1333 West Loop South • Su i te 1700 • Houston , Texas 77027713-513-3300 • www.coopercameron.com

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Cooper Cameron is a leading international manufacturer of oil and gas pressure control equipment, including valves, wellheads, controls, chokes, blowout preventers and assembled systems for oil and gas drilling, production and transmission used in onshore, offshore and subsea applications, and provides oil and gas separation, metering and flow measurement equipment. Cooper Cameron is also a leading manufacturer of centrifugal air compressors, integral and separable gas compressors and turbochargers.

STRUCTUREThe three divisions of Cooper Cameron offer balanced solutions to customers worldwide.

COOPER CAMERON

SHELDON R. ERIKSONChairman, President and Chief Executive Officer

FRANKLIN MYERSSenior Vice President and Chief Financial Officer

R. SCOTT AMANNVice President, Investor Relations

WILLIAM C. LEMMERVice President,General Counsel and Secretary

ERIK PEYRERVice President,Business Development, Asia Pacific and Middle East

JANE C. SCHMITTVice President,Human Resources

CHARLES M. SLEDGEVice President and Corporate Controller

DALTON L. THOMASVice President, Operations Support

CAMERON

JACK B. MOOREPresident*

STEVEN P. BEATTYVice President, Finance

HAROLD E. CONWAY, JR.President, Drilling Systems

HAL J. GOLDIEPresident, Subsea Systems

GARY M. HALVERSONPresident, Surface Systems

BRITT O. SCHMIDTVice President and GeneralManager, Flow Control

S. JOE VINSONVice President, Human Resources

EDWARD E. WILLVice President, Marketing

COOPER CAMERON VALVES

JOHN D. CARNEPresident*

WILLIAM B. FINDLAYPresident, Engineered Valves

KEVIN FLEMINGVice President, Human Resources

PATRICK C. HOLLEYVice President and GeneralManager, Measurement

DAVID R. MEFFORDVice President, Engineering

REMBERT B. MORELANDVice President, Marketing

JAN L. ROTHFUSZVice President, International Sales

R. SCOTT ROWEVice President, Operations

RICHARD A. STEANSVice President, Finance

JAMES E. WRIGHTPresident, Distributed andProcess Valves

COOPER COMPRESSION

ROBERT J. RAJESKIPresident**

JEFFREY G. ALTAMARIVice President, Finance

JOHN C. BARTOSVice President, Engineering andProduct Development

RONALD J. FLECKNOEVice President, Aftermarket Sales

EDWARD E. ROPERVice President, Marketing andNew Unit Sales

CYNTHIA D. SPARKMANVice President,Human Resources

RICHARD E. STEGALLVice President, Operations

WAYNE T. WOOTTONVice President, Supply Chain

PETRECO

BRADFORD W. GOEBELPresident

LESLIE A. HILLERVice President and GeneralManager, Western Hemisphere

MITCHELL K. ULREYVice President, Finance

DAVID R. ZACHARIAHVice President and GeneralManager, Eastern Hemisphere

*Also, Senior Vice President,Cooper Cameron Corporation

**Also, Vice President,Cooper Cameron Corporation

DIRECTORSSHELDON R. ERIKSONChairman of the Board, President and Chief Executive Officer,Cooper Cameron CorporationHouston, Texas

NATHAN M. AVERYInvestorHouston, Texas

C. BAKER CUNNINGHAMPresident and Chief Executive Officer,Belden CDT Inc. (retired)Clayton, Missouri

PETER J. FLUORChairman and Chief Executive Officer,Texas Crude Energy, Inc.Houston, Texas

LAMAR NORSWORTHYChairman and Chief Executive Officer,Holly CorporationDallas, Texas

MICHAEL E. PATRICKVice President and ChiefInvestment Officer,Meadows Foundation, Inc.Dallas, Texas

DAVID ROSS IIIInvestorHouston, Texas

BRUCE W. WILKINSONChairman and Chief Executive Officer,McDermott International, Inc.Houston, Texas

OFFICERS

Cameron engineers and manufactures systems used in

oil and gas production and drilling in onshore, offshore

and subsea applications, provides separation equipment

and furnishes aftermarket parts and service to the energy

industry worldwide.

Cooper Cameron Valves is a leading global provider of

valves, related products and services for the oil and gas

production, transmission, refining and process markets.

Cooper Compression makes engines and compressors

for the oil and gas production, gas transmission and

process markets, manufactures and services centrifugal air

compression equipment for manufacturing and process

applications, and provides aftermarket parts and service

for a wide range of compression equipment.

Cooper Cameron’s website: www.coopercameron.com

FINANCIAL( $ thousands except per share, number of shares and employees) 2005 2004 2003

Revenues ................................................................................................................................... $2,517,847 $2,092,845 $1,634,346

Earnings before interest, taxes,

depreciation and amortization (EBITDA) ................................................................. 340,303 228,639 164,127

EBITDA (as a percent of revenues) ........................................................................................... 13.5% 10.9% 10.0%

Income before cumulative effect of

accounting change .................................................................................................................. 171,130 94,415 57,241

Cumulative effect of accounting change .................................................................................. — — 12,209

Net income ...................................................................................................................................... 171,130 94,415 69,450

Earnings per share:1

Basic before cumulative effect of accounting change .................................................. 1.55 0.89 0.53

Cumulative effect of accounting change ............................................................................. — — 0.11

Basic ......................................................................................................................................................... 1.55 0.89 0.64

Diluted before cumulative effect of accounting change ............................................. 1.52 0.88 0.52

Cumulative effect of accounting change .............................................................................. — — 0.10

Diluted .................................................................................................................................................... 1.52 0.88 0.62

Shares utilized in calculation of earnings per share:1

Basic ...................................................................................................................................... 110,732,000 106,545,000 108,806,000

Diluted ................................................................................................................................ 112,608,000 107,708,000 119,601,000

Capital expenditures ..................................................................................................................... 77,508 53,481 64,665

Return on average common equity ........................................................................................... 12.4% 8.2% 6.4%

As of December 31:

Total assets .................................................................................................................................. $3,098,562 $ 2,356,430 $ 2,140,685

Net debt-to-capitalization2 .................................................................................................................. 5.3% 16.3% 12.0%

Stockholders’ equity ................................................................................................................. 1,594,763 1,228,247 1,136,723

Shares outstanding3 .......................................................................................................... 115,629,117 53,137,8154 53,803,0584

Number of employees ................................................................................................................. 12,200 8,800 7,700

1Basic and diluted shares utilized in the calculation of earnings per share and per share amounts have been revised to reflect the 2-for-1 stock split effective December 15, 2005.2Net of cash and short-term investments.3Net of treasury shares.4Reflects share counts prior to stock split.

Highlights and balances for years ending December 31

3

DIRECTION

In this letter a year ago, I referenced the impact that $40/barrel oil and $6/mcf natural gas were having on our business. I resisted the temptation to refer to those prices as “high” or to forecast where they might go in the future; instead, I related that we were prepared to deal with whatever might happen with prices, activity and spending in the oilpatch. With oil prices above $60/barrel and natural gas around $10/mcf at the close of 2005, I believe our results demonstrate that we struck the appropriate balance in the way we approached our business. I will again avoid the temptation to forecast what may happen with prices in 2006.

To the stockholders of Cooper Cameron

Spending on oil and gas exploration and development

is the single largest factor influencing our business, and

through the end of 2005, our customers were showing

no signs of reducing their activity. Industry benchmarks

like worldwide rig counts and exploration and production

spending showed steady growth throughout the year. Our

business and the commodities (crude oil and natural gas)

that drive our customers’ behavior typically run in cycles

that last for a little more than three years. The positive

phase of this current cycle has extended well beyond that

time frame. Some observers have begun to use terms

like “paradigm shift” or “secular growth” to describe the

business; we will maintain our balanced approach to

managing our operations. In other words, we will continue

our productivity enhancement steps, which effectively add

capacity without adding roofline and help us manage costs

in the event of a change in the direction of the cycle.

Following are some of our recent milestones:

• Cooper Cameron’s 2005 earnings per share

increased to a record $1.52 (adjusted for our stock

split), up 73 percent from a year ago.

• Total revenues set a new record at $2.52 billion.

• Orders reached more than $3.46 billion, and

backlog more than doubled to $2.16 billion; both of

those are also records.

• Since the beginning of 2005 we have spent more

than $300 million on acquisitions — including

$217 million on the Dresser acquisition — and still

have one of the best balance sheets in the industry.

At this time a year ago, we had planned to include in our

financial results an expense related to stock option grants

made to our employees as a part of their compensation. In

early 2005,however, companies were allowed to choose to

phase-in such recognition.We elected to defer adoption of

this expense recognition until the first quarter of this year,

and we expect to record approximately $0.10 per share

for stock-based compensation expense during 2006.

4

Our operating and financial performance in 2005 was very good. The combination of a robust market across our business lines and solid performance from all of our divisions generated some of our best financial results ever. As a result, our stock price reached new highs, and our board authorized a 2-for-1 stock split (the second in our history) effective in December 2005.

I personally believe that the true financial impact of stock

options is already reflected in a company’s results when share

count increases due to options being exercised (of course, such

exercises generally occur because the stock price has gone up).

Since we are now required to recognize some assigned expense,

we have reduced the use of stock options in our compensation

programs so our earnings will not be overly burdened. We regret

doing so, because options are an effective means of aligning

employees’ interests with that of stockholders; if the stock goes

higher, everyone benefits. Many of our employees are also

stockholders, and they are innately aware of the impact that solid

operating and financial performance has on stock price.

Markets should lead to further improvement in 2006Our Cameron division’s total revenues reached a record $1,508

million during 2005 as the drilling and surface product lines hit

new highs. Subsea revenues declined modestly from year-ago

levels, as we did not have as much large-scale project business

delivered in 2005 as in 2004.

Cameron finished the year with record orders by a wide margin

and entered 2006 with a backlog nearly twice the level of a

year ago. Some of those orders are for projects that will be

delivered over the next couple of years, but the vast majority

of that backlog should be turned into revenue by year-end. Our

challenge is to convert that backlog into revenues efficiently

and profitably. Meanwhile, the level of inquiries and orders from

customers for Cameron products showed no signs of slowing

as of early 2006.

During 2005, Cooper CameronValves (CCV) did an outstanding

job of incorporating the late-2004 acquisition of several valve

manufacturing businesses (the PCC acquisition) and a flow

measurement business acquired in mid-2005 (NuFlo).As a result

of these acquisitions and continuing strength in the valve markets,

CCV’s revenues gained nearly 80 percent year-over-year.

Now, we are asking them to perform once again by integrating

the Dresser acquisition facilities into CCV. This $217 million

acquisition is the largest and most challenging we have undertaken

to date. It more than doubles CCV’s revenue base from their

2004 levels, and at year-end 2005, CCV’s backlog was $469

million, compared with only $123 million at year-end 2004.

Cooper Compression’s revenues and earnings were their highest

in more than five years. Their energy-related business benefited,

in both aftermarket and new equipment, from activity in the U.S.

natural gas markets. Increased revenues in the air compression

side were the result of the high backlog that existed entering

2005 and the ongoing strong demand in international markets

for industrial compression equipment.

With the natural gas markets continuing to drive North

American business and global manufacturing activity supporting

international air compression orders, Cooper Compression

should see another year of gains in both revenues and profits.

New product introductions and further attention to cost

reduction efforts will also be important to their bottom line.

Hurricanes have minimal impact on operationsWe were fortunate that Cooper Cameron’s manufacturing

operations experienced no significant damage from the

devastating hurricanes that hit the Gulf Coast region in August

and September. While the storms’ paths missed our primary

facilities and we had no injuries to employees, a number of

our people experienced personal losses of property and the

attendant disruption in their day-to-day activities. In response,

we established a fund at the Company to aid those employees

and their families who needed help with their recovery and

restoration efforts. Within a week or so after the hurricanes,

our facilities were all back to normal operations, and the financial

impact on our results was minimal.

Restoration of productive capacity, LNG supplies needed to address gas demand growthNatural gas prices in the U.S. were clearly affected by the

disruptions in productive capacity from the hurricanes in

the Gulf. While U.S. gas demand did not increase significantly

during the year — about 22 trillion cubic feet (Tcf) were

used in 2005, similar to 2004’s consumption — damage

to gas infrastructure in the Gulf of Mexico had a very real

impact on deliverability, leading to new highs in prices. When

combined with operators’ struggles to replace production

with new reserves, the need for additional supplies, particularly

liquefied natural gas (LNG), becomes more apparent.

6

While natural gas productive capacity is forecast to increase in

2006 as the industry recovers from the storms of 2005, LNG

continues to make up a larger, but overall still small, percentage

of supply. Supply growth from LNG will need to continue so as

to avoid continuing price shocks. During 2005, LNG imports

accounted for about three percent of U.S. natural gas supplies; by

2007, it is forecast to exceed five percent. The addition of LNG

conversion facilities should provide additional opportunities for

some of our products, particularly in Cooper CameronValves.

When commodity prices reach historical highs, the tendency is

to expect them to moderate. Growth in demand for natural gas

is expected to resume in 2006, increasing in line with a stronger

economy in the U.S. Still, with storage levels relatively high and the

possibility of domestic production increasing slightly, prices may

come down. Natural gas remains primarily a North American

market commodity, but development of international gas

reserves and increased funding of LNG will be required in the

futureandwill havean increasing impactonupstreamactivityandon

our businesses.

Basic economics continue to rule world oil marketsThe vast majority of our business is tied directly to exploration

and production of oil, and we have a presence in nearly every

energy-producing region in the world. Global demand for oil

increased by about 1.5 percent during 2005. While China’s

demand growth is expected to continue to moderate in 2006,

it will still be a primary driver of incremental oil demand, and

U.S. consumption is forecast to increase in both 2006 and 2007.

Projected gains in production capacity are anticipated to temper

prices in 2006, but the oil markets are in a fragile state. Political

upheaval, economic crises or weather could all have significant

impact on an already unsettled market.

A year ago, we speculated that higher oil prices might dampen

global economic activity; that did not happen. The global

economy appeared to readily absorb the price shock. If both

OPEC and non-OPEC suppliers are able to increase production

in the next couple of years in line with current expectations,

perhaps prices will subside. If not, we will almost certainly

reach a point where high prices cause demand destruction,

and the commodity markets will respond accordingly. Whatever

the case, we realize that our business remains highly dependent

on a number of factors over which we have no control,

including global demand, inventory levels, geopolitical influences

and weather.

Cash generation maintains balance sheet integrityWe have always emphasized the importance of cash flow in

taking advantage of opportunities in our business. In recent

years, our people have done an outstanding job of focusing on

generating cash — and earnings — in our day-to-day operations.

That has given us the freedom to search out uses for cash, rather

than worrying about sources of funds. Beyond daily funding

requirements and capital spending, our primary options have

been share repurchase and acquisitions; this past year, we spent

more on the latter than in any single year in our history, and thus

limited our repurchases of our own shares.

We spent more than $300 million on acquisitions, including

approximately $217 million on the Dresser transaction, and our

balance sheet is still one of the strongest in the industry. We

will manage our businesses in a manner that emphasizes fiscal

responsibility. While the integration of the Dresser acquisition

will require much of our near-term focus, we will continue to

evaluate acquisitions and stock repurchases as uses of cash. As

of year-end 2005, we had five million shares remaining under our

board-authorized share repurchase program.

Balancing expectations Numerous stakeholders have a vested interest in how our

businesses perform and how we treat each of our constituents.

Balancing the needs and expectations of customers, employees,

partners, suppliers and investors is a challenging task, but I and the

rest of our employees know that our reputation is at risk if we

allow our response to one party’s needs to come at the expense

of another’s. We appreciate your support and understanding as

we deal with the challenges this market brings to us and work to

continue to deliver quality and value on all fronts.

Sincerely,

Sheldon R. Erikson

Chairman of the Board,

President and Chief Executive Officer

7

EXPECTATIONSDifferent constituents have varying expectations. Employees and the financial community are two of theCompany’s constituents that have a material stake in Cooper Cameron’s long-term success.

PEPEEEceEECCshCCTATAATATTTTIOTIOOOAs VP of Human Resources, Jane Schmitt has overall

responsibility for managing Cooper Cameron’s efforts

to attract and retain the best people available for

our widespread operations. With more than 12,000

employees spread over numerous countries, Jane and

her associates at the Company’s division offices balance

the competitive environment, local standards and laws

and internal requirements in their efforts to insure that

employee needs are fairly addressed. Having been with

Cooper Cameron since its creation ten years ago, Jane

understands the challenges of dealing with an industry

that — due to its reliance on commodity prices — is

overwhelmingly cyclical, and entails a unique set of staffing

and employee relations issues.

Franklin Myers has also been with Cooper Cameron since

its inception in 1995, and has served in a couple of different

roles during his tenure. In his current position as Senior VP

and Chief Financial Officer of the Company, much of his

time is spent with representatives of the financial community,

including commercial bankers, who help the Company

finance its operations; investment bankers, who may bring

acquisitions or other financial proposals to him; industry

analysts, who are looking for the factors that differentiate

Cooper Cameron from other companies in the oil service

business; and investors, who have a vested interest in the

Company’s prospects and performance. One of Franklin’s

challenges is to ensure balance in the allocation of the

Company’s financial resources so that the best interests of

these constituents are addressed and we take full advantage

of Cooper Cameron’s financial flexibility in order to maximize

returns to all stakeholders… including employees.

9

COMMITMENT

Our products are essential to meeting present and futureenergy and other industrial needs in environmentally andsocially responsible ways.

Cooper Cameron has established itself as a good corporate citizen everywhere we operate.

Our basic business is the safe and responsible manufacture of equipment used in the energy business and in other industrial applications. Technological innovation and continually improving manufacturing processes allow our products to meet our customers’ needs for safety, reliability and economic and environmental efficiency. Our goal: Deliver more value while consuming fewer resources and protecting people and the environment.

We believe that embracing safe and responsible practices is the

right thing to do and represents a balanced commitment that is

important to the continuing success of our business.

Balance in this context doesn’t mean that we must give up

something in one area in order to accomplish our goals

in another. It means that we strive to achieve operational

excellence, use all the tools and resources available to us to

maximize the benefits that accrue from a safe and well-managed

workplace, and minimize the risk of any negative impact on our

stakeholders — including employees, customers, shareholders

and the environment.

As a publicly owned company and significant participant in

the global economy, we recognize we have a responsibility to

create value for our investors and customers. As a concerned

corporate citizen, we recognize we have a responsibility to

provide for our employees and the communities in which

we operate. As a member of the global community, we also

recognize we have the responsibility to operate in a manner that

protects people and the environment and preserves the planet

for future generations.

Achieving the goals of economic growth and financial

performance, respect for social issues and care of the

environment are the guiding principles of how we run our

business. Our commitment to these pillars of sustainable

development is demonstrated in the following:

As a steward of assets for our investors:

• We have demonstrated our ability to consistently meet

and exceed our investors’ expectations.

• Our financial performance confirms our success in

generating earnings and managing cash flow.

• We have one of the healthiest balance sheets in the industry.

As an equipment and services provider:

• Our products are noted for their quality, safety and

long-term reliability.

• We have won awards from government and industry

organizations for innovation and technological

advancement.

• Many of our technology innovations deliver greater

value to customers, consume fewer resources and are

more environmentally and ecologically efficient.

• We strive to comply with the highest ethical standards

and the local laws and guidelines in the many locales

where we do business.

As an employer and local citizen:

• We employ more than 12,000 people worldwide, and

provide competitive wages, benefits and job opportunities

in the more than 100 countries where we operate.

• All of our employees strive to fulfill one of our most

important values,“No one gets hurt. Nothing gets

harmed,” in the performance of their jobs.

• We spend millions of dollars on goods and services with

local contractors and suppliers, and we expect them to

adhere to our ethical standards and to local laws.

• We support local and national charitable efforts with

financial and in-kind contributions, and we encourage

and fund employees who volunteer their support to

local organizations.

As a major player in international energy markets:

• Many of our facilities have been recognized for their safety

records, and a number have posted five years or more of

operation without a single lost-time incident.

• Our HS&E programs include extensive training, education

and review processes under a framework that applies

strict criteria across all of our operations.

• Our emphasis on safe and responsible standards supports

our customers’ need to produce, process and deliver their

products in environmentally-friendly ways.

Our Standards of Conduct Policy sets out the principles under

which we conduct our global activities. Copies of the Standards

are made available to all employees,who are expected to comply

with these guidelines in every aspect of their work.

Cooper Cameron’s long-term operating performance,

the disclosure standards we are required to meet and the

enhanced transparency of financial reporting rules provide our

constituents with substantial insight into the social, economic and

environmental impacts of Cooper Cameron’s operations. Our

board of directors regularly reviews the Company’s performance

from a social responsibility perspective, and is committed to

providing the processes, facilities, standards, training, discipline

and work culture to ensure that “No one gets hurt. Nothing

gets harmed.”

10

PROCESSAppropriate balance in the allocation of resources leads to delivery of quality products that provide value.

The performance of Cooper Cameron’s products is critical to the success of our customers. In many cases, if our equipment doesn’t perform, our customers’ profitability is directly affected.

While we have established a reputation as a provider

of high-quality, reliable products, we realize that the

need to deliver value to customers must be balanced

with the responsibility to deliver value to shareholders.

Concurrently, we have always looked for ways to do things

better, or faster, or at lower cost.

Cooper Cameron’s Six Sigma program was launched in

2000 with the goal of making constant improvement in

quality and productivity “The way we run our business.”

Six Sigma provides the methodology, tools and support

to allow our employees to improve business processes

across the Company. There are now more than 140

employees in the Company who have qualified as “Black

Belts” — trained to measure, analyze, improve and control

processes in order to increase productivity, reduce costs

and maximize customer satisfaction.

During 2006, we plan to embark on our most ambitious

capital expenditure program to date. We expect to spend

as much as $130 to $150 million this year,with the majority

of those funds directed toward upgrading machine tools,

applying more efficient technologies to manufacturing

processes and generally making more effective use of

our resources. This effort is a direct result of the current

heightened demand for product from our customers,

and will allow us to essentially increase capacity without

investing in additional roofline. It will also serve us, and our

shareholders, in the event of a slowing in business activity

by effectively lowering our manufacturing costs.

13

PERFORMANCE

Cameron is one of the world’s leading providers of systems and equipmentused to control pressures and direct flows of oil and gas wells. Its products areemployed in a wide variety of operating environments, including basic onshorefields, highly complex onshore and offshore environments, deepwater subseaapplications and ultra-high temperature geothermal operations.

Products — Surface and subsea production systems,

blowout preventers, drilling and production control

systems, oil and gas separation equipment, gate valves,

actuators, chokes, wellheads, drilling riser and aftermarket

parts and services.

Customers — Oil and gas majors, national oil companies,

independent producers, engineering and construction

companies, drilling contractors, rental companies and

geothermal energy producers.

STATISTIC AL/OPERATING HIGHLIGHTS ($ millions)

2005 2004 2003

Revenues .......................................................................................................... $1,507.8 .................. $1,402.8 .................. $1,018.5

EBITDA .................................................................................................................... 222.7 ......................... 170.2 ......................... 114.6

EBITDA (as a percent of revenues) .............................................................. 14.8% ........................ 12.1% ........................ 11.2%

Capital expenditures ........................................................................................... 49.8 ............................ 28.9 ............................ 40.2

Orders .................................................................................................................. 2,301.1 ..................... 1,274.4 ..................... 1,082.4

Backlog (as of year-end) ................................................................................... 1,503.6 ......................... 752.9 ......................... 771.8

14

Cameron organization realignedIn late 2005,Cameron changed its organization to a more product-specific alignment to better address the dramatic growth acrossits business lines. Cameron now has four distinct business units:Drilling Systems, Surface Systems, Subsea Systems and FlowControl, as well as its separation systems provider, Petreco.

Cameron’s prior structure split management responsibilities onboth a product and geographic basis. Under the new organization,each business unit has global responsibility for specific productlines. The new alignment encourages greater responsivenessto customers’ needs in product-specific markets; focuses eachunit’s managers on identifying cost reduction opportunities thatbenefit their products and processes;and ensures that technologyadvancements and expansion opportunities in specific productlines are spread across global boundaries.

This product- and systems-driven organization will allowCameron to better serve customers’ needs and support theattainment of growth and profit targets for the coming years,while leveraging off the strength of the Company’s global networkof manufacturing and aftermarket locations.

Operating milestonesSignificant accomplishments in the Cameron division during2005 included the following:

• Cameron was awardedTotal’s AKPO project, the largest Subsea Systems project to date, with a value of more than $350 million.

• In early 2005, Cameron’s Leeds, England facility produced its 600th subsea tree — 400 of which have been the patented SpoolTree™ design.

• Cameron’s multi-patented all-electric subsea production system, CameronDC™, received two notable awards during 2005: the “Spotlight on NewTechnology” award from the OffshoreTechnology Conference and World Oil’s “InnovativeThinkers” award.

• Cameron’s Six Sigma program now includes 100 Black Belts and more than 650 Green Belts who serve as internal consultants, applying productivity improvement techniques to create benefits for Cameron and its customers. Six Sigma projects routinely generate significant savings and productivity improvements for both Cameron and its customers.

• The ongoing integration of the Sterom facility in Romania, acquired in an acquisition in late 2004, has provided the Company with significant incremental manufacturing capacity at very low cost.

FINANCIAL OVERVIEW - Cameron’s revenues increased to $1,507.8 million in 2005, up seven percent from $1,402.8 million in 2004. EBITDA was up 31 percent from a year ago, at $222.7 million, compared with 2004’s $170.2 million. EBITDA as a percent of revenues was 14.8 percent in 2005, up from 12.1 percent. Orders totaled $2,301.1 million, up 81 percent from the prior year.

Drilling SystemsCameron is a leading global supplier of integrated drillingsystems for land, offshore, platform and subsea applications,and is committed to providing its worldwide drilling customerswith innovative system solutions that are safe, reliable and cost-effective. Drilling equipment designed and manufactured byCameron includes ram and annular blowout preventers (BOPs),drilling risers, drilling valves, choke and kill manifolds, surface andsubsea BOP control systems, multiplexed electro-hydraulic(MUX) control systems, and diverter systems. Cameron alsoprovides services under CAMCHEC™, an inspection systemthat allows drilling contractors to inspect drilling riser ontheir rigs offline, saving time and money on maintenance andunnecessary transportation.

