News Column

DRESSER-RAND GROUP INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ($ in millions)

August 4, 2014

Overview

We are among the largest global suppliers of custom-engineered rotating equipment solutions for long-life, critical applications in the oil, gas, chemical, petrochemical, process, power generation, military and other industries worldwide. Our equipment and service solutions are also used in energy infrastructure, including oil and gas, environmental solutions and power generation.

Our products and services are widely used in oil and gas applications that include hydrogen recycle, make-up, wet gas and other applications for the refining industry; cracked gas, propylene and ethylene compression for petrochemical facilities; ammonia syngas, refrigeration, and carbon dioxide compression for fertilizer production; a number of compression duties for chemical plants; gas gathering, export, lift and re-injection of natural gas or carbon dioxide ("CO2") to meet regulatory requirements or for enhanced oil recovery in the upstream market; gas processing, main refrigeration compression and a variety of other duties required in the production of liquefied natural gas ("LNG"); gas processing duties, storage and pipeline transmission compression for the midstream market; synthetic fuels; and steam or gas turbine mechanical drives or power generation packages for floating production, storage and offloading ("FPSO") vessels and offshore platforms as well as for a variety of compression and pumping applications in various segments of the oil and gas market. We are also a supplier of diesel and gas engines that provides customized energy solutions across worldwide energy infrastructure markets based upon reciprocating engine power systems technologies. Our custom-engineered products are also used in other advanced applications in the environmental markets we serve. These applications use renewable energy sources, reduce carbon footprint, recover energy and/or increase energy efficiency. These products include, among others: compression technologies for carbon capture and sequestration ("CCS"); hot gas turbo-expanders for energy recovery in refineries and certain chemical facilities; co- and tri-generation combined heat and power ("CHP") packages for institutional and other clients; and a large number of steam turbine applications to generate power using steam produced by recovering exhaust heat from the main engines in ships, recovering heat from mining and metals production facilities and exhaust heat recovery from gas turbines in on-shore and off-shore sites. We also have experience in the design, construction and development of power generation and cogeneration plants and mini-hydroelectric plants, and the development and exploitation of wind farms and biomass, used oil and landfill gas, photovoltaic solar energy and farm waste processing. Other biomass and biogas applications for our steam turbine product line include gasification of municipal solid waste or incineration of wood, palm oil, sugar or pulp and paper residues to generate power. Our equipment is used for compressed air energy storage ("CAES") for utility sized power generation. A CAES plant makes use of our classes of axial compressors, centrifugal compressors, gas expanders, controls and rotating equipment system integration capabilities. These applications are environmentally-friendly and provide unique response features for grid management. Other general industrial markets served include steel and distributed power generation. We operate globally with manufacturing facilities in the United States ("U.S."), France, United Kingdom ("UK"), Germany, Spain, Norway, Brazil and India. In addition to our products and services, we provide complete, turnkey compression and power generation solutions to our clients in the oil, gas and environmental markets we serve. These solutions typically incorporate one or more of our products and services into the compression or power generation facility, which may include process equipment, such as coolers, vessels, gas dehydration systems, process and utility piping and valves, process instrumentation, transformers and switch gears, and facility controls, as well as civil works and structures. We manage the complete project, including engineering, project controls, procurement, construction, installation, commissioning and start-up of the facility. We provide a wide array of products and services to our worldwide client base in over 150 countries from our global locations in 18 U.S. states and 32 countries through our 73 sales offices, 49 service and support centers, including six engineering and research and development centers, and 14 manufacturing locations. Our solutions-based service offering combines our industry-leading technology, extensive worldwide service center network, deep product expertise, project management capabilities and a culture of safety (which we believe to be industry-leading), compliance and continuous improvement. This approach drives our growth as we offer integrated service solutions that help our clients lower the life cycle costs of their rotating equipment, minimize adverse environmental impact and maximize returns on their production and processing equipment. We believe our business model and alliance-based approach built on alliance and frame agreements align us with our clients who increasingly choose service providers that can help optimize performance over the entire life cycle of their equipment. Our alliance/frame agreement program encompasses the provision of new units and/or parts and services. We offer our clients a dedicated team, advanced business Page 28 of 43

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tools, a streamlined engineering and procurement process, and a life cycle approach to manufacturing, operating and maintaining their equipment, whether originally manufactured by us or by a third party.

From a long-term perspective, we believe that the fundamentals driving trends in our industry include population and economic growth; maturing producing oil and gas fields worldwide that require greater use of compression equipment to maintain production levels; the advancement of shale gas technologies which require compression for both transmission and gas processing activities; the increase in demand for electricity requiring greater use of power generation equipment; the increase in demand for natural gas that is driving growth in gas production, storage, transmission infrastructure and LNG; international regulatory and environmental initiatives, including clean fuel legislation and stricter emission controls; the aging installed base of our class of equipment that is increasing demand for aftermarket parts and services, overhauls and upgrades; and the increased outsourcing of equipment maintenance and operation. With respect to our long-term business strategy, certain of our key strategic objectives include:



· Increasing sales of aftermarket parts and services to the installed base of

Dresser-Rand equipment;

· Expanding sales of aftermarket parts and services to non-Dresser-Rand equipment

in our class; · Growing alliances;



· Expanding our performance-based long-term service contracts;

· Introducing new and innovative products and technologies;

· Improving profitability; and

· Selectively pursuing acquisitions.

