inc., Morgan Stanley Senior Fundings, Inc.and UBS Securities LLC, as joint lead arrangers and joint book managers, and Natexis Banques Populaires and Bear Stearns Corporate Lending Inc., as co-documentation agents. Exhibit 31.1 Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of Exhibit 31.2 Exhibit 32.1 Exhibit 32.2 Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of Certification of the President and Chief Executive Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (This certification is being furnished and shall not be deemed filed with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.) Certification of the Executive Vice President and Chief Financial Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (This certification is being furnished and shall not be deemed filed with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.) Exhibit 99.1 Dresser-Rand Group Inc. Press Release, dated November 10, Exhibit 99.2 Dresser-Rand Group Inc. Transcript of Webcast, November 10, Exhibit 99.3 Dresser-Rand Group Inc. Powerpoint Slide Presentation, November 10, Page 28 of 30

34 DRESSER-RAND GROUP INC. OTHER INFORMATION SIGNATURES SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DRESSER-RAND GROUP INC. November 14, 2005 /s/ Lonnie A. Arnett Lonnie A. Arnett Vice President, Controller and Chief Accounting Officer Page 29 of 30

35 DRESSER-RAND GROUP INC. OTHER INFORMATION EXHIBITS EXHIBIT INDEX Exhibit Description 3.1 Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the Registrant s Registration Statement on Form S-1 (File No ) filed with the SEC on August 2, 2005 (the Form S- 1 )). 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant s Form S-1) Amendment to the Amended and Restated Limited Liability Company Agreement of Dresser-Rand Holdings, LLC effective as of June 24, 2005 (incorporated by reference to Exhibit to the Registrant s Form S-1) Commitment Increase Supplement dated as of August 26, 2005, to the Credit Agreement dated as of October 29, 2004, among Dresser-Rand Group Inc., the Foreign Borrowers party thereto from time to time, the lenders party thereto, Citicorp North America, Inc. as administrative agent and collateral agent, Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, each as co-syndication agent, Citigroup Global Markets Inc., Morgan Stanley Senior Fundings, Inc.and UBS Securities LLC, as joint lead arrangers and joint book managers, and Natexis Banques Populaires and Bear Stearns Corporate Lending Inc., as co-documentation agents Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of Certification of the President and Chief Executive Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (This certification is being furnished and shall not be deemed filed with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.) 32.2 Certification of the Executive Vice President and Chief Financial Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (This certification is being furnished and shall not be deemed filed with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.) 99.1 Dresser-Rand Group Inc. Press Release, dated November 10, Dresser-Rand Group Inc. Transcript of Webcast, November 10, Dresser-Rand Group Inc. Powerpoint Slide Presentation, November 10, Page 30 of 30 COMMITMENT INCREASE SUPPLEMENT Exhibit 10.2 COMMITMENT INCREASE SUPPLEMENT (this Supplement ), dated as of August 26, 2005 (the Increased Amount Date ), to the Credit Agreement dated as of October 29, 2004 (as amended, amended and restated, supplemented or otherwise modified prior to the date hereof, the Credit Agreement ), among Dresser-Rand Group Inc., a Delaware corporation (the Domestic Borrower ), the Foreign Borrowers party thereto from time to time (together with the Domestic Borrower, the Borrowers ), the Lenders party thereto, Citicorp North America, Inc. as administrative agent (in such capacity, the Administrative Agent ) and as collateral agent for the Lenders, Morgan Stanley Senior Funding, Inc. ( MS ) and UBS Securities LLC ( UBS ), each as co-syndication agent, Citigroup Global Markets Inc., MS and UBS, as joint lead arrangers and joint book managers and Natexis Banques Populaires and Bear Stearns Corporate Lending Inc., as co-documentation agents. Terms defined in the Credit Agreement are used herein with the same meanings. W I T N E S S E T H : WHEREAS, pursuant to Section 2.21 of the Credit Agreement, the Borrowers have the right, subject to the terms and conditions thereof, to effectuate from time to time an increase in the aggregate Revolving Facility Commitments under the Credit Agreement by

36 requesting that the Lenders increase the amount of their Revolving Facility Commitments; WHEREAS, the Domestic Borrower has given notice to the Administrative Agent of its intention to increase the aggregate Revolving Facility Commitments pursuant to such Section 2.21; and WHEREAS, pursuant to Section 2.21 of the Credit Agreement, the undersigned Revolving Facility Lender now desires to increase the amount of its Revolving Facility Commitment under the Credit Agreement by executing and delivering this Supplement to the Administrative Agent; NOW THEREFORE, each of the parties hereto hereby agrees as follows: The undersigned Revolving Facility Lender agrees, subject to the terms and conditions of the Credit Agreement, that as of the Increased Amount Date, that it shall increase its Revolving Facility Commitment by U.S.$25,000,000 to an aggregate amount equal to U.S.$63,333,333. The Domestic Borrower hereby represents and warrants that no Default or Event of Default exists as of the Increased Amount Date before or after giving effect to the New Revolving Facility Commitments. This Supplement shall be governed by, and construed in accordance with, the laws of the State of New York. This Supplement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same document. [Remainder of this page intentionally left blank]

37 IN WITNESS WHEREOF, each of the undersigned has caused this Supplement to be executed and delivered by a duly authorized officer on the date first above written. CITICORP NORTH AMERICA INC. By: Name: Title: /s/ Christopher M.Hartzell Christopher M.Hartzell Vice President 388 Greenwich St./23rd Fl. New York, NY 10013

38 Agreed: DRESSER RAND GROUP INC., as Domestic Borrower By: Name: Title: /s/ Stephen A. Riordan Stephen A. Riordan V.P. Finance

39 Acknowledged and accepted: CITICORP NORTH AMERICA, INC., as Administrative Agent By: Name: Title: /s/ Christopher M. Hartzell Christopher M. Hartzell Vice President 388 Greenwich St./23rd Fl. New York,. NY 10013

40 COMMITMENT INCREASE SUPPLEMENT COMMITMENT INCREASE SUPPLEMENT (this Supplement ), dated as of August 26, 2005 (the Increased Amount Date ), to the Credit Agreement dated as of October 29, 2004 (as amended, amended and restated, supplemented or otherwise modified prior to the date hereof, the Credit Agreement ), among Dresser-Rand Group Inc., a Delaware corporation (the Domestic Borrower ), the Foreign Borrowers party thereto from time to time (together with the Domestic Borrower, the Borrowers ), the Lenders party thereto, Citicorp North America, Inc. as administrative agent (in such capacity, the Administrative Agent ) and as collateral agent for the Lenders, Morgan Stanley Senior Funding, Inc. ( MS ) and UBS Securities LLC ( UBS ), each as co-syndication agent, Citigroup Global Markets Inc., MS and UBS, as joint lead arrangers and joint book managers and Natexis Banques Populaires and Bear Stearns Corporate Lending Inc., as co-documentation agents. Terms defined in the Credit Agreement are used herein with the same meanings. W I T N E S S E T H : WHEREAS, pursuant to Section 2.21 of the Credit Agreement, the Borrowers have the right, subject to the terms and conditions thereof, to effectuate from time to time an increase in the aggregate Revolving Facility Commitments under the Credit Agreement by requesting that the Lenders increase the amount of their Revolving Facility Commitments; WHEREAS, the Domestic Borrower has given notice to the Administrative Agent of its intention to increase the aggregate Revolving Facility Commitments pursuant to such Section 2.21; and WHEREAS, pursuant to Section 2.21 of the Credit Agreement, the undersigned Revolving Facility Lender now desires to increase the amount of its Revolving Facility Commitment under the Credit Agreement by executing and delivering this Supplement to the Administrative Agent; NOW THEREFORE, each of the parties hereto hereby agrees as follows: The undersigned Revolving Facility Lender agrees, subject to the terms and conditions of the Credit Agreement, that as of the Increased Amount Date, that it shall increase its Revolving Facility Commitment by U.S.$25,000,000 to an aggregate amount equal to U.S.$63,333,333. The Domestic Borrower hereby represents and warrants that no Default or Event of Default exists as of the Increased Amount Date before or after giving effect to the New Revolving Facility Commitments. This Supplement shall be governed by, and construed in accordance with, the laws of the State of New York. This Supplement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same document. [Remainder of this page intentionally left blank]

41 IN WITNESS WHEREOF, each of the undersigned has caused this Supplement to be executed and delivered by a duly authorized officer on the date first above written. MORGAN STANLEY SENIOR FUNDING, INC. By: Name: Title: /s/ Eugene F. Martin Eugene F. Martin Vice President Morgan Stanley Senior Funding, Inc.