During 2005, Cameron’s drilling business experienced a levelof activity not seen since the early 1980s. Cameron continuedto book orders for new surface BOPs for land rigs, continuinga trend that had begun in 2004, as the industry embarked onwhat appeared to be a multi-year capital expansion to make upfor years of limited reinvestment. The offshore drilling marketwas already picking up, but the arrival of Hurricanes Katrinaand Rita in August and September put a considerable strainon the industry. The storms damaged or destroyed more than30 mobile offshore drilling units in the Gulf of Mexico, with anestimated eight jackups deemed to be total losses. By year-end,50 new offshore rig orders had been placed, including 33 jackups,14 semi-submersibles, two drillships and one tender rig withoptions to build an additional 17 units.

Cameron booked orders for two complete subsea drillingsystems in 2005; the Stena Drill Max, a drillship, and EasternDrilling’s West E-Drill, a semi-submersible. Both will be outfittedwith Cameron’s 18-3/4 inch, 15,000 psi subsea stacks, a MUXcontrol system and Cameron’s patented LoadKing™ riser system. Several more complete subsea system bookings are anticipatedin early 2006, and Cameron expects to continue to book itshistoric market share of such business.

Cameron’s long-time leading market position in drilling hascreated the largest installed base of BOPs in the industry. Withsafety and reliability issues reinforcing demand for parts andservice from original equipment manufacturers, Cameron offersworldwide aftermarket services under the CAMSERV™ brandand provides replacement parts for drilling equipment through acomprehensive global network.

16

During 2005, Cameron upgraded several drilling aftermarketlocations with new machine tools, including Berwick, Louisiana;Oklahoma City; Macae, Brazil and Vera Cruz, Mexico.The RockSprings, Wyoming facility will be upgraded and expanded toaddress the growing natural gas market in the Northern Rockies.Plans are also in development for a new facility in India to servicea major customer in the region.

Surface SystemsCameron is the global market leader in supplying surfaceequipment, including wellheads, Christmas trees and chokes usedon land or installed on offshore platforms, and has the largestinstalled base of surface equipment in the industry.

Steady increases in rig count, well completions and workoversacross the North American region provided a constant flow ofbusiness for Cameron throughout the year. Prices were raised onsurface wellhead equipment in response to continuing increasesin raw material and transportation costs. Several of Cameron’slarger customers requested longer-term supply agreementsin exchange for security of equipment supply and in hopes ofminimizing cost inflation in their supply chains.

Cameron’s performance in the delivery of new equipment andin providing service has allowed the surface organization torecord market share gains in numerous regions; the Company’sfield training program has grown through an employee referralprogram, allowing Cameron to staff the service organizationappropriately in response to growing demand; and the salesstaff has received targeted training in sales order management inorder to better deal with the pace of business.

North American activity was punctuated by the 2005 hurricanesin the Gulf of Mexico. The related disruption and damage tocustomer facilities created a need for Cameron’s serviceorganization to shift its focus from new installations to performingcritical workover and restoration activities. Cameron played animportant role in supporting customers’ efforts to restore oiland gas production as safely and as quickly as possible.

Eastern Hemisphere surface markets grew steadily during 2005,with Cameron providing equipment to new developmentsin Azerbaijan, Sakhalin Island, Russia and North Africa. BP’sAzerbaijan unit awarded Cameron the contract to supplySSMC wellhead and surface SpoolTree systems for four 48-slot platform installations in the Caspian Sea. Cameron wasinvolved in the first stages of exploration on Sakhalin Island; thishas grown into an arrangement for the supply of wellheads andtrees for ExxonMobil’s Chayvo field, and the supply contract forgas wells on the Orlan offshore platform. Following the openingof Libyan markets to U.S. companies, Cameron’s North Africanbusiness activities have expanded to include project awardsfrom Total, Wintershall and Woodside in this growing region.

Cameron continued to deliver new surface technology fortraditional North Sea customers. BP plans to use Cameron’spremium land and platform wellhead system,the SSMC model,ontheir Claire platform, and will use Cameron’s Conductor SharingWellheads (CSW), which allow multiple completions in a singlewell slot, for use in the expansion of the BP Magnus platform inthe North Sea. Statoil Norway engaged Cameron in a programto extend the life of the Statfjord field by incorporating artificiallift technologies as wells are re-entered for workover.

Customers in the growing natural gas markets in the Middle Eastacknowledged Cameron’s performance and technical capabilitieswith significant contract awards for wellhead systems in Qatar,Abu Dhabi and Saudi Arabia. Rig activity in the Saudi Arabianmarkets continues to grow at a rapid rate; Cameron’s total ordersin the region doubled in 2005. In addition, Cameron booked thefirst CSW systems to be used in a Mideast project outside Egypt,with an award for 10 systems to be installed in Abu Dhabi.

In Asia, Cameron supplied more than 100 wellhead systems toTotal Indonesia as part of a continuing supply agreement; and theCompany booked orders from Woodside in Australia and fromSTOS in New Zealand, both representing market share gains inthese respective regions.

Subsea SystemsCameron has been a key player in the subsea industry sinceits beginning more than forty years ago, and continues to be aleader in providing subsea wellheads, Christmas trees, manifoldsand production controls, as well as complete production systems,to the industry. Cameron’s Subsea Systems organization, createdin 2005, has global responsibility for R&D, engineering, sales,manufacturing, installation and aftermarket support for subseaproducts and systems, and performs the role previously filledby Cameron Offshore Systems in providing customers withintegrated solutions to subsea field development requirementsunder engineering, procurement and construction (EPC)contracts.

Timely execution of projects in backlog continued as a primaryfocus in 2005, driven by delivery of multiple major subseasystems in West Africa. Cameron delivered a total of 100 subseatrees during the year, including several under project agreements,as well as many for small field developments requiring as few asone to five subsea trees. Capacity expansions in Leeds, England,Taubate, Brazil and Berwick, Louisiana will support expecteddeliveries during 2006 of more than 130 subsea trees andassociated manifolds, production controls and other equipment.

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Flow ControlCameron’s Flow Control business provides chokes and actuatorsfor the surface and subsea production and drilling markets, aswell as drilling choke control panels and surface wellheadsafety systems. Flow Control provides these products forCameron installations as well as those serviced by other treemanufacturers, and has benefited from the market’s acceptanceof its new product offerings and from overall increases in drillingand completion activity worldwide.

In 2005, Flow Control sold its first electric surface actuator,which offers operators an environmentally-friendly actuationpackage and reduces the costs and maintenance problemsassociated with hydraulic power units and hydraulic tubing runs.Operators in remote areas who are faced with the challengesof temperature extremes can expect both increased diagnosticcapability and greater reliability from integrating this electricactuator into their existing systems.

Also during 2005, Flow Control introduced a new three-inchunderbalanced drilling choke, the DR30, in response to drillingcustomers’ increasing demand for higher-capacity chokes foruse in underbalanced drilling applications. The initial unit hasbeen delivered and there should be significant opportunities foradditional sales into this market in 2006 and beyond.

Bookings in the Flow Control business were up nearly 90 percentduring 2005. While orders increased across all the Company’sproduct offerings, the surface wellhead safety system area wasparticularly strong, with bookings more than doubling during theyear, driven by activity in the Mideast and Asian markets. In thefourth quarter of 2005, Flow Control established a dedicatedsales force that will target growing its business outside of thetraditional Cameron installations. The combination of this focusedsales effort and continuing strong global activity is expected tolead to continued growth in bookings with operators, engineeringhouses and other tree suppliers in 2006.

During the second half of 2005, the Longford, Ireland plantexpansion was completed, increasing manufacturing capacity byapproximately 20 percent. By the end of 2005, Flow Controlhad hired most of the additional personnel required to increaseproduction. The global market for all Flow Control products isexpected to continue to grow in 2006 as customers increasetheir spending on both upstream and midstream oil and gasprojects in response to commodity prices.

PetrecoPetreco produces highly engineered equipment, systems andservices for oil, gas, water and solids separation, and providesfully integrated systems and individual components to operatorsin oil- and gas-producing regions worldwide. In October 2005,Petreco added to its offerings with the acquisition of the Howe-Baker line of electrostatic desalting, dehydration and distillatetreating products. Petreco’s products are sold to contractors andto end-users for both onshore and offshore applications, withmore than half of its revenues coming from offshore projects.

Deliveries during 2005 included a major produced water treatingand produced gas dehydration system for aTotal project offshoreWest Africa; advanced produced water filtration equipmentfor a new water injection project in Kuwait; oil, water and gasprocessing equipment for the P-51 and P-52 Petrobras projectsin Brazil; and the world’s largest MEG reclamation unit, which willbe used to purify, reclaim and regenerate ethylene glycol used inseparating water from gas, and is currently being installed in theGulf of Mexico.

Petreco recorded its fourth consecutive year of record ordersand revenue, including the largest order in the Company’shistory. Petreco received an order in excess of $55 million —more than double the previous record — to supply oil, waterand gas processing equipment for the Petrobras P-53 projectin Brazil. Other significant orders received in 2005 included anorder for six electrostatic dehydrators for a major new oil fieldin Saudi Arabia, a produced gas treating system for a major fieldexpansion in the U.K. North Sea and an order for enhancedproduced water treating and filtration equipment for a majorexpansion project in California.

Petreco’s orders were up 44 percent over 2004, with projects inSouth America providing the largest increase, followed by Europeand North America; orders in the former Soviet Union and theMiddle East declined from a year ago. Petreco finished 2005 withthe highest year-end backlog in its history.

In 2005, Cameron and Petreco formed a joint technologydevelopment team to pursue market opportunities in thesubsea processing area. The group is focused on leveragingCameron’s proven capabilities in subsea equipment design andPetreco’s well-established processing and separation technologyfor seabed applications.

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Cameron played an important role in ExxonMobil’s ability to bringits Kizomba B subsea project on production six months ahead ofplan by meeting an accelerated delivery schedule. Additionally,Cameron delivered all of the equipment for the ExxonMobilErha project in Nigeria on target and provided ExxonMobil’s ErhaNorth project with subsea systems within a 14-month window,creating an opportunity for ExxonMobil to generate significantadditions to production from the Erha Field. Cameron’s “designone, build many” philosophy, as demonstrated in these projects,has proven valuable to both Cameron and its customers.

Other subsea activity during the year included Husky’s WhiteRose project offshore Newfoundland, which began productionin 2005, and where all 15 trees for the first phase of the projecthave been delivered. Although much of Cameron’s subseaequipment, including the subsea control modules, had beenplaced on the sea floor as much as 18 months earlier, the systemworked as designed at startup.Husky has now ordered additionalequipment to support future expansions of this field.

Offshore Brazil, Cameron completed delivery of several subseasystems to Petrobras, and was awarded a total of 16 treesfor future delivery, securing a record year-end backlog in theBrazilian market. Petrobras designated Cameron as a “Supplierof Choice” for subsea trees and tools based on Cameron’shistory of consistently achieving on-time delivery, as well as itsperformance in quality, aftermarket support and service and theCompany’s health, safety and environmental record. Cameron isexpanding its manufacturing facility in Taubate, Brazil, based ondemand from Petrobras as well as projects planned by foreignoperators in Brazil.

In the North Sea, Cameron was awarded a seven-yearframe agreement from BG for their fields in the region,as well as certain other locations. In addition, Cameronis now in the ninth year of a frame agreement with BPExploration to provide subsea trees, wellheads and associatedservices in the U.K. North Sea. During 2005, BP placed ordersfor ten subsea trees for installation in various North Sea fields,and BP also used the frame agreement principles for theprocurement of six water injection trees for use in the Azerbaijansector of the Caspian Sea.

Cameron’s most significant order for 2005 was thelargest subsea EPC contract awarded to date: Total’sAKPO project, offshore Nigeria. The contract includes 39subsea trees and associated subsea chokes, 10 manifolds,insulated horizontal connection systems, MUX subseaproduction controls and intervention and workover systems.The initial contract is valued at more than $350 million.

The majority of Cameron’s subsea tree orders during 2005,other than AKPO, were for relatively small projects andextensions to existing fields. Although a significant number ofsubsea development projects are under consideration, thetiming remains uncertain. With many of those larger projectsnot expected to be awarded until 2007 or later, subsea treeorders during 2006 will likely be comprised of a number ofsmaller projects.

Cameron’s history of innovation in the industry is highlighted bythe global acceptance and use of its SpoolTree horizontal subseaproduction system design, developed and patented by Cameronin the early 1990s, and now a standard for subsea completions.

Cameron’s latest innovation is CameronDC™, the industry’s firstall-electric, direct current-powered subsea production system,which was introduced at the Offshore Technology Conferencein 2004. By eliminating hydraulically controlled actuators, thesystem is designed to provide greater reliability and cost savingsand give operators the ability to extend stepouts on multi-welldevelopments far beyond traditional limits. Several operatorsare evaluating possible applications for the system, and one hasengaged Cameron’s engineering staff to perform the upfrontsystem design work on a funded basis for possible installation inan existing field in 2006.

During 2005, Cameron introduced a new subsea controlssystem that combines the traditional subsea control moduleand the subsea accumulator module in a single package, allowingfor more efficient operation of the subsea tree and manifoldvalves. Additionally, a new state-of-the-art subsea test chamberin Cameron’s controls engineering facility in Celle, Germanyfacilitates testing of the Company’s control systems.

Also in 2005, Cameron launched its updated CAMTROL subseacontrol module, which includes new electronics, lower powerdemand, a DC power option and fiber optic communicationsto further increase reliability and enable extended offsetdevelopments and high-bandwidth intelligent completions.

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Cooper Cameron Valves (CCV) is a leading provider of valves and relatedsystems primarily used to control pressures and direct the flow of oil and gasas they are moved from individual wellheads through flow lines,gathering linesand transmission systems to refineries, petrochemical plants and industrialcenters for processing. Equipment used in these environments is generallyrequired to meet demanding standards, including API 6D and the AmericanSociety of Mechanical Engineers (ASME).

Products — Gate valves, ball valves, butterfly valves, Orbit

valves, block & bleed valves, plug valves, globe valves,

check valves, actuators, chokes and aftermarket parts

and services.

Customers — Oil and gas majors, independent producers,

engineering and construction companies, pipeline

operators, drilling contractors and major chemical,

petrochemical and refining companies.

STATISTIC AL/OPERATING HIGHLIGHTS ($ millions)

2005 2004 2003

Revenues ............................................................................................................... $625.1 .................... $350.1 ...................... $307.1

EBITDA ..................................................................................................................... 118.3 .......................... 50.0 ............................ 46.4

EBITDA (as a percent of revenues) ............................................................... 18.9% ...................... 14.3% ........................ 15.1%

Capital expenditures ............................................................................................ 13.8 .......................... 13.7 ............................... 9.7

Orders ....................................................................................................................... 710.8 ....................... 365.7 ......................... 324.0

Backlog (as of year-end) ......................................................................................... 469.0 ....................... 122.9 ............................ 72.4

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Financial OverviewCCV’s revenues were $625.1 million for the year, up more than78 percent from 2004’s $350.1 million. EBITDA was $118.3million, up nearly 137 percent from $50.0 million the previousyear. Orders nearly doubled, from $365.7 million in 2004 to$710.8 million in 2005. The year-over-year increases in orders andrevenues reflect a combination of acquisitions and strong demandacross CCV’s product lines.

Dresser acquisition enhances CCV’s role asglobal supplierThe acquisition of the On/Off valve business unit of the FlowControl segment of Dresser, Inc. was essentially completed inlate 2005, with a closing on one facility coming in early 2006. Notable product brands acquired in this transaction includeGrove®, Entech®, International Valves Ltd. (U.K.), Wheatley®,Ledeen®, Texsteam® plug valves, Ring-O®, Tom Wheatley™, TKValve® and Control Seal™.

This acquisition, along with others made during the past coupleof years, gives CCV a premier market position with an expandedinternational customer base. The Company’s broad portfolioof quality products and brands provides a solid platform forcontinued growth across the oil and gas production, pipeline andprocess markets.

Distributed Products Valve products in this market are sold through distributornetworks, primarily in North America, for use in oil and gasapplications and include such widely recognized brand namesas W-K-M®, Demco®, Nutron®, TBV®, AOP® and ThornhillCraver®. New brand offerings from the Dresser acquisitioninclude Texsteam plug valves and Wheatley check valves. Theseenhancements to the Company’s historical product lines willstrengthen CCV’s abilities to serve an expanded range ofcustomer requirements. The acquisition also added the Valgro(Canada) and International Valves Ltd. (U.K.) operations to thisdivision, thereby improving their channels to market.

Business in the Distributed Products division tends to closely trackNorth American oil and gas activity, particularly as measured byrig count. Continuing growth in rig activity and increased spendingfrom oil and gas operators kept demand for oilfield valves andrelated products high during 2005, and the Distributed Productsgroup saw significant gains in orders and revenues throughout theyear. Programs to increase manufacturing productivity and improvesupply chain management in these operations were implementedin 2004; those steps proved to be essential in responding to thedemands placed on CCV by customers during 2005.

Engineered ValvesPipelines — The pipeline group of the Engineered Valve divisionprovides large-diameter valves for use in natural gas, crude oiland refined products transmission lines, most often through itsline of traditional Cameron® brand products.

The Dresser acquisition affects this group positively on a numberof fronts.

• Product line offerings now include the brand names of Grove, Ring-O andTom Wheatley, significantly strengthening CCV’s capabilities.These newly-acquired products will be combined with the Cameron line of fully-welded ball valves, broadening CCV’s ability to meet a wide scope of customer needs.

• Three additional facilities — in Oklahoma, Brazil and Nigeria — provide CCV with the opportunity to focus on tailoring Cameron and Grove valve products and Ledeen actuators to meet specific customer requirements.

In 2005, increased orders and revenues in the Cameron ball valveproduct line were driven by pipeline activity in the Middle Eastand Asia, particularly China, while the business also benefitedfrom pipeline integrity projects and key customer alliances inNorth America.

Process — The process group provides valves for refinery,petrochemical and industrial applications through the Orbit® lineof valves. The Orbit brand is the world’s most accepted rising-stemball valve, and its unique design and sealing characteristics makeit well-suited for critical liquefied natural gas (LNG) applications.Major project awards in LNG and gas processing, especially in theinternational arena, were an important contributor to revenuesand orders during 2005. The acquisition of the General Valve®

product line in 2004 proved to be important to CCV’s efforts toenhance its position within the liquids processing, transportationand storage segments.The Dresser acquisition also added newofferings to the process group, as the TK Valve and Control Sealbrands will complement the Orbit products.

In 2006, continued expansion in international energy markets,particularly Europe, South America, the Middle East and Asia,is expected to drive demand for the equipment and servicesof the pipeline and process segments. This growth, combinedwith the added revenue from the businesses acquired in 2005,should generate a significant increase in revenues and profitsduring the year.

Aftermarket ServicesCCV’s Aftermarket Services group provides such services as OEMparts, repair, field service, asset management and remanufacturedproduct to customers. Revenues in the aftermarket business wereup by nearly 45 percent during 2005, a result of growth in boththe U.S. and international markets and the acquisitions of threeaftermarket businesses, two in Canada and one in the U.S., sincemid-year 2004. CCV’s installed base of long-lived equipment,which generates demand for replacement parts and serviceover the life of the product, is a vital component of a successfulaftermarket business.

Acquisition of NuFlo extends product offeringsNuflo Measurement Systems, acquired in 2005, designs,manufactures and distributes measurement and controlinstrumentation for the global oil and gas and process controlindustries. The transaction represented a logical extension ofCCV’s product line into the flow measurement and processmarkets, and NuFlo’s position as a market leader provides aplatform for additional expansion or acquisitions.

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Financial OverviewCooper Compression’s revenues totaled $384.9 million during2005, up 13 percent from $340.0 million in 2004. EBITDAwas $42.1 million, up from $41.5 million in 2004. EBITDA asa percent of revenues was 10.9 percent, compared with 12.2percent during 2004. Orders totaled $449.8 million, up nearly 22percent from 2004’s $369.3 million.

Reciprocating TechnologyCooper Compression is a leading provider of reciprocatingcompression equipment and related aftermarket parts andservices for the oil and gas industry. Its products and services aremarketed under the Ajax®, Superior®, Cooper-Bessemer®, Penn™,Enterprise™,Texcentric®, Compression Specialties™ and TurbineSpecialties™ brand names. Cooper Compression provides globalsupport for its products and maintains sales and/or service officesin key international locations.

Products — Aftermarket parts and services, integral engine-compressors, separable compressors and turbochargers.

Customers — Gas transmission companies, compression leasingcompanies, oil and gas producers and processors and independentpower producers.

Aftermarket initiatives key to reciprocating businessApproximately 75 percent of Cooper Compression’s reciprocatingbusiness revenues are generated by aftermarket parts andservices in support of the Company’s worldwide installed baseof compression equipment. Cooper Compression’s aftermarketstrategy combines cost-effective products and services with thedevelopment of business alliances with select customers. Thismulti-year effort helps customers reduce their vendor populationand aligns them with strong partners — like Cooper Compression— who offer a broad range of capabilities and expertise on aglobal basis.

Additional strategies for taking advantage of opportunities withaftermarket customers include: increasing the number and typesof customer alliances, bundling repair capabilities, expandingvendor consignment agreements to assure parts availability,developing and marketing retrofit enhancements and realignmentof the sales force to better meet market and customer demands. The Company will also continue to provide customers withcontract maintenance agreements, assuring them ready access toparts and services.

Reciprocating compressor market steps upIn 2005, record natural gas prices in the U.S. generated significantincreases in compression equipment orders for all suppliers. Cooper Compression’s orders for new gas compressor unitsmore than doubled during the year. If natural gas prices remainat historically high levels, the pace of activity is likely to continuein 2006.

Ajax integral compressor orders reached a record level in2005. Ajax’s reputation for reliability and ease of maintenancewas a key factor in its penetration of the lease fleet market;

relationships with new “channel-to-market” partners led tosignificant growth in other domestic markets; and a strongrecord of recent performance provided the impetus for gainsin international markets, particularly in the Former Soviet Union(FSU), Mexico and Europe.

The Company’s Superior-brand separable compressor productalso saw gains in orders during 2005. Strength in global naturalgas markets, especially in the Asia-Pacific and Latin Americaregions, was a primary factor. In addition, Cooper Compression’s2005 rationalization of Superior’s distribution channels, includingadding new domestic and international packagers and eliminatingmarginal distributors, also contributed to the improvement.

2006 Outlook — ReciprocatingDomestic gas producers are expected to continue developmentof new gas reserves and exploitation of existing fields during2006. Such activity will support both new compressor sales andthe aftermarket business related to installed equipment. On theinternational front, natural gas will continue to be the fuel ofchoice for developing countries like China, India and the FSUnations, and compressed natural gas (CNG) applications areexpected to take on greater emphasis.

Two new offerings were recently introduced in the reciprocatingproduct line. The AXIS™ reciprocating compressor is an all-newbarrel-frame design targeted at the natural gas lease fleet markets.This new,more flexible design replaces two prior offerings, allowsthe buyer to select a variety of crankshaft configurations andresults in a lighter-weight frame with added dynamic stiffness.Thenew C-Force™ compressor was created through the addition ofnew tandem cylinders to a small Superior reciprocating frame,providing an offering ideally suited to CNG applications.

Another new development by Cooper Compression foraftermarket application is a magnetic, springless poppet valve foruse in reciprocating compressors. The new Magneta™ valvereplaces springs — one of the leading failure components inreciprocating compressors — with a magnet. The Magneta valveis expected to provide increased reliability and,with the capabilityto provide higher valve lifts, improved overall operating efficiency. The Magneta valve is being field tested in the first half of 2006,and is expected to be offered commercially later in the year.

While 2006 should be another active order year, keepingpressure on delivery deadlines, the pace is not expected to beas robust as 2005. Cooper Compression’s efforts will be aimedat gaining market share with its reciprocating unit products, andmaintaining share in its large — but declining — aftermarketservices on the installed base of Cooper Compression’sequipment. Results for 2006 will depend on activity in globalgas markets, further refinement of the Company’s channels tomarket, the success of new product offerings and continuedfocus on cost reduction.

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Cooper Compression is a leading provider of reciprocating and centrifugalcompression equipment and aftermarket parts and services. Reciprocatingcompression equipment (Reciprocating Technology) is used throughoutthe energy industry by gas transmission companies, compression leasingcompanies, oil and gas producers and independent power producers. Integrally geared centrifugal compressors (Centrifugal Technology) areused by customers around the world in a variety of industries, including airseparation, petrochemical and chemical.

STATISTIC AL/OPERATING HIGHLIGHTS ($ millions)

2005 2004 2003

Revenues ............................................................................................................... $384.9 .................... $340.0 ...................... $308.8

EBITDA ........................................................................................................................ 42.1 .......................... 41.5 ............................ 27.5

EBITDA (as a percent of revenues) ............................................................... 10.9% ...................... 12.2% ........................... 8.9%

Capital expenditures ............................................................................................... 7.3 ............................. 6.9 ............................... 7.2

Orders ....................................................................................................................... 449.8 ....................... 369.3 ......................... 340.2

Backlog (as of year-end) ......................................................................................... 183.2 ....................... 124.2 ......................... 102.4

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Centrifugal TechnologyCooper Compression manufactures and supplies integrallygeared centrifugal compressors and aftermarket services tocustomers worldwide. Centrifugal air compressors, used primarilyin manufacturing processes (plant air), are sold under the tradename of Turbo Air®, with specific models including the TA-2000,TAC-2000, TA-2020, TA-3000, TA-6000 and TA-9000. CooperCompression engineered compressors are used in the process airand gas industries and are identified by the MSG® trade name.

Products — Integrally geared centrifugal compressors, compressorsystems and controls. Complete aftermarket services includingspare parts, technical services, repairs, overhauls and upgrades.