Segment information



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

1) New units are predominately highly engineered solutions to new requests from

clients. New units also include standardized equipment such as engines and

single stage steam turbines. The segment includes engineering, manufacturing,

project management, packaging, testing, sales and administrative support.

2) Aftermarket parts and services consist of support solutions for the existing

population of installed equipment and the operation and maintenance of several

types of energy plants. The segment includes engineering, manufacturing,

project management, installation, commissioning, start-up and other field

services, repairs, overhauls, refurbishment, sales and administrative support.

These functions have been defined as the operating segments of the Company because they are the segments (1) that engage in business activities from which revenues are earned and expenses are incurred; (2) whose operating results are regularly reviewed by the Company's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and (3) for which discrete financial information is available. Unallocated amounts represent expenses and assets that cannot be assigned directly to either reportable segment because of their nature. Unallocated net expenses include certain corporate expenses and research and development expenses. Assets that are directly assigned to the two reportable segments are trade accounts receivable, net inventories and goodwill. Unallocated assets include cash, prepaid expenses and other, deferred taxes, property, plant and equipment and intangible assets. There are no significant intercompany transactions between our reportable segments. Page 29 of 43 --------------------------------------------------------------------------------

Table of Contents Results of Operations Three months ended June 30, 2014, compared to the three months ended June 30, 2013: Three Months Ended Three Months Ended Period to Period Change June 30, 2014 June 30, 2013 2013 to 2014 % Change Consolidated Statement of Operations Data: Revenues $ 628.4 100.0% $ 805.3 100.0% $ (176.9) (22.0)% Cost of sales 449.9 71.6 607.1 75.4 (157.2) (25.9)% Gross profit 178.5 28.4 198.2 24.6 (19.7) (9.9)% Selling and administrative expenses 105.1 16.7 98.4 12.2 6.7 6.8% Research and development expenses 7.1 1.1 12.6 1.6 (5.5) (43.7)% Income from operations 66.3 10.6 87.2 10.8 (20.9) (24.0)% Interest expense, net (12.6) (2.0) (13.4) (1.7) 0.8 (6.0)% Other (expense) income, net (3.8) (0.6) 2.0 0.3 (5.8) (290.0)% Income before income taxes 49.9 7.9 75.8 9.4 (25.9) (34.2)% Provision for income taxes 21.1 3.4 21.4 2.6 (0.3) (1.4)% Net income 28.8 4.6 54.4 6.8 (25.6) (47.1)% Net loss (income) attributable to noncontrolling interest 0.3 0.0 (1.1) (0.2) 1.4 (127.3)% Net income attributable to Dresser-Rand $ 29.1 4.6% $ 53.3 6.6% $ (24.2) (45.4)% Bookings $ 691.0$ 868.4$ (177.4) (20.4)% Backlog - ending $ 2,782.6$ 2,945.4$ (162.8) (5.5)% Revenues. Revenues were $628.4 for the three months ended June 30, 2014, compared to $805.3 for the three months ended June 30, 2013, a decrease of $176.9 or 22.0%. Generally, oil prices and other macroeconomic conditions that affect the oil and gas industry have an impact on our business over an extended period of time. On a quarterly or annual basis, however, there is typically not a direct correlation of short-term volatility in these factors to our periodic financial results. Fluctuations in revenues and bookings are generally due to variability in the timing and size of very large orders in the new units segment, which is typical in the oil and gas industry. This occurs because our equipment, in many cases, is used in very large capital projects that take years to plan and execute, and such projects do not occur on a regular or consistent basis due to their size, location, technical resources, client capital expenditure constraints and long-term relationship to global energy supply and demand. While a change in these factors at a macroeconomic level will tend to have a corresponding overall effect on our revenue, the timing of such effect on our quarterly or even annual revenues is not directly correlated because of the very long lead times required to evaluate the macroeconomic landscape and then plan, permit and execute the projects. Furthermore, the highly engineered nature of our worldwide products and services does not easily lend itself to measuring the impact of price, volume and mix on changes in our total revenues from year to year. Nevertheless, based on factors such as measures of labor hours and purchases from suppliers, revenues decreased due to lower volume during the three months ended June 30, 2014 as a result of the timing issues discussed above. Specifically, we have been impacted by previous delays by the Company's end-user clients in placing equipment orders for major projects, mostly for upstream applications. Revenues were also negatively impacted by our six cogeneration facilities in Spain. The Spanish government published a ministerial order on June 20, 2014, that reflects an approximate 38% reduction in the tariffs payable to such facilities. In connection with the order being issued and the reduction of the tariffs and the suspension of operations at the facilities, revenues for the three months ended June 30, 2014 are lower by approximately $35.4. The decrease in revenues for the three months ended June 30, 2014, is also partially attributable to a reduction in shipments to one Latin American national oil company as the Company works collaboratively with this client to reduce outstanding receivables. The decrease in revenue on extended scope projects, which are accounted for under the percentage of completion method of accounting, was $43.2 for the three months ended June 30, 2014. Cost of sales. Cost of sales was $449.9 for the three months ended June 30, 2014, compared to $607.1 for the three months ended June 30, 2013. As a percentage of revenues, cost of sales was 71.6% for the three months ended June 30, 2014, compared to 75.4% for the three months ended June 30, 2013. The decrease in cost of sales as a percentage of revenues from the three months ended June 30, 2013 to the three months ended June 30, 2014 was principally the result of a shift in mix from our new units segment to our aftermarket segment.