42 Agreed: DRESSER RAND GROUP INC., as Domestic Borrower By: Name: Title: /s/ Stephen A. Riordan Stephen A. Riordan V.P. Finance

43 Acknowledged and accepted: CITICORP NORTH AMERICA, INC., as Administrative Agent By: Name: Title /s/ Christopher M. Hartzell Christopher M. Hartzell Vice President 388 Greenwich St./23rd Fl. New York, NY Exhibit 31.1 DRESSER-RAND GROUP INC. OTHER INFORMATION EXHIBITS SECTION 302 CERTIFICATION I, Vincent R. Volpe Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q for the quarter ending September 30, 2005, of Dresser-Rand Group Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) (b) (c) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared: Evaluated the effectiveness of the registrant s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant s internal control over financial reporting that occurred during the registrant s most recent fiscal quarter (the registrant s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant s internal control over financial reporting; and 5. The registrant s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant s auditors and the audit committee of the registrant s board of directors (or persons performing the equivalent functions): (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant s internal control over financial reporting. Date: November 14, 2005 /s/ Vincent R. Volpe Jr. Vincent R. Volpe Jr. President, Chief Executive Officer and Director

44 Exhibit 31.2 DRESSER-RAND GROUP INC. OTHER INFORMATION EXHIBITS SECTION 302 CERTIFICATION I, Leonard M. Anthony, certify that: 1. I have reviewed this quarterly report on Form 10-Q for the quarter ending September 30, 2005, of Dresser-Rand Group Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) (b) (c) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Evaluated the effectiveness of the registrant s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant s internal control over financial reporting that occurred during the registrant s most recent fiscal quarter (the registrant s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant s internal control over financial reporting; and 5. The registrant s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant s auditors and the audit committee of the registrant s board of directors (or persons performing the equivalent functions): (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant s internal control over financial reporting. Date: November 14, 2005 /s/ Leonard M. Anthony Leonard M. Anthony Executive Vice President and Chief Financial Officer Exhibit 32.1 DRESSER-RAND GROUP INC. OTHER INFORMATION EXHIBITS CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Dresser-Rand Group Inc. (the Company ) on Form 10-Q for the period ending September 30,

45 2005, as filed with the Securities and Exchange Commission on the date hereof (the Report ), I, Vincent R. Volpe, Jr., President, Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 14, 2005 /s/ Vincent R. Volpe Jr. Vincent R. Volpe Jr. President, Chief Executive Officer and Director Exhibit 32.2 DRESSER-RAND GROUP INC. OTHER INFORMATION EXHIBITS CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Dresser-Rand Group Inc. (the Company ) on Form 10-Q for the period ending September 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the Report ), I, Leonard M. Anthony, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes- Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 14, 2005 /s/ Leonard M. Anthony Leonard M. Anthony Executive Vice President and Chief Financial Officer Exhibit 99.1 For Immediate Release NEWS Results Summary (dollars in millions, except share data): Dresser-Rand Third Quarter EPS Increases to $0.15 Per Share Third-quarter net income rises to $10.4 million Operating income improves 73% over second quarter 2005 Dresser-Rand completed its IPO and acquired Tuthill Energy Systems. Second Quarter Third Quarter Nine Months Ended September Successor Successor Predecessor Successor Predecessor

46 Net sales $ $ $ $ $ Operating income $ 20.8 $ 35.8 $ 22.5 $ 65.3 $ 43.1 Interest (Expense) Income - net $ 14.4 $ (15.0) $ 1.2 $ (44.6) $ 2.3 Net income (loss) $ (1.5) $ 10.4 $ 21.1 $ 4.9 $ 37.7 Diluted EPS $ (0.03) $ 0.15 $ 0.08 Average diluted shares outstanding (000) 54, , ,179.0 Note: Income for the 2005 (Successor) and 2004 (Predecessor) are not comparable because of purchase accounting adjustments. Houston, TX, November 10, 2005 Dresser-Rand Group Inc. ( Dresser-Rand or the Company ) (NYSE: DRC), a global supplier of rotating equipment, reported net income of $10.4 million, or $0.15 per diluted share, for the quarter ended September 30, 2005, compared to the second quarter ended June 30, 2005 net loss of $1.5 million, or $0.03 per diluted share. Sales for the quarter were $309.8 million, and operating profit was $35.8 million. Bookings during the third quarter were $288.9 million and the backlog at the end of September 2005 was $872.8 million, 49% higher than a year ago. Income for the 2005 (successor) and 2004 (Predecessor) periods are not comparable because of purchase accounting adjustments. Total sales increased by $92.5 million to $309.8 million, or 43% for the quarter ended September 30, 2005, compared to the same period in Operating income increased to $35.8 million for the third quarter 2005 compared to $22.5 million for the same period last year. Third quarter 2005 operating income was adversely affected by about $8.3 million due to additional depreciation and amortization from purchase accounting as compared to the same period last year.

47 Vincent R. Volpe, Jr., President and Chief Executive Officer of Dresser-Rand, said, I am pleased with the company s third quarter performance. Our operating income for the third quarter and first nine months of 2005 improved from year ago levels and our record backlog reflects continued strength in the markets for rotating equipment. He further stated that Dresser-Rand made significant progress during the quarter by completing its initial public offering, acquiring Tuthill Energy Systems and paying down debt. We believe we re well-positioned to capitalize on the continued strength in the markets we serve. New Units Sales in the new units segment increased $76.7 million for the three months ended September 30, 2005, compared to the same period in Continued strength in worldwide demand for rotating equipment contributed to the increase in revenue. Gross profit increased by $11.0 million for the three months ended September 30, 2005, compared to the same period in As a percentage of segment revenues, gross profit increased to 13.2% for the period in 2005 from 12.3% for the same period in The increase in gross profit was primarily due to margins on buyouts and a reduction in costs primarily due to improved direct labor and engineering absorption, no severance costs in 2005 and a reduction in the provisions for obsolete and slow moving inventory. Operating income increased by $8.0 million for the three months ended September 30, 2005, compared to the same period in This increase is attributable to the $11.0 million change in gross profit mentioned above reduced by $3.0 million increase in the allocation of selling and administrative expenses to this segment due to the increase in sales. Bookings for the three months ended September 30, 2005, were $121.3 million, 16% below the bookings for the same period in However, year to-date bookings are 45% ahead of the same period a year ago. The backlog at September 30, 2005, was $687.3 million, or 64.5% above the $417.8 million backlog at September 30, This increase is due to continuing strong worldwide demand for rotating equipment and the acquisition of certain assets of Tuthill Energy Systems (TES). Aftermarket Parts and Services Sales increased by $15.8 million, or 12%, for the three months ended September 30, 2005 compared to the same period in 2004 primarily from higher parts sales. Gross profit increased by $8.8 million for the three months ended September 30, 2005 compared to the same period in 2004 as a result of the increases in sales. As a percentage of sales, gross profit increased to 37.6% for the three months ended September 30, 2005 from 35.4% for the same period in 2004 as a result of reduced allocations of costs and expenses due to the stronger growth in new units.

48 Operating income increased by $8.6 million, or 29.0% for the three months ended September 30, 2005 compared to the same period in This increase is mainly attributable to the change in gross profit mentioned above. Bookings for the three months ended September 30, 2005 were $167.6 million, 16% above bookings for the same period in Backlog at September 30, 2005, was $185.5 million, or 10.2% above the $168.4 million backlog at September 30, Liquidity and Capital Resources As of September 30, 2005, we had a cash balance of $109.5 million and the ability to borrow $178.7 million under the $350 million revolving credit portion of the senior credit facility, as $171.3 million was used for outstanding letters of credit. We believe that our cash flow from operations, available cash and available borrowings under the senior secured revolving credit facility will be adequate to meet our working capital, capital expenditures, debt service and other funding requirements for the next twelve months and our long-term future contractual obligations. Our capital expenditures have averaged $10.3 million per year over the past three years. Capital expenditures for the nine months ended September 30, 2005 were $10.7 million. On August 10, 2005, we completed our initial public offering of 31,050,000 shares of our common stock for net proceeds of approximately $609.0 million. On September 12, 2005, we used approximately $55.0 million of the net proceeds to redeem $50.0 million face value of our 7-3/8% senior subordinated notes, and to pay the applicable redemption premium of $3.7 million ($0.05 earnings per share effect) and accrued interest of $1.3 million. A dividend of the remaining net proceeds, excluding certain related costs, was paid to our stockholders, consisting principally of affiliates of First Reserve Corporation. On September 8, 2005, we acquired from Tuthill Corporation certain assets of its TES division. TES is an international manufacturer of single and multi-stage steam turbines and portable ventilators under the Coppus, Murray and Nadrowski brands complementing our steam turbine business. The current estimated cost of TES is approximately $57.0 million, net of $4.0 million cash acquired, subject to future adjustments for agreement on the final working capital at the closing date and other related matters. Transition teams are now working to integrate operations. With an installed equipment base estimated at 17,000 units, and sales of $70 million in 2004, the TES operations are expected to add $80 million annually to Dresser-Rand s revenue stream when fully integrated.