Customers — Petrochemical and refining companies, natural gasprocessing companies, durable goods manufacturers, utilities, airseparation and chemical companies.

Centrifugal compressor marketCentrifugal unit orders in both air separation and engineeredair applications showed increases during 2005, driven primarilyby new orders from Europe, the FSU and China. Continuedweakness in the U.S. dollar gave some price advantage to domesticmanufacturers like Cooper Compression in selling into Europe,but the meaningful growth in this market again came from newmarket inroads with existing and new products.

Standard plant air markets, however, became significantly morecompetitive during 2005. With the Company’s manufacturingcapacity operating at relatively high utilization levels, CooperCompression chose not to compete for lower-margin business,and declined jobs that would have generated less-than-acceptablemargins. With a series of cost reduction initiatives currentlyunderway, the Company will consider taking on additional plantair business in 2006, but only at margins that generate appropriatereturns. Recent efforts to diversify both the products and themarkets served by the Company’s centrifugal products have led toimproved results, growth opportunities and the ability to absorb adecline in any single market.

New product offerings in the centrifugal line include the TA-2020 line of plant air compressors, which represent a streamlinedversion of Cooper Compression’s smallest frame. With aneffective capability from 250 to 400 horsepower, this new modelis targeted toward the large oil-free screw compressor market. Inlate 2005, the TA-9000 was introduced as an entirely new framesize. As the largest plant air frame in Cooper Compression’slineup, the TA-9000 represents a cost-effective alternative toprevious offerings in the 1,500 to 2,250 horsepower range.

2006 Outlook — CentrifugalCentrifugal compressor demand is closely tied to globalmanufacturing activity and overall economic health. Strategicallyimportant markets like China, Taiwan, Turkey, India, South Korea,Brazil and the U.S. are expected to offer continuing opportunitiesfor Cooper Compression during 2006.

Cooper Compression plans to more fully participate in theChinese steel manufacturing markets by offering a largerengineered compressor, and by increasing the Company’s facilitiesand staffing in China, on the heels of having moved a regionalheadquarters from Singapore to Beijing. Indonesia, Korea andThailand also offer opportunities for standard machine sales intothe strong electronics markets.

The major European economies, including the United Kingdom,Germany and Italy, all experienced flat to declining industrialproduction and capacity utilization in the last couple of years,and are projecting only marginal GDP growth in the near future. Cooper Compression plans to expand its presence in promisingregions like the UAE, Saudi Arabia, Egypt, Algeria and Nigeria. Centrifugal aftermarket growth should continue to be strongafter a record year in 2005. Continuing initiatives to increasemarket share include alliances, unit exchanges, e-business andrepair services, building on the additions to sales staff and servicefacilities that were made in 2005.

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Management’s Discussion and Analysis of Results of Operations and Financial Condition of Cooper Cameron Corporation

The following discussion of Cooper Cameron Corporation’s (the Company or Cooper Cameron) historical results of operations and financialcondition should be read in conjunction with the Company’s consolidated financial statements and notes thereto included elsewhere in this AnnualReport. All per share amounts included in this discussion are based on diluted shares outstanding and have been revised to reflect the 2-for-1stock split effective December 15, 2005.

Overview

The Company’s operations are organized into three business segments — Cameron, Cooper CameronValves (CCV) and Cooper Compression. Based upon the amount of equipment installed worldwide and available industry data, Cameron is one of the world’s leading providers ofsystems and equipment used to control pressures, direct flows of oil and gas wells and separate oil and gas from impurities. Cameron’s productsare employed in a wide variety of operating environments including basic onshore fields, highly complex onshore and offshore environments,deepwater subsea applications and ultra-high temperature geothermal operations. Cameron’s products include surface and subsea productionsystems, blowout preventers, drilling and production control systems, oil and gas separation equipment, gate valves, actuators, chokes, wellheads,drilling risers and aftermarket parts and services. Cameron’s customers include oil and gas majors, national oil companies, independent producers,engineering and construction companies, drilling contractors, oilfield rental companies and geothermal energy producers. Based upon the amountof equipment installed worldwide and available industry data, CCV is a leading provider of valves and related systems primarily used to controlpressures and direct the flow of oil and gas as they are moved from individual wellheads through flow lines, gathering lines and transmission systemsto refineries, petrochemical plants and industrial centers for processing. CCV’s products include gate valves, ball valves, butterfly valves, Orbit valves,rotary process valves, block and bleed valves, plug valves, globe valves, check valves, actuators, chokes and aftermarket parts and service. CCV’scustomers include oil and gas majors, independent producers, engineering and construction companies, pipeline operators, drilling contractorsand major chemical, petrochemical and refining companies. Cooper Compression provides reciprocating and centrifugal compression equipmentand related aftermarket parts and services. The Company’s compression equipment is used by gas transmission companies, compression leasingcompanies, oil and gas producers, independent power producers and in a variety of other industries around the world.

In addition to the historical data contained herein, this Annual Report, including the information set forth in the Company’s Management’sDiscussion and Analysis and elsewhere in this report, may include forward-looking statements regarding the Company’s future revenues and earnings,equity compensation charges, cash generated from operations, costs associated with integrating the recently acquired Flow Control segment ofDresser, Inc. (the Dresser Flow Control Acquisition) and capital expenditures, as well as expectations regarding rig activity, oil and gas demandand pricing and order activity, made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. TheCompany’s actual results may differ materially from those described in any forward-looking statements. Any such statements are based on currentexpectations of the Company’s performance and are subject to a variety of factors, some of which are not under the control of the Company,which can affect the Company’s results of operations, liquidity or financial condition. Such factors may include overall demand for, and pricing of,the Company’s products; the size and timing of orders; the Company’s ability to successfully execute large subsea projects it has been awarded;changes in the price of and demand for oil and gas in both domestic and international markets; political and social issues affecting the countries inwhich the Company does business (including social issues related to the integration of the Dresser Flow Control Acquisition); prices and availabilityof raw materials; fluctuations in currency and financial markets worldwide; and variations in global economic activity. In particular, current andprojected oil and gas prices have historically affected customers’ spending levels and their related purchases of the Company’s products andservices. Additionally, the Company may change its cost structure, staffing or spending levels due to changes in oil and gas price expectations andthe Company’s judgment of how such changes might affect customers’ spending, which may impact the Company’s financial results. See additionalfactors discussed in “Factors That May Affect Financial Condition and Future Results” contained herein.

Because the information herein is based solely on data currently available, it is subject to change as a result of, among other things, changes inconditions over which the Company has no control or influence, and should not therefore be viewed as assurance regarding the Company’s futureperformance. Additionally, the Company is not obligated to make public indication of such changes unless required under applicable disclosurerules and regulations.

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financialstatements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of thesefinancial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those relatedto warranty obligations, bad debts, inventories, intangible assets, assets held for sale, exposure to liquidated damages, income taxes, pensions and otherpostretirement benefits, other employee benefit plans, and contingencies and litigation. The Company bases its estimates on historical experience andon various other assumptions that the Company believes are reasonable under the circumstances. Actual results may differ materially from theseestimates under different assumptions or conditions.

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rate assumptions on investment yields available at the measurement date on an index of long-term, AA-rated corporate bonds. The Company’sinflation assumption is based on an evaluation of external market indicators. The expected rate of return on plan assets reflects asset allocations,investment strategy and the views of various investment professionals. Retirement and mortality rates are based primarily on actual plan experience. In accordance with SFAS 87, actual results that differ from these assumptions are accumulated and amortized over future periods and, therefore,generally affect recognized expense and the recorded obligation in future periods. While the Company believes the assumptions used areappropriate, differences in actual experience or changes in assumptions may affect the Company’s pension obligations and future expense.

A significant reason for the increase in pension expense since 2002 is the difference between the actual and assumed rates of return on planassets in prior years. During 2001 and 2002, the Company’s pension assets earned substantially less than the assumed rates of return in thoseyears. In accordance with SFAS 87, the difference between the actual and assumed rate of return is being amortized over the estimated averageperiod to retirement of the individuals in the plans. In 2003, 2004 and again in 2005, the Company lowered the assumed rate of return for theassets in these plans. The plans earned significantly more than the assumed rates of return in 2005 and 2003 and slightly less than the assumedrate of return in 2004.

The following table illustrates the sensitivity to a change in certain assumptions used in (i) the calculation of pension expense for the year endingDecember 31, 2006, and (ii) the calculation of the projected benefit obligation (PBO) at December 31, 2005 for the Company’s pension plans:

Increase (decrease) Increase (decrease)in 2006 Pre-tax in PBO at

(dollars in millions) Pension Expense December 31, 2005

Change in Assumption:25 basis point decrease in discount rate $ 1.0 $ 13.825 basis point increase in discount rate $ (0.9) $ (13.8)25 basis point decrease in expected return on assets $ 1.0 —25 basis point increase in expected return on assets $ (1.0) —

Financial Summary

The following table sets forth the consolidated percentage relationship to revenues of certain income statement items for the periodspresented:

Year Ended December 31,

2005 2004 2003

Revenues 100.0% 100.0% 100.0%

Costs and expenses:Cost of sales (exclusive of depreciation and amortization shown separately below) 71.3 74.5 72.3Selling and administrative expenses 15.2 14.3 17.7Depreciation and amortization 3.1 3.9 5.1Non-cash write-down of technology investment — 0.2 —Interest income (0.5) (0.2) (0.3)Interest expense 0.5 0.9 0.5

Total costs and expenses 89.6 93.6 95.3

Income before income taxes and cumulative effect of accounting change 10.4 6.4 4.7Income tax provision (3.6) (1.9) (1.2)

Income before cumulative effect of accounting change 6.8 4.5 3.5Cumulative effect of accounting change — — 0.7

Net income 6.8% 4.5% 4.2%

Results of Operations

Consolidated Results — 2005 Compared to 2004

The Company had net income of $171.1 million, or $1.52 per share, for the year ended December 31, 2005 compared to $94.4million, or $0.88 per share for the year ended December 31, 2004, an increase in earnings per share of 72.7%. The results for 2004include pre-tax charges of (i) $3.8 million related to the non-cash write-down of a technology investment, (ii) $6.8 million related tothe non-cash write-off of debt issuance costs associated with retired debt and (iii) $6.1 million of severance costs, primarily related toa workforce reduction program at the Cameron division.

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Critical Accounting Policies

The Company believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation ofits consolidated financial statements.These policies and the other sections of the Company’s Management’s Discussion and Analysis of Results ofOperations and Financial Condition have been reviewed with the Company’s Audit Committee of the Board of Directors.

Revenue Recognition — The Company generally recognizes revenue once the following four criteria are met: (i) persuasive evidence of anarrangement exists, (ii) delivery of the equipment has occurred or services have been rendered, (iii) the price of the equipment or service is fixed anddeterminable and (iv) collectibility is reasonably assured. For certain engineering, procurement and construction-type contracts, which typically includethe Company’s subsea systems and processing equipment contracts, revenue is recognized in accordance with Statement of Position 81-1,Accountingfor Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1). Under SOP 81-1, the Company recognizes revenue onthese contracts using a units-of-completion method. Under the units-of-completion method, revenue is recognized once the manufacturing process iscomplete for each piece of equipment specified in the contract with the customer, including customer inspection and acceptance, if required by thecontract. Approximately 13% and 15% of the Company’s revenue for the years ended December 31, 2005 and 2004, respectively, was recognizedunder SOP 81-1.

Allowance for Doubtful Accounts — The Company maintains allowances for doubtful accounts for estimated losses that may result from theinability of its customers to make required payments. Such allowances are based upon several factors including, but not limited to, historicalexperience and the current and projected financial condition of specific customers. Were the financial condition of a customer to deteriorate,resulting in an impairment of its ability to make payments, additional allowances may be required.

Inventories — The Company’s aggregate inventories are carried at cost or, if lower, net realizable value. Inventories located in the United Statesand Canada are carried on the last-in, first-out (LIFO) method. Inventories located outside of the United States and Canada are carried on thefirst-in, first-out (FIFO) method. During 2005, 2004 and 2003, the Company reduced its LIFO inventory levels. These reductions resulted in aliquidation of certain low-cost inventory layers. As a result, the Company recorded non-cash LIFO income of $4.0 million, $9.7 million and $15.9million for the years ended December 31, 2005, 2004 and 2003, respectively. The Company provides a reserve for estimated obsolescence or excessquantities on hand equal to the difference between the cost of the inventory and its estimated realizable value. During 2005 and 2004, the Companyrevised its estimates of realizable value on certain of its excess inventory. The impact of these revisions was to increase the required reserve as ofDecember 31, 2005 and 2004 by $9.9 million and $6.6 million, respectively. If future conditions cause a reduction in the Company’s current estimateof realizable value, additional provisions may be required.

Goodwill — The Company reviews the carrying value of goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwilland Other Intangible Assets (SFAS 142), which requires that the Company estimate the fair value of each of its reporting units annually and compare suchamounts to their respective book values to determine if an impairment of goodwill is required. For the 2005,2004 and 2003 evaluations, the fair value wasdetermined using discounted cash flows and other market-related valuation models. Certain estimates and judgments are required in the application ofthe fair value models. Based upon each of the Company’s annual evaluations, no impairment of goodwill was required. However, should the Company’sestimate of the fair value of any of its reporting units decline dramatically in future periods, an impairment of goodwill could be required.

Product Warranty — The Company provides for the estimated cost of product warranties at the time of sale based upon historical experience,or, in some cases, when specific warranty problems are encountered. Should actual product failure rates or repair costs differ from the Company’scurrent estimates, revisions to the estimated warranty liability would be required. See Note 7 of the Notes to Consolidated Financial Statementsfor additional details surrounding the Company’s warranty accruals.

Contingencies — The Company accrues for costs relating to litigation, including litigation defense costs, claims and other contingent matters,including tax contingencies and liquidated damage liabilities, when such liabilities become probable and reasonably estimable. Such estimates may bebased on advice from third parties or on management’s judgment, as appropriate. Revisions to contingent liability reserves are reflected in incomein the period in which different facts or information become known or circumstances change that affect our previous assumptions with respectto the likelihood or amount of loss. Amounts paid upon the ultimate resolution of contingent liabilities may be materially different from previousestimates and could require adjustments to the estimated reserves to be recognized in the period such new information becomes known.

Deferred Tax Assets — The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely thannot to be realized, considering future taxable income and ongoing prudent and feasible tax planning strategies. As of December 31, 2005, theCompany had a net operating loss carryforward for U.S. tax purposes of approximately $289.0 million, which does not begin to expire until 2020. Currently, the Company believes it is more likely than not that it will generate sufficient future taxable income to fully utilize this net operatingloss carryforward. Accordingly, the Company has not recorded a valuation allowance against this net operating loss carryforward. In the eventthe oil and gas exploration activity in the United States deteriorates over an extended period of time, the Company may determine that it wouldnot be able to fully realize this deferred tax asset in the future. Should this occur, a valuation allowance against this deferred tax asset would becharged to income in the period such determination was made.

Pension Accounting — The Company accounts for its defined benefit pension plans in accordance with Statement of Financial AccountingStandards No. 87, Employers’ Accounting for Pensions (SFAS 87), which requires that amounts recognized in the financial statements bedetermined on an actuarial basis. See Note 8 of the Notes to Consolidated Financial Statements for the amounts of pension expense includedin the Company’s Results of Operations and the Company’s contributions to the pension plans for the years ended December 31, 2005, 2004and 2003, as well as the unrecognized net loss at December 31, 2005 and 2004.

The assumptions used in calculating the pension amounts recognized in the Company’s financial statements include discount rates, interest costs,expected return on plan assets, retirement and mortality rates, inflation rates, salary growth and other factors. The Company bases the discount

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Income before income taxes totaled $178.9 million for 2005, an increase of 50.6% from $118.8 million in 2004. The majority of this increaseresulted from the increase in revenue and a decline in cost of sales as a percentage of revenue. Cost of sales as a percentage of revenue decreasedto 72.7% in 2005 from 76.6% in 2004. This reduction was primarily due to (i) favorable pricing, (ii) a movement in mix towards higher-margindrilling and surface sales from lower-margin subsea systems sales and (iii) the application of relatively fixed overhead to a larger revenue base. Partially offsetting these factors were higher raw material and labor costs, a $2.5 million non-cash write-down of an investment and a $12.8 millionincrease resulting from a change in the estimated recovery value of certain slow-moving inventory and higher warranty costs on a subsea systemsproject.

Selling and administrative costs in Cameron increased $30.2 million or 19.0% in 2005 as compared to 2004. The majority of the increase wasdue to higher headcount and related costs necessitated by the higher activity levels, higher incentive accruals resulting from the improved financialperformance of the segment and the full-year effect of businesses acquired during 2004. Partially offsetting these increases was a reduction inseverance costs, as 2004 included $4.1 million related to a workforce reduction program at Cameron.

Cameron’s depreciation and amortization expense declined by $7.6 million in 2005 as an increasing number of assets became fully depreciatedduring the latter part of 2004 and during 2005.

CCV SegmentYear Ended December 31, Increase

(dollars in millions) 2005 2004 $ %

Revenues $ 625.1 $ 350.1 $ 275.0 78.6%Income before income taxes $ 101.5 $ 37.8 $ 63.7 168.4%

CCV’s revenues for 2005 totaled $625.1 million, an increase of 78.6% from $350.1 million in 2004. The acquisition of NuFlo Technologies, Inc.(the "NuFlo Acquisition") and the Dresser Flow Control Acquisition, both occurring in 2005, accounted for approximately $96.7 million, or 35.2%of the increase. Excluding these acquisitions, sales in the distributed product line increased 54.1% during 2005 due to strong market conditions, asevidenced by higher North American rig counts. In addition, the full-year impact of the PCC Acquisition in late 2004 added approximately $37.4million to 2005 distributed product revenues. Sales in the engineered product line were up 45.9% compared to 2004. A significant portion ofthe increase, totaling approximately $65.0 million, was attributable to the full-year impact in 2005 of the late 2004 PCC Acquisition.

Income before income taxes for 2005 totaled $101.5 million, an increase of 168.4% from $37.8 million in 2004. The majority of this increaseresulted from the increase in revenue and a decline in cost of sales as a percentage of revenue. Cost of sales as a percentage of revenue decreasedto 67.3% in 2005 from 69.9% in 2004. This reduction was primarily due to (i) favorable pricing, (ii) a shift in mix to higher-margin distributed andNuFlo products and (iii) the application of relatively fixed overhead to a larger revenue base.

Selling and administrative costs in CCV increased $30.5 million, or 54.9% in 2005 compared to 2004. Approximately $23.9 million of thedollar increase was attributable to businesses acquired in 2005 and 2004. The remaining increase relates to higher headcount and related costsnecessitated by the higher activity level, and higher incentive accruals resulting from the improved financial performance of the segment.

Depreciation and amortization for 2005 increased $4.6 million compared to 2004, most of which was attributable to businesses acquiredduring 2005 and 2004.

Cooper Compression SegmentYear Ended December 31, Increase

(dollars in millions) 2005 2004 $ %

Revenues $ 384.9 $ 340.0 $ 44.9 13.2%Income before income taxes $ 26.7 $ 24.6 $ 2.1 8.3%

Cooper Compression’s revenues were $384.9 million in 2005, up 13.2% from $340.0 million in 2004. The increase in revenues was attributableto an 18.6% increase in sales of air compression equipment, primarily due to higher worldwide demand for engineered units and aftermarketparts and repair services. Sales of gas compression equipment increased 7.6% compared to 2004 due to strong order demand, particularly inthe Ajax product line during the first half of 2005.

Income before income taxes was $26.7 million in 2005, up 8.3% from $24.6 million in 2004. The increase in revenue was partially offset byhigher cost of sales as a percentage of revenue, which increased to 72.5% in 2005 from 71.0% in 2004. The increase in cost of sales as a percentageof revenue was primarily due to higher raw material costs, which Cooper Compression was unable to pass to its customers in the form of priceincreases, and a $5.7 million reduction in non-cash LIFO income.

Selling and administrative expenses increased by $6.5 million in 2005 as compared to 2004. The increase was primarily due to the higher activitylevel and the cost to settle a legal matter and higher environmental costs associated with a closed facility.

Cooper Compression’s depreciation and amortization expense in 2005 declined $1.5 million from 2004, mainly due to assets which becamefully depreciated in 2005.

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Revenues

Revenues for 2005 totaled $2.518 billion, an increase of 20.3% from 2004 revenues of $2.093 billion. Revenues increased in each of the Company’ssegments and across all product lines, except subsea, due to increased drilling and production activity in the Company’s markets primarily resulting fromhigh oil and gas prices. Entities acquired during 2004 and 2005 accounted for approximately $262.9 million, or 61.9%, of the growth in revenues in 2005. A discussion of revenue by segment may be found below.

Cost and Expenses

Costs of sales (exclusive of depreciation and amortization) for 2005 totaled $1.796 billion, an increase of 15.1% from 2004’s $1.560 billion. As apercentage of revenue, cost of sales (exclusive of depreciation and amortization) for 2005 decreased to 71.3% from 74.6% in 2004. The decreasein cost of sales as a percentage of revenue is due to (i) improved pricing in the Cameron and CCV businesses, (ii) a shift towards higher-marginproducts (primarily surface and drilling equipment) and (iii) the application of relatively fixed overhead to a larger revenue base in Cameron andCCV. The declines were partially offset by (i) rising material costs in the Cooper Compression segment that the Company was not able to passthrough to its customers, (ii) $11.2 million of higher warranty expense and provisions for excess inventory, primarily in Cameron, and (iii) a decreaseof approximately $5.7 million in non-cash LIFO income recognized during 2005 in the Cooper Compression segment.

Selling and administrative expenses for 2005 were $381.3 million, an increase of $81.2 million, or 27.0%, from $300.1 million for 2004. Businessesacquired during 2004 and 2005 contributed $32.7 million, or 40.3%, of the increase. The remaining increase in selling and administrative expensefor 2005 was primarily due to (i) higher headcount resulting from increased activity levels within the segments, (ii) $2.8 million related to non-cash stock compensation expense, (iii) an increase in bonus and sales incentive accruals based on the Company’s improved financial performancefor the year and (iv) a $7.2 million increase in legal and environmental costs. These increases were partially offset by a $6.1 million reduction inseverance costs, primarily associated with a workforce reduction program at the Cameron division, which were recorded in 2004.

Depreciation and amortization expense for 2005 was $78.4 million, a decrease of $4.4 million from $82.8 million for 2004. The decrease indepreciation and amortization was primarily attributable to assets becoming fully depreciated, partially offset by approximately $5.7 million ofadditional depreciation and amortization relating to businesses acquired during 2004 and 2005. The Company’s capital spending for the threeyears in the period ended December 31, 2005 has been lower than its annual depreciation and amortization expense for those same periods,which has contributed to the decline in depreciation expense for 2005.

Interest income for 2005 was $13.1 million as compared to $4.9 million in 2004. The increase in interest income was attributable to higher excesscash balances available for investment during 2005 and higher short-term interest rates the Company has received on its invested cash balances.

Interest expense for 2005 totaled $12.0 million compared to $17.8 million in 2004. The decrease in interest expense is primarily attributableto $6.8 million of accelerated amortization of debt issuance costs recorded in 2004 associated with the early retirement of the Company’s zero-coupon convertible debentures due 2021 (the Zero-Coupon Convertible Debentures) and $184.3 million of the Company’s 1.75% convertibledebentures due 2021 (the 1.75% Convertible Debentures). Partially offsetting this decline was the full-year impact in 2005 of the $200.0 millionof senior notes due 2007 (the Senior Notes), which were issued in March 2004, partially offset by lower-rate convertible debentures outstandingduring the first four months of 2004.

The income tax provision was $91.9 million in 2005 as compared to $38.5 million in 2004. The effective tax rate for 2005 was 34.9% comparedto 29.0% in 2004. The increase in the effective tax rate primarily reflects a shift in income during 2005 to higher tax rate jurisdictions, primarily theU.S. and Canada.

Segment Results — 2005 Compared to 2004

Information relating to results by segment may be found in Note 14 of the Notes to Consolidated Financial Statements.

Cameron SegmentYear Ended December 31, Increase

(dollars in millions) 2005 2004 $ %

Revenues $1,507.8 $ 1,402.8 $ 105.0 7.5%Income before income taxes $ 178.9 $ 118.8 $ 60.1 50.6%

Cameron’s revenues for 2005 totaled $1.508 billion, an increase of 7.5% from $1.403 billion in 2004. Changes in foreign currency exchange ratescaused approximately 9.2% of the 2005 revenue increase. Drilling sales were up 2.4%, surface sales increased 18.8%, subsea sales declined 10.5%and sales in the oil, gas and water separation market increased 56.0%. Surface sales increased due to higher activity levels in each of the Company’smajor operating regions. In addition, the full-year effect of the November 2004 acquisition of the PCC Flow Technologies segment of PrecisionCastparts Corp. (the "PCC Acquisition") contributed approximately 23.8% of the increase in surface sales. Sales declined in the subsea market,primarily due to the decline in activity on several large projects offshore West Africa.The increase in the oil, gas and water separation market wasalso reflective of the strong overall market conditions that existed in 2005. Revenues associated with this product line, which was acquired inFebruary 2004, also benefited from a full 12 months of activity in 2005 compared to 10 months in 2004.

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The $12.2 million cumulative effect of an accounting change recognized during 2003 reflects the impact of adopting SFAS 150 (see Note 1 ofthe Notes to Consolidated Financial Statements). There was no tax expense associated with this item as the gain is not taxable.

The income tax provision was $38.5 million in 2004 as compared to $20.4 million in 2003. The effective tax rate for 2004 was 29.0% as compared to26.2% in 2003. The increase in the effective tax rate reflects a shift in 2004 earnings to higher tax rate jurisdictions as compared to 2003.

Segment Results — 2004 Compared to 2003

Information relating to results by segment may be found in Note 14 of the Notes to Consolidated Financial Statements.