A better mix of projects within the new units segment

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Table of Contents also contributed to lower cost of sales as a percentage of revenues. The change in the tariffs reflected in the Spanish ministerial order discussed above contributed approximately 0.9% to the decrease in cost of sales as a percentage of revenues. Gross profit. Gross profit was $178.5 for the three months ended June 30, 2014, compared to $198.2 for the three months ended June 30, 2013. As a percentage of revenues, gross profit was 28.4% for the three months ended June 30, 2014, compared to 24.6% for the three months ended June 30, 2013. We experienced increased gross profit as a percentage of revenues as a result of the factors discussed above. Selling and administrative expenses. Selling and administrative expenses were $105.1 for the three months ended June 30, 2014, compared to $98.4 for the three months ended June 30, 2013. The increase in selling and administrative expenses was generally the result of cost inflation and severance cost associated with the suspension of operations at six of our cogeneration facilities in Spain, as well as the planned consolidation of operations in Germany. As a percentage of revenues, selling and administrative expenses increased to 16.7% from 12.2%. Research and development expenses. Research and development expenses for the three months ended June 30, 2014, were $7.1, compared to $12.6 for the three months ended June 30, 2013. The decline in research and development expenses is the result of changing expenditure profiles within major programs as they near market release. We continue to effectively execute our strategy to introduce new and innovative products and technologies with a focus on key new product development initiatives for DATUM®, DATUM® Integrated Compression System ("ICS"), subsea compression, LNG, steam turbines and reciprocating engines. Income from operations. Income from operations was $66.3 for the three months ended June 30, 2014, compared to $87.2 for the three months ended June 30, 2013, a decrease of $20.9 or 24.0%. As a percentage of revenues, income from operations for the three months ended June 30, 2014 was 10.6% compared to 10.8% for the three months ended June 30, 2013. The decrease in income from operations and income from operations as a percentage of revenues is the result of the factors discussed above. Interest expense, net. Interest expense, net was $12.6 for the three months ended June 30, 2014, compared to $13.4 for the three months ended June 30, 2013. The decrease is partially due to lower weighted-average debt outstanding. Additionally, we experienced higher interest income for the three months ended June 30, 2014, due to higher average interest-bearing cash balances. Other (expense) income, net. Other expense, net was $3.8 for the three months ended June 30, 2014, compared to other income, net of $2.0 for the three months ended June 30, 2013. Other (expense) income, net, consists principally of net currency gains and losses and earnings and losses on investments accounted for under the equity method of accounting. The change in other (expense) income, net for the three months ended June 30, 2014 is principally the result of losses on equity method investments and foreign currency fluctuations. Provision for income taxes. Provision for income taxes was $21.1 for the three months ended June 30, 2014, and $21.4 for the three months ended June 30, 2013. Our estimated income tax provision for the three months ended June 30, 2014 and 2013, generally differs from the U.S. federal statutory rate of 35% because of different tax rates in foreign tax jurisdictions and certain exemptions and credits allowable for income tax purposes, offset by state and local income taxes, and valuation allowances on net operating loss carryforwards that more-likely-than-not will not be realized. We will adjust the valuation allowances in the future if it becomes more-likely-than-not that the benefits of deferred tax assets will not be realized. The increase in the effective tax rate for the three months ended June 30, 2014, as compared to the three months ended June 30, 2013, is principally due to an increased amount of net operating losses in certain foreign countries for which we could not record benefits under U.S. GAAP, thus increasing the effective tax rate by approximately 13.9 percentage points. On January 2, 2013, the American Taxpayer Relief Act ("ATRA") of 2012 was signed into law. Some of the provisions were retroactive to January 1, 2012, including the exclusion from U.S. federal taxable income of certain interest, dividends, rents, and royalty income of foreign affiliates, as well as the tax benefits of the credits associated with that income and an extension of the research and experimentation credit. Therefore, as required by U.S. GAAP, a $4.4 benefit was reflected in the three months ended March 31, 2013 as a discrete event. Page 31 of 43 --------------------------------------------------------------------------------

Table of Contents Certain foreign subsidiaries are operating under tax holiday arrangements that will expire during 2014 and 2015, subject to potential extensions. For the three months ended June 30, 2014 and 2013, the impact of these tax holiday arrangements lowered income tax expense by $1.7 ($0.02 per diluted share) and $2.3 ($0.03 per diluted share), respectively.



Noncontrolling interest. Noncontrolling interest includes the share of net income and net losses in consolidated entities that are not 100% owned by us.

Bookings and backlog. Bookings for the three months ended June 30, 2014, were $691.0 compared to $868.4 for the three months ended June 30, 2013, a decrease of $177.4 or 20.4%. The Company believes that the decrease in bookings is primarily due to delays in major projects, principally upstream, by our end-user clients in an effort to address their escalating capital costs relating to those projects. In addition, due to the change in the tariffs reflected in the Spanish ministerial order discussed above, our 2014 aftermarket bookings are lower by approximately $35.4. The decrease is also attributable to a reduction in bookings for one Latin American national oil company as the Company works collaboratively with this client to reduce outstanding receivables. Backlog was $2,782.6 at June 30, 2014, compared to $2,945.4 at June 30, 2013. Segment Analysis - three months ended June 30, 2014, compared to three months ended June 30, 2013: Three Months Ended Three Months Ended