49 Outlook The worldwide demand for oil and gas products continues to be strong. Our markets remain at historically high levels and many of our major clients have announced higher capital expenditure budgets for next year. We believe our financial performance will continue to improve through the balance of this year and next. Conference Call A webcast presentation will be accessible live at 9:30 AM Eastern Time. You may access the live presentation at A replay of the webcast will be available from 12:00 PM Eastern Time on November 10, 2005 through 11:59 PM Eastern Time on November 18, You may access the webcast replay at A replay of the conference can be accessed by dialing (888) in the U.S. and (719) from other countries. The replay pass code is Dresser-Rand is among the largest suppliers of rotating equipment solutions to the worldwide oil, gas, petrochemical, and process industries. The Company operates manufacturing facilities in the United States, France, Germany, Norway, India, and Brazil, and maintains a network of 24 service and support centers covering 105 countries. PricewaterhouseCoopers (PwC) has not completed their review of Dresser-Rand s third quarter 2005 financial statements. Therefore, these financial statements are preliminary until PwC completes their review, which will occur prior to the filing of Dresser-Rand s Form 10Q for the third quarter 2005 by November 15, This news release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of All statements other than statements of historical facts may be forward-looking statements. Many risks and uncertainties may impact the matters addressed in the forward-looking statements, and actual results may differ materially from those expressed or implied. For a discussion of the factors that could cause actual results to differ, please see the disclosure under the heading Risk Factors in the Company s quarterly report on Form 10-Q for the quarter ended June 30, 2005 filed with the Securities and Exchange Commission on August 25, For information about Dresser-Rand, go to our website at Company Contact: Blaise Derrico, Director Investor Relations (716)

50 DRESSER-RAND GROUP INC. CONSOLIDATED STATEMENT OF OPERATIONS (SUCCESSOR) AND COMBINED STATEMENT OF OPERATIONS (PREDECESSOR) (Unaudited; $ in thousands, except per share) Successor Three months ended September 30, 2005 Predecessor Three months ended September 30, 2004 Successor Nine months ended September 30, 2005 Predecessor Nine months ended September 30, 2004 Net sales of products $ 258,065 $ 166,798 $ 683,656 $ 506,187 Net sales of services 51,694 49, , ,354 Net sales to affiliates 657 1,639 Other operating revenue 444 1,314 Total 309, , , ,494 Cost of products sold 192, , , ,024 Cost of services sold 40,050 35, , ,216 Cost of products sold to affiliates Total 232, , , ,208 Gross profit 76,905 57, , ,286 Selling and administrative expenses 39,814 32, , ,493 Research and development expenses 1,249 1,603 4,745 4,695 Income from operations 35,842 22,480 65,316 43,098 Interest (expense) income, net (14,966) 1,204 (44,619) 2,306 Early redemption premium on debt (3,688) (3,688) Other expense, net (978) (89) (1,558) (2,754) Income before income taxes 16,210 23,595 15,451 42,650 Provision for income taxes 5,776 2,543 10,560 4,918 Net income $ 10,434 $ 21,052 $ 4,891 $ 37,732 Net income per share: Basic and diluted $ 0.15 $ 0.08 Shares used in computing net income per share: Basic and diluted 71,904,027 60,178,986

51 DRESSER-RAND GROUP INC. Segment Analysis: Successor Three Months Ended September 30, 2005 Predecessor Three Months Ended September 30, 2004 Period to Period Change 2004 to 2005 Change Sales, net New units $ % $ % $ % Aftermarket parts and services % % % $ % $ % $ % Gross Profit New units $ 21.5 $ 10.5 $ % Aftermarket parts and services % Total gross profit $ 76.9 $ 57.1 $ % Operating Income New units $ 8.3 $ 0.3 $ 8.0 N/M Aftermarket parts and services % Unallocated corporate expense (10.9) (7.6) (3.3) 42.6 % Total operating income $ 35.8 $ 22.5 $ % DRESSER-RAND Moderator: Blaise Derrico November 10, :30 a.m. CT Exhibit 99.2 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 1 Operator: Good morning, ladies and gentlemen and welcome to the Dresser-Rand Third Quarter 2005 Earnings conference call. My name is Stephanie, and I will be your coordinator for today s call. At this time, all participants are in a listen-only mode and we will be facilitating a question-answer session toward the end of the conference. If at any time during the call you require assistance, please key star zero and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. After Dresser-Rand s comments today, I will instruct you on the procedures for asking your questions. I ll now turn the conference over to Mr. Blaise Derrico, Director of Investor Relations. Please go ahead, sir. Blaise Derrico: Thank you, Stephanie. Good morning. Before we begin, I want to remind you that statements made during this conference call that are not historical facts may be forward-looking statements.

52 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 2 Forward-looking statements involve risks and uncertainties (and) may cause actual results or events to differ materially from those expressed or implied in such statements. In addition, this conference call contains time-sensitive information that reflects management s best analysis only as of the date of the live call. Dresser-Rand does not undertake any ongoing obligation, other than that imposed by law, to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. Further information concerning issues that could materially affect the financial performance related to forward-looking statements can be found in Dresser-Rand s periodic filings with the SEC. This call is open to the public and is being Web cast simultaneously at and will be archived for replay. A copy of the news release Dresser-Rand issued this morning is also available on our Web site. Now, here is Vincent R. Volpe, Jr., President and CEO. Vincent Volpe: Thank you for joining us today. And welcome to Dresser-Rand s conference call for the third quarter. Along with Blaise Derrico, our Director of Investor Relations; with me today is (Len Anthony), our Chief Financial Officer. Today I ll start with a review of the highlights of the quarter and some comments about our bookings and backlog. (Len) will follow me with a detailed discussion of our third quarter results. We re pleased to report third quarter operating income of $36 million, which is up 72 percent from the prior quarter. Our net income of $10.4 million, which is 15 cents per diluted share, is also a big improvement over our second quarter net loss of 1.5 million, and is essentially in line with expectations.

53 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 3 Incidentally, as part of our IPO, we repurchased $50 million of our seven and three eighths notes at a cost of $3.7 million, or approximately five cents a share. Our bookings reflect continuing strong demand for rotating equipment, parts and service. In the first nine months of this year, we booked more than $1 billion of orders. That s 27 percent higher than the same period last year and 66 percent higher than two years ago. On the new-unit front, our bookings year to date have been roughly split equally between the upstream and downstream segments of the energy chain. In the after-market, we booked a number of very large orders, including one with a total value of about $16 million. After-market orders are coming to us from many different regions of the world: Nigeria, Norway, Mexico, Brazil and Venezuela, to name a few. You ll notice in our booking data for the third quarter 2005, those new-unit bookings actually declined about 16 percent from the same period a year ago. And due to the low number of transactions and high-unit value, new-unit orders tend to have some lumpiness. So while we had a strong units-bookings quarter, we had one very significant order we booked in last year s third quarter, which created the variance. A few additional comments about our backlog our backlog at the end of September was $873 million, nearly 50 percent higher than a year earlier, and about 80 percent higher than two years ago. The significant increase in our backlog is an indicator of our competitive success and the strength of the markets we serve. Breaking our backlog down into our two segments our new-unit backlog of $687 million is up 65 percent versus a year ago, while our after-market backlog of 186 million is up about 11 percent. Our backlog data is of course important, as it gives us a good visibility about our future performance.

54 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 4 Turning to a few of the other key highlights for the third quarter first, we completed our IPO offering of 30 million shares, for net proceeds of about $609 million. We acquired certain assets of Tuthill Energy Systems, establishing in our class of equipment, a world leader in the steam turbine business. We also completed another acquisition, which reinforces our total-solutions approach to the market. This approach is designed to offer clients significant value, and complements our existing technologies in the global oil and gas industries. The acquisition involved Aker Kvaerner s 50 percent interest in multi-phase power and processing technologies. We now own a 100 percent interest in the venture. Its mission is to develop and market proprietary expanders and other equipment, to separate gases and liquids, and to generate power from previously wasted energy during oil and gas production. These technologies have demonstrated their effectiveness at enabling oil and gas producers to reduce the overall size of production platforms as well as subsea modules. In addition, the systems serve to protect critical equipment from liquids and particles in the pipelines which can cause extensive damage to compressors, thereby reducing downtime and production losses. With that, I ll turn it over now to (Len). (Len Anthony): Thank you, Vince. As Vince mentioned, we reported net income for the third quarter of $10.4 million, or about 15 cents per diluted common share, which was essentially in line with the consensus estimate reported by First Call. Our third quarter earnings were reduced by a $3.7 million premium resulting from the early redemption of a portion of our senior subordinated notes with the proceeds from our IPO. The EPS effect of the amount of this premium was about five cents per share.