Cameron SegmentYear Ended December 31, Increase

(dollars in millions) 2004 2003 $ %

Revenues $1,402.8 $ 1,018.5 $ 384.3 37.7%Income before income taxes $ 118.8 $ 63.4 $ 55.4 87.4%

Cameron’s revenues for 2004 totaled $1.403 billion, an increase of 37.7% from 2003 revenues of $1.019 billion. The acquisition of Petreco duringthe first quarter of 2004 and movement in foreign currencies accounted for $114.5 million and $39.8 million, respectively, of the increase in Cameron’srevenues. Revenues in the drilling market increased 26.0%, revenues in the subsea market increased 53.4% and revenues in the surface market increased7.4%. The increase in drilling revenues was primarily attributable to two large project deliveries in the Asia Pacific/Middle East Region and one largeproject delivery in the Gulf of Mexico. The increase in subsea revenues was primarily attributable to the completion of units associated with the largesubsea orders awarded during 2003 and 2002, primarily related to projects located offshore Africa and Eastern Canada. The increase in surface revenueswas primarily the result of increased activity levels in the U.S., Canada and Latin America, as well as movements in foreign currencies.

Income before income taxes totaled $118.8 million for 2005, up 87.4% from $63.4 million in 2004. The majority of the increase was due tothe increase in revenues partially offset by an increase in cost of sales as a percentage of revenues to 76.6% in 2004 from 74.5% in 2003. Theincrease in cost of sales as a percentage of revenues was attributable to (i) the delivery of lower-margin large project work in the drilling productline, (ii) lower margins in the subsea product line primarily resulting from increased deliveries of lower-margin third-party supplied equipment,(iii) increased subsea systems project revenues, which typically carry a higher cost of sales percentage relationship to revenues as compared toCameron’s traditional surface business and (iv) the impact of including sales from the 2004 acquisition of Petreco, which typically carry a highercost of sales to revenue relationship compared to Cameron’s traditional surface business. These increases were partially offset by the applicationof relatively fixed manufacturing overhead costs to a larger revenue base.

Selling and administrative expenses for Cameron for 2004 increased by $13.8 million, or 9.6%, as compared to 2003. The increase in selling andadministrative expenses resulted primarily from the PCC and Petreco Acquisitions and $5.0 million associated with movements in foreign currencies.

Depreciation and amortization expense remained relatively flat in 2004 compared to 2003.

CCV SegmentYear Ended December 31, Increase

(dollars in millions) 2004 2003 $ %

Revenues $ 350.1 $ 307.1 $ 43.0 14.0%Income before income taxes $ 37.8 $ 33.7 $ 4.1 12.2%

CCV’s revenues for 2004 totaled $350.1 million, an increase of 14.0% from 2003 revenues of $307.1 million. The increase in revenues wasattributable to a 7.0% increase in the distributed products line, primarily as a result of increased activity levels in the U.S. and Canada as well asmovements in foreign currencies. Sales in the engineered products line increased 23.7%, primarily reflecting increased pipeline ball valve shipments,both domestically and internationally, principally to the Far East.

Income before income taxes totaled $37.8 million, up 12.2% from $33.7 million for 2003. Cost of sales as a percentage of revenues increasedto 69.9% in 2004 from 69.4% in 2003. The increase was primarily due to higher manufacturing costs as a result of raw material price increasesand higher commission costs on international sales of engineered products.

Selling and administrative expenses for 2004 for CCV increased $7.9 million, or 16.6%, as compared to 2003. The increase in selling andadministrative expenses resulted primarily from (i) $1.1 million relating to the PCC Acquisition, (ii) $1.4 million of severance during 2004, (iii) $1.0million associated with movements in foreign currencies and (iv) higher incentive compensation and workers compensation costs.

Depreciation and amortization expense declined by $0.5 million in 2004 compared to 2003 due primarily to the impact of assets becomingfully depreciated during 2004.

Cooper Compression SegmentYear Ended December 31, Increase

(dollars in millions) 2004 2003 $ %

Revenues $ 340.0 $ 308.8 $ 31.2 10.1%

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Corporate Segment

The Corporate segment’s loss before income taxes decreased to $44.1 million in 2005 from $48.4 million in 2004. Higher interest income total-ing $8.2 million, lower interest expense of $5.8 million and the absence in 2005 of a one-time writedown in 2004 of a technology asset totaling $3.8million more than offset higher selling and administrative expenses and other costs of $13.5 million. Selling and administrative expenses increasedprimarily due to (i) higher accruals for bonus programs tied to the Company’s financial performance, (ii) $2.8 million of non-cash stock compensationcosts and (iii) higher legal costs related primarily to the defense of certain patents and a case related to a former manufacturing site.

Consolidated Results — 2004 Compared to 2003

The Company had net income of $94.4 million, or $0.88 per diluted share, for the twelve months ended December 31, 2004 compared with$69.4 million, or $0.62 per diluted share in 2003 (per share amounts have been revised to reflect the 2-for-1 stock split effective December 15,2005). The results for 2004 include pre-tax charges of (i) $3.8 million related to the non-cash write-down of a technology investment, (ii) $6.8million related to the non-cash write-off of debt issuance costs associated with retired debt and (iii) $6.1 million of severance costs, primarilyrelated to a workforce reduction program at the Cameron division. The results for 2003 included pre-tax charges aggregating $14.6 million relatedto plant closing, business realignment and other related costs (see Note 2 of the Notes to Consolidated Financial Statements for a discussionof these charges). The results for 2003 also include a $12.2 million after-tax gain resulting from the cumulative effect of adopting Statement ofFinancial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS150). See Note 1 of the Notes to Consolidated Financial Statements for further discussion.

Revenues

Revenues for 2004 totaled $2.093 billion, an increase of 28.1% from 2003 revenues of $1.634 billion. Revenues increased in each of theCompany’s segments. A discussion of revenue by segment may be found below.

Cost and Expenses

Cost of sales (exclusive of depreciation and amortization) totaled $1.560 billion for 2004, an increase of 32.0% from 2003's $1.182 billion. As apercent of revenues, cost of sales increased from 72.3% in 2003 to 74.6% in 2004. The increase in cost of sales as a percent of revenues was primarilyattributable to (i) several large lower-margin drilling projects recognized in 2004, (ii) a shift in mix towards large subsea systems projects in 2004, whichtypically carry lower margins than the drilling and surface product lines, (iii) the impact of the 2004 acquisition of Petreco, which typically has lowermargins than Cameron’s traditional surface business and (iv) lower LIFO income recognized by Cooper Compression in 2004 as compared to 2003. These increases were partially offset by the application of relatively fixed manufacturing overhead costs to a larger revenue base.

Selling and administrative expenses for 2004 were $300.1 million, an increase of $11.5 million from $288.6 million for 2003. The increase inselling and administrative expenses resulted primarily from (i) $13.2 million resulting from the PCC and Petreco Acquisitions, (ii) $6.1 millionof severance discussed below, (iii) a $13.8 million increase in incentive compensation costs and (iv) $6.0 million associated with movements inforeign currencies, partially offset by (i) the absence of the $14.6 million of charges, discussed below, which were recorded during 2003, (ii) an$8.1 million reduction in selling and administrative expenses in the Compression segment resulting from the various restructuring activities overthe past two years and (iii) various other decreases.

Included within selling and administrative expenses for 2004 were charges of $6.1 million of severance costs primarily related to a workforcereduction program at the Cameron division. Included in selling and administrative expenses for 2003 were charges of $14.6 million comprised of (i)$6.2 million for employee severance at Cameron and Cooper Compression, (ii) $1.2 million of costs at Cooper Compression related to the closureof 13 facilities announced in the fourth quarter of 2002, (iii) $4.7 million related to the Company’s unsuccessful efforts to acquire a certain oil servicebusiness, (iv) $1.0 million related to the Company’s international tax restructuring activities, which were begun in 2002, and (v) $1.5 million related toa litigation award associated with the use of certain intellectual property obtained in connection with a previous acquisition.

Depreciation and amortization expense for 2004 was $82.8 million, a decrease of $0.8 million from $83.6 million for 2003. The decreasein depreciation and amortization expense was primarily attributable to assets becoming fully depreciated, which lowered depreciation andamortization expense by $7.4 million, partially offset by (i) depreciation associated with capital additions, which increased depreciation expenseby $2.5 million, (ii) depreciation and amortization on assets added as a result of the PCC and Petreco Acquisitions, which increased depreciationand amortization expense by approximately $2.3 million and (iii) movement in foreign currencies, which increased depreciation and amortizationexpense by approximately $1.9 million.

Interest income for 2004 was $4.9 million as compared to $5.2 million in 2003. The decline in interest income was attributable to lower cashbalances resulting primarily from treasury stock purchases and acquisitions.

Interest expense for 2004 was $17.7 million, an increase of $9.6 million from $8.2 million in 2003. The increase in interest expense primarilyresults from (i) $6.8 million of accelerated amortization of debt issuance costs associated with the early retirement of the Company’s zero-couponconvertible debentures due 2021 (the Zero-Coupon Convertible Debentures) and $184.3 million of the Company’s 1.75% convertible debenturesdue 2021 (the 1.75% Convertible Debentures) and (ii) incremental interest associated with the $200.0 million of senior notes due 2007 (theSenior Notes), which were issued in March 2004.

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Superior compressors, particularly in the Far East.

Backlog was as follows (in millions):December 31,

2005 2004 Increase

Cameron $ 1,503.6 $ 752.9 $ 750.7CCV 469.0 122.9 346.1Cooper Compression 183.2 124.2 59.0

$ 2,155.8 $ 1,000.0 $ 1,155.8

CCV’s backlog at December 31, 2005 included $265.1 million attributable to the Dresser Flow Control Acquisition in late 2005 and the NuFloAcquisition in May 2005.

Recent Pronouncements

In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, Inventory Costs (SFAS 151). SFAS 151 is effectivefor inventory costs incurred during fiscal years beginning after June 15, 2005. The Company believes there will be no material effect on itsconsolidated financial position, results of operations or cash flows upon adoption of this statement.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payments (SFAS123R), which requires that all share-based payments to employees, including grants of employee stock options, be recognized over theirvesting periods in the income statement based on their estimated fair values. SFAS 123R is effective at the beginning of the first fiscal yearbeginning after June 15, 2005.

Although the Company has not completed its analysis of the impact of SFAS 123R, the Company currently estimates that it will recognizeapproximately $0.10 per diluted share of equity- and option-based compensation expense for 2006, assuming the Company elects themodified prospective transition alternative. However, this estimate may increase or decrease materially once the Company completes itsanalysis of the impact of SFAS 123R.

Liquidity and Capital Resources

The Company’s cash balances increased to $362.0 million at December 31, 2005 from $227.0 million at December 31, 2004, due primarily to$352.1 million of cash flow from operating activities and $192.5 million of cash flow from financing activities, partially offset by the consumptionof $400.6 million of cash flow in investing activities.

During 2005, the Company’s operating activities generated $352.1 million of cash as compared to $195.2 million in 2004. Cash flow fromoperations during 2005 was comprised primarily of net income of $171.1 million, adjusted for depreciation and amortization of $78.4 million,$34.0 million of tax benefit from employee stock option exercises, deferred taxes and other non-cash charges and $63.2 million of working capitaldecreases. The changes in working capital comprised an $80.7 million increase in accounts receivable, a $137.4 million increase in inventories, a$255.2 million increase in accounts payable and accrued liabilities and a $26.1 million decrease in other assets and liabilities, net. The increase inaccounts receivable was primarily related to higher sales across all segments. The increase in inventories was primarily caused by the additionalmaterials received to support the increased production requirements associated with the growth in Cameron and CCV’s backlog during 2005. The increase in accounts payable and accrued liabilities is primarily attributable to a $152.7 million increase in progress payments and cashadvances from customers. The decrease in other assets and liabilities, net, is largely attributable to an increase in the Company’s accrual for currentincome taxes due, particularly in the United Kingdom and Canada.

During 2005, the Company’s investing activities consumed $400.6 million of cash as compared to $192.3 million during 2004. The mostsignificant components of cash flow consumed in investing activities for 2005 were the NuFlo Acquisition and the Dresser Flow ControlAcquisition, which consumed $317.4 million, and the purchase of capital equipment, which consumed $77.5 million.

During 2005, the Company’s financing activities generated $192.5 million of cash, as compared to the consumption of $70.8 million of cash in2004. Cash flow from financing activities primarily reflects $219.0 million in proceeds from option exercises and other items, partially offset bythe retirement of $14.8 million of the Company’s existing 1.75% convertible debentures due 2021 and the repurchase of 164,500 pre-split sharesof the Company’s common stock at an average price of $57.11 per share.

During the fourth quarter of 2005 and January 2006, the Company acquired certain businesses of the Flow Control segment of Dresser, Inc.for a total of approximately $217.5 million in cash, subject to final adjustment and other matters. This acquisition is the largest in the Company’shistory and will require a substantial amount of integration into CCV’s operations. The Company expects to recognize approximately $55.0 millionof integration costs in its income statement in 2006 related to these activities, of which approximately $36.0 million will be cash.

On a short-term basis, the Company expects to fund expenditures for new capital requirements (estimated to total approximately $130.0 millionto $150.0 million for 2006), integration costs associated with the Dresser Flow Control Acquisition and general liquidity needs from available cashbalances, cash generated from current operating activities and amounts available under its $350.0 million multicurrency revolving credit facility.

On a longer-term basis, the Company has Senior Notes outstanding at December 31, 2005 with a face value of $200.0 million. These notes

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Income before income taxes $ 24.6 $ 10.3 $ 14.3 138.8%

Cooper Compression’s revenues for 2004 totaled $340.0 million, an increase of 10.1% from 2003 revenues of $308.8 million. The increase inrevenues was attributable to a 26.2% increase in sales in the air compression market, primarily as a result of increased demand from internationalmarkets, principally the Far East. Sales in the gas compression market increased 2.0%, primarily reflecting increased aftermarket shipments partiallyoffset by weakness in new unit shipments as a result of a slow-down in project work in the Latin American market.

Income before income taxes was $24.6 million in 2004, up 138.8% from $10.3 million in 2003. Cost of sales as a percentage of revenuesincreased to 71.0% in 2004 from 67.8% in 2003 for the Compression segment. The increase in cost of sales is primarily due to (i) a reductionin the amount of non-cash LIFO income recorded, which accounted for 2.3 percentage points of the increase in the relationship between costof sales and revenues and (ii) increased warranty costs attributable to higher sales of engineered air compression units, which accounted for 0.8percentage points of the increase.

Selling and administrative expenses for 2004 for Cooper Compression were down $14.6 million, or 20.4%, as compared to 2003. The decreasein selling and administrative expense resulted primarily from (i) an $8.1 million reduction in costs during 2004 resulting from various restructuringactivities over the past two years, (ii) the absence in 2004 of $3.1 million of severance and facility closure and restructuring costs recognized in2003 relating to the closure of 13 facilities described above and (iii) various other cost reductions, partially offset by $0.6 million of severancecosts recognized in 2004.

Depreciation and amortization expense declined by approximately $0.3 million in 2004 due mainly to an additional charge taken in 2003 forlegacy software upon the conversion by Cooper Compression to SAP.

Corporate SegmentThe loss before taxes in the Corporate segment totaled $48.4 million in 2004, up from $29.7 million in 2003. This increase is primarily due to (i) a

$9.6 million increase in interest expense described above, (ii) a $3.8 million charge recorded in connection with the write-down of a technology assetand (iii) a $4.9 million increase in selling and administrative and other expenses due primarily to higher incentive compensation and additional costsincurred related to compliance with the Sarbanes-Oxley Act of 2002 that were partially offset by the year-over-year impact of (i) a $4.7 million charge in2003 related to the Company’s unsuccessful efforts to acquire a certain oil service business and (ii) $1.0 million related to the Company’s internationaltax restructuring activities, which were begun in 2002. Depreciation and amortization expense was flat in 2004 when compared to 2003.

Orders and Backlog

Orders were as follows (in millions):Year Ended December 31,

2005 2004 Increase

Cameron $ 2,301.1 $ 1,274.4 $ 1,026.7CCV 710.8 365.7 345.1Cooper Compression 449.8 369.3 80.5

$ 3,461.7 $ 2,009.4 $ 1,452.3

Orders for 2005 were $3.462 billion, an increase of 72.3% from $2.009 billion in 2004. Cameron’s orders for 2004 were $2.301 billion, anincrease of 80.6% from 2004 orders of $1.274 billion. Drilling orders increased 108.9%, subsea orders increased 121.9%, surface orders increased45.9% and orders in the oil and gas separation market increased 44.0% for the year ended December 31, 2005. The increase in drilling orderswas across all geographic regions and included a $53.1 million order from a customer in the Eastern Hemisphere for a subsea drilling package aswell as other large orders in this region and in the Asia Pacific/Middle East region. Additionally, strong demand in the Gulf of Mexico and higher rigcounts positively impacted orders in the Western Hemisphere. Subsea orders were primarily impacted by a $364.4 million order for equipmentto be used for Total's AKPO project offshore West Africa as well as a number of other smaller orders. Surface orders were up in all regionsprimarily due to strong worldwide demand caused by higher commodity prices. In addition, the full-year impact of businesses acquired as part ofthe PCC Acquisition in late 2004 added approximately $21.9 million to the growth in surface orders during 2005. The increase in orders for oiland gas separation applications primarily reflects a $55.8 million order for equipment to be used on a floating storage vessel offshore Brazil.

CCV’s orders for 2005 were $710.8 million, an increase of 94.4% from 2004 orders of $365.7 million. The increase in orders was attributable toa 69.4% increase in the distributed products line and a 73.5% increase in the engineered products line. The increase in distributed orders is duemainly to growth in legacy operations in the United States and Canada resulting from higher rig activity and spending levels resulting from highercommodity prices. The PCC Acquisition in late 2004 also contributed approximately $39.2 million to the increase. The increase in engineeredproduct line orders reflects $57.0 million of additional orders resulting from the full-year impact of the PCC Acquisition in late 2004 as well asstrength in both the project and day-to-day businesses, particularly in Asia and Latin America. Orders from the Dresser Flow Control Acquisitionin late 2005, and the NuFlo Acquisition in May 2005, accounted for approximately $89.1 million of the increase in total orders.

Cooper Compression’s orders for 2005 were $449.8 million, an increase of 21.8% from 2004 orders of $369.3 million. The increase wasattributable to a 20.1% increase in orders for the air compression market due primarily to increased demand for engineered machines in Europeand the Middle East. Orders in the gas compression market increased 23.1% due to several large orders for Ajax units and higher demand for

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Factors That May Affect Financial Condition and Future Results

The acquisition of certain businesses of the Flow Control segment of Dresser, Inc. exposes the Company to integration risk.The acquisition of certain businesses from Dresser is the largest acquisition the Company has made and will require a substantial amount of

integration into CCV's operations. To the extent this integration takes longer than expected, costs more than expected or does not result in theoperational improvement expected, the Company’s financial performance and liquidity may be negatively impacted.

The inability of the Company to deliver its backlog on time could affect the Company’s future sales and profitability and its relationships with its customers.At December 31, 2005, backlog reached $2.156 billion, a record level for the Company. The ability to meet customer delivery schedules

for this backlog is dependent on a number of factors including, but not limited to, access to the raw materials required for production, anadequately trained and capable workforce, project engineering expertise for certain large projects, sufficient manufacturing plant capacity andappropriate planning and scheduling of manufacturing resources. Many of the contracts the Company enters into with its customers requirelong manufacturing lead times and contain penalty or incentive clauses relating to on-time delivery. A failure by the Company to deliver inaccordance with customer expectations could subject the Company to financial penalties or loss of financial incentives and may result in damageto existing customer relationships. Additionally, the Company bases its earnings guidance to the financial markets on expectations regardingthe timing of delivery of product currently in backlog. Failure to deliver backlog in accordance with expectations could negatively impact theCompany’s financial performance and thus cause adverse changes in the market price of the Company’s outstanding common stock and otherpublicly traded financial instruments.

The Company is embarking on a significant capital expansion program.In 2006, the Company expects capital expenditures of approximately $130.0 to $150.0 million to upgrade its machine tools, manufacturing

technologies, processes and facilities in order to improve its efficiency and address current and expected market demand for the Company’sproducts. To the extent this program causes disruptions in the Company’s plants, the Company’s ability to deliver existing or future backlog maybe negatively impacted. In addition, if the program does not result in the expected efficiencies, future profitability may be negatively impacted.

Execution of subsea systems projects exposes the Company to risks not present in its surface business.This market is significantly different from the Company’s other markets since subsea systems projects are significantly larger in scope and

complexity, in terms of both technical and logistical requirements. Subsea projects (i) typically involve long lead times, (ii) typically are larger infinancial scope, (iii) typically require substantial engineering resources to meet the technical requirements of the project and (iv) often involve theapplication of existing technology to new environments and in some cases, new technology. These projects accounted for approximately 7% oftotal revenues in 2005. During the fourth quarter of 2003, the Company experienced numerous delivery delays on its subsea systems contractswhich negatively impacted 2003’s financial results. To the extent the Company experiences difficulties in meeting the technical and/or deliveryrequirements of the projects, the Company’s earnings or liquidity could be negatively impacted. As of December 31, 2005, the Company has asubsea systems backlog of approximately $583.6 million.

Increases in the cost of and the availability of metals used in the Company’s manufacturing processes could negatively impact the Company’s profitability.Beginning in the latter part of 2003 and continuing through 2005, commodity prices for items such as nickel, molybdenum and heavy metal scrap

that are used to make the steel alloys required for the Company’s products increased significantly. Certain of the Company’s suppliers have passedthese increases on to the Company. The Company has implemented price increases intended to offset the impact of the increase in commodityprices. However, if customers do not accept these price increases, future profitability will be negatively impacted. In addition, the Company’svendors have informed the Company that lead times for certain raw materials are being extended. To the extent such change negatively impactsthe Company’s ability to meet delivery requirements of its customers, the financial performance of the Company may suffer.

Changes in the U.S. rig count have historically impacted the Company’s orders.Historically, the Company’s surface and distributed valve products businesses in the U.S. market have tracked changes in the U.S. rig count.

However, this correlation did not exist in 2003. The average U.S. rig count increased approximately 24% during 2003 while the Company’s U.S.surface and U.S. distributed valve orders were essentially flat. The Company believes its surface and distributed valve products businesses werenegatively impacted by the lack of drilling activity in the Gulf of Mexico, fewer completions of onshore high-temperature/high-pressure wells anda lower level of infrastructure development in the U.S. Such activity typically generates higher orders for the Company as compared to onshoreshallow well activity. The relationship between the Company’s orders in its surface and distributed valve products businesses and changes in theU.S. rig count returned to a more normal relationship in 2004 and 2005.

Downturns in the oil and gas industry have had, and may in the future have, a negative effect on the Company’s sales and profitability.Demand for most of the Company’s products and services, and therefore its revenues, depend to a large extent upon the level of capital

expenditures related to oil and gas exploration, production, development, processing and transmission. Declines, as well as anticipated declines, in oiland gas prices could negatively affect the level of these activities. Factors that contribute to the volatility of oil and gas prices include the following:

• demand for oil and gas, which is impacted by economic and political conditions and weather;• the ability of the Organization of Petroleum Exporting Countries ("OPEC") to set and maintain production levels and pricing;• level of production from non-OPEC countries;• policies regarding exploration and development of oil and gas reserves;

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are due in April 2007. In addition, at December 31, 2005, the Company has outstanding $238.0 million of 1.5% convertible debentures. Holdersof these debentures could require the Company to redeem them beginning in May 2009. The Company believes, based on its current financialcondition, existing backlog levels and current expectations for future market conditions, that it will be able to refinance these debt instrumentsprior to maturity or will be able to meet the liquidity needs upon maturity with cash generated from operating activities up to that time, existingcash balances on hand and amounts available under its $350.0 million multicurrency revolving credit facility, which expires in 2010.

On October 12, 2005, the Company entered into a new $350.0 million five-year multicurrency revolving credit facility, expiring October 12,2010, subject to certain extension provisions. The credit facility also allows for the issuance of letters of credit up to the full amount of thefacility. The Company has the right to request an increase in the amount of the facility up to $700 million and may request three one-yearextensions of the maturity date of the facility, all subject to lender approval. The facility provides for variable-rate borrowings based on the LondonInterbank Offered Rate (LIBOR) plus a margin (based on the Company’s then-current credit rating) or an alternate base rate. The agreementprovides for certain fees and requires that the Company maintain a total debt-to-total capitalization ratio of less than 60% during the term ofthe agreement.

The following summarizes the Company’s significant cash contractual obligations and other commercial commitments for the next five yearsas of December 31, 2005.

(in millions) Payments Due by PeriodLess Than 1 - 3 4 - 5 After 5

Contractual Obligations Total 1 Year Years Years Years

Debt (a) $ 441.6 $ 3.1 $ 200.5 $ 238.0 $ —Capital lease obligations (b) 9.7 3.4 5.4 0.9 —Operating leases 167.2 25.2 30.0 22.7 89.3Purchase obligations (c) 479.2 462.5 16.7 — —Defined benefit pension plan funding 2.0 2.0 — — —

Total contractual cash obligations $1,099.7 $ 496.2 $ 252.6 $ 261.6 $ 89.3

(a) See Note 10 of the Notes to Consolidated Financial Statements for information on redemption rights by the Company, and by holdersof the Company’s debentures, that would allow for early redemption of the remaining 1.75% Convertible Debentures in 2006 and the 1.5%Convertible Debentures in 2009.

(b) Payments shown include interest.(c) Represents outstanding purchase orders entered into in the ordinary course of business.

(in millions) Amount of Commitment Expiration By PeriodOther Unrecorded CommercialObligations and Off-Balance Total Less Than 1 - 3 4 - 5 After 5Sheet Arrangements Commitment 1 Year Years Years Years

Committed lines of credit $ 350.0 $ — $ — $ 350.0 $ —Standby letters of credit and bank guarantees 265.6 116.2 76.6 64.9 7.9Financial letters of credit 1.2 1.2 — — —Other financial guarantees 5.0 4.6 0.3 0.1 —

Total commercial commitments $ 621.8 $ 122.0 $ 76.9 $ 415.0 $ 7.9

The Company secures certain contractual obligations under various agreements with its customers or other parties through the issuance ofletters of credit or bank guarantees. The Company has various agreements with financial institutions to issue such instruments. As of December31, 2005, the Company had $265.6 million of letters of credit and bank guarantees outstanding in connection with the delivery, installation andperformance of the Company's products. Additional letters of credit and guarantees are outstanding at December 31, 2005 in connection withcertain financial obligations of the Company. Should these facilities become unavailable to the Company, the Company’s operations and liquiditycould be negatively impacted. Circumstances which could result in the withdrawal of such facilities include, but are not limited to, deterioratingfinancial performance of the Company, deteriorating financial condition of the financial institutions providing such facilities, overall constriction inthe credit markets or rating downgrades of the Company.