Period to Period Change

June 30, 2014 June 30, 2013 2013 to 2014 % Change Revenues New units $ 302.7 48.2% $ 420.2 52.2% $ (117.5) (28.0)% Aftermarket parts and services 325.7 51.8% 385.1 47.8% (59.4) (15.4)% Total revenues $ 628.4 100.0% $ 805.3 100.0% $ (176.9) (22.0)% Gross profit New units $ 56.6$ 54.9 $ 1.7 3.1% Aftermarket parts and services 121.9 143.3 (21.4) (14.9)% Total gross profit $ 178.5$ 198.2$ (19.7) (9.9)% Income from operations New units $ 27.1$ 25.8 $ 1.3 5.0% Aftermarket parts and services 70.5 92.8 (22.3) (24.0)% Unallocated (31.3) (31.4) 0.1 (0.3)% Total income from operations $ 66.3$ 87.2$ (20.9) (24.0)% Bookings New units $ 342.7$ 432.0$ (89.3) (20.7)% Aftermarket parts and services 348.3 436.4 (88.1) (20.2)% Total bookings $ 691.0$ 868.4$ (177.4) (20.4)% Backlog - ending New units $ 2,056.3$ 2,254.3$ (198.0) (8.8)% Aftermarket parts and services 726.3 691.1 35.2 5.1% Total backlog $ 2,782.6$ 2,945.4$ (162.8) (5.5)% New Units Revenues. Revenues for this segment were $302.7 for the three months ended June 30, 2014, compared to $420.2 for the three months ended June 30, 2013, a decrease of $117.5 or 28.0%. The business impact of oil prices, other macroeconomic conditions and the timing and size of orders on this segment is more fully described above in the Revenues caption in the section titled Three months ended June 30, 2014, compared to the three months ended June 30, 2013. Based on factors such as measures of labor hours and purchases from suppliers, volumes decreased during the three months ended June 30, 2014, principally as a result of the timing issues discussed in the section referenced above. Specifically, we have been impacted by previous delays by the Company's end-user clients in placing equipment orders for major projects, mostly for upstream Page 32 of 43

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applications. The decrease in revenue on extended scope projects, which are accounted for under the percentage of completion method of accounting, was

$43.2 for the three months ended June 30, 2014.

Gross profit. Gross profit was $56.6 for the three months ended June 30, 2014, compared to $54.9 for the three months ended June 30, 2013. Gross profit as a percentage of segment revenues, was 18.7% for the three months ended June 30, 2014, compared to 13.1% for the three months ended June 30, 2013. We experienced increased gross profit as a percentage of sales in our new units segment due to a better mix of projects during the period as well as a shift in fixed cost allocations to the aftermarket segment due to changes in the mix of products and volume. Income from operations. Income from operations was $27.1 for the three months ended June 30, 2014, compared to $25.8 for the three months ended June 30, 2013. As a percentage of segment revenues, income from operations was 9.0% for the three months ended June 30, 2014, compared to 6.1% for the three months ended June 30, 2013. Income from operations as a percentage of revenues increased compared to the prior year as a result of the factors discussed above.



Bookings and backlog. New units bookings for the three months ended June 30, 2014, were $342.7, compared to $432.0 for the three months ended June 30, 2013.

The Company believes that the decrease in bookings is primarily due to delays in major projects, principally upstream, by our end-user clients in an effort to address their escalating capital costs relating to those projects. Backlog was $2,056.3 at June 30, 2014, compared to $2,254.3 at June 30, 2013.



Aftermarket Parts and Services

Revenues. Revenues for this segment were $325.7 for the three months ended June 30, 2014, compared to $385.1 for the three months ended June 30, 2013, a decrease of $59.4 or 15.4%. Generally, oil prices and other macroeconomic conditions that affect the oil and gas industry have an impact on our business over an extended period of time, but less so in this segment. On a quarterly or annual basis, however, there is typically not a meaningful correlation of those factors to our periodic financial results. The decrease in revenues for the three months ended June 30, 2014, is partially attributable to a reduction in shipments to one Latin American national oil company as the Company works collaboratively with this client to reduce outstanding receivables. Additionally, in connection with the change in the tariffs reflected in the Spanish ministerial order discussed above, our 2014 revenues are lower by approximately $35.4. Gross profit. Gross profit was $121.9 for the three months ended June 30, 2014, compared to $143.3 for the three months ended June 30, 2013. Gross profit declined because of a shift in cost allocations from the new units segment due to changes in the mix of products and volume, partially offset by a more favorable mix. Income from operations. Income from operations was $70.5 for the three months ended June 30, 2014, compared to $92.8 for the three months ended June 30, 2013. As a percentage of segment revenues, income from operations decreased to 21.6% for the three months ended June 30, 2014, from 24.1% for the three months ended June 30, 2013. The changes in income from operations and income from operations as a percentage of segment revenues resulted principally from the factors discussed above. Bookings and backlog. Bookings for the three months ended June 30, 2014, were $348.3, compared to $436.4 for the three months ended June 30, 2013. The decrease is partially attributable to a reduction in bookings for one Latin American national oil company as the Company works collaboratively with this client to reduce outstanding receivables. Additionally, the change in the tariffs reflected in the Spanish ministerial order discussed above reduced 2014 aftermarket bookings by approximately $35.4. Backlog was $726.3 at June 30, 2014, compared to $691.1 at June 30, 2013. Page 33 of 43 --------------------------------------------------------------------------------