55 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 5 Our third quarter operating income of $36 million improved 59 percent from the third quarter of last year. The improvement was due to a number of factors, including operating leverage from increased business volume, improved productivity, and higher prices. We know many of you track EBITDA, which is a non-gaap financial measure. Our EBITDA for the third quarter was 50 million, which is our operating income of $36 million plus our depreciation and amortization of $14 million. Our operating income margins also improved from 10.4 percent to 11.6 percent for the third quarter. Our real improvement in margins, however, is somewhat masked by the rapid growth in our new-unit business, where our margins are much lower than those in our after-market segment. You can see the dramatic growth in our new-unit sales on this slide. New-unit sales were a big factor in our overall sales growth, reflecting continuing strong worldwide demand for rotating equipment. Our sales in the third quarter of $310 million increased 93 million, or 43 percent, from the same period last year. New-unit sales of $163 million increased nearly 90 percent versus a year ago, while sales of after-market parts and services of $147 million were up about 12 percent, which is well in excess of our average historical growth rate of about seven percent. Now let s look at our operating margins by segment. As you can see from this slide, both segments experienced sizeable growth in margins. New units principally benefited from improved productivity, and the operating leverage, which was generated with higher volume. Our after-market segment principally benefited from pricing and volume. Turning now to our liquidity, it totaled about $289 million at the end of the third quarter. And it consisted of about $110 million of cash, $179 million of available borrowings under our bank credit arrangements. We ve maintained a very strong liquidity position during the year, even though we used about $57 million for the acquisition of Tuthill Energy Systems assets. And we reduced our debt by about $224 million.

56 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 6 You can see on this slide the big reduction in our long-term debt: from $823 million at the start of the year to $599 million at the end of the third quarter. As to our long-term debt, we have no required amortization for the next several years. And our bank debt is payable at any time without penalty. We expect to have our 10-Q filed no later than next Monday, and that filing should provide you with additional details of our third quarter results. With that, I ll now turn the call back to Vince for some closing comments and to moderate our Q&A session. Vincent Volpe: Thank you, (Len). With respect to the Tuthill integration, we have a team working on five major areas of potential synergies: footprint, SG&A, sales channel, product rationalization, and supply chain. The most complicated of these areas clearly involves a footprint. We acquired three Tuthill factories located in Massachusetts, Iowa and Germany, as well as the two steam factories that we operate today, one of which is located in Wellsville, New York, and the other in Oberhausen, Germany. The decisions relative to these five manufacturing facilities have the greatest potential for realizing positive synergies. We expect to complete our evaluation and announce our rationalization plan by the end of the year. Based on the work we ve done to date, we re confident we ll achieve all of the previously identified synergies from the combination, and we re excited about the growth potential we see in this business. Bill Jones has assumed the role of President of our Steam Turbine business. Bill is extremely qualified, as he ran Tuthill s steam turbine business for nearly 25 years.

57 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 7 In summary, we re pleased with our third quarter performance. And we expect the fourth quarter and next year will reflect continuing strong market conditions and the execution of our strategy and plans. As to the current business conditions, industry fundamentals are strong, and we believe we re in the midst of a long up-cycle in energy infrastructure spending and secular growth. As a result, underlying demand remains good in all market segments: upstream, midstream and downstream. Compression is needed in every stage of the energy chain, and our rotating equipment is critical to production in every stage of this chain. Currently, all three legs are very active. Our clients are generating extremely strong cash flows and are announcing increases in their capital expenditure budgets for next year. Turning more specifically to our outlook for the fourth quarter we think it s reasonable to assume that as compared to the third quarter of 2005 revenues will be up about 20 percent 20 to 25 percent. And operating margins are also expected to grow by three to four percentage points. In summary, we had strong third quarter and year-to-date financial performance. Industry fundamentals remain strong. We re continuing to execute our successful strategy a strategy that we implemented some five years ago and which has served us well. And we have a positive outlook for the fourth quarter and At this point, we ll open the line for questions. Stephanie, please begin the Q&A session. Operator: Thank you, sir. The question-and-answer session will be conducted electronically today. If you would like to ask a question, please do so by pressing the star key followed by the digit one. If you are using a speakerphone, we ask that you make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal and take as many questions as time permits. Once again, that is star one. We ll pause just a moment to let everyone assemble their questions.

58 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 8 Our first question comes from Arvind Rajpal of Morgan Stanley. Arvind Rajpal: (Len Anthony): Arvind Rajpal: (Len Anthony): Operator: Terry Darling: Male: Male: Terry Darling: Good morning, guys. Just a quick question, really. You hadn t given the depreciation breakout in the release. And I see that, you know, it was up $8.3 million from last year. Can you just give us what exactly was the D&A for the quarter? Sure. Well, first of all, the up $8.3million was related to purchase accounting versus last year s same quarter. So as you think about the D&A for the three months ended September 30 th, 2005, it was about 14-and-a-half million. OK. Great. (Thanks, guys). Thank you. Our next question comes from Terry Darling of Goldman Sachs. Thanks. Morning, gentlemen. Morning, Terry. Morning. (Just) wondering if you could talk about the improvement that you re seeing in the backlog, from the standpoint of our end markets or major product segments, turbo, recip, steam.

59 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 9 Vincent Volpe: Sure. Terry, I think, you know, we ve got a fairly balanced mix between upstream and downstream. I m just looking at the year-to-date numbers. It s almost split And if I look at the third quarter, where I ve got a little bit more granularity here -- sort of -- sitting in front of me, we ve got around $120 million, we booked about a third of that, or (well,) 40 percent of it came from oil production, which is upstream. We actually got an order for boil off compressors in the LNG train, so that s starting to actually hit now a small order; $5 million. That s classified as upstream. And then, petrochemical activity in China, refining in U.S. and France, (co-liquefaction) also in China so about 40 to 45 percent downstream. So pretty clear mix, from the upstream versus downstream. Now on the upstream side, most of what you re going to see, Terry, is turbo the turbo compressor, turbo product. So it s more skewed to turbo on the upstream. The downstream, interestingly enough, was mostly recip in this quarter. And, you know, that ll change from one quarter to the next, so call it there. Terry Darling: Vincent Volpe: Terry Darling: Vincent Volpe: OK, sounds pretty balanced. And as you look forward, can you elaborate a little bit in terms of timing of some of the potential opportunities in LNG? And do you see this mix between upstream and downstream continuing, you know, for a little while here? Well, I would say that, you know, refining and particularly refining is going to remain strong. You know, there s a couple things going on in refining. And let me give you the answer backwards, if I can. OK. (If you) take the downstream side for a second, which I actually think is going to be a smaller percentage going forward, I don t think that it s going to weaken. I think that the upstream is actually going to increase at a greater rate, principally because of the LNG work that s going on. There s still plenty of floaters. But with the LNG coming in the upstream, that should grow faster.

60 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 10 Now let s talk about why downstream isn t going to grow at the same rate. It s been very active. We ve gone through a lot of clean fuels work. And as you know, when you take sulfur out of gasoline, kerosene and diesel, you require a lot of compression. And so that s been a really buoyant market for us, and we re probably I don t know two thirds to three quarters of the way through that, in terms of equipment purchases. So there s still some more of that to go. And then I think what s going to kick in is the conversions to the to sour crude as feedstock, which will also require compression; and then just general capacity increases. And I mean, you ve heard the U.S. government now take a position on new refining, which is something that over my 25 years, I hardly remember the last new refinery that was opened in the United States. So that I think is going to take a little bit of time to kick in, from the time that plans are laid on the board to the time that we see a huge pickup in activity in refining. So I think we can look for good, solid level of activity. I don t see a drop-off in the refining activity, which is quite high. But I think we re going to see the upstream side of this really move more quickly. Now, to the second part of your question on LNG you know as well as I do that there are a lot of plants being contemplated. We re talking about potentially doubling the world capacity in LNG over the next 10 to 12 years. If that comes true even in part, it will have a significant uptick for us in the business. We have 35 percent of the world-installed base through 2004 on the liquefaction) units and we have 26 percent or so on the boil off or the regasification side of the units, excluding domestic Japan business.