In connection with the Dresser Flow Control Acquisition, the Company is obligated to replace all outstanding standby and financial letters ofcredit and other bank guarantees and indemnities of the acquired businesses and Dresser, Inc. (the Dresser Guarantees) within 120 days of closing. The Dresser Guarantees amounted to $77.7 million at closing. In the event the Company is unsuccessful in replacing the Dresser Guarantees,the Company will provide a standby letter of credit to Dresser, Inc. for the full amount of the Dresser Guarantees it was unable to replace andwill indemnify Dresser Inc. against any losses for any amounts paid under the Dresser Guarantees, including costs and expenses. The amount ofthe Dresser Guarantees has not been included in the table above.

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the pension plans.On November 10, 2005, the FASB added a project to its technical agenda to reconsider the present accounting for pensions and other

postretirement benefits. The Board decided to address the project in two phases. The first phase is an initial improvement phase that is expectedto be completed by the end of 2006. The second phase is a comprehensive reconsideration of most, if not all, aspects of the existing accountingstandards and may take years to complete. As part of the first phase, the Board has tentatively decided that the funded status of defined benefitplans should be recognized in the balance sheet of the plan sponsor effective for years ending after December 15, 2006 and that existing disclosurerequirements should be modified. An exposure draft of the FASB's proposals is expected to be issued in March 2006. At December 31, 2005,the Company had a long-term prepaid pension asset recognized in its financial statements of $133.9 million determined in accordance with FAS87. However, the net funded status of all plans at December 31, 2005 was a liability of approximately $19.0 million. If the FASB's proposal were tobe adopted in its current form, it could have a significant impact on the Company's net assets as of December 31, 2006.

The Company is subject to environmental, health and safety laws and regulations that expose the Company to potential liability. The Company’s operations are subject to a variety of national and state, provisional and local laws and regulations, including laws and regulations

relating to the protection of the environment. The Company is required to invest financial and managerial resources to comply with these laws andexpects to continue to do so in the future. To date, the cost of complying with governmental regulation has not been material, but the fact thatsuch laws or regulations are frequently changed makes it impossible for the Company to predict the cost or impact of such laws and regulationson the Company’s future operations. The modification of existing laws or regulations or the adoption of new laws or regulations imposing morestringent environmental restrictions could adversely affect the Company.

Environmental Remediation

The Company has been identified as a potentially responsible party (PRP) with respect to four sites designated for cleanup under theComprehensive Environmental Response Compensation and Liability Act (CERCLA) or similar state laws. The Company’s involvement at twoof the sites has been resolved with de minimus payment. A third is believed to also be at a de minimus level. The fourth site is in Osborne,Pennsylvania where remediation is complete and remaining costs relate to ongoing ground water treatment and monitoring.

The Company is also engaged in site cleanup under the Voluntary Cleanup Program of the Texas Commission on Environmental Quality atformer manufacturing locations in Houston and Missouri City,Texas. Additionally, the Company has discontinued operations at a number of othersites which had previously been in existence for many years. The Company does not believe, based upon information currently available, thatthere are any material environmental liabilities existing at these locations.

The Company has estimated its liability for environmental exposures, and the Company’s consolidated financial statements included a liabilitybalance of $8.8 million for these matters at December 31, 2005. Cash expenditures for the Company’s known environmental exposures areexpected to be incurred over the next twenty years, depending on the site. For the known exposures, the accrual reflects the Company’s bestestimate of the amount it will incur under the agreed-upon or proposed work plans. The Company’s cost estimates were determined based uponthe monitoring or remediation plans set forth in these work plans and have not been reduced by possible recoveries from third parties nor are theydiscounted. These cost estimates are reviewed on an annual basis or more frequently if circumstances occur that indicate a review is warranted. TheCompany’s estimates include equipment and operating costs for remediation and long-term monitoring of the sites. The Company does not believethat the losses for the known exposures will exceed the current accruals by material amounts, but there can be no assurances to this effect.

Environmental Sustainability

The Company has pursued environmental sustainability in a number of ways. Processes are monitored in an attempt to produce the least amountof waste. None of the Company’s facilities are rated above Small Quantity Generated status. All of the waste disposal firms used by the Company arecarefully selected in an attempt to prevent any future Superfund involvements. Actions are taken in an attempt to minimize the generation of hazardouswastes and to minimize air emissions. None of the Company’s facilities are classified as sites that generate more than minimal air emissions. Recyclingof process water is a common practice. Best management practices are used in an effort to prevent contamination of soil and ground water on theCompany’s sites. The Company has an active health, safety and environmental audit program in place throughout the world.

Market Risk Information

The Company is currently exposed to market risk from changes in foreign currency rates and changes in interest rates. A discussion of theCompany’s market risk exposure in financial instruments follows.

Foreign Currency Exchange RatesA large portion of the Company’s operations consist of manufacturing and sales activities in foreign jurisdictions, principally in Europe, Canada,West

Africa, the Middle East, Latin America and the Pacific Rim. As a result, the Company’s financial performance may be affected by changes in foreigncurrency exchange rates or weak economic conditions in these markets. Overall, the Company generally is a net receiver of Pounds Sterling andCanadian dollars and, therefore, benefits from a weaker U.S. dollar with respect to these currencies. Typically, the Company is a net payer of euros andNorwegian krone as well as other currencies such as the Singapore dollar and the Brazilian real. A weaker U.S. dollar with respect to these currenciesmay have an adverse effect on the Company. For each of the last three years, the Company’s gain or loss from foreign currency-denominated

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• the political environments of oil and gas producing regions, including the Middle East;• the depletion rates of gas wells in North America; and• advances in exploration and development technology.

Fluctuations in worldwide currency markets can impact the Company’s profitability.The Company has established multiple “Centers of Excellence” facilities for manufacturing such products as subsea trees, subsea chokes, subsea

production controls and BOPs. These production facilities are located in the United Kingdom and other European and Asian countries. To theextent the Company sells these products in U.S. dollars, the Company’s profitability is eroded when the U.S. dollar weakens against the Britishpound, the euro and certain Asian currencies, including the Singapore dollar.

Cancellation of orders could affect the Company’s future sales and profitability.Cooper Cameron accepts purchase orders that may be subject to cancellation, modification or rescheduling. Changes in the economic

environment and the financial condition of the oil and gas industry could result in customer requests for modification, rescheduling or cancellationof contractual orders. The Company is typically protected against financial losses related to products and services it has provided prior to anycancellation. However, if the Company’s customers cancel existing purchase orders, future profitability may be negatively impacted.

The Company's international operations expose it to instability and changes in economic and political conditions, foreign currency fluctuations, trade and investment regulations and other risks inherent to international business.

The risks of international business include the following:• volatility in general economic, social and political conditions;• differing tax rates, tariffs, exchange controls or other similar restrictions;• changes in currency rates;• inability to repatriate income or capital;• compliance with, and changes in, domestic and foreign laws and regulations that impose a range of restrictions on operations, trade

practices, trade partners and investment decisions. From time to time, the Company receives inquiries regarding its compliancewith such laws and regulations. The Company received a voluntary request for information dated September 2, 2005 from the U.S.Securities and Exchange Commission regarding certain of the Company’s West African activities and has responded to this request. The Company believes it has complied with all applicable laws and regulations with respect to its activities in this region. Additionally,the U.S. Department of Treasury’s Office of Foreign Assets Control made an inquiry regarding U.S. involvement in a United Kingdomsubsidiary’s commercial and financial activity relating to Iran in September 2004 and the U.S. Department of Commerce made an inquiryregarding sales by another United Kingdom subsidiary to Iran in February 2005. The Company responded to these two inquiries andhas not received any additional requests related to these matters;

• reductions in the number or capacity of qualified personnel; and• seizure of equipment.

Cooper Cameron has manufacturing and service operations that are essential parts of its business in developing countries and economically andpolitically volatile areas in Africa, Latin America, Russia and other countries that were part of the Former Soviet Union, the Middle East, and Central andSouth East Asia. The Company also purchases a large portion of its raw materials and components from a relatively small number of foreign suppliersin developing countries. The ability of these suppliers to meet the Company’s demand could be adversely affected by the factors described above.

Cooper Compression’s aftermarket revenues associated with legacy equipment are declining.During 2005, approximately 35% of Cooper Compression’s revenues came from the sale of replacement parts for equipment that the

Company no longer manufactures. Many of these units have been in service for long periods of time, and are gradually being replaced. As thisinstalled base of legacy equipment declines, the Company’s potential market for parts orders is also reduced. In recent years, the Company’srevenues from replacement parts associated with legacy equipment have declined nominally.

Changes in the equity and debt markets impact pension expense and funding requirements for the Company's defined benefit plans.The Company accounts for its defined benefit pension plans in accordance with Statement of Financial Accounting Standards No. 87, Employers’

Accounting for Pensions, (SFAS 87), which requires that amounts recognized in the financial statements be determined on an actuarial basis. Asignificant element in determining the Company’s pension income or expense in accordance with SFAS 87 is the expected return on plan assets. The assumed long-term rate of return on assets is applied to a calculated value of plan assets which results in an estimated return on plan assetsthat is included in current year pension income or expense. The difference between this expected return and the actual return on plan assetsis deferred and amortized against future pension income or expense. Due to the weakness in the overall equity markets from 2000 through2002, the plan assets earned a rate of return substantially less than the assumed long-term rate of return during this period. As a result, expenseassociated with the Company’s pension plans has increased significantly from the level recognized historically.

Additionally, SFAS 87 requires the recognition of a minimum pension liability to the extent the assets of the plans are below the accumulatedbenefit obligation of the plans. In order to avoid recognizing this minimum pension liability, the Company contributed approximately $13.7 millionto its pension plans during 2005, $18.2 million in 2004 and $18.7 million in 2003. If the Company’s pension assets perform poorly in the futureor interest rates decrease, the Company may be required to recognize a minimum pension liability in the future or fund additional amounts to

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Management’s Report on Internal Control Over Financial Reporting

The Company maintains a system of internal controls that is designed to provide reasonable but not absolute assurance as to thereliable preparation of the consolidated financial statements. The Company’s management, including its Chief Executive Officer andChief Financial Officer, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls willprevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable,but not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect thefact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherentlimitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of errorsor fraud, if any, within Cooper Cameron have been detected.

The control environment of Cooper Cameron is the foundation for its system of internal controls over financial reporting and isembodied in the Company’s Standards of Conduct. It sets the tone of the Company’s organization and includes factors such as integrityand ethical values. The Company’s internal controls over financial reporting are supported by formal policies and procedures that arereviewed, modified and improved as changes occur in the Company’s business or as otherwise required by applicable rule-making bodies.

The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets periodically with membersof management, the internal audit department and the independent registered public accountants to review and discuss internal controlsover financial reporting and accounting and financial reporting matters. The independent registered public accountants and internal auditreport to the Audit Committee and accordingly have full and free access to the Audit Committee at any time.

Assessment of Internal Control Over Financial Reporting

Cooper Cameron’s management is responsible for establishing and maintaining adequate internal control (as defined in Rule 13a-15(f)under the Securities Exchange Act of 1934) over financial reporting.

Management conducted an evaluation of the effectiveness of its internal control over financial reporting based on the frameworkestablished in "Internal Control – Integrated Framework" issued by the Committee of Sponsoring Organizations of the TreadwayCommission. This evaluation included a review of the documentation surrounding the Company’s financial controls, an evaluation of thedesign effectiveness of these controls, testing of the operating effectiveness of these controls and a conclusion on this evaluation. Althoughthere are inherent limitations in the effectiveness of any system of internal controls over financial reporting – including the possibilityof the circumvention or overriding of controls – based on management’s evaluation, management has concluded that the Company’sinternal controls over financial reporting were effective as of December 31, 2005, based on the framework established in "Internal Control– Integrated Framework". However, because of changes in conditions, it is important to note that internal control system effectivenessmay vary over time.

In conducting management’s evaluation of the effectiveness of the Company’s internal controls over financial reporting, theoperations of the Flow Control segment of Dresser, Inc. and of NuFlo Technologies, Inc., both acquired during 2005, were excluded. These businesses constituted $407.4 million and $259.5 million of total and net assets, respectively, as of December 31, 2005 and $96.7million and $11.9 million of revenues and pre-tax income, respectively, for the year ended December 31, 2005.

Ernst &Young LLP, an independent registered public accounting firm that has audited the Company's financial statements as of and forthe three-year period ended December 31, 2005, has issued an attestation report on management’s assessment of internal control overfinancial reporting, which is included herein.

Sheldon R. EriksonChairman of the Board,President and Chief Executive Officer

Franklin MyersSenior Vice President andChief Financial Officer

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transactions has not been material.In order to mitigate the effect of exchange rate changes, the Company will often attempt to structure sales contracts to provide for collections from

customers in the currency in which the Company incurs its manufacturing costs. In certain instances, the Company will enter into forward foreign currencyexchange contracts to hedge specific large anticipated receipts in currencies for which the Company does not traditionally have fully offsetting localcurrency expenditures. While there were no material outstanding foreign currency forward contracts at December 31, 2004, the Company was party toa number of long-term foreign currency forward contracts at December 31, 2005. The purpose of the majority of these contracts was to hedge largeanticipated non-functional currency cash flows on a major subsea contract involving the Company's wholly-owned subsidiary in the United Kingdom. Information relating to the contracts and the fair value recorded in the Company's Consolidated Balance Sheet at December 31, 2005 follows:

Year of Contract Expiration(amounts in thousands except exchange rates) 2006 2007 2008 2009 Total

Sell USD/Buy GBP:Notional amount to sell (in U.S. dollars) $ 141.4 $ 65.4 $ 11.0 $ 2.6 $ 220.4Average GBP to USD contract rate 1.8148 1.8091 1.8039 1.7989 1.8124Average GBP to USD forward rate at December 31, 2005 1.7248 1.7311 1.7358 1.7383 1.7274

Fair value at December 31, 2005 in U.S. dollars $ (10.3)

Buy Euro/Sell GBP:Notional amount to buy (in euros) 28.9 16.0 0.9 — 45.8Average GBP to EUR contract rate 1.4137 1.3902 1.3693 1.3450 1.4045Average GBP to EUR forward rate at December 31, 2005 1.4399 1.4232 1.4068 1.3854 1.4333

Fair value at December 31, 2005 in U.S. dollars $ (1.1)

Buy NOK/Sell GBP:Notional amount to buy (in Norwegian krone) 37.2 20.7 0.6 — 58.5Average GBP to NOK contract rate 11.4303 11.2999 11.2173 — 11.3817Average GBP to NOK forward rate at December 31, 2005 11.5135 11.4447 11.3542 — 11.4874

Fair value at December 31, 2005 in U.S. dollars $ (0.1)

Interest RatesThe Company is subject to interest rate risk on its long-term fixed interest rate debt and, to a lesser extent, variable interest rate borrowings. Changes

in market interest rates expose the Company's cash flows to risk with regard to its variable-rate debt. Changes in market interest rates expose the fairvalue of the Company's fixed-rate debt to risk which could result in a gain or loss in the event the Company was required to refinance such debt priorto maturity at a different rate.

The Company has performed a sensitivity analysis to determine how market rate changes might affect the fair value of its debt.This analysis is inherentlylimited because it represents a singular, hypothetical set of assumptions.Actual market movements may vary significantly from the assumptions.The effectsof market movements may also directly or indirectly affect the Company’s assumptions and its rights and obligations not covered by the sensitivity analysis.Fair value sensitivity is not necessarily indicative of the ultimate cash flow or the earnings effect from the assumed market rate movements.

An instantaneous one-percentage-point decrease in interest rates across all maturities and applicable yield curves would have increased the fairvalue of the Company’s fixed-rate debt positions by approximately $15.8 million ($8.7 million at December 31, 2004), whereas a one-percent-age-point increase in interest rates would have decreased the fair value of the Company's fixed rate debt by $14.7 million at December 31, 2005. This analysis does not reflect the effect that increasing or decreasing interest rates would have on other items, such as new borrowings, nor theimpact they would have on interest expense and cash payments for interest.

The Company manages its debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps as a toolto achieve that goal. The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments,potentialincreases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions.

In May 2004, the Company entered into interest rate swap agreements on a notional amount of $150.0 million of its senior notes due April15, 2007 (Senior Notes) to take advantage of short-term interest rates available. Under these agreements, the Company received interest fromthe counterparties at a fixed rate of 2.65% and paid a variable interest rate based on the published six-month LIBOR rate less 82.5 to 86.0basis points. On June 7, 2005, the Company terminated these interest rate swaps and paid the counterparties approximately $1.1 million, whichrepresented the fair market value of the agreements at the time of termination and was recorded as an adjustment to the carrying value of therelated debt. This amount is being amortized as an increase to interest expense over the remaining term of the debt. The company's interestexpense was increased by $0.3 million for the year ended December 31, 2005 as a result of the amortization of the termination payment.

The fair value of the Company’s Senior Notes is principally dependent on changes in prevailing interest rates. The fair values of the 1.5%Convertible Debentures and the 1.75% Convertible Debentures are principally dependent on both prevailing interest rates and the Company’scurrent share price as it relates to the initial conversion prices of $34.52 and $47.55 per share, respectively (the conversion prices have beenrevised to reflect the 2-for-1 stock split effective December 15, 2005).

The Company has various other long-term debt instruments of $3.7 million ($4.5 million at December 31, 2004), but believes that the impact

38

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders ofCooper Cameron Corporation

We have audited the accompanying consolidated balance sheets of Cooper Cameron Corporation (the Company) as of December 31,2005 and 2004, and the related statements of consolidated results of operations, changes in stockholders’ equity, and cash flows for each ofthe three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidatedfinancial position of Cooper Cameron Corporation at December 31, 2005 and 2004, and the consolidated results of its operations andits cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generallyaccepted in the United States.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theeffectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on criteria established in“Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission andour report dated February 24, 2006 expressed an unqualified opinion thereon.

Houston,TexasFebruary 24, 2006

41

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Board of Directors and Stockholders ofCooper Cameron Corporation

We have audited management’s assessment, included in the Assessment of Internal Control Over Financial Reporting in theaccompanying Management’s Report on Internal Control Over Financial Reporting, that Cooper Cameron Corporation maintainedeffective internal control over financial reporting as of December 31, 2005, based on criteria established in “Internal Control – IntegratedFramework” issued by the Committee of Sponsoring Organizations of theTreadway Commission (the COSO criteria).Cooper CameronCorporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment andan opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal controlover financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal controlover financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internalcontrol, and performing such other procedures as we considered necessary in the circumstances.We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples.A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detectionof unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections ofany evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Assessment of Internal Control Over Financial Reporting included in Management’s Report onInternal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control overfinancial reporting did not include the internal controls of the Flow Control segment of Dresser, Inc. (the Acquired Dresser Businesses)and NuFloTechnologies, Inc. (NuFlo) which are included in the 2005 consolidated financial statements of Cooper Cameron Corporationand constituted $407.4 million and $259.5 million of total and net assets, respectively, as of December 31, 2005 and $96.7 million and$11.9 million of revenues and pre-tax income, respectively, for the year then ended. Both NuFlo and the Acquired Dresser Businesseswere acquired by Cooper Cameron Corporation during 2005. Our audit of internal control over financial reporting of CooperCameron Corporation also did not include an evaluation of the internal control over financial reporting of NuFlo and the AcquiredDresser Businesses.

In our opinion, management’s assessment that Cooper Cameron Corporation maintained effective internal control over financialreporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, CooperCameron Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005,based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of Cooper Cameron Corporation as of December 31, 2005 and 2004, and the related statements ofconsolidated results of operations, changes in stockholders’ equity and cash flows for each of the three years in the period endedDecember 31, 2005 and our report dated February 24, 2006 expressed an unqualified opinion thereon.

Houston,TexasFebruary 24, 2006

40

Consolidated Balance Sheets

(dollars in thousands, except shares and per share data)

December 31,

2005 2004

AssetsCash and cash equivalents $ 361,971 $ 226,998Receivables, net 574,099 424,767Inventories, net 705,809 454,713Other 86,177 98,846 Total current assets 1,728,056 1,205,324

Plant and equipment, at cost less accumulated depreciation 525,715 478,651Goodwill 577,042 415,102Other assets 267,749 257,353

Total assets $ 3,098,562 $ 2,356,430

Liabilities and stockholders’ equityCurrent portion of long-term debt $ 6,471 $ 7,319Accounts payable and accrued liabilities 891,519 516,872Accrued income taxes 23,871 4,069 Total current liabilities 921,861 528,260

Long-term debt 444,435 458,355Postretirement benefits other than pensions 40,104 42,575Deferred income taxes 39,089 40,388Other long-term liabilities 58,310 58,605 Total liabilities 1,503,799 1,128,183

Commitments and contingencies — —

Stockholders’ equity:Common stock, par value $.01 per share, 150,000,000 shares

authorized, 115,629,117 shares issued and outstanding at December 31, 2005 (54,933,658 pre 2-for-1 split shares issued at December 31, 2004) 1,156 549

Preferred stock, par value $.01 per share, 10,000,000 shares authorized, no shares issued or outstanding — —

Capital in excess of par value 1,113,001 948,740Retained earnings 443,142 272,012Accumulated other elements of comprehensive income 37,464 94,974Less: Treasury stock at cost, 1,795,843 pre 2-for-1 split shares

at December 31, 2004 — (88,028) Total stockholders’ equity 1,594,763 1,228,247

Total liabilities and stockholders’ equity $ 3,098,562 $ 2,356,430

The Notes to Consolidated Financial Statements are an integral part of these statements.

43

Consolidated Results of Operations

(dollars in thousands, except per share data)

Year Ended December 31,

2005 2004 2003

Revenues $ 2,517,847 $ 2,092,845 $ 1,634,346

Costs and expenses:Cost of sales (exclusive of depreciation and amortization shown separately below) 1,796,277 1,560,268 1,181,650Selling and administrative expenses 381,267 300,124 288,569Depreciation and amortization 78,398 82,841 83,565Non-cash write-down of technology investment — 3,814 —Interest income (13,060) (4,874) (5,198)Interest expense 11,953 17,753 8,157

Total costs and expenses 2,254,835 1,959,926 1,556,743

Income before income taxes and cumulative effect of accounting change 263,012 132,919 77,603Income tax provision (91,882) (38,504) (20,362)

Income before cumulative effect of accounting change 171,130 94,415 57,241Cumulative effect of accounting change — — 12,209

Net income $ 171,130 $ 94,415 $ 69,450

Basic earnings per share:1Before cumulative effect of accounting change $ 1.55 $ 0.89 $ 0.53Cumulative effect of accounting change — — 0.11

Net income per share $ 1.55 $ 0.89 $ 0.64

Diluted earnings per share:1Before cumulative effect of accounting change $ 1.52 $ 0.88 $ 0.52Cumulative effect of accounting change — — 0.10

Net income per share $ 1.52 $ 0.88 $ 0.62

1 Prior year earnings per share amounts have been revised to reflect the 2-for-1 stock split effective December 15, 2005. See Note 13 of the Notesto Consolidated Financial Statements.

The Notes to Consolidated Financial Statements are an integral part of these statements.

42

Consolidated Changes in Stockholders’ Equity

(dollars in thousands)Accumulated

otherCapital in elements of

Common excess of Retained comprehensive Treasurystock par value earnings income stock Total

Balance – December 31, 2002 $ 546 $ 949,188 $ 108,147 $ (14,789) $ (1,789) $ 1,041,303Net income 69,450 69,450Foreign currency translation 70,908 70,908Minimum pension liability, net of

$433 in taxes (699) (699)Change in fair value of short-term

investments, net of $56 in taxes (91) (91)Comprehensive income 139,568

Purchase of treasury stock (60,694) (60,694)Common stock issued under stock option

and other employee benefit plans 3 4,447 7,819 12,269Tax benefit of employee stock benefit

plan transactions 4,831 4,831Costs related to forward stock purchase

agreements and other (554) (554)

Balance – December 31, 2003 549 957,912 177,597 55,329 (54,664) 1,136,723Net income 94,415 94,415Foreign currency translation 40,332 40,332Minimum pension liability, net of

$352 in taxes (568) (568)Change in fair value of short-term

investments and other, net of $0 in taxes (119) (119)Comprehensive income 134,060

Purchase of treasury stock (95,325) (95,325)Common stock issued under stock option

and other employee benefit plans (15,817) 61,961 46,144Tax benefit of employee stock benefit

plan transactions 6,645 6,645

Balance – December 31, 2004 549 948,740 272,012 94,974 (88,028) 1,228,247Net income 171,130 171,130Foreign currency translation (49,110) (49,110)Change in fair value of derivatives accounted

for as cash flow hedges, net of $3,873 in taxes (8,441) (8,441)Other comprehensive income recognized in

current year earnings, net of $18 in taxes 41 41Comprehensive income 113,620

Non-cash stock compensation expense 2,790 2,790Purchase of treasury stock (9,395) (9,395)Common stock issued under stock option

and other employee benefit plans 31 124,230 97,423 221,684Tax benefit of employee stock benefit

plan transactions 37,817 37,817Stock split 576 (576) —

Balance – December 31, 2005 $ 1,156 $ 1,113,001 $ 443,142 $ 37,464 $ — $ 1,594,763

The Notes to Consolidated Financial Statements are an integral part of these statements.