Table of Contents Six months ended June 30, 2014, compared to the six months ended June 30, 2013: Six Months Ended Six Months Ended Period to Period Change June 30, 2014 June 30, 2013 2013 to 2014 % Change Consolidated Statement of Operations Data: Revenues $ 1,327.5 100.0% $ 1,571.7 100.0% $ (244.2) (15.5)% Cost of sales 1,001.6 75.5 1,201.5 76.4 (199.9) (16.6)% Gross profit 325.9 24.5 370.2 23.6 (44.3) (12.0)% Selling and administrative expenses 204.9 15.4 194.6 12.4 10.3 5.3% Research and development expenses 14.5 1.1 22.9 1.5 (8.4) (36.7)% Income from operations 106.5 8.0 152.7 9.7 (46.2) (30.3)% Interest expense, net (25.6) (1.9) (27.7) (1.8) 2.1 (7.6)% Other (expense) income, net (0.5) 0.0 1.0 0.1 (1.5) (150.0)% Income before income taxes 80.4 6.1 126.0 8.0 (45.6) (36.2)% Provision for income taxes 35.0 2.6 37.2 2.4 (2.2) (5.9)% Net income 45.4 3.4 88.8 5.6 (43.4) (48.9)% Net loss (income) attributable to noncontrolling interest 0.3 (0.1) (2.6) (0.1) 2.9 (111.5)% Net income attributable to Dresser-Rand $ 45.7 3.4% $ 86.2 5.5% $ (40.5) (47.0)% Bookings $ 1,285.2$ 1,536.2$ (251.0) (16.3)% Backlog - ending $ 2,782.6$ 2,945.4$ (162.8) (5.5)% Revenues. Revenues were $1,327.5 for the six months ended June 30, 2014, compared to $1,571.7 for the six months ended June 30, 2013, a decrease of $244.2 or 15.5%. The business impact of oil prices, other macroeconomic conditions and the timing and size of large orders is more fully described above in the Revenues caption in the section titled Three months ended June 30, 2014, compared to the three months ended June 30, 2013. Based on factors such as measures of labor hours and purchases from suppliers, revenues decreased due to lower volume during the six months ended June 30, 2014 as a result of the timing issues discussed above. Specifically, we have been impacted by previous delays by the Company's end-user clients in placing equipment orders for major projects, mostly for upstream applications. Revenues were also negatively impacted by six of our cogeneration facilities in Spain. The Spanish government published a ministerial order on June 20, 2014, that reflects an approximate 38% reduction in the tariffs payable to such facilities. In connection with the order being issued and the reduction of the tariffs and the suspension of operations at the facilities, revenues for the six months ended June 30, 2014 are lower by approximately $61.8. The decrease in revenues for the six months ended June 30, 2014, is also partially attributable to a reduction in shipments to one Latin American national oil company as the Company works collaboratively with this client to reduce outstanding receivables. The decrease in revenue on extended scope projects, which are accounted for under the percentage of completion method of accounting, was $50.7 for the six months ended June 30, 2014. Cost of sales. Cost of sales was $1,001.6 for the six months ended June 30, 2014, compared to $1,201.5 for the six months ended June 30, 2013. As a percentage of revenues, cost of sales was 75.5% for the six months ended June 30, 2014, compared to 76.4% for the six months ended June 30, 2013. The decrease in cost of sales as a percentage of revenues from the six months ended June 30, 2013 to the six months ended June 30, 2014 was the result of a shift in mix from our new units segment to our aftermarket segment as well as a better mix within each segment. Gross profit. Gross profit was $325.9 for the six months ended June 30, 2014, compared to $370.2 for the six months ended June 30, 2013. As a percentage of revenues, gross profit was 24.5% for the six months ended June 30, 2014, compared to 23.6% for the six months ended June 30, 2013. We experienced increased gross profit as a percentage of revenues as a result of the factors discussed above. Selling and administrative expenses. Selling and administrative expenses were $204.9 for the six months ended June 30, 2014, compared to $194.6 for the six months ended June 30, 2013. The increase in selling and administrative expenses was generally the result of cost inflation and severance cost associated with the suspension of operations at six of our cogeneration facilities in Spain, as well as the planned consolidation of operations in Germany. We also incurred higher Page 34 of 43

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third party commissions which were driven by the shift in the mix of sales.

As

a percentage of revenues, selling and administrative expenses increased to 15.4% from 12.4%.