61 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 11 And so, we believe that we re going to be able, with our new technology, the DATUM compressor, to at least maintain that share position. And, what that would translate to over the next 10 years could be upwards of $750 million to a billion dollars in bookings. And that s just if we maintain our share; if, in fact, the capacity doubles. So there s a couple of assumptions there. And if the capacity doubles, and we maintain our share, we re looking at something on the order of 30 new trains over that period. And, the average equipment price for a liquefaction train is somewhere in the $25 million to $30 million range. So that s kind of how I get my math. None of those liquefaction units are in our backlog today. And so that all represents upside, and that s why, layered on top of very active production work that s going on right now in oil, I think LNG s going to add a real boost here. And I don t think we will have to wait five years for it to hit; we re working actively on projects now. I think that we you know, we talk about potentially seeing some bookings, probably mid-next year, depending on how fast some of these projects go that we re working on. And of course, with the cycle times these are huge compressors, Terry. They re sort of 80 to 100 tons each. And so, by the time we turn a booking into a sale, we re probably talking about late 07, in terms of the actual sales, you know, that we ll recognize. But certainly, we ll be able to report the activity. We ll get the absorption in the meantime. And you ll get a sense, sort of mid-next year, for how that piece of our business is going. But we re really bullish on it. Terry Darling: Vincent Volpe: ((inaudible)) just to put some parameters around your earlier comments, in terms of the changing growth rates you re expecting on the on the backlog, downstream versus upstream, can you remind us what the mix is downstream-upstream, and what those year-over-year growth rates are? I ll have to get back to you on the on the detailed growth rate, so let s take that off-line. But the mix is shifting, OK? You know, if I look back a year, I can tell you we had more downstream than we have today. And we think going forward, that ll continue to go in that direction, Terry. So let me not misquote actual growth rates. We ll get back to you off-line on that.

62 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 12 Terry Darling: Vincent Volpe: Terry Darling: Vincent Volpe: Operator: Vincent Volpe: Roger Read: Vincent Volpe: OK. OK. Thanks very much. You re welcome. Thank you. Our next question comes from Roger Read of Natexis Bleichroeder. Morning, Roger. Good morning, guys. (Kind of on with) the question about refining, was there any boost at all, or do you expect a boost maybe in the next quarter, too, in terms of repairing some of the refineries along the Gulf Coast, or some of the petrochem that was impacted by the storms? We do, Roger. And that s a very good question. I think there s a couple of dynamics going. So I think the short answer is that we are seeing some repair work. There s some more work to come now. If you look at the sort of 20 refineries that are in the red zone, so to speak, they represent about 4.8 million, five million barrels a day of production. Last time I looked, which was about a week-and-a-half ago, all but about 700,000 was back on-line, right? I don t know how that ties out with your numbers. So we ve seen some repair work. And while you d normally think there was going to be an uptick we ve also seen a couple of scheduled overhauls that were supposed to happen in the timeframe, that have been pushed out. So net-net, Roger, I would say is little or no impact, short term now. Obviously, as people move as people move overhauls out I mean, there s a reason why you do an overhaul when you do it.

63 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 13 And the refiners have figured out how to stretch times between runs as far as they can. So it s not great business to move these things out significantly. So either we ll see these overhauls move back just a little bit, or, if they move way back, then you might be into a pay-me-now, pay-me-later scenario where, you know, heaven forbid you have a larger failure, which, of course, from our standpoint, may mean a greater repair. But look, net-net, nothing significant here, in one direction or the other, when you look at the overall size of our service business worldwide. Roger Read: Vincent Volpe: OK. And then, kind of following on with your comments about Tuthill you know, we ll hear something by the end of the year, in terms of your rationalization plan does that cause you to pause on looking at any other acquisitions, at least through the end of the year? Or, you know, how should I think about it? You guys still interested, interested, but you have to wait, or really it doesn t impact how you approach potential acquisitions? Well, a couple things in there, Roger. The first thing I think is that we re from the time you start looking until the time you get something done is a fairly long there s a fairly long gestation period. And if you ve ever been through one of these things, you know, by the time you get through chit-chatting about all the terms of purchase and everything else, and really get down to sort of, some nut-cutting, there is a pretty good lag time. So from my standpoint, we re looking right now. And we re going to look actively. That being said, I would not say that we re going to announce another acquisition next week.

64 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 14 Now the good news is you have different people that work on the integration of an existing acquisition, and people looking at a new one. So I m not really I m not really sort of diluting our resources, as we do look do both of these things in parallel. So we ll keep looking. And we ll continue to focus on the execution plan, which is going very well. You know, the comment about the end of the year is very much in line with what our view has been ever since we started, which was from the time that we sort of, you know, get the deal done, which was basically a little more than a month ago month and a half ago we give ourselves 100 days to plan sort of appropriately for all the things that we need to tackle. And so we re really right in the middle of that hundred-day planning cycle as we speak. And the hundred days gets us about to the end of the year. So, what I would say to you is Tuthill is very much on schedule. We re very, very confident that the guidance that s out there is legitimate and accurate and still holds true. And we re going to continue to look at other acquisitions. And I can guarantee Roger that we won t press the button on anything we don t think we can do a great job at, from timing or a resource standpoint. You know, the business is too good right now to risk it. But we re not going to you know, we re not going to lie back in the weeds, either. And I think, as Len talked about our capitalization and our debt position. This business is doing a terrific job right now generating cash flow. We ve paid down plenty of debt. And so I believe that, we ve got cash flow generation capabilities to continue to pay down debt as we desire, as well as finance future acquisitions. So I d say stay tuned. Roger Read: OK. And just a final question looking at the after-market segment, revenues were actually down sequentially, as they were last year third quarter versus the second. Is that just a normal timing issue? Is anything seasonal? I mean, in general, you ve had a very seasonally driven business in the fourth quarter. (Can you) give us some idea do we expect a normal seasonal pattern, big ramp up in the fourth quarter versus the third, with kind of a consistent, let s say, five to 10-percent top-line growth, versus the year before?

65 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 15 Vincent Volpe: Yes, I think, first of all, the dip is fairly nominal, and it s I don t know if it s seasonal or not. It may be, but it s so small in terms of total continuum that there is no cause for concern. I think it s probably down a little less than it was sequentially last year at the same time. So if there is some seasonality, there s not much there. You do get a fourth quarter spree of spending, though, Roger, particularly in the after-market. And what s going on is the clients budgets are basically you know, they re using them up. And so, I think you can look for a buoyant fourth quarter on that basis. And that s what our forecasts looks like. Roger Read: Vincent Volpe: Operator: Vincent Volpe: David Anderson: Male: OK, thank you. Thank you. Our next question comes from David Anderson of UBS. Morning, Dave. Good morning, Vince. Just kind of just a quick accounting thing here if you back out the impact from that early redemption on debt, I getabout a 20-cent EPS number on the quarter; is that about right? That s about right.

66 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 16 David Anderson: Vincent Volpe: David Anderson: Vincent Volpe: OK. So just kind of a couple of following on to some of the earlier questions on the LNG. I know you guys are in the middle of doing a full-scale test right now can you tell us what the status is of that, and kind of what you think the follow-on booking of that order will be? I think last time you had mentioned it was about a mid 06? Yes. That s both yes, that s accurate, Dave. And I still think that s when it ll be. It depends on when the project goes forward. But so far, so good, OK? And I think the test rig is very much on schedule. And what we re talking about, and I think we spoke about before, was a plan sort of somewhere towards the end of Q1 that we ll actually be doing the testing. So it s well underway, the construction is. If you came up to Olean and saw it, you d just love what you see. And the test rig is it s huge, it s impressive, it s got everything in it that we wanted, and it s very much on schedule, so no change there. And do you foresee any additional of these tests coming on in the next kind of quarter or two? I think that the way the way the thing is construed, we laid out the projects, OK? And, you know, my view of it is that the next project probably it ll be sequential testing. And so, we ll use the way that we construed this rig to begin with, or designed it, was that it was very much reusable, from one application or one service to the other. And there are really two things that changed in LNG on liquefaction. One is the process you know who s the process licensor and the other is the tonnage of the plant. And those two things change the size and the configuration where the nozzles go, and what impellers you put in, and so forth in the machine. And so, you know, what we did when we put this you know, we conceived this rig design is we got to make it reconfigurable, so to speak, so that we can match different machine and casing sizes, different processes, and so forth. And so it s a sequential program.