45

Consolidated Cash Flows

(dollars in thousands)

Year Ended December 31,

2005 2004 2003

Cash flows from operating activities:Net income $ 171,130 $ 94,415 $ 69,450Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 64,018 70,157 68,242 Amortization 14,380 12,684 15,323 Write-off of unamortized debt issuance costs associated with retired debt — 6,844 — Non-cash stock compensation expense 2,790 — — Non-cash write-down of investments 2,458 3,814 — Cumulative effect of accounting change — — (12,209) Tax benefit of employee benefit plan transactions, deferred income taxes and other 34,049 (14,704) (979)

Changes in assets and liabilities, net of translation, acquisitions and non-cash items: Receivables (80,659) (44,387) 3,212 Inventories (137,384) 76,207 (59,843) Accounts payable and accrued liabilities 255,213 (9,063) 44,620 Other assets and liabilities, net 26,094 (736) (26,199) Net cash provided by operating activities 352,089 195,231 101,617

Cash flows from investing activities:Capital expenditures (77,508) (53,481) (64,665)Acquisitions, net of cash acquired (328,570) (171,032) —Purchases of short-term investments — — (154,523)Sales of short-term investments — 22,033 157,910Other 5,474 10,133 9,172

Net cash used for investing activities (400,604) (192,347) (52,106)

Cash flows from financing activities:Loan repayments, net (2,243) (4,919) (496)Issuance of long-term senior and convertible debt — 437,862 —Redemption of convertible debt (14,821) (443,903) —Debenture issuance costs — (6,538) —Purchase of treasury stock (9,395) (95,325) (48,652)Activity under stock option plans and other 218,987 41,979 1,280

Net cash provided by (used for) financing activities 192,528 (70,844) (47,868)

Effect of translation on cash (9,040) 2,842 16,673

Increase (decrease) in cash and cash equivalents 134,973 (65,118) 18,316Cash and cash equivalents, beginning of year 226,998 292,116 273,800

Cash and cash equivalents, end of year $ 361,971 $ 226,998 $ 292,116

The Notes to Consolidated Financial Statements are an integral part of these statements.

44

during the preliminary project stage and post-implementation stage of new software systems projects, including data conversion and trainingcosts, are expensed as incurred. Depreciation and amortization is provided over the estimated useful lives of the related assets, or in the caseof assets under capital leases, over the related lease term, if less, using the straight-line method. Depreciation expense for the years endedDecember 31, 2005, 2004 and 2003 was $64,018,000, $70,157,000 and $68,242,000, respectively. The estimated useful lives of the major classesof property, plant and equipment are as follows:

EstimatedUseful Lives

Buildings and leasehold improvements 10 - 40 yearsMachinery and equipment 3 - 18 yearsOffice furniture, software and other 3 - 10 years

Goodwill — In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), theCompany reviews goodwill at least annually for impairment at the reporting unit level, or more frequently if indicators of impairment are present.The Company conducts its annual review by comparing the estimated fair value of each reporting unit to its respective book value. The estimatedfair value for the 2005, 2004 and 2003 annual evaluations was determined using discounted cash flows and other market-related valuation models.Certain estimates and judgments are required in the application of the fair value models. Each of the annual evaluations indicated that no impairmentof goodwill was required. The Company’s reporting units for SFAS 142 purposes are Cameron, Petreco, CCV, Cooper Energy Services andCooperTurbocompressor. Petreco is included in the Cameron segment and Cooper Energy Services and CooperTurbocompressor are combinedin the Cooper Compression segment for segment reporting purposes (see Note 14 of the Notes to Consolidated Financial Statements for furtherdiscussion of the Company’s business segments).

Intangible Assets — The Company’s intangible assets, excluding goodwill and unrecognized prior service costs related to its pension plan,represent purchased patents, trademarks, customer lists and other identifiable intangible assets. The majority of other identifiable intangibleassets are amortized on a straight-line basis over the years expected to be benefited, generally ranging from 5 to 20 years. Such intangiblesare tested for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable. As manyareas of the Company’s business rely on patents and proprietary technology, it has followed a policy of seeking patent protection both insideand outside the United States for products and methods that appear to have commercial significance. The costs of internally developing anyintangibles, as well as costs of defending such intangibles, are expensed as incurred.

Long-Lived Assets — In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposalof Long-Lived Assets (SFAS 144), long-lived assets, excluding goodwill and indefinite-lived intangibles, to be held and used by the Companyare reviewed to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not berecoverable. For long-lived assets to be held and used, the Company bases its evaluation on impairment indicators such as the nature of theassets, the future economic benefit of the assets, any historical or future profitability measurements and other external market conditions orfactors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of theasset may not be recoverable, the Company determines whether an impairment has occurred through the use of an undiscounted cash flowanalysis of the asset at the lowest level for which identifiable cash flows exist. If an impairment has occurred, the Company recognizes a lossfor the difference between the carrying amount and the fair value of the asset. Assets are classified as held for sale when the Company hasa plan for disposal of such assets and those assets meet the held for sale criteria contained in SFAS 144 and are stated at estimated fair valueless estimated costs to sell.

Product Warranty — Estimated warranty expense is accrued either at the time of sale based upon historical experience or, in some cases, whenspecific warranty problems are encountered. Adjustments to the recorded liability are made periodically to reflect actual experience.

Contingencies — The Company accrues for costs relating to litigation, including litigation defense costs, claims and other contingent matters,including tax contingencies and liquidated damage liabilities, when such liabilities become probable and reasonably estimable. Such estimates may bebased on advice from third parties or on management’s judgment, as appropriate. Revisions to contingent liability reserves are reflected in incomein the period in which different facts or information become known or circumstances change that affect our previous assumptions with respectto the likelihood or amount of loss. Amounts paid upon the ultimate resolution of contingent liabilities may be materially different from previousestimates and could require adjustments to the estimated reserves to be recognized in the period such new information becomes known.

Income Taxes — The asset and liability approach is used to account for income taxes by recognizing deferred tax assets and liabilities for theexpected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Incometax expense includes U.S. and foreign income taxes, including U.S. federal taxes on undistributed earnings of foreign subsidiaries to the extentsuch earnings are planned to be remitted. Taxes are not provided on the translation component of comprehensive income since the effectof translation is not considered to modify the amount of the earnings that are planned to be remitted. The Company records a valuationallowance to reduce its deferred tax assets to the amount that is more likely than not to be realized considering future taxable income andongoing prudent and feasible tax planning strategies.

47

Notes to Consolidated Financial Statements

Note 1: Summary of Major Accounting Policies

Company Operations — Cooper Cameron Corporation (the Company or Cooper Cameron) is engaged primarily in the manufacture of oiland gas pressure control and separation equipment, including valves, wellheads, controls, chokes, blowout preventers and assembled systemsfor oil and gas drilling, production and transmission processes used in onshore, offshore and subsea applications. Cooper Cameron alsomanufactures and services air and gas compressors and turbochargers.

Principles of Consolidation — The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. Investments from 20% to 50% in affiliated companies are accounted for using the equity method. The Company’s operations are organizedinto three separate business segments. These segments are Cameron, Cooper Cameron Valves (CCV) and Cooper Compression. Additionalinformation regarding each segment may be found in Note 14 of the Notes to Consolidated Financial Statements.

Estimates in Financial Statements — The preparation of the financial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, estimated losses on accounts receivable, estimated warranty costs, estimated realizable value onexcess inventory, contingencies, estimated liabilities for liquidated damages, estimates related to pension accounting, estimated proceeds fromassets held for sale and estimates related to deferred tax assets. Actual results could differ materially from these estimates.

Revenue Recognition — The Company generally recognizes revenue once the following four criteria are met: (i) persuasive evidence of anarrangement exists, (ii) delivery of the equipment has occurred or services have been rendered, (iii) the price of the equipment or serviceis fixed and determinable and (iv) collectibility is reasonably assured. For certain engineering, procurement and construction-type contracts,which typically include the Company’s subsea systems and processing equipment contracts, revenue is recognized in accordance with Statementof Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1). Under SOP 81-1,the Company recognizes revenue on these contracts using a units-of-completion method. Under the units-of-completion method, revenue isrecognized once the manufacturing process is complete for each piece of equipment specified in the contract with the customer. This wouldinclude customer inspection and acceptance, if required by the contract. Approximately 13% and 15% of the Company’s revenues for theyears ended December 31, 2005 and 2004, respectively, was recognized under SOP 81-1.

Shipping and Handling Costs — Shipping and handling costs are reflected in the caption entitled “Cost of sales (exclusive of depreciation andamortization shown separately below)” in the accompanying Consolidated Results of Operations statement.

Cash Equivalents — For purposes of the Consolidated Cash Flows statement, the Company considers all investments purchased with originalmaturities of three months or less to be cash equivalents.

Short-term Investments — Investments in available for sale marketable debt and equity securities are carried at fair value, based on quotedmarket prices. Differences between cost and fair value are reflected as a component of accumulated other elements of comprehensive incomeuntil such time as those differences are realized. The basis for computing realized gains or losses is the specific identification method. Therealized gains on short-term investments included in the Consolidated Results of Operations were $0, $0 and $278,000 for the years endedDecember 31, 2005, 2004 and 2003, respectively. If the Company determines that a loss is other than temporary, such loss will be chargedto earnings.

Allowance for Doubtful Accounts — The Company maintains allowances for doubtful accounts for estimated losses that may result from theinability of its customers to make required payments. Such allowances are based upon several factors including, but not limited to, historicalexperience and the current and projected financial condition of specific customers.

Inventories — Aggregate inventories are carried at cost or, if lower, net realizable value. On the basis of current costs, 42% of inventoriesat December 31, 2005 and 53% at December 31, 2004 are carried on the last-in, first-out (LIFO) method. The remaining inventories, whichare located outside the United States and Canada, are carried on the first-in, first-out (FIFO) method. The Company provides a reserve for itsinventory for estimated obsolescence or excess quantities on hand equal to the difference between the cost of the inventory and its estimatedrealizable value. During 2005 and 2004, the Company revised its estimates of realizable value on certain of its excess inventory. The impact ofthese revisions was to increase the required reserve as of December 31, 2005 and 2004 by $9,900,000 and $6,551,000, respectively. During2005, 2004 and 2003, the Company reduced its LIFO inventory levels. These reductions resulted in a liquidation of certain low-cost inventorylayers. As a result, the Company recorded non-cash LIFO income of $4,033,000, $9,684,000 and $15,932,000 for the years ended December 31,2005, 2004 and 2003, respectively.

Plant and Equipment — Property, plant and equipment, both owned and under capital lease, is carried at cost. Maintenance and repairs areexpensed as incurred. The cost of renewals, replacements and betterments is capitalized. The Company capitalizes software developed orobtained for internal use. Accordingly, the cost of third-party software, as well as the cost of third-party and internal personnel that are directlyinvolved in application development activities, are capitalized during the application development phase of new software systems projects. Costs

46

Foreign Currency — For most subsidiaries and branches outside the U.S., the local currency is the functional currency. In accordance withStatement of Financial Accounting Standards No. 52, Foreign Currency Translation, the financial statements of these subsidiaries and branchesare translated into U.S. dollars as follows: (i) assets and liabilities at year-end exchange rates; (ii) income, expenses and cash flows at averageexchange rates; and (iii) stockholders’ equity at historical exchange rates. For those subsidiaries for which the local currency is the functionalcurrency, the resulting translation adjustment is recorded as a component of accumulated other elements of comprehensive income in theaccompanying Consolidated Balance Sheets.

For certain other subsidiaries and branches, operations are conducted primarily in currencies other than the local currencies, which aretherefore the functional currency. Non-functional currency monetary assets and liabilities are remeasured at year-end exchange rates. Revenue,expense and gain and loss accounts of these foreign subsidiaries and branches are remeasured at average exchange rates. Non-functionalcurrency non-monetary assets and liabilities, and the related revenue, expense, gain and loss accounts are remeasured at historical rates.

Foreign currency gains and losses arising from transactions denominated in a currency other than the functional currency of the entityinvolved are included in income. The effects of foreign currency transactions were gains (losses) of $2,717,000, $(1,982,000) and $5,716,000for the years ended December 31, 2005, 2004 and 2003, respectively.

Reclassifications and Revisions — Certain prior year amounts have been reclassified to conform to the current year presentation. Prior periodearnings per share amounts, shares utilized in the calculation of prior period earnings per share and activity during the three-year period endedDecember 31, 2005 relating to employee stock options outstanding have been revised to reflect the 2-for-1 split of the Company's commonstock effective December 15, 2005.

Cumulative Effect of Accounting Change — In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of AccountingStandards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS 150), which becameeffective for the Company as of the beginning of the third quarter of 2003. SFAS 150 affected the Company’s accounting for its two forwardpurchase agreements, then outstanding, covering 1,006,500 pre-split shares of the Company’s common stock. Prior to the adoption of SFAS 150,these agreements were treated as permanent equity and changes in the fair value of these agreements were not recognized. Upon the adoptionof SFAS 150, the Company recorded these agreements as an asset at their estimated fair value of $12,209,000. This amount has been reflectedas the cumulative effect of an accounting change in the Company’s consolidated results of operations. There was no tax expense associatedwith this item as the gain is not taxable. The Company terminated these forward contracts effective August 14, 2003 by paying the counterpartyapproximately $37,992,000 to purchase the shares covered by these agreements. These shares were reflected as treasury stock in the Company’sconsolidated balance sheet at December 31, 2003 at an amount equal to the cash paid to purchase the shares plus the estimated fair value ofthe agreements. This amount aggregated $50,034,000. The change in the fair value of the forward purchase agreements from July 1, 2003 toAugust 14, 2003, which was a loss of $167,000, was recognized in the Company’s consolidated results of operations.

Recently Issued Accounting Pronouncements — In November 2004, the FASB issued Statement of FinancialAccounting Standards No.151, InventoryCosts (SFAS 151). SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company believes therewill be no material effect on its consolidated financial position, results of operations or cash flows upon adoption of this statement.

In December 2004, the FASB issued SFAS 123R, which requires that all share-based payments to employees, including grants of employeestock options, be recognized over their vesting periods in the income statement based on their estimated fair values. SFAS 123R is effectiveat the beginning of the first fiscal year beginning after June 15, 2005.

Although the Company has not completed its analysis of the impact of SFAS 123R, the Company currently estimates that it will recognizeapproximately $0.10 per diluted share of equity- and option-based compensation expense for 2006 (unaudited), assuming the Companyelects the modified prospective transition alternative. However, this estimate may increase or decrease materially once the Companycompletes its analysis of the impact of SFAS 123R.

Note 2: Plant Closing, Business Realignment and Other Related Costs

Plant closing, business realignment and other related costs by segment during the years ended December 31, 2004 and 2003 were as follows:Year Ended December 31,

(dollars in thousands) 2004 2003

Amounts included in selling and administrative expenses:Cameron $ 4,100 $ 5,784CCV 1,426 —Cooper Compression 570 3,137Corporate — 5,652

Total costs $ 6,096 $ 14,573

49

Environmental Remediation and Compliance — Environmental remediation and postremediation monitoring costs are accrued when suchobligations become probable and reasonably estimable. Such future expenditures are not discounted to their present value.

Pension and Postretirement Benefits Accounting — The Company accounts for its defined benefit pension plans in accordance with Statement ofFinancial Accounting Standards No. 87, Employers' Accounting for Pensions (SFAS 87) and its postretirement health and life insurance benefits inaccordance with Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions(SFAS 106), both of which require that amounts recognized in the financial statements be determined on an actuarial basis. The Company makescertain assumptions in calculating the amounts recognized in the Company's financial statements taking into account current investment yieldson high-grade corporate bonds (discount rate), external market indicators (inflation rate, expected rate of return on plan assets, health care costtrend rate and rate of compensation increase), the Company's compensation strategy (rate of compensation increase), asset allocation strategies(expected rate of return on plan assets) and actual plan experience (expected rate of return on plan assets, retirement and mortality rates). Suchassumptions are reviewed at least annually.

Stock-Based Compensation — At December 31, 2005, the Company had four stock-based employee compensation plans, which are describedin further detail in Note 9 of the Notes to Consolidated Financial Statements. Through December 31, 2005, the Company has measuredcompensation expense for its stock-based compensation plans using the intrinsic value method. Beginning January 1, 2006, compensationexpense for the Company's stock-based compensation plans will be measured using the fair value method required by Statement of FinancialAccounting Standards No. 123 (revised 2004), Share-Based Payments (SFAS 123R), which is described in further detail below. The followingtable illustrates the effect on net income and earnings per share if the Company had used the alternative fair value method required by Statementof Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, to recognize stock-based employee compensationexpense based on the number of shares that vest in each period.

Year Ended December 31,

(dollars in thousands, except per share data) 2005 2004 2003

Net income, as reported $171,130 $ 94,415 $ 69,450Add: Stock compensation expense included in net income 1,816 — —Deduct: Total stock-based employee compensation expense

determined under the fair value method for all awards, net of tax (11,913) (24,818) (23,093)

Pro forma net income $ 161,033 $ 69,597 $ 46,357

Earnings per share:1

Basic - as reported $1.55 $0.89 $0.64Basic - pro forma $1.45 $0.65 $0.43

Diluted - as reported $1.52 $0.88 $0.62Diluted - pro forma $1.41 $0.64 $0.42

1 Prior year amounts have been revised to reflect the 2-for-1 stock split effective December 15, 2005.

During the second quarter of 2004, the Company’s Board of Directors accelerated the vesting on 622,262 pre-split option shares previouslygranted to employees of the Company in an effort to minimize the impact of the Financial Accounting Standards Board’s Exposure Draftentitled “Share-Based Payments” (see “Recently Issued Accounting Pronouncements” below relating to the final issued standard). Althoughthis action established a new measurement date for these options under the intrinsic value method, there was no compensation expenseassociated with this action since the exercise price related to the accelerated options was above the fair market value of the Company’scommon stock on the day the acceleration was effective. However, approximately $10,365,000 of compensation expense under the fairvalue method was accelerated as a result of this action and has been reflected in the above pro forma table as additional compensationexpense for the year ended December 31, 2004.

Derivative Financial Instruments — The Company recognizes all derivative financial instruments as assets and liabilities and measures themat fair value. Under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities(SFAS 133), hedge accounting is only applied when the derivative is deemed highly effective at offsetting changes in anticipated cash flows ofthe hedged item or transaction. Changes in fair value of derivatives that are designated as cash flow hedges are deferred in accumulated othercomprehensive income until the underlying transactions are recognized in earnings, at which time any deferred hedging gains or losses arealso recorded in earnings on the same line as the hedged item. Any ineffective portion of the change in the fair value of a derivative usedas a cash flow hedge is recorded in earnings as incurred. The Company may at times also use forward contracts to hedge foreign currencyassets and liabilities. These contracts are not designated as hedges under SFAS 133. Therefore, the change in fair value of these contractsare recognized in earnings as they occur and offset gains or losses on the related asset or liability.

48

approximately $6,700,000 in cash and a note payable for $500,000. The Unicel acquisition expanded the product offering of Petreco. Unicel's results are included in the Company's consolidated financial statements for the period subsequent to the acquisition date. Goodwillrecorded from the Unicel acquisition totaled approximately $4,330,000 at December 31, 2005, most of which will be deductible for incometax purposes.

On February 27, 2004, the Company acquired one hundred percent of the outstanding stock of Petreco International Inc. (Petreco), aHouston-based supplier of oil and gas separation products, for approximately $89,922,000, net of cash acquired and debt assumed. Petrecoprovides highly engineered, custom processing products to the oil and gas industry worldwide and provides the Company with additionalproduct offerings that are complementary to its existing products. Petreco's results are included in the Company's consolidated financialstatements for the period subsequent to the acquisition date. Total goodwill recorded as a result of the Petreco acquisition was approximately$74,325,000 at December 31, 2005, most of which will not be deductible for income tax purposes.

Note 4: Receivables

Receivables consisted of the following:December 31,

(dollars in thousands) 2005 2004

Trade receivables $ 560,638 $ 414,150Other receivables 23,236 15,130Allowance for doubtful accounts (9,775) (4,513)

Total receivables $ 574,099 $ 424,767

Note 5: Inventories

Inventories consisted of the following:December 31,

(dollars in thousands) 2005 2004

Raw materials $ 97,035 $ 63,674Work-in-process 214,730 119,073Finished goods, including parts and subassemblies 498,938 346,247Other 3,408 2,984

814,111 531,978Excess of current standard costs over LIFO costs (37,829) (29,487)Allowance for obsolete and excess inventory (70,473) (47,778)

Total inventories $ 705,809 $ 454,713

Note 6: Plant and Equipment, Goodwill and Other Assets

Plant and equipment consisted of the following:December 31,

(dollars in thousands) 2005 2004

Land and land improvements $ 36,229 $ 36,832Buildings 220,315 219,764Machinery and equipment 587,967 563,824Tooling, dies, patterns, etc. 55,383 55,182Office furniture & equipment 93,919 86,861Capitalized software 83,221 76,903Assets under capital leases 20,754 18,917All other 14,555 14,830Construction in progress 35,079 21,960 1,147,422 1,095,073Accumulated depreciation (621,707) (616,422)

Total plant and equipment $ 525,715 $ 478,651

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During 2004, the Company’s selling and administrative expenses included $6,096,000 of severance costs, primarily related to a workforcereduction program at Cameron, which was completed as of December 31, 2004.

During 2003, the Company’s selling and administrative expenses included plant closing, business realignment and other related costs totaling$14,573,000. This amount was comprised of (i) $6,181,000 for employee severance at Cameron and at Cooper Compression , (ii) $1,240,000of other plant closure costs at Cooper Compression related to the closure of 13 facilities announced in the fourth quarter of 2002, (iii)$4,646,000 related to the Company’s unsuccessful efforts to acquire a certain oil service business, (iv) $1,006,000 related to the Company’sinternational tax restructuring activities, which were begun in 2002 and (v) $1,500,000 related to a litigation award associated with the use ofcertain intellectual property obtained in connection with a previous acquisition.

The number of employees terminated as a result of the above actions were approximately 406 and 266 in 2004 and 2003, respectively.A summary of the impact during 2005 on various liability accounts associated with the aforementioned actions taken follows:

AdjustmentsBalance at to Accruals TranslationBeginning Through Cash and Balance at

(dollars in thousands) of Year Earnings Disbursements Other End of Year

Severance $ 238 $ (5) $ (233) $ — $ —Facility closure 3,524 2,580 (2,688) 375 3,791Retained liabilities from sale of Rotating business 1,469 — (307) (150) 1,012Environmental 3,537 1,010 (191) (606) 3,750

Total $ 8,768 $ 3,585 $ (3,419) $ (381) $ 8,553

Note 3: Acquisitions

On September 1, 2005, the Company announced it had agreed to acquire substantially all of the businesses included within the Flow Controlsegment of Dresser, Inc. (the Dresser Flow Control Acquisition). On November 30, 2005, the Company completed the acquisition of all ofthese businesses other than a portion of the business which was acquired on January 10, 2006. Total acquisition cost for the businesses, whichwill expand the Company's valves product line, was approximately $217,483,000 in cash and assumed debt. The acquired operations servecustomers in the worldwide oil and gas production, pipeline and process markets and have been included in the Company's consolidatedfinancial statements for the period subsequent to the acquisition in the CCV segment.

A preliminary purchase price allocation for the Dresser Flow Control Acquisition resulted in goodwill of approximately $83,673,000 atDecember 31, 2005, less than one-half of which is currently estimated to be deductible for income tax purposes. The purchase price allocationis subject to adjustment as the Company is awaiting a significant amount of additional information relating to the fair value of Dresser's assetsand liabilities. Additionally, the Company expects to finalize a working capital settlement with Dresser during 2006. In connection withthe integration of the businesses into CCV, the Company anticipates closing certain facilities, relocating other operations and involuntarilyterminating or relocating employees of the acquired businesses, most of which will occur in 2006. Such costs will be accrued or expensed asincurred.

On May 11, 2005, the Company acquired one hundred percent of the outstanding stock of NuFlo Technologies, Inc. (NuFlo), a Houston-based supplier of metering and related flow measurement equipment, for approximately $121,294,000 in cash and assumed debt, includingan additional payment during the third quarter of 2005 reflecting additional working capital acquired. NuFlo’s results are included in theCompany’s consolidated financial statements for the period subsequent to the acquisition date in the CCV segment. A preliminary purchaseprice allocation for the NuFlo acquisition resulted in the addition of approximately $75,402,000 of goodwill for the period ended December 31,2005, most of which will not be deductible for income tax purposes. The purchase price allocation is subject to adjustment, as the Companyis awaiting additional information related to the fair value of NuFlo’s assets and liabilities.

Also, during 2005, the Company made three small product line acquisitions.Two of the acquisitions, totaling $10,118,000,were complementaryto the current product offerings in the Cameron segment. One acquisition in the amount of $1,022,000, plus certain additional amounts thathave been deferred for annual payout over a three-year period ending January 5, 2008, was incorporated into the CCV segment. The resultsof the acquired entities have been included in the Company's consolidated financial statements for the period subsequent to the respectiveacquisition dates. Total goodwill recorded as a result of these acquisitions amounted to $6,648,000, the majority of which will be deductiblefor income tax purposes.

On November 29, 2004, the Company acquired certain businesses of the PCC Flow Technologies segment of Precision Castparts Corp.(PCC), for approximately $79,668,000, net of cash acquired and debt assumed, subject to adjustment based upon the actual net assets ofthe businesses at the acquisition date. The operations acquired serve customers in the surface oil and gas production, pipeline and processmarkets. The results of the PCC entities acquired are included in the Company’s consolidated financial statements for the period subsequentto the acquisition date. Goodwill recorded at December 31, 2005 for the PCC acquisition totaled approximately $17,313,000, most of whichwill not be deductible for income tax purposes.