Research and development expenses. Research and development expenses for the six months ended June 30, 2014, were $14.5, compared to $22.9 for the six months ended June 30, 2013. The decline in research and development expenses is the result of changing expenditure profiles within major programs as they near market release. We continue to effectively execute our strategy to introduce new and innovative products and technologies with a focus on key new product development initiatives for DATUM®, DATUM® ICS, subsea compression, LNG, steam turbines and reciprocating engines. Income from operations. Income from operations was $106.5 for the six months ended June 30, 2014, compared to $152.7 for the six months ended June 30, 2013, a decrease of $46.2 or 30.3%. As a percentage of revenues, income from operations for the six months ended June 30, 2014 was 8.0% compared to 9.7% for the six months ended June 30, 2013. The decrease in income from operations and income from operations as a percentage of revenues is the result of the factors discussed above. Interest expense, net. Interest expense, net was $25.6 for the six months ended June 30, 2014, compared to $27.7 for the six months ended June 30, 2013. The decrease is partially due to lower weighted-average debt outstanding. Additionally, we experienced higher interest income for the six months ended June 30, 2014, due to higher average interest-bearing cash balances. Other (expense) income, net. Other expense, net was $0.5 for the six months ended June 30, 2014, compared to other income, net of $1.0 for the six months ended June 30, 2013. Other (expense) income, net, consists principally of net currency gains and losses and earnings and losses on investments accounted for under the equity method of accounting. The change in other (expense) income, net for the six months ended June 30, 2014 is principally the result of losses on equity method investments and foreign currency fluctuations. Other (expense) income, net for the six months ended June 30, 2013, was impacted by the devaluation of the Venezuelan bolivar on February 8, 2013. As a result of this devaluation, the Company recorded a non-deductible foreign exchange loss in its Consolidated Statement of Income of approximately $3.1 for the six months ended June 30, 2013. Provision for income taxes. Provision for income taxes was $35.0 for the six months ended June 30, 2014, and $37.2 for the six months ended June 30, 2013. Our estimated income tax provision for the six months ended June 30, 2014 and 2013, generally differs from the U.S. federal statutory rate of 35% because of different tax rates in foreign tax jurisdictions and certain exemptions and credits allowable for income tax purposes, offset by state and local income taxes, and valuation allowances on net operating loss carryforwards that more-likely-than-not will not be realized. We will adjust the valuation allowances in the future if it becomes more-likely-than-not that the benefits of deferred tax assets will not be realized. The increase in the effective tax rate for the six months ended June 30, 2014, as compared to the six months ended June 30, 2013, is principally due to an increased amount of net operating losses in certain foreign countries for which we could not record a benefit under U.S. GAAP, thus increasing the effective tax rate by approximately 14.0 percentage points. On January 2, 2013, the ATRA of 2012 was signed into law. Some of the provisions were retroactive to January 1, 2012, including the exclusion from U.S. federal taxable income of certain interest, dividends, rents, and royalty income of foreign affiliates, as well as the tax benefits of the credits associated with that income and an extension of the research and experimentation credit. Therefore, as required by U.S. GAAP, a $4.4 benefit was reflected in the three months ended March 31, 2013 as a discrete event. The "look-through" exemption for foreign earnings provision and the research and experimentation credit has not yet been extended for 2014, causing an increase in the effective tax rate of approximately 2.4 percentage points for the six months ended June 30, 2014, as compared to the six months ended June 30, 2013. As a result of the devaluation of the Venezuelan bolivar on February 8, 2013, the Company recorded a nondeductible foreign exchange loss in its Consolidated Statement of Income of approximately $3.1 for the three months ended March 31, 2013. Had this amount been deductible, our effective tax rate would have been 1.0 percentage point lower for the six months ended June 30, 2013. Certain foreign subsidiaries are operating under tax holiday arrangements that will expire during 2014 and 2015, subject to potential extensions. For the six months ended June 30, 2014 and 2013, the impact of these tax holiday arrangements lowered income tax expense by $2.9 ($0.04 per diluted share) and $3.3 ($0.04 per diluted share), respectively. Page 35 of 43 --------------------------------------------------------------------------------

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Noncontrolling interest. Noncontrolling interest includes the share of net income and net losses in consolidated entities that are not 100% owned by us.

Bookings and backlog. Bookings for the six months ended June 30, 2014, were $1,285.2 compared to $1,536.2 for the six months ended June 30, 2013, a decrease of $251.0 or 16.3%. The Company believes that the decrease in bookings is primarily due to delays in major projects, principally upstream, by our end-user clients in an effort to address their escalating capital costs relating to those projects. In addition, due to the change in the tariffs reflected in the Spanish ministerial order discussed above, our 2014 aftermarket bookings are lower by approximately $61.8. The decrease is also attributable to a reduction in bookings for one Latin American national oil company as the Company works collaboratively with this client to reduce outstanding receivables. Backlog was $2,782.6 at June 30, 2014, compared to $2,945.4 at June 30, 2013. Segment Analysis - six months ended June 30, 2014, compared to six months ended June 30, 2013: Six Months Ended Six Months Ended



Period to Period Change

June 30, 2014 June 30, 2013 2013 to 2014 % Change Revenues New units $ 694.0 52.3% $ 863.4 54.9% $ (169.4) (19.6)% Aftermarket parts and services 633.5 47.7% 708.3 45.1% (74.8) (10.6)% Total revenues $ 1,327.5 100.0% $ 1,571.7 100.0% $ (244.2) (15.5)% Gross profit New units $ 103.9$ 110.4$ (6.5) (5.9)% Aftermarket parts and services 222.0 259.8 (37.8) (14.5)% Total gross profit $ 325.9$ 370.2$ (44.3) (12.0)% Income from operations New units $ 42.8$ 54.4$ (11.6) (21.3)% Aftermarket parts and services 120.3 159.2 (38.9) (24.4)% Unallocated (56.6) (60.9) 4.3 (7.1)% Total income from operations $ 106.5$ 152.7$ (46.2) (30.3)% Bookings New units $ 586.5$ 700.8$ (114.3) (16.3)% Aftermarket parts and services 698.7 835.4 (136.7) (16.4)% Total bookings $ 1,285.2$ 1,536.2$ (251.0) (16.3)% Backlog - ending New units $ 2,056.3$ 2,254.3$ (198.0) (8.8)% Aftermarket parts and services 726.3 691.1 35.2 5.1% Total backlog $ 2,782.6$ 2,945.4$ (162.8) (5.5)% New Units Revenues. Revenues for this segment were $694.0 for the six months ended June 30, 2014, compared to $863.4 for the six months ended June 30, 2013, a decrease of $169.4 or 19.6%. The business impact of oil prices, other macroeconomic conditions and the timing and size of orders on this segment is more fully described above in the Revenues caption in the section titled Three months ended June 30, 2014, compared to the three months ended June 30, 2013. Based on factors such as measures of labor hours and purchases from suppliers, volumes decreased during the six months ended June 30, 2014, principally as a result of the timing issues discussed in the section referenced above. Specifically, we have been impacted by previous delays by the Company's end-user clients in placing equipment orders for major projects, mostly for upstream applications. The decrease in revenue on extended scope projects, which are accounted for under the percentage of completion method of accounting, was $50.7 for the six months ended June 30, 2014. Page 36 of 43