67 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 17 The good news is once you start to do testing, you probably will only use the rig for one to two months. And then you can go on to the next test, if you will. And so it wouldn t surprise me to see sort of the second project testing schedule to follow maybe Q2 or Q3. David Anderson: Vincent Volpe: David Anderson: Vincent Volpe: David Anderson: Vincent Volpe: OK. So you re looking to line somebody up right now? Oh, yes. Yes. OK. You bet. Now just kind of sticking on the subject with LNG, you know, we ve seen a lot of projects out there talked about, as you alluded to. Seen a lot of stuff talked about on the West Coast of Africa and Nigeria and Angola, along those lines. How do you approach those markets? Do you go directly to the state oil companies, or are you still trying to go with the majors and the major oil companies? I m just kind of curious, in terms of your strategy for that for that market. Well, we do both, really because the sell is somewhat different to both of them. You know the oil companies, of course, are, you know very much focused on total production. What s the plan going to be able to produce for a unit of energy input, or a dollar input? And so we talked to them about the fact that our DATUM has the best efficiency in class, and that we re now coming up with this tunable test rig which will allow us to demonstrate that, far in advance of even building the compressor. So that s kind of the sell with the oil companies. And then, you know, that s of course important to the national oil companies. But also, one of the things about DATUM being the most efficient machine is that it is the most environmentally friendly machine, and consumes less power to do a certain unit of production. So if you re if you re producing four million tons a year of LNG with a DATUM compressor, you re going to require less horsepower from the turbine to drive that machine the gas turbine. And the less amount of horsepower that s required from the gas turbine, the less gas that ll be consumed and burned, and the less noxious gasses will be emitted into the atmosphere.

68 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 18 And so a lot of what needs to happen with state oil companies is to talk a little bit about, you know, sort of the green side of it, or the environmental effects. And so we sell to both. And we also still have to take care of the engineering contractors, and make sure we satisfy them, that we give them the data that they need. And so we re working very closely with a couple of the major contractors right now to do just that. So we really are selling in all three directions. But I think, if you had to kind of weigh it, the major oil companies are probably the first ones we go to. And then they give us some guidance on how it is that we sort of approach the state oil companies because they re really the ones that have the relationships with them. David Anderson: Vincent Volpe: OK and just one last question, on your after-market segment (the) revenues have been fairly steady last several quarters. Outside of possibly a seasonal bump in the fourth quarter, how do you view this going forward, into 06, 07? Do you expect this mix to be more favorable towards the service side? And kind of what s going to be driving that? I mean, I know, with your DATUM going more becoming more accepted in the marketplace, you should get more of obviously get more of the after-market on that side of the business. But is there is there more driving that than I m than I m seeing here? Well, I think the I ll tell you what I mean, the gestation period between a new unit going in, Dave, and the time that we see service on that unit, we get the installation work, OK. And so there is there s a little bump in field service. But, you know, in a $150 million field service business, that may give us a $10 million or $15 million bump type thing from one year to the next, depending on how many new units we put out there, so not a huge impact.

69 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 19 What I think so you kind of have to decouple for now the fact that our level of sales is up on units, and our market share has picked up a little bit. You kind of leave those out. And you talk about what it is that we re doing to drive the service business separately. And the couple of areas that we sort of focus on are the engineered solutions and the Applied Technology where we are really going to the clients. And instead of waiting for that sort of normal annuity that comes to us you know, they buy parts every so often, or they have a turnaround we re out there explaining to them why it is they should put new technology into the existing base. And I thought I d just sort of use your question here to give you a little bit of data on our Applied Technology program. I ve spoken about it before. It s still in its infancy stages but just a couple of facts and figures here for you. On year over year, we have booked 15 percent more year-to-date than we ve booked in all of last year, all of 2004, in Applied Technology. This is where we re working on other OEMs equipment. And so we still have a couple more months left in the year, so that number will continue to rise. We ve generated seven percent more quotations year to date than all of last year. We have tripled the size of the group from what we had in place last December to what we have today. And by the way, now in that group, we have representatives who have work experience with six other OEMs. So we re on this thing, OK? It takes time. But I believe that that is going to be a growth driver for our services business going forward. And I plan on continuing to report that to the street as we proceed. All right? David Anderson: OK. Thanks, Vince.

70 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 20 Vincent Volpe: Operator: Vincent Volpe: Robin Shoemaker: Vincent Volpe: Robin Shoemaker: Thanks, Dave. Our next question comes from Robin Shoemaker, of Bear Stearns. Robin? Yes, hey, thank you. Good morning. Yes, good morning, Vince. Wanted to ask you it looks like your gross margin on new units was within the range that had been your stated goal of, I think, 12 to 15 percent. I wonder if you could comment on the sustainability, or perhaps a possible upside to that kind of new-units margin. And if you could elaborate on a little bit on the how much new-unit business is being done through alliances, which you ve indicated is a high priority for you; and also this parallel issue where you were going to get a better margin on buyouts, I believe you called it, where you bought parts that are not supplied by Dresser-Rand itself. Vincent Volpe: OK. So I m going I m going to do this in three pieces, I guess. On the unit margin, Robin, I hope they don t stay where they are. But it is a lumpy business. And so one of the things that you will see from one quarter to the next is that a change in volume may have some impact on the margins because of the way that we allocate the cost as we go down the P&L, if you will. There s a fixed-cost allocation that needs to take place, but over the continuum. So don t look at it on a quarterly basis so much as maybe a yearly basis. Over the continuum, I expect that we re going to keep focusing on those margins.

71 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 21 Now, they re under pressure, OK? Because, you know, we ve got steel and other materials, and other commodities like utilities, that go up. But so far, we ve been able to stay ahead of the curve. With what we ve done on our surcharges, which we put in place about a year ago that we re now just starting to see the impact of; as well as some of the other material productivity initiatives, like VE / VA, (value engineering), low-cost country sourcing, reverse auctions, and so forth. We ve been able to more than offset what we ve seen there. And so that s helped the margin on one hand. And then on the other hand, we continue to drive productivity. We have over 80 people in place today that are in our Process Innovation and Lean organization that do nothing but that. And that s one of the things that we think really has made the fabric of this company quite a bit stronger than it was in the past. And so we re committed to that. And we want to continue to drive those margins. Again, you know, a word of caution quarter to quarter: They may bump up a little bit, but I think from our standpoint, we re going to continue to see improvement there. On alliances our historical, sort of over the last 12 months, experience has been that it s somewhere around 40 percent of our new-unit business which is mostly the turbo and the reciprocating business somewhere around that 40 percent. Don t hold me to the exact number but around that number come from alliances. So it s a really important part of our business. They absolutely are preferentially treated, because of the way that they treat us. And we re going to continue to do that. We have key client managers in place that focus on their business from a worldwide standpoint. And so it s important to us, and we want to grow it. And in fact, we have grown it, in terms of we ve added several alliances here this year, year to date. And we have also added more products and services to some of the existing alliances. And we measure that. And we re very focused on looking to that one month to the next. So that s alliances.

72 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 22 And then on the buyouts your specific question was have we succeeded, I think, in putting the 10 percent markup that we talked about. Robin Shoemaker: Vincent Volpe: Yes. And the answer is absolutely yes. And so, if you were to look at our P&L, you know, you might find right now that it s either at 10 percent on buyouts or darn close. There may be one or two of the old jobs that have just flushed through. But for the most part, we re there. And what s interesting is when we first launched this, which was sort of mid or sometime in 03, the first thing we saw was a significant drop-off in the buyouts. Now we didn t see a drop-off in the market share. So what was happening was our clients were actually going and saying to us, tell you what, we ll free-issue you these large gas turbines, or these motors and these gears because we don t feel like paying the extra 10 percent. And what is happening now is that it s actually reversing. They figured out that we really do add value, and that while, you know, people may not be delighted about paying the markup, they understand the realities of business; they re business people also. And they perceive and recognize the value that we add by managing the entire train. And so, what was a somewhat uncomfortable decision when we made it at least, it was if you were to talk to the folks that happened to be out there and directly sell this has now turned out to be a very good decision. And a business that was a $200-plus million a year business in buyouts, that dropped to $60 million, and on a trailing 12- month basis, sort of through at least June of this year, which is a number I got in my mind is in the high $150 million, $160 million range as we speak. So it s really come back nicely, and the strategy s worked out. But, you know, you got to be a little bit forceful with it, and you have to be consistent. And we ve been both of those.

73 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 23 Robin Shoemaker: Vincent Volpe: Yes. Right. OK. Just finally, on the also on the new-units business, if you could you have any comment about changing behavior by competitors, or does this still remain the, you know obviously it s intensely competitive but given the volume of work that s out there, and the backlog which is growing, I guess, among all competitors is there any noticeable change in competitor behavior? Robin, if there is, it s early days, OK? And so, what I would say to you is this. We ve actually heard a couple of our competitors and, you know, we get it third hand, right that are starting to say they re full, and that their lead times are moving out to sort of two-plus years now on this equipment. Those are the people that didn t think through their business model three or four years ago when everybody s business was down. And we did. And we figured out that we wanted to be able to manage through the down cycles and the up cycles. And so we actively went after things like subcontracting and outsourcing to really build a lot more capacity into our supply chain. We minimized the amount of capital expenditure we needed to do by flexing the supply chain. And so we re able today to take orders with very little difference in lead times versus what they were a couple years ago you know, maybe a month or two, but nothing significant. And so, if you think about the dynamics, OK, we re happy with our business model, and we re kind of happy that everybody didn t do the same thing. And so, you would say that the law of supply and demand would dictate that something may happen to the equilibrium price going forward, just based on people saying they re full, and moving their lead times out. And as I said, our lead times have stayed pretty solid; you know, a little bit of movement, but nothing really significant. We ve talked to our clients about it. And our on-time delivery record is very high. And so, we think we re in good shape. And so, the second part of the comment is, we talk about how we ve made a significant change in our operating income quarter over quarter, but also year over year. And we talk about that really being a function of three things price, volume and productivity. And I kind of would put productivity and volume together. So it s maybe two things. The price has been very little of it. That s really been on the aftermarket side, where we ve been able to push pricing, and we re going to be able to continue to do that. But on the new-unit side, still very, very much out in front of us. And so I feel good about that.