On July 2, 2004, the Company acquired the assets of Unicel, Inc. (Unicel), a Louisiana-based supplier of oil separation products, for

50

Activity during the year associated with the Company’s product warranty accruals was as follows (dollars in thousands):

Warranty ChargesBalance Effects of Provisions During Against Translation Balance

December 31, 2004 Acquisitions the Year Accrual and Other December 31, 2005

$16,481 $5,173 $21,789 $(17,977) $(436) $25,030

Note 8: Employee Benefit Plans

Total net benefit plan expense associated with the Company’s defined benefit pension and postretirement benefit plans consisted of the following:Postretirement

Pension Benefits Benefits

(dollars in thousands) 2005 2004 2003 2005 2004 2003

Service cost $ 7,574 $ 7,036 $ 6,597 $ 7 $ 12 $ 11Interest cost 22,215 21,255 19,842 1,502 2,601 3,118Expected return on plan assets (28,807) (27,795) (23,440) — — —Amortization of prior service cost (526) (526) (467) (388) (463) (80)Amortization of losses (gains) and other 9,925 7,988 7,838 (956) 747 —

Total net benefit plan expense $ 10,381 $ 7,958 $ 10,370 $ 165 $ 2,897 $ 3,049

Net benefit plan expense:U.S. plans $ 3,155 $ 2,819 $ 5,957 $ 165 $ 2,897 $ 3,049Foreign plans 7,226 5,139 4,413 — — —

Total net benefit plan expense $ 10,381 $ 7,958 $ 10,370 $ 165 $ 2,897 $ 3,049

The change in the benefit obligations associated with the Company’s defined benefit pension and postretirement benefit plans consisted of the following:Postretirement

Pension Benefits Benefits

(dollars in thousands) 2005 2004 2005 2004

Benefit obligation at beginning of year $ 414,569 $ 359,521 $ 26,672 $ 42,624Service cost 7,574 7,036 7 12Interest cost 22,215 21,255 1,502 2,601Plan participants’ contributions 910 549 — —Curtailments — (250) — —Actuarial losses (gains) 22,924 32,462 (998) (14,798)Exchange rate changes (25,384) 14,943 — —Benefits paid directly or from plan assets (19,181) (20,947) (2,271) (3,767)Expenses paid from plan assets (730) — — —

Benefit obligation at end of year $ 422,897 $ 414,569 $ 24,912 $ 26,672

Benefit obligations at end of year :U.S. plans $ 203,017 $ 198,689 $ 24,912 $ 26,672Foreign plans 219,880 215,880 — —

Benefit obligation at end of year $ 422,897 $ 414,569 $ 24,912 $ 26,672

The total accumulated benefit obligation for the Company’s defined benefit pension plans was $393,149,000 and $389,762,000 at December 31, 2005and 2004, respectively.

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Changes in goodwill during 2005 were as follows:Cooper

(dollars in thousands) Cameron CCV Compression Total

Balance at December 31, 2004 $ 223,558 $ 129,322 $ 62,222 $ 415,102Acquisitions:

Flow Control segment of Dresser, Inc. — 83,673 — 83,673NuFlo Technologies, Inc. — 75,402 — 75,402Other acquisitions 5,926 722 — 6,648

Finalization of prior year acquisition adjustments:PCC Flow Technologies 8,465 (1,384) — 7,081Unicel (1,372) — — (1,372)Petreco 7,540 — — 7,540

Translation and other (14,185) (2,847) — (17,032)

Balance at December 31, 2005 $ 229,932 $ 284,888 $ 62,222 $ 577,042

Other assets consisted of the following:

December 31,

(dollars in thousands) 2005 2004

Long-term prepaid benefit costs of defined benefit pension plans $ 133,875 $ 137,086Deferred income taxes 53,767 61,487Intangible assets related to pension plans 101 101Other intangibles:

Nonamortizable 8,509 9,565Gross amortizable 53,316 30,106Accumulated amortization (9,972) (6,833)

Other 28,153 25,841

Total other assets $ 267,749 $ 257,353

Amortization associated with the Company’s capitalized software and other amortizable intangibles (primarily patents, trademarks, customer listsand other) recorded as of December 31, 2005 is expected to approximate $12,703,000, $12,122,000, $10,686,000, $9,507,000 and $8,530,000 forthe years ending December 31, 2006, 2007, 2008, 2009 and 2010, respectively.

Note 7: Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:December 31,

(dollars in thousands) 2005 2004

Trade accounts payable and accruals $ 409,385 $ 252,049Salaries, wages and related fringe benefits 128,144 89,654Advances from customers 240,980 88,269Payroll and other taxes 25,858 22,456Product warranty 25,030 16,481Fair value of derivatives 7,688 —Deferred income taxes 6,846 13,505Product liability 5,552 5,603Accruals for plant closing, business realignment and other related costs 1,068 5,670Other 40,968 23,185

Total accounts payable and accrued liabilities $ 891,519 $ 516,872

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PostretirementPension Benefits Benefits

(dollars in thousands) 2005 2004 2005 2004

Balance sheet classification at end of year :Assets recognized:

U.S. plans $ 74,488 $ 71,021 $ — $ — Foreign plans 59,488 66,166 — —

Liabilities recognized: U.S. plans (4,224) (3,893) (40,104) (42,575) Foreign plans (3,715) (4,256) — —

Accumulated other comprehensive income, net of tax: U.S. plans 331 331 — — Foreign plans 1,176 1,176 — —

Total recognized $ 127,544 $ 130,545 $ (40,104) $ (42,575)

The weighted-average assumptions associated with the Company’s defined benefit pension and postretirement benefit plans were as follows:Postretirement

Pension Benefits Benefits

2005 2004 2005 2004

Assumptions related to net benefit costs:Domestic plans:

Discount rate 5.75% 6.25% 5.75% 6.25% Expected return on plan assets 8.5% 8.75% — — Rate of compensation increase 4.5% 4.5% — — Health care cost trend rate — — 10.0% 11.0% Measurement date 1/1/2005 1/1/2004 10/1/2004 10/1/2003

International plans: Discount rate 5.0 - 5.5% 5.0 - 5.5% — — Expected return on plan assets 5.0 - 6.75% 5.5 - 7.5% — — Rate of compensation increase 2.75 - 4.0% 2.75 - 4.0% — — Measurement date 1/1/2005 1/1/2004 — —

Assumptions related to end of period benefit obligations:Domestic plans:

Discount rate 5.75% 5.75% 5.5% 5.75% Rate of compensation increase 4.5% 4.5% — — Health care cost trend rate — — 9.0% 10.0% Measurement date 12/31/2005 12/31/2004 10/1/2005 10/1/2004

International plans: Discount rate 4.25 - 5.0% 5.0 - 5.5% — — Rate of compensation increase 2.75 - 4.0% 2.75 - 4.0% — — Measurement date 12/31/2005 12/31/2004 — —

The expected long-term rates of return on assets used to compute expense for the year ended December 31, 2005 were lowered fromrates used in 2004 to reflect estimated future investment returns and anticipated asset allocations and investment strategies.

The rate of compensation increase for the domestic plans is based on an age-grade scale ranging from 3.0% to 7.5% with a weighted-aver-age rate of approximately 4.5%.

The health care cost trend rate is assumed to decrease gradually from 9.0% to 5.0% by 2010 and remain at that level thereafter. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:

One-percentage- One-percentage-

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The change in the plan assets associated with the Company’s defined benefit pension and postretirement benefit plans consisted of the following:Postretirement

Pension Benefits Benefits

(dollars in thousands) 2005 2004 2005 2004

Fair value of plan assets at beginning of year $ 384,788 $ 342,296 $ — $ —Actual return on plan assets 37,543 25,853 — —Actuarial gains 9,475 5,010 — —Company contributions 13,652 18,210 2,271 3,767Plan participants’ contributions 910 549 — —Exchange rate changes (22,798) 13,250 — —Benefits paid from plan assets (18,898) (20,380) (2,271) (3,767)Expenses paid from plan assets (730) — — —

Fair value of plan assets at end of year $ 403,942 $ 384,788 $ — $ —

Fair value of plan assets at end of year :U.S. plans $ 201,867 $ 193,790 $ — $ —Foreign plans 202,075 190,998 — —

Fair value of plan assets at end of year $ 403,942 $ 384,788 $ — $ —

Asset investment allocations for the Company’s main defined benefit pension and postretirement benefit plans in the United States and theUnited Kingdom, which account for approximately 99% of total plan assets, are as follows:

PostretirementPension Benefits Benefits

2005 2004 2005 2004

U.S. plan:Equity securities 65% 62% — —Fixed income debt securities and cash 35% 38% — —

U.K. plan:Equity securities 51% 48% — —Fixed income debt securities and cash 49% 52% — —

In each jurisdiction, the investment of plan assets is overseen by a plan asset committee whose members act as trustees of the plan and set investmentpolicy. For the years ended December 31, 2005 and 2004, the investment strategy has been designed to approximate the performance of market indexes. The actual asset allocations at December 31, 2005 were weighted slightly heavier toward equity securities than the stated targeted allocations.

During 2005, the Company made contributions totaling $13,652,000 to the assets of its various defined benefit plans. Minimum contributions for2006 are currently expected to approximate $2,042,000, assuming no change in the current discount rate or expected investment earnings.

The net assets (liabilities) associated with the Company’s defined benefit pension and postretirement benefit plans recognized on the balancesheet consisted of the following:

PostretirementPension Benefits Benefits

(dollars in thousands) 2005 2004 2005 2004

Plan assets less than benefit obligations at end of year $ (18,955) $ (29,781) $ (24,912) $ (26,672)Unrecognized net loss (gain) 150,045 164,770 (12,132) (12,455)Unrecognized prior service cost (2,988) (3,510) (3,060) (3,448)Prepaid (accrued) pension cost 128,102 131,479 (40,104) (42,575)

Underfunded plan adjustments recognized:Accrued minimum liability (2,166) (2,542) — —Intangible asset 101 101 — —Accumulated other comprehensive income, net of tax 1,507 1,507 — —

Net assets (liabilities) recognized on balancesheet at end of year $ 127,544 $ 130,545 $ (40,104) $ (42,575)

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and therefore, the Company is eligible for the applicable Federal subsidies. Accordingly, the Company recorded a reduction of $3,668,000 inits postretirement benefit obligation at December 31, 2004 and a reduction in its 2005 postretirement benefit expense of $609,000.

Note 9: Equity Compensation Plans

Equity Award PlansThe Company has grants outstanding under four equity compensation plans, only one of which, the 2005 Equity Incentive Plan (2005

EQIP), is currently available for grants of equity compensation awards to employees and non-employee directors. The number of sharesauthorized by shareholders for use under the 2005 EQIP was the number of authorized shares remaining available under the Company's Long-term Incentive Plan, as Amended and Restated as of November 2002 (the Long-term Incentive Plan), which expired under its own terms in May2005, and the Second Amended and Restated 1995 Stock Option Plan for Non-employee Directors (the Non-employee Director Plan), whichwas merged into the EQIP at the time of shareholder approval in May 2005. The fourth plan under which there remain grants outstanding isthe Broad Based 2000 Incentive Plan (The Broad Based Incentive Plan), which has been terminated. The plans other than the 2005 EQIP areknown as the "historical plans". Options remain outstanding under the historical plans but no further grants will be made from those plans. Shareholder approval will be required for any future increases in the amount of shares authorized for use under the 2005 EQIP.

The following table summarizes stock option activity for each of the three years ended December 31 (all amounts have been revised toreflect the 2-for-1 stock split effective December 15, 2005):

Number of Shares2005 Equity Broad Based Long-term Non-employee Weighted-

Incentive Incentive Incentive Director AveragePlan Plan Plan Plan Exercise Prices

Stock options outstanding at December 31, 2002 — 5,602,438 10,205,730 626,940 $22.96

Options granted — 548,092 2,795,472 72,000 $22.13Options cancelled — (329,450) (604,312) (131,032) $26.62Options exercised — (195,776) (1,200,074) (12,000) $15.68Stock options outstanding at December 31, 2003 — 5,625,304 11,196,816 555,908 $23.16

Options granted — 74,800 1,202,124 72,000 $25.28Options cancelled — (182,402) (506,042) (75,480) $27.54Options exercised — (958,992) (1,819,510) (96,060) $19.10Stock options outstanding at December 31, 2004 — 4,558,710 10,073,388 456,368 $23.88

Options granted 1,641,433 — 914,226 12,000 $32.60Options cancelled (24,000) (21,196) (229,890) (60,000) $30.03Options exercised (98,294) (3,432,528) (7,001,928) (132,214) $23.53

Stock options outstanding at December 31, 2005 1,519,139 1,104,986 3,755,796 276,154 $27.49

Weighted-average exercise price ofoptions outstanding at December 31, 2005 $35.75 $22.85 $25.55 $26.95 $27.49

Information relating to selected ranges of exercise prices for outstanding and exercisable options at December 31, 2005 was as follows:

Options Outstanding Options Exercisable

Weighted-Number Average Years Weighted- Number Weighted-

Range of Outstanding as Remaining on Average Exercisable as AverageExercise Prices of 12/31/2005 Contractual Life Exercise Price of 12/31/2005 Exercise Price

$12.09 — $21.38 609,580 3.70 $17.24 593,852 $17.16$21.47 — $21.47 1,302,768 7.87 $21.47 508,404 $21.47$21.83 — $25.16 1,161,742 6.02 $24.22 740,019 $23.81$25.47 — $27.56 944,346 5.15 $27.10 490,346 $26.71$27.70 — $31.97 773,574 5.39 $29.43 746,774 $29.47$32.35 — $36.50 370,764 2.12 $33.94 370,764 $33.94$36.56 — $36.56 1,105,000 6.86 $36.56 — —$36.75 — $39.47 324,940 3.83 $38.41 298,940 $38.38

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(dollars in thousands) point Increase point Decrease

Effect on total of service and interest cost components in 2005 $ 78 $ (70)Effect on postretirement benefit obligation as of December 31, 2005 $ 1,419 $ (1,273)

Year-end amounts applicable to the Company’s pension plans with projected benefit obligations in excess of plan assets and accumulatedbenefit obligations in excess of plan assets were as follows:

Projected Benefit Accumulated BenefitObligation in Excess Obligation in Excess

of Plan Assets of Plan Assets

(dollars in thousands) 2005 2004 2005 2004

Fair value of applicable plan assets $ 202,509 $ 384,788 $ 4,881 $ 4,750Projected benefit obligation of applicable plans $ (224,692) $ (414,569) — —Accumulated benefit obligation of applicable plans — — $ (12,802) $ (12,898)

The Company sponsors the Cooper Cameron Corporation Retirement Plan (Retirement Plan) covering the majority of salaried U.S.employees and certain domestic hourly employees, as well as separate defined benefit pension plans for employees of its U.K. and Germansubsidiaries, and several unfunded defined benefit arrangements for various other employee groups. The U.K. defined benefit pension planwas frozen with respect to new entrants effective June 14, 1996, and the Retirement Plan was frozen with respect to most new entrantseffective May 1, 2003. Additionally, with respect to the Retirement Plan, the basic credits to participant account balances decreased from 4% ofcompensation below the Social Security Wage Base plus 8% of compensation in excess of the Social Security Wage Base to 3% and 6%, respectively,and vesting for participants who had not completed three full years of vesting service as of May 1, 2003 changed from a three-year graded vestingwith 33% vested after three years and 100% vested after five years to five-year cliff vesting.

In addition, the Company’s domestic employees who are not covered by a bargaining unit and certain others are also eligible to participatein the Cooper Cameron Corporation Retirement Savings Plan. Under this plan, employees’ savings deferrals are partially matched in cashand invested at the employees' discretion. Additionally, the Company makes cash contributions for hourly employees who are not coveredunder collective bargaining agreements and will make contributions equal to 2% of earnings of new employees hired on or after May 1, 2003,who are not eligible for participation in the Retirement Plan, based upon the achievement of certain financial objectives by the Company. The Company’s expense under this plan for the years ended December 31, 2005, 2004 and 2003 amounted to $9,573,000, $8,026,000 and$8,050,000, respectively. In addition, the Company provides savings plans for employees under collective bargaining agreements and, in the caseof certain international employees, as required by government mandate, which provide for, among other things, Company matching contributionsin cash based on specified formulas. Expense with respect to these various defined contribution and government mandated plans for the yearsended December 31, 2005, 2004 and 2003 amounted to $15,760,000, $16,213,000 and $12,810,000, respectively.

Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

PostretirementPension Benefits Benefits

(dollars in thousands) U.S. Plans Foreign Plans

Year ended December 31:2006 $ 13,469 $ 4,121 $ 2,6682007 $ 14,388 $ 4,306 $ 2,6182008 $ 13,634 $ 4,478 $ 2,5582009 $ 16,268 $ 4,653 $ 2,4482010 $ 15,521 $ 4,676 $ 2,3282011 - 2015 $ 88,008 $ 25,375 $ 9,928

Certain of the Company’s employees participate in various domestic employee welfare benefit plans, including medical, dental andprescriptions. Certain employees will receive retiree medical, prescription and life insurance benefits. All of the welfare benefit plans, includingthose providing postretirement benefits, are unfunded.

Effective January 1, 2004, various postretirement benefit plans were consolidated to standardize the provisions across all plans and updatethe plan design to control rising costs, which resulted in an actuarial gain of $3,825,000 that is being amortized over ten years.

In May 2004, the FASB issued FASB Staff Position 106-2, Accounting and Disclosure Requirements related to the Medicare PrescriptionDrug, Improvement and Modernization Act of 2003 (FSP 106-2). FSP 106-2 provides accounting and reporting guidance relating to subsidiesavailable under the Act to companies who have plans providing prescription drug benefits that are considered to be actuarially equivalent toMedicare Part D. During 2004, the Company's actuaries concluded that the Company's plan does provide an actuarially equivalent benefit

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discontinued the Cooper Cameron Employee Stock Purchase Plan, effective July 31, 2004, the end of the 2003/2004 plan year. Additionally,the Plan expired under its existing terms on May 1, 2005. Prior to discontinuance and expiration of the Plan, employees had the ability toelect each year to have up to 10% of their annual compensation withheld to purchase the Company’s common stock at a price equal to 85%of the lower of the beginning-of-plan year or end-of-plan year market price of the stock.

Following is the activity under the Employee Stock Purchase Plan prior to discontinuance and expiration (amounts are revised to reflect the2-for-1 stock split effective December 15, 2005):

2003 / 2004 2002 / 2003Plan Plan

Shares purchased by employees 293,700 324,880Average price per share $20.355 $17.925

Note 10: Long-term Debt

The Company’s debt obligations were as follows:December 31,

(dollars in thousands) 2005 2004

Senior notes, net of $805 of unamortized original issue discount and deferredloss on termination of interest rate swaps ($103 at December 31, 2004) $ 199,195 $ 200,473

Convertible debentures 238,750 253,750Other debt 3,705 4,475Obligations under capital leases 9,256 6,976

450,906 465,674Current maturities (6,471) (7,319)

Long-term portion $ 444,435 $ 458,355

On October 12, 2005, the Company entered into a new $350,000,000 five-year multicurrency revolving credit facility, expiring October 12,2010, subject to certain extension provisions. The credit facility (all of which was available at December 31, 2005) also allows for the issuanceof letters of credit up to the full amount of the facility. The Company has the right to request an increase in the amount of the facility up to$700,000,000 and may request three one-year extensions of the maturity date of the facility, all subject to lender approval. The facility providesfor variable-rate borrowings based on the London Interbank Offered Rate (LIBOR) plus a margin (based on the Company's then-currentcredit rating) or an alternate base rate. The agreement provides for facility and utilization fees and requires that the Company maintain a totaldebt-to-total capitalization ratio of less than 60% during the term of the agreement. The Company was in compliance with all loan covenantsas of December 31, 2005.

On March 12, 2004, the Company issued senior notes due April 15, 2007 (the Senior Notes) in the aggregate amount of $200,000,000,with an interest rate of 2.65%, payable semi-annually on April 15 and October 15. In May 2004, the Company entered into interest rate swapagreements on a notional amount of $150,000,000 of its Senior Notes to take advantage of short-term interest rates available. Under theseagreements, the Company received interest from the counterparties at a fixed rate of 2.65% and paid a variable interest rate based on thepublished six-month LIBOR rate less 82.5 to 86.0 basis points. On June 7, 2005, the Company terminated these interest rate swaps and paidthe counterparties approximately $1,074,000, which represented the fair market value of the agreements at the time of termination and wasrecorded as an adjustment to the carrying value of the related debt. This amount is being amortized as an increase to interest expense overthe remaining term of the debt. The company's interest expense was increased by $327,000 for the year ended December 31, 2005 as aresult of the amortization of the termination payment.

On May 11 and June 10, 2004, the Company issued an aggregate amount of $230,000,000 and $8,000,000, respectively, of twenty-yearconvertible debentures due 2024 with an interest rate of 1.5%, payable semi-annually on May 15 and November 15 (the 1.5% ConvertibleDebentures). The Company has the right to redeem the 1.5% Convertible Debentures anytime after five years at the principal amount plusaccrued and unpaid interest, and the debenture holders have the right to require the Company to repurchase the debentures on the fifth,tenth and fifteenth anniversaries of the issue. The 1.5% Convertible Debentures are convertible into the Company’s common stock at a rate of28.9714 shares per debenture, or $34.52 per share (on a post-stock split basis). The holders can convert the debentures into the Company’scommon stock only under the following circumstances:

• during any quarter in which the sales price of the Company’s common stock exceeds 120% of the conversion price for at least 20consecutive trading days in the 30 consecutive trading-day period ending on the last trading day of the immediately preceding quarter;

• during any five consecutive trading-day period immediately following any five consecutive trading-day period in which the average

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$39.97 — $39.97 58,510 2.47 $39.97 58,510 $39.97$41.21 — $41.21 4,851 5.37 $41.21 4,851 $41.21

$12.09 — $41.21 6,656,075 5.76 $27.49 3,812,460 $26.34

Options with terms of seven years are granted to officers of the Company under the 2005 EQIP with exercise prices equal to the fair valueof the Company's common stock at the date of grant and provide for vesting on the first anniversary date following the date of grant in one-third increments each year. Grants made in prior years to officers and other key employees under the Long-term and Broad Based IncentivePlans provided similar terms, except that the options terminated after ten years rather than seven. Additionally, the Company has certainoptions outstanding that were granted to certain key executives in lieu of salary for years prior to 2003. These options became exercisable atthe end of the respective salary period and expire five years after the beginning of the salary period. The Options in Lieu of Salary Programwas discontinued effective January 1, 2003.

Under a Compensation Program for Non-Employee Directors approved by the Board of Directors in July 2005, non-employee directorsare entitled to receive an initial grant of 6,000 deferred stock units from the 2005 EQIP plan upon first being elected to the Board and agrant of 4,000 deferred stock units annually thereafter (post-split basis). These units, which have no exercise price and no expiration date, vestin one-fourth increments quarterly over the following year but cannot be converted into common stock until the earlier of termination ofBoard service or three years, although Board members have the ability to voluntarily defer conversion for a longer period of time. Additionally,Board members receive (i) an annual cash retainer of $50,000, (ii) an annual retainer for the Chair of the Audit Committee of $15,000 and(iii) an annual retainer for other Committee Chairs of $10,000. These cash retainers may be voluntarily converted into deferred stock unitsor deferred in cash accounts with the same investment options as those available to employees under the Cooper Cameron CorporationRetirement Savings Plan. Directors are also required to maintain stock ownership in the Company equal to five times the annual retainer, alevel to be attained within three years of the program's initiation or upon first being elected to the Board. This program replaced a similarprogram under the Company's Non-employee Director Plan which provided in prior years for an initial option grant of 12,000 shares uponfirst joining the Board of Directors and an annual option grant of 12,000 shares thereafter (post-split basis). Such options, which had exerciseprices equal to the fair value of the Company's common stock at the date of grant, became exercisable one year following the date of grantand generally expire five years following the date of grant.

During 2005, the Company began issuing restricted stock units to key employees other than officers in place of stock options. The initialgrant to employees at the beginning of the year provided for time-based vesting of one-fourth of the grant on the first and second anniversariesof the date of grant with the remaining one-half of the original award vesting on the third anniversary of the date of grant. Unvested portionsof the award are cancelled in the event of termination of employment. Subsequent grants of restricted stock after June 30, 2005 provided for100% cliff vesting on the third anniversary of the date of grant. A total of 343,400 restricted stock units were granted during 2005 at a fairvalue of $27.69 per share, of which 329,700 remain outstanding at December 31, 2005 after cancellations during the year. The fair value ofrestricted stock unit grants is being amortized to income on a straight-line basis over the expected vesting term of the awards. During 2005,$2,790,000 was recognized as additional compensation expense attributable to the issuance of deferred and restricted stock units.

As of December 31, 2005, 2,336,617 shares were reserved for future grants of options, deferred stock units, restricted stock units andother awards.

Had the Company followed the alternative fair value method of accounting for stock-based compensation, the weighted-average fair valueper share of options granted during 2005, 2004 and 2003 would have been $7.88, $6.57 and $7.34, respectively (revised to reflect the 2-for-1stock split effective December 15, 2005). The weighted-average fair value per share of stock purchases under the Employee Stock PurchasePlan during 2003 would have been $7.73 (post-split). The fair values were estimated using the Black-Scholes model with the followingweighted-average assumptions:

Year Ended December 31,

2005 2004 2003

Expected life (in years) 3.0 3.5 3.4Risk-free interest rate 4.4% 3.1% 2.6%Volatility 27.0% 29.0% 41.8%Dividend yield 0.0% 0.0% 0.0%

Further information on the impact on net income and earnings per share of using the alternative fair value method to recognize stock-basedemployee compensation expense may be found in Note 1 of the Notes to Consolidated Financial Statements.