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Table of Contents Gross profit. Gross profit was $103.9 for the six months ended June 30, 2014, compared to $110.4 for the six months ended June 30, 2013. Gross profit as a percentage of segment revenues, was 15.0% for the six months ended June 30, 2014, compared to 12.8% for the six months ended June 30, 2013. We experienced increased gross profit as a percentage of sales in our new units segment primarily due to a better mix of projects during the period as well as a shift in fixed cost allocations to the aftermarket segment due to changes in the mix of products and volume.



Income from operations. Income from operations was $42.8 for the six months ended June 30, 2014, compared to $54.4 for the six months ended June 30, 2013. As a percentage of segment revenues, income from operations was 6.2%

for

the six months ended June 30, 2014, compared to 6.3% for the six months ended June 30, 2013. Income from operations as a percentage of revenues decreased compared to the prior year as a result of the factors discussed above as well as less operating leverage on fixed costs caused by lower volumes.



Bookings and backlog. New units bookings for the six months ended June 30, 2014, were $586.5, compared to $700.8 for the six months ended June 30, 2013.

The Company believes that the decrease in bookings is primarily due to delays in major projects, principally upstream, by our end-user clients in an effort to address their escalating capital costs relating to those projects. Backlog was $2,056.3 at June 30, 2014, compared to $2,254.3 at June 30, 2013.



Aftermarket Parts and Services

Revenues. Revenues for this segment were $633.5 for the six months ended June 30, 2014, compared to $708.3 for the six months ended June 30, 2013, a decrease of $74.8 or 10.6%. Generally, oil prices and other macroeconomic conditions that affect the oil and gas industry have an impact on our business over an extended period of time, but less so in this segment. On a quarterly or annual basis, however, there is typically not a meaningful correlation of those factors to our periodic financial results. The decrease in revenues for the six months ended June 30, 2014, is partially attributable to a reduction in shipments to one Latin American national oil company as the Company works collaboratively with this client to reduce outstanding receivables. Additionally, in connection with the change in the tariffs reflected in the Spanish ministerial order discussed above, our 2014 revenues are lower by approximately $61.8. Gross profit. Gross profit was $222.0 for the six months ended June 30, 2014, compared to $259.8 for the six months ended June 30, 2013. Gross profit as a percentage of segment revenues for the six months ended June 30, 2014, of 35.0% decreased from 36.7% for the six months ended June 30, 2013. Gross profit as a percentage of revenues declined as a result of a shift in cost allocations from the new units segment due to changes in the mix of products and volume, partially offset by a more favorable mix. Income from operations. Income from operations was $120.3 for the six months ended June 30, 2014, compared to $159.2 for the six months ended June 30, 2013. As a percentage of segment revenues, income from operations decreased to 19.0% for the six months ended June 30, 2014, from 22.5% for the six months ended June 30, 2013. The changes in income from operations and income from operations as a percentage of segment revenues resulted principally from the factors discussed above as well as less operating leverage on fixed costs caused by lower volumes. Bookings and backlog. Bookings for the six months ended June 30, 2014, were $698.7, compared to $835.4 for the six months ended June 30, 2013. The decrease is partially attributable to a reduction in bookings for one Latin American national oil company as the Company works collaboratively with this client to reduce outstanding receivables. Additionally, the change in the tariffs reflected in the Spanish ministerial order discussed above reduced 2014 aftermarket bookings by approximately $61.8. Bookings during the six months ended June 30, 2013, also included a large long-term service agreement to provide energy in Brazil. Backlog was $726.3 at June 30, 2014, compared to $691.1 at June 30, 2013.