74 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 24 Robin Shoemaker: Vincent Volpe: Robin Shoemaker: Vincent Volpe: Operator: Vincent Volpe: Male: Ole Slorer: Vincent Volpe: Ole Slorer: Vincent Volpe: Yes. ((inaudible)) (Very interesting, thanks) take just a couple more questions. Stephanie? Sure. Our next question comes from Ole Slorer of Morgan Stanley. Good morning, Ole. ((inaudible)) How are you doing? Fine. How are you today? I m very well. And I m glad to see that you came out of the box, with a really good scorecard. Yes, we are, too, Ole, thanks.

75 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 25 Ole Slorer: Vincent Volpe: Ole Slorer: Vincent Volpe: You mentioned pricing on new units. Is there anything that suggests that that (shouldn t firm a lot), given what we ve seen in practically every other aspect of the capital goods during the day? ((inaudible)) Well, Ole And (then) you re talking about some of your competitors (now being) full (up) for two years forward. Could you give us a little indicator of where the how long is the lead time from when you book to when you to when you (book to contractor and the) book to margin? And what is the sort of pricing that you are booking on new contracts (now) compared to the work you re executing? I m a little intrigued by the 10 percent markup that you (can now) book on third-party products, given that you re still below that on your own new units. Right. Well, OK. The pricing I mean, you know, it just sooner or later, it s got to come up, Ole. I think we ve been as an industry through lots of cycles, OK? And so, what has happened in the competitive base over I think I m in my fourth cycle, OK what has happened is, when the cycle goes down, you know, on new units, pricing just goes in the tank. And then it just seems to take forever for it to come back, because people are concerned that they re going to not fill their factories with enough good base-load business, and they re liable to miss the cycle while they re getting too fancy on trying to increase pricing. And so people in the past have been reticent to move upwards. That s been my experience. And I think we may have seen a little bit of that. Because you could argue that pricing should have come up significantly maybe a year ago. OK? And it really has not moved up like that. And so, another year s gone by. And all I can tell you is that I got to make sure no you know, there may be a competitor listening, so I don t want to divulge too much of our strategy. But what I can tell you is that the expectation would be not much different than what you just implied in terms of movement.

76 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 26 So now, I don t think it s going to go up like it does on jack-up rigs, OK? Ole Slorer: Vincent Volpe: No, no, I m talking about valves, or even subsea production equipment (that has) been very stale so far. It s now starting for the first time to see real pricing ((inaudible)) Yes. And I think that it s legitimate to look for the same types of movement with some of those comps that you re talking about in that space. As far as our lead times are concerned, obviously it varies by product. But I think for modeling purposes, and also on an average basis, we re probably in that 11- to 12-month cycle time right now, which really has not moved over the last six to eight months, OK? We moved out probably a year to a year and a half ago, we probably increased you know, we might have been at eight or nine months there. And frankly, I ve got to tell you that the challenge that some of our operations folks have like Mr. Chevrier over in European operations, Mr. Hanigan in Asia and Mr. Rossi in North America is these guys are trying to figure out, with higher volume, how to even decrease their cycle times further. Because I think it s a very important strategic point, in terms of getting a price premium and making a sale. If you can deliver quickly in this market, Ole, it s a huge advantage. So we re at about the 11- to 12-month cycle now. Use that for modeling purposes. But I ve got to tell you, going forward, we re trying to figure out what we can do to collapse some of those cycle times, even with the increased volume. And it requires more work with the supply base, and it requires more work with our internal capacity, our process innovation and our Lean programs. And you know that we re completely focused on those, and we re going to keep after it.

77 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 27 Ole Slorer: Vincent Volpe: Male: Ole Slorer: Male: (Could you) give a little detail on where you stand now on work that you are booking in terms of pricing, compared to the work that you just executed in the quarter on new units, (if it is away from the alliance structure that s) ((inaudible)) (down)? I would say that the stuff that we ve taken now it s probably a percent or two higher. It s about 10 percent, Ole. OK. ((inaudible)) Ole Slorer: Can I ask one question, Len, on the tax rate guidance on the tax rate going into the fourth quarter and into 2006? What would you say will be a sensible tax rate to model? Len Anthony: Ole Slorer: Len Anthony: Ole Slorer: Len Anthony: For the year Yes, for the fourth quarter let me start with the year, You ought to look for a normal tax rate. What you ve seen year to date is again a little bit of lumpiness in movement in that tax rate. And what you ll see in the fourth quarter is something that was lower than the third; maybe more in the 20 to 25 percent range. And then, as we go into the year 2006, you ought to be looking for a normal tax rate. And what would you say a normal tax (rate) would be for you? Thirty-five percent.

78 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 28 Ole Slorer: OK and just one final question on the on the alliance structure, versus non-alliance (you mentioned) that 40 percent of the work you were booking were under alliance, or 40 percent of the work you were executing and selling was under alliance? Vince Volpe: Ole Slorer: Vince Volpe: Ole Slorer: Vince Volpe: Well, first of all, it s the new-unit, right? New-unit side? sure, sure, yes. OK. And it s pretty constant. I mean, it goes up and down from one quarter to the next, depending on whether you get a job from somebody who s not an alliance partner. So I d use it in both sides of the equation. And is that the way you want it, in terms of being more opportunistic, (eventually maybe) pricing non-alliance work? Or do you want to grow the alliance structure even further for No, we d like to grow it. Obviously, you can only move as quickly as the clients can. And so oil companies need to get the sense of the real value we bring is through total life cycle cost. We don t enter alliances to give price discounts. That s not the way that Dresser-Rand does alliancing because that, in my mind, doesn t make any sense. You know, we should just if that s the case, we ll take our chances selling on a one-off basis and pushing value to the maximum each time. So now that s not to say that we don t provide our clients with some sort of sharing in what we save from a cost standpoint. But if we don t save cost there is no discount structure that is just a straight margin discount.

79 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 29 So what we re focusing on is tearing cost out of the way we do business. And there s a lot of costs that can be taken out. When you standardize specifications, and you establish a business-to-business relationship, so that it s not a big fight every time. If you have standard terms and conditions you don t need to go call on 15 different pieces of the organization you can save a lot of money in terms of cost by the alliancing. The other thing about alliancing is that you establish this business-to-business relationship with the executives inside the oil companies; guys that we would never normally be able to get to, Ole. And when do that, it opens up the after-market, which is, course, where the high-margin business is. So we absolutely want to continue to develop alliances in a responsible fashion. They will be accretive to our results, even on the new-unit business going forward. And we believe that we ll get that extra pop in the services side. So we want to grow them, but we re not going to grow them recklessly. We re not just signing people up to give them discounts and say we got another alliance partner. That doesn t make sense. Ole Slorer: Yes. I mean, your (after-markets) were certainly phenomenal compared to what we were looking for. Just one final question on the LNG if you can give an update on what s happening on the technology side. (There is) some talk of increasingly using electric engine (throttle) and gas turbine (as) the driver for the compressor. Can you is there anything there that s (worthwhile) looking for in terms of changes in the competitive landscape (of) what you re doing?

80 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 30 Vincent Volpe: Well, yes, it ll make it it s going to make it harder for at least one of our major competitors. There s only three of us in the space, right? One of our major competitors has used the fact in the past that they build very large gas turbines that may represent three quarters of the total equipment price. And they ve been able to use that to pull through, in several cases, the compressor side of the business. And so now, if it s an electric motor drive all bets are off on one product subsidizing the other. Now frankly, we re not afraid even of the gas turbine side. We think that the DATUM technology, and with what we re doing on the test rig, we re going to be able to demonstrate such a large added value proposition versus our competitors that we should be able to get more than our fair share even in that space. But I think the electric motor drive is something that will even level the playing field more, or perhaps slightly stilted in our in our favor. And we re very excited about that. It s good technology. You know, the thing, Ole, is it would have been done before, but, the technology really was not out there to build variable-frequency drive systems, at 100 or 120 megawatts, which is what some of these world-class plants are really requiring. And so now that that technology is becoming available, the oil companies are taking a look at it and saying, You know what? I ll set up bigger blocks of distributed power you know, gas turbine-fired power plant in the actual facility. And I ll actually run the compression equipment off the electric motor. So I think it s coming. There s a couple of projects on the board that they re strongly considering -- there s one I know that they ve kind of made that decision. And so we think that s a positive for us. Ole Slorer: OK. I ll take an update on that off-line with you. But thanks for that, Vince.