Liquidity and Capital Resources

Current Liquidity As of June 30, 2014, we had cash and cash equivalents of $138.7 and the ability to borrow $586.2 under the $1,168.5 revolving portion of our Amended Credit Facility, as $74.3 was used for outstanding letters of credit and $508.0 of borrowings was outstanding. In addition to these letters of credit, $251.0 of letters of credit and bank guarantees were outstanding at June 30, 2014, which were issued by banks offering uncommitted lines of credit. At June 30, 2014, we were in compliance with our debt covenants. As of June 30, 2014, approximately $132.8 of our cash was held outside of the U.S. Except for approximately $9.5 of cash held by our Venezuelan subsidiary, there are no legal restrictions regarding repatriation from any of the countries outside of the U.S. where we have cash; however, as of June 30, 2014, approximately $55.0 of our cash is not available for Page 37 of 43 --------------------------------------------------------------------------------

Table of Contents general corporate use in the U.S. because such cumulative earnings have been indefinitely reinvested in foreign countries or foreign markets. Except for earnings in India, we have no plans to repatriate any of the foreign-based cash or unremitted earnings based on our intended uses of the foreign-based cash and our existing cash and cash equivalents balances in the U.S. If foreign funds are needed for our operations in the U.S., we would be required to accrue and pay U.S. taxes, net of applicable foreign tax credits, to repatriate these funds. However, our intent is to indefinitely reinvest these funds outside the U.S., and our current plans do not demonstrate a need to repatriate indefinitely reinvested earnings to fund our U.S. operations. 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 Amended Credit Facility will be adequate to meet our working capital, capital expenditures, interest payments and other funding requirements for the next 12 months and our long-term future contractual obligations in the U.S. and in foreign countries.



Sources and Uses of Liquidity

Net cash provided by operating activities for the six months ended June 30, 2014, was $94.6, compared to net cash used in operating activities of $34.4 for the six months ended June 30, 2013. The increase in cash provided by operations in the six months ended June 30, 2014, is principally the result of decreased investment in working capital. Accounts receivable decreased for the six months ended June 30, 2014, as a result of cyclically lower volume and timely cash collections from clients related to high fourth quarter 2013 sales. Additionally, costs and estimated earnings on uncompleted contracts decreased related to contracts being recognized on the percentage of completion accounting method primarily as a result of the receipt of a large payment from a national oil company. Accounts payable and accruals decreased for the six months ended June 30, 2014, principally as a result of the timing of payments. The increase in inventories related principally to LNGoTM, the Company's small-scale distributed-LNG product offering. In addition, we made $9.0 of minimum required pension contributions in the six months ended June 30, 2014, compared to $10.1 in the six months ended June 30, 2013, in accordance with our funding policy. Net cash used in investing activities was $52.7 for the six months ended June 30, 2014, compared to $44.3 for the six months ended June 30, 2013. Capital expenditures decreased to $31.7 for the six months ended June 30, 2014, from $39.7 for the six months ended June 30, 2013. During the six months ended June 30, 2014, we loaned $18.6 to Bethel Holdco, LLC, and invested an additional $2.5 in Echogen Power Systems, LLC, which are discussed more fully in Note 3, Other Investments in the consolidated financial statements. Net cash used in financing activities was $97.9 for the six months ended June 30, 2014, compared to net cash provided by financing activities of $128.9 for the six months ended June 30, 2013. Included in net cash used in financing activities for the six months ended June 30, 2014, are $530.4 of borrowings to fund operating cash flows and $628.5 of repayments on the Company's Amended Credit Facility. Borrowings on the Amended Credit Facility during the six months ended June 30, 2014, primarily relate to changes in working capital requirements and our ability to take advantage of favorable interest rates. Management views the Amended Credit Facility as a cost efficient funding mechanism and uses it as a primary source of funding. The Company is required to maintain sinking funds associated with certain of its borrowings, generally based on the short-term debt service requirements of such borrowings. Sinking fund requirements totaled $6.6 at June 30, 2014, and have been classified as restricted cash in the current assets section of the consolidated balance sheet. New Accounting Standards The Company has adopted or is required to adopt certain new accounting standards which are described in Note 2, New Accounting Standards to the consolidated financial statements, none of which have had, or are expected to have, a material effect on the consolidated financial statements included herein in Part I, Financial Information, Item 1, Financial Statements (unaudited).



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical information. When used in this Form 10-Q, the words "anticipates," "believes," "estimates," "expects," "intends" and similar expressions identify such forward-looking Page 38 of 43 --------------------------------------------------------------------------------

Table of Contents statements. Although we believe that such statements are based on reasonable assumptions, these forward-looking statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. These factors, risks and uncertainties include, among others, the following: · economic or industry downturns; · volatility and disruption of the credit markets; · our ability to implement our business strategy; · delivery delays by third-party suppliers; · the risk of cost overruns on fixed price contracts; · our ability to comply with local content requirements;



· payment and administrative delays of certain of our national oil company

customers;



· our ability to generate cash and access capital on reasonable terms;

· competition in our markets;

· the variability of bookings and revenues due to volatile market conditions,

client subjectivity in placing orders, potential preference for bundling and

timing of large orders;



· failure to integrate, or achieve the expected benefits from, acquisitions,

joint ventures or strategic investments;



· economic, political and other risks associated with our international sales and

operations;



· fluctuations in currency values and exchange rates;

· loss of our senior management or other key personnel;

· environmental compliance costs and liabilities and responses to concerns

regarding climate change;



· new regulations relating to "conflict minerals";

· failure to maintain safety performance acceptable to our clients;

· failure to negotiate new collective bargaining agreements;

· information systems security threats and computer crime;

· unexpected product claims or regulations;

· infringement of our intellectual property rights or our infringement of others'

intellectual property rights;

· difficulties implementing an Oracle-based information management system;

· certain covenants in our principal debt instruments impose restrictions that

may limit our operating and financial flexibility;



· our brand name may be confused with others;

· our pension expenses and funding requirements;

· feed-in tariffs and regulations in our energy generating business; and

· other factors described in this Form 10-Q and as set forth in the Company's

Annual Report on Form 10-K for the year ended December 31, 2013.


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