81 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 31 Vincent Volpe: Blaise Derrico: Operator: Vincent Volpe: Geoff Kieburtz: Vincent Volpe: Geoff Kieburtz: Vincent Volpe: Geoff Kieburtz: All right, Ole. Good talking to you. Stephanie, we re going to take just one more question. OK. We ll take our last question from Geoff Kieburtz of Citigroup. Morning, Geoff. Morning. I actually got a couple of questions. Just one to confirm what I think I was hearing earlier, Vince, that the backlog the margin in your backlog here, for both after-market and new-unit, is higher than what you re currently shoring in your in your results. Is that Yes, that s correct, Geoff. OK. Second, you know, the point was made that the after-market revenue growth, as well as the new orders, is running ahead of the historical growth trend. Do you think that s a meaningful data point and something that we re going to see further increases? Or is this just a variability that occurs from quarter to quarter? On the new-unit side, you do get variability from quarter to quarter. And obviously, you know, we talked about quarter-to-quarter, year-over-year actually being down, OK? Sure.

82 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 32 Vincent Volpe: And, you know, I wouldn t say that s a trend. By the same token, the first quarter of next year, there is no way that we re going to book as much new-unit business as we booked the first quarter of this year. We had one job for $87 million. And so, that s not going to be trend either, in the wrong direction. And so look, Geoff, I think the way to look at it is that 50 percent of the business is in the upstream. Fifty percent or so is downstream. And, you know, there s pieces that don t fall in either of those, right, but just to keep it simple. And, I think we got to consider that the downstream is going to stay fairly flat and that the upstream, with what s going on in LNG, it may take a little while to ramp up. Like we say we might see a little bump positive bump in the road mid next year, right? So I think, you know, you look at that, you know, a little bit, you know, at a continuing growth continuing growth pattern (on) that side of it. The good news is that even if the whole business were to stay flat right now at this level, on the new-unit side, it s great. Because, we ll continue to focus on productivity, take cost out, drive price the best we can on the new-unit side. And the after-market, it s going to continue to grow. It s grown over the last four years at seven percent; you ve seen a little bit better growth rate than that now. I m quick to say, don t look for miracles overnight there because there s a lot of blocking and tackling. But we certainly have to maintain / increase the growth rate as we go forward in the services. And that s where all the money is. Geoff Kieburtz: Vincent Volpe: Geoff Kieburtz: Yes, maybe I m sorry, Vince maybe I said new-unit; I meant after-market. The question was really I m sorry. I way over-answered then, Geoff. No, no. No Vincent Volpe: So anyway, the last part is sort of the critical piece, then. And what I talked about with Applied Technology brings new bookings to us this is where we go after other people s equipment. The proactive revamp business will bring us and proactive retrofits, where we bring new couplings and governors and valves and so forth into the space all of that you know, we continue to grow that business.

83 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 33 And frankly, if I look at our plan and I don t want to get too far out ahead of myself here, because we still haven t approved the plan with the board yet but if I look at the plan, where we re making investment, you know, we don t need to add plant property and equipment to reach these growth targets. We are good shape because of what we talked about before. And we re in good shape on that sort of nominal, approximately one percent of sales, using that as a cap ex number. All right? We re fine there. Where we re investing is in people and processes. And so we re looking at you know in the new-unit cycle also, but also in the after-market side principally Walt Nye s got some he s got some new positions teed up; key positions to go and drive some of these initiatives that really we think will create demand. And so that s where we re really investing our money, sort of on the SG&A line. You know, don t worry; it ll be under control. But that s really where we re focusing our efforts in terms of growing our business. Geoff Kieburtz: Vincent Volpe: Geoff Kieburtz: Vincent Volpe: Yes. Is I guess, maybe rephrase it a little bit have we moved through have we moved into a new higher level of sustainable growth in the after-market business? Or is it too early to make that call? I think it s too early, Geoff. I hope that I can say yes to that question a couple quarters from now. But I don t want to get reckless here, either. So I think it s a little early. A couple of other questions the Aker Kvaerner joint venture purchase how much was that? We spent a couple of million dollars. I don t have the exact we spent about a million?

84 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 34 Len Anthony: Vincent Volpe: About a million This is and we have of course invested in this. We owned 50 percent of it to begin with. The beauty of this thing, Geoff, is that now that we have it, I can speak more freely about it, OK what it used to be was a separator, a little standalone separator your inline rotary separator, a stationary separator, which on its own have some good applications, OK? But the beauty of this thing is now that we own it, I can tell you is this belongs in the future on the front end of a compressor, all right, and at the bottom of the ocean. And so this is technology that no one else has got. Now we have it but it s going to take us some time to put it all together. But this is absolutely our growth platform for subsea. And while we believe our competitors are going to be in more traditional solutions, we are going to be in a compact, much less costly solution from a client standpoint. And that is really the keys of the kingdom -- wrapped around that separator going on the front end of a compressor. Geoff Kieburtz: Vincent Volpe: Geoff Kieburtz: Vincent Volpe: What s the lead time commercialization of that? It sounds like you were in our development meeting a couple weeks ago, and that you were me asking the same question. The reality is, you know, I would say it s probably a year and a half off, Geoff. OK. I guess the last question is just on Tuthill. Can you tell us how much of the Tuthill revenue showed up in this quarter? Len, can you get that number? It was very little, because we only acquired the business in September beginning of September?

85 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 35 Len Anthony: Vincent Volpe: Male: Geoff Kieburtz: Vincent Volpe: Geoff Kieburtz: Male: Vincent Volpe: Len Anthony: Vincent Volpe: Geoff Kieburtz: Vincent Volpe: Right. I guess more importantly, the income benefit from Tuthill was negligible in the quarter. Geoff, I don t have the exact revenue number. I ll get it for you (Must be) less than 10 million, Geoff. Oh, yes. Less than $10 million revenue? Yes, must be. OK. Negligible income, and under $10 million in revenue. Right. Is that is that a good number, or can we give him even tighter bandwidth on the revenue? Is it even lower than that? We just don t have that. Sorry, Geoff. Look, their whole yearly sales a year ago was something like $70 million. Right. And run rate today is up kind of comparable to the other new-unit business, or Yes. Yes, the run rate s up.

86 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 36 Geoff Kieburtz: OK and you mentioned earlier that you re fully confident of being able to realize all the synergies that you had identified prior to the acquisition closing. Could you just remind us sort of approximate dollar figure, and over what time period you expect to realize those? Vincent Volpe: Well, I think the guidance that s out there in terms of the run rate is fairly accurate. And that number is about $15 million, OK, which is the total of what the business brings from an EBITDA plus what we have in the base-case synergies. All right? And so, you know, for all intents and purposes right now, I would stick with that. The timing of it is also as we had talked about in the guidance that was out there is still pretty darn accurate. I was just going through my mind and saying, has anything significantly slipped? And the answer is no. Obviously, the long lead piece is going to be the factory implementations, the footprint changes. I think the SG&A and some of the other stuff rationalizing agents, et cetera, et cetera is all well underway as we speak. And so we felt like we would get probably somewhere around a half-year s benefit on the piece that represents the facilities. Now we have not made a decision on what we re doing there yet. And so I think we probably ought to defer the conversation from a granularity standpoint until we once we know what s sort of what s going to persist and what isn t, it s a little bit early to get into the details of the exact timing. But, I d be happy to discuss it with you when we know. Geoff Kieburtz: Vincent Volpe: Geoff Kieburtz: Vincent Volpe: OK. All right? Great. Thanks very much. Appreciate Thank you. Blaise

87 DRESSER-RAND Moderator: Blaise Derrico /8:30 a.m. CT Confirmation # Page 37 Blaise Derrico: Vincent Volpe: Blaise Derrico: OK. turn it back to you. Yes, want to thank everybody for participating in the call today. We know that you didn t have a lot of time with the press release. So if you do have questions, feel free to call Len Anthony or myself, particularly after the 10-Q is filed early next week. Stephanie? Operator: Blaise Derrico: Operator: Yes? Thank you very much. Thank you. Ladies and gentlemen, that does conclude our conference call for today. At this time, you may disconnect. We do appreciate your participation. END Exhibit 99.3

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