Employee Stock Purchase Plan

As a result of the issuance of SFAS 123R by the FASB (see Note 1 of the Notes to Consolidated Financial Statements) the Company

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(dollars in thousands) 2005 2004 2003

Income before income taxes:U.S. operations $ 90,930 $ 23,814 $ 21,590Foreign operations 172,082 109,105 56,013

Income before income taxes $ 263,012 $ 132,919 $ 77,603

The provisions (benefits) for income taxes were as follows:

Year Ended December 31,

(dollars in thousands) 2005 2004 2003

Current:U.S. federal $ 32,906 $ 8,831 $ 4,574U.S. state and local 5,243 1,119 1,032Foreign 49,118 18,835 20,288

87,267 28,785 25,894

Deferred:U.S. federal 465 6,046 (293)U.S. state and local 70 909 (44)Foreign 4,080 2,764 (5,195)

4,615 9,719 (5,532)

Income tax provision $ 91,882 $ 38,504 $ 20,362

The reasons for the differences between the provision for income taxes and income taxes using the U.S. federal income tax rate were as follows:Year Ended December 31,

(dollars in thousands) 2005 2004 2003

U.S. federal statutory rate 35.00% 35.00% 35.00%State and local income taxes 1.36 0.85 1.26Tax exempt income (1.00) (2.13) (5.76)Foreign statutory rate differential (6.04) (8.77) (14.84)Change in valuation allowance on deferred tax assets 0.06 0.21 7.08Nondeductible expenses 1.49 1.77 2.30Foreign income currently taxable in U.S. 1.46 2.11 1.29All other 2.60 (0.07) (0.09)

Total 34.93% 28.97% 26.24%

Total income taxes paid $ 34,941 $ 38,853 $ 16,132

Components of deferred tax assets (liabilities) were as follows:December 31,

(dollars in thousands) 2005 2004

Deferred tax liabilities:Plant and equipment $ (33,289) $ (30,544)Inventory (46,208) (50,813)Pensions (47,327) (38,884)Other (22,752) (23,777)

Total deferred tax liabilities (149,576) (144,018)

Deferred tax assets:Postretirement benefits other than pensions 14,387 16,544

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trading price for the debentures is less than 97% of the average conversion value of the debentures;• upon fundamental changes in the ownership of the Company’s common stock, which would include a change of control as defined

in the debenture agreement.The Company has elected to use the “cash pay” provision with respect to its 1.5% Convertible Debentures for any debentures tendered

for conversion or designated for redemption. Under this provision, the Company will satisfy in cash its conversion obligation for 100% ofthe principal amount of any debentures submitted for conversion, with any remaining amount to be satisfied in shares of the Company'scommon stock.

On May 16, 2001, the Company issued two series of convertible debentures with aggregate gross proceeds to the Company of$450,000,000. The first series consisted of twenty-year zero-coupon convertible debentures (the Zero-Coupon Convertible Debentures)with an aggregate principal amount at maturity of approximately $320,756,000, and was repurchased in May 2004 for $259,524,000, net ofunamortized discounts of $61,200,000.

The second series consisted of twenty-year convertible debentures in an aggregate amount of $200,000,000, with an interest rate of 1.75%,payable semi-annually on May 15 and November 15 (the 1.75% Convertible Debentures). The Company has the right to redeem the 1.75%Convertible Debentures anytime after five years at the principal amount plus accrued and unpaid interest, and the debenture holders have theright to require the Company to repurchase the debentures on the fifth, tenth and fifteenth anniversaries of the issue. The 1.75% ConvertibleDebentures are convertible into the Company’s common stock at a rate of 21.0316 shares per debenture, or $47.55 per share (on a post-stock split basis). In May 2004, the Company redeemed $184,250,000 of the 1.75% Convertible Debentures. During February 2005, theCompany retired an additional $15,000,000 of the remaining 1.75% Convertible Debentures.

The net proceeds from the Senior Notes and the 1.5% Convertible Debentures were used to retire the Company’s Zero-CouponConvertible Debentures and a large portion of the 1.75% Convertible Debentures, as well as for other purposes, including share repurchases.

In connection with the early retirement of the Zero-Coupon Convertible Debentures and the 1.75% Convertible Debentures, theCompany recorded a $6,844,000 pre-tax charge to write off the unamortized debt issuance costs associated with these debentures duringthe second quarter of 2004. This charge has been reflected in the caption entitled “Interest Expense” in the accompanying ConsolidatedResults of Operations.

In addition to the above, the Company also has other unsecured and uncommitted credit facilities available to its foreign subsidiaries to fundongoing operating activities. Certain of these facilities also include annual facility fees.

Other debt has a weighted-average interest rate of 2.2% at December 31, 2005 (2.0% at December 31, 2004).Future maturities of the Company’s debt (excluding capital leases) are approximately $3,126,000 in 2006, $200,524,000 in 2007 and

$238,000,000 in 2009. Maturities in 2006 include $750,000 related to the 1.75% Convertible Debentures, which the holders have the rightto require the Company to repurchase on May 18, 2006, and maturities in 2009 include $238,000,000 related to the 1.5% ConvertibleDebentures, which the holders have the right to require the Company to repurchase on May 15, 2009.

Interest paid during the years ended December 31, 2005, 2004 and 2003 approximated $10,908,000, $16,619,000 and $4,143,000, respectively.

Note 11: Leases

The Company leases certain facilities, office space, vehicles and office, data processing and other equipment under capital and operatingleases. Rental expenses for the years ended December 31, 2005, 2004 and 2003 were $20,653,000, $23,157,000 and $21,226,000, respectively. Future minimum lease payments with respect to capital leases and operating leases with terms in excess of one year were as follows:

Capital Operating(dollars in thousands) Lease Payments Lease Payments

Year ended December 31:2006 $ 3,420 $ 25,2182007 3,328 16,7472008 2,057 13,2672009 849 11,7812010 11 10,887Thereafter — 89,322

Future minimum lease payments 9,665 167,222Less: amount representing interest (409) —

Lease obligations at December 31, 2005 $ 9,256 $ 167,222

Note 12: Income Taxes

The components of income before income taxes were as follows:Year Ended December 31,

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employee benefit plans — 1,300,557 1,300,557

Balance - December 31, 2004 54,933,658 (1,795,843) 53,137,815

Purchase of treasury stock — (164,500) (164,500)Stock issued under stock option and other

employee benefit plans 3,130,345 1,960,343 5,090,688Effect of stock split on shares outstanding 57,565,114 — 57,565,114

Balance - December 31, 2005 115,629,117 — 115,629,117

At December 31, 2005, 10,160,736 shares of unissued Common stock were reserved for future issuance under various employee benefit plans.

Preferred Stock

The Company is authorized to issue up to 10,000,000 shares of preferred stock, par value $.01 per share. At December 31, 2005, nopreferred shares were issued or outstanding. Shares of preferred stock may be issued in one or more series of classes, each of which series orclass shall have such distinctive designation or title as shall be fixed by the Board of Directors of the Company prior to issuance of any shares. Each such series or class shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating,optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutionsproviding for the issuance of such series or class of preferred stock as may be adopted by the Board of Directors prior to the issuance of anyshares thereof. A total of 1,500,000 shares of Series A Junior Participating Preferred Stock has been reserved for issuance upon exercise ofthe Stockholder Rights described below.

Stockholder Rights Plan

On May 23, 1995, the Company’s Board of Directors declared a dividend distribution of one Right for each then-current and future outstandingshare of Common stock. Each Right entitles the registered holder to purchase one one-hundredth of a share of Series A Junior ParticipatingPreferred Stock of the Company, par value $.01 per share, for an exercise price of $300. Unless earlier redeemed by the Company at a priceof $.01 each, the Rights become exercisable only in certain circumstances constituting a potential change in control of the Company, describedbelow, and will expire on October 31, 2007.

Each share of Series A Junior Participating Preferred Stock purchased upon exercise of the Rights will be entitled to certain minimum preferentialquarterly dividend payments as well as a specified minimum preferential liquidation payment in the event of a merger, consolidation or other similartransaction. Each share will also be entitled to 100 votes to be voted together with the Common stockholders and will be junior to any otherseries of Preferred Stock authorized or issued by the Company, unless the terms of such other series provides otherwise.

Except as otherwise provided in the Plan, in the event any person or group of persons acquire beneficial ownership of 20% or more of theoutstanding shares of Common stock, each holder of a Right, other than Rights beneficially owned by the acquiring person or group (which willhave become void), will have the right to receive upon exercise of a Right that number of shares of Common stock of the Company, or, in certaininstances, Common stock of the acquiring person or group, having a market value equal to two times the current exercise price of the Right.

Retained Earnings

Delaware law, under which the Company is incorporated, provides that dividends may be declared by the Company’s Board of Directorsfrom a current year’s earnings as well as from the total of capital in excess of par value plus the retained earnings, which amounted to approximately$1,556,143,000 at December 31, 2005.

Note 14: Business Segments

The Company’s operations are organized into three separate business segments — Cameron, CCV and Cooper Compression.Based upon the amount of equipment installed worldwide and available industry data, Cameron is one of the world’s leading providers of

systems and equipment used to control pressures and direct flows of oil and gas wells. Cameron’s products include surface and subsea productionsystems, blowout preventers, drilling and production control systems, oil and gas separation equipment, gate valves, actuators, chokes, wellheads,drilling risers and aftermarket parts and services. Based upon the amount of equipment installed worldwide and available industry data, CCVis a leading provider of valves and related systems primarily used to control pressures and direct the flow of oil and gas as they are movedfrom individual wellheads through flow lines, gathering lines and transmission systems to refineries, petrochemical plants and industrial centersfor processing. CCV’s products include gate valves, ball valves, butterfly valves, Orbit valves, rotary process valves, block and bleed valves,plug valves, globe valves, check valves, actuators, chokes and aftermarket parts and service. Cooper Compression provides reciprocating andcentrifugal compression equipment and related aftermarket parts and services for the energy industry and for manufacturing companies andchemical process industries worldwide.

The Company’s primary customers are major and independent oil and gas exploration and production companies, foreign national oil andgas companies, engineering and construction companies, drilling contractors, pipeline operators, refiners and other industrial and petrochemical

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Reserves and accruals 45,135 33,154Net operating losses and related deferred tax assets 143,739 135,095Other 4,978 49

Total deferred tax assets 208,239 184,842

Valuation allowance (35,531) (23,860)

Net deferred tax assets $ 23,132 $ 16,964

During the last three years, certain of the Company’s international operations have incurred losses that have not been tax benefited, whileothers utilized part of the previously reserved prior year losses. As a result of the foregoing, the valuation allowances established in prior yearswere increased in 2005, 2004 and 2003, respectively, by $150,000, $247,000 and $5,492,000, with a corresponding increase in the Company’sincome tax expense. In addition, valuation allowances were established to offset the tax benefit of net operating losses and other deferredtax assets recorded as part of an international acquisition. Further, certain valuation allowances are recorded in the non-U.S. dollar functionalcurrency of the operation and the U.S. dollar equivalent has been adjusted for the effect of translation. The valuation reserves were increasedin 2005 by $11,521,000 for these adjustments.

At December 31, 2005, the Company had U.S. net operating loss carryforwards of approximately $289,000,000 that will expire in 2020 -2023 if not utilized. At December 31, 2005, the Company had net operating loss carryforwards of approximately $35,000,000 and $7,000,000in Brazil and Germany, respectively, that had no expiration periods. The Company had net operating loss carryforwards of approximately$6,000,000 in Romania that will expire in 2007 - 2010 if not utilized and approximately $23,000,000 in Italy, most of which will expire in2006 - 2010. The Company had a valuation allowance of $35,531,000 as of December 31, 2005 against the net operating loss and othercarryforwards. Approximately $9,000,000 of this amount will be allocated to reduce goodwill upon any subsequent recognition of the relatedtax benefit. The Company has considered all available evidence in assessing the need for the valuation allowance, including future taxableincome and ongoing prudent and feasible tax planning strategies. In the event the Company were to determine that it would not be able torealize all or part of its net deferred tax asset in the future, an adjustment to the net deferred tax asset would be charged to income in theperiod such determination was made.

The tax benefit that the Company receives with respect to certain stock benefit plan transactions is credited to capital in excess of par value anddoes not reduce income tax expense. This benefit amounted to $37,817,000, $6,645,000 and $4,831,000 in 2005, 2004 and 2003, respectively.

The Company considers that all unremitted earnings of its foreign subsidiaries, except certain amounts primarily earned before 2003, toessentially be permanently reinvested. An estimate of these amounts considered permanently reinvested is $473,000,000. It is not practical forthe Company to compute the amount of additional U.S. tax that would be due on this amount. The Company has provided deferred incometaxes on the earnings that the Company anticipates to be remitted.

Note 13: Stockholders’ Equity

Common Stock

Under its Amended and Restated Certificate of Incorporation, the Company is authorized to issue up to 150,000,000 shares of Commonstock, par value $.01 per share. Effective December 15, 2005, the Company implemented a 2-for-1 split of its common stock in the formof a stock dividend issued to all shareholders at that date. In August 2004, the Company’s Board of Directors approved the repurchase ofup to 5,000,000 shares of the Company’s Common stock through the open market or structured purchases, replacing all previous sharerepurchase authorizations.

Changes in the number of shares of the Company’s outstanding stock for the last three years were as follows:

Common Treasury SharesStock Stock Outstanding

Balance - December 31, 2002 54,566,054 (54,954) 54,511,100

Purchase of treasury stock — (1,251,900) (1,251,900)Stock issued under stock option and other

employee benefit plans 367,604 176,254 543,858

Balance - December 31, 2003 54,933,658 (1,130,600) 53,803,058

Purchase of treasury stock — (1,965,800) (1,965,800)Stock issued under stock option and other

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change $ 63,364 $ 33,694 $ 10,268 $ (29,723) $ 77,603

Capital expenditures $ 40,153 $ 9,664 $ 7,152 $ 7,696 $ 64,665

Total assets $ 1,233,172 $ 320,982 $ 298,020 $ 288,511 $ 2,140,685

For internal management reporting, and therefore the above segment information, consolidated interest income and expense are treatedas a Corporate item because short-term investments and debt, including location, type, currency, etc., are managed on a worldwide basis by theCorporateTreasury Department. In addition, income taxes are managed on a worldwide basis by the CorporateTax Department and are thereforetreated as a corporate item. Spending for the Company’s enterprise-wide software upgrade has been reflected as a Corporate capital expendituresince 2001. In connection with the initial implementation of this system in 2002, amortization expense, as well as the associated asset, is beingreflected in each segment’s information above for 2005, 2004 and 2003.

Geographic revenue by shipping location and long-lived assets related to operations as of and for the years ended December 31 were asfollows:

(dollars in thousands) 2005 2004 2003

Revenues:United States $ 1,365,770 $ 1,016,125 $ 833,935United Kingdom 326,231 444,134 288,693Other foreign countries 825,846 632,586 511,718

Total revenues $ 2,517,847 $ 2,092,845 $ 1,634,346

Long-lived assets:United States $ 655,922 $ 560,088 $ 468,717United Kingdom 125,763 130,057 126,758Other foreign countries 373,026 236,547 195,586

Total long-lived assets $ 1,154,711 $ 926,692 $ 791,061

Note 15: Off-Balance Sheet Risk and Guarantees, Concentrations of Credit Risk and Fair Value of Financial Instruments

Off-Balance Sheet Risk and Guarantees

At December 31, 2005, the Company was contingently liable with respect to $265,568,000 of bank guarantees and standby letters of creditissued on its behalf by major domestic and international financial institutions in connection with the delivery, installation and performance of theCompany's products under contract with customers throughout the world. The Company was also liable to these financial institutions for financialletters of credit and other guarantees issued on its behalf totaling $6,248,000, which provide security to third parties relating to the Company'sability to meet specified financial obligations, including payment of leases, customs duties, insurance and other matters.

In connection with the Dresser Flow Control Acquisition, the Company is obligated to replace all outstanding standby and financial letters ofcredit and other bank guarantees and indemnitees of the acquired businesses and Dresser, Inc. (the Dresser Guarantees) within 120 days of closing. The Dresser Guarantees amounted to $77,673,000 at closing. In the event the Company is unsuccessful in replacing the Dresser Guarantees, theCompany will provide a standby letter of credit to Dresser, Inc. for the full amount of the Dresser Guarantees it was unable to replace and willindemnify Dresser Inc. against any losses for any amounts paid under the Dresser Guarantees, including costs and expenses.

The Company's other off-balance sheet risks were not material at December 31, 2005.

Concentrations of Credit Risk

Apart from its normal exposure to its customers, who are predominantly in the energy industry, the Company had no significantconcentrations of credit risk at December 31, 2005. The Company typically does not require collateral for its customer trade receivables.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, derivative instrumentsand debt instruments. The book values of cash and cash equivalents, trade receivables and trade payables and floating-rate debt instrumentsare considered to be representative of their respective fair values.

At December 31, 2005, the Company was party to a number of long-term foreign currency forward contracts. The purpose of the majorityof the contracts was to hedge large anticipated non-functional currency cash flows on a major subsea contract involving the Company's wholly-owned subsidiary in the United Kingdom. Information relating to the contracts and the fair value recorded in the Company's ConsolidatedBalance Sheet (determined based on quoted forward rates) at December 31, 2005 follows:

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processing companies. Cooper Compression’s customers also include manufacturers and companies in the air separation, power productionand chemical process industries.

The Company markets its equipment through a worldwide network of sales and marketing employees supported by agents and distributorsin selected international locations. Due to the extremely technical nature of many of the products, the marketing effort is further supportedby a staff of engineering employees.

The Company expenses all research and product development and enhancement costs as incurred, or if incurred in connection with aproduct ordered by a customer, when the revenue associated with the product is recognized. For the years ended December 31, 2005, 2004and 2003, the Company incurred research and product development costs, including costs incurred on projects designed to enhance or addto its existing product offerings, totaling approximately $34,394,000, $31,849,000 and $28,703,000, respectively. Cameron accounted for 80%,84% and 85% of each respective year’s total costs.

Summary financial data by segment follows:

For the Year Ended December 31, 2005Cooper Corporate

(dollars in thousands) Cameron CCV Compression & Other Consolidated

Revenues $ 1,507,823 $ 625,124 $ 384,900 $ — $ 2,517,847

Depreciation and amortization $ 43,736 $ 16,787 $ 15,387 $ 2,488 $ 78,398Interest income $ — $ — $ — $ (13,060) $ (13,060)Interest expense $ — $ — $ — $ 11,953 $ 11,953

Income (loss) before income taxes andcumulative effect of accountingchange $ 178,939 $ 101,539 $ 26,675 $ (44,141) $ 263,012

Capital expenditures $ 49,789 $ 13,807 $ 7,269 $ 6,643 $ 77,508

Total assets $ 1,575,363 $ 936,443 $ 280,057 $ 306,699 $ 3,098,562

For the Year Ended December 31, 2004

Cooper Corporate(dollars in thousands) Cameron CCV Compression & Other Consolidated

Revenues $ 1,402,796 $ 350,095 $ 339,954 $ — $ 2,092,845

Depreciation and amortization $ 51,330 $ 12,197 $ 16,896 $ 2,418 $ 82,841Interest income $ — $ — $ — $ (4,874) $ (4,874)Interest expense $ — $ — $ — $ 17,753 $ 17,753

Income (loss) before income taxes andcumulative effect of accountingchange $ 118,828 $ 37,836 $ 24,627 $ (48,372) $ 132,919

Capital expenditures $ 28,929 $ 13,717 $ 6,853 $ 3,982 $ 53,481

Total assets $ 1,430,256 $ 404,360 $ 294,624 $ 227,190 $ 2,356,430

For the Year Ended December 31, 2003

Cooper Corporate(dollars in thousands) Cameron CCV Compression & Other Consolidated

Revenues $ 1,018,517 $ 307,054 $ 308,775 $ — $ 1,634,346

Depreciation and amortization $ 51,211 $ 12,724 $ 17,210 $ 2,420 $ 83,565Interest income $ — $ — $ — $ (5,198) $ (5,198)Interest expense $ — $ — $ — $ 8,157 $ 8,157

Income (loss) before income taxes andcumulative effect of accounting

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Note 17: Earnings Per Share

The calculation of basic and diluted earnings per share for each period presented was as follows (prior year amounts have been revised toreflect the 2-for-1 stock split effective December 15, 2005): Year Ended December 31,(amounts in thousands) 2005 2004 2003

Income before cumulative effect of accounting change $ 171,130 $ 94,415 $ 57,241Cumulative effect of accounting change — — 12,209

Net income 171,130 94,415 69,450Add back interest on convertible debentures, net of tax — — 5,248

Net income (assuming conversion of convertible debentures) $ 171,130 $ 94,415 $ 74,698

Average shares outstanding (basic) 110,732 106,545 108,806Common stock equivalents 1,475 1,163 1,331Incremental shares from assumed conversion of convertible debentures 401 — 9,464

Shares utilized in diluted earnings per share calculation 112,608 107,708 119,601

Year Ended December 31, 2005 2004 2003

Basic earnings per share:Before cumulative effect of accounting change $1.55 $0.89 $0.53Cumulative effect of accounting change — — 0.11

Net income per share $1.55 $0.89 $0.64

Year Ended December 31, 2005 2004 2003

Diluted earnings per share:Before cumulative effect of accounting change $1.52 $0.88 $0.52Cumulative effect of accounting change — — 0.10

Net income per share $1.52 $0.88 $0.62

Diluted shares and net income used in computing diluted earnings per common share have been calculated using the if-converted methodfor the Company’s Zero-Coupon Convertible Debentures and the 1.75% Convertible Debentures for the year ended December 31, 2003. For the years ended December 31, 2005 and 2004, these debentures were anti-dilutive. The Company’s 1.5% Convertible Debentures havebeen included in the calculation of diluted earnings per share for the year ended December 31, 2005, since the market price of the Company'scommon stock exceeded the conversion value of the debentures at year-end. See Note 10 of the Notes to Consolidated Financial Statementsfor further information regarding conversion of theses debentures.

Note 18: Accumulated Other Elements of Comprehensive Income

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Year of Contract Expiration(amounts in thousands except exchange rates) 2006 2007 2008 2009 Total

Sell USD/Buy GBP:Notional amount to sell (in U.S. dollars) $ 141,443 $ 65,406 $ 10,966 $ 2,621 $ 220,436Average GBP to USD contract rate 1.8148 1.8091 1.8039 1.7989 1.8124Average GBP to USD forward rate at December 31, 2005 1.7248 1.7311 1.7358 1.7383 1.7274

Fair value at December 31, 2005 in U.S. dollars $ (10,313)

Buy Euro/Sell GBP:Notional amount to buy (in euros) 28,931 15,965 899 12 45,807Average GBP to EUR contract rate 1.4137 1.3902 1.3693 1.3450 1.4045Average GBP to EUR forward rate at December 31, 2005 1.4399 1.4232 1.4068 1.3854 1.4333

Fair value at December 31, 2005 in U.S. dollars $ (1,128)

Buy NOK/Sell GBP:Notional amount to buy (in Norwegian krone) 37,208 20,671 600 — 58,479Average GBP to NOK contract rate 11.4303 11.2999 11.2173 — 11.3817Average GBP to NOK forward rate at December 31, 2005 11.5135 11.4447 11.3542 — 11.4874

Fair value at December 31, 2005 in U.S. dollars $ (82)

Approximately $7,688,000 of the fair value of these contracts is reflected as a current liability at December 31, 2005 based on the scheduledexpiration of the foreign currency forward contracts. The remainder is included in other long-term liabilities in the Company's ConsolidatedBalance Sheet at December 31, 2005. The Company has recognized a pre-tax loss in 2005 of approximately $701,000, primarily throughreduced revenues, in connection with the ineffectiveness of certain of the hedges in offsetting the foreign currency impact on the relatedanticipated foreign currency cash flows. The Company anticipates that approximately $4,371,000 of the fair value loss on these hedgesreported in accumulated other comprehensive income at December 31, 2005 will be reclassified into earnings during 2006 as additionalrevenues are recognized on the underlying subsea contract.

The primary portion of the Company’s debt consists of fixed-rate senior notes and convertible debentures. Based on quoted market prices,the book value for this debt at December 31, 2005 was $67,834,000 lower than the fair value. The difference between book value and fairvalue on the Company’s other fixed-rate debt was not material. Additional information on the Company’s debt may be found in Note 10 ofthe Notes to Consolidated Financial Statements.

Note 16: Summary of Noncash Operating, Investing and Financing Activities

The effect on net assets of noncash operating, investing and financing activities was as follows:

Year Ended December 31,

(dollars in thousands) 2005 2004

Change in receivables from employees relating to equity issuances fromstock option plan exercises $ (1,400) $ (189)

Tax benefit recognized for certain employee stock benefit plan transactions $ 37,817 $ 6,645Change in fair value of derivatives accounted for as cash flow hedges, net of tax $ (8,441) $ —Other $ — $ (69)

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many years. The Company does not believe, based upon information currently available, that there are any material environmental liabilitiesexisting at these locations. At December 31, 2005, the Company’s consolidated balance sheet included a noncurrent liability of $8,780,000 forenvironmental matters.

Legal MattersAs discussed in Environmental Matters above, the Company is engaged in site cleanup at a former manufacturing site in Houston, Texas.

In 2001, the Company discovered that contaminated underground water at this site had migrated to an adjacent residential area. Pursuantto applicable state regulations, the Company notified the affected homeowners. The Company has entered into 21 written agreements withresidents over the past four years that obligated the Company to either reimburse sellers in the area for the estimated decline in value dueto a potential buyer’s concerns that related to the contamination or, in the case of some of these agreements, to purchase the property afteran agreed marketing period. Four of these agreements have had no claims made under them as yet. To date, the Company has one propertyit has purchased that remains unsold, with an appraised value of $1,850,000. In addition, the Company has settled six other property claimsby homeowners. The Company has had expenses and losses of approximately $7,600,000 since 2002 related to the various agreementswith homeowners. The Company has filed for reimbursement under an insurance policy purchased specifically for this exposure but has notrecognized any potential reimbursement in its consolidated financial statements. The Company entered into these agreements for the purposeof mitigating the potential impact of the disclosure of the environmental issue. It was the Company's intention to stabilize property values inthe affected area to avoid or mitigate future claims. The Company believes it has been successful in these efforts as the number and magnitudeof claims have declined over time and, while the Company has continued to negotiate with homeowners on a case by case basis, the Companyno longer offers these agreements in advance of sale. There are approximately 150 homes in the affected area with an estimated aggregateappraised value of $150,000,000. The homeowners that have settled with the Company have no further claims on these properties. Anunknown number of these properties have sold with no Company support, but with disclosure of the contamination and, therefore, likelyhave no further claims. The Company's financial statements reflect a liability for its estimated exposure under the outstanding agreementswith homeowners. The Company has not reflected a liability in its financial statements for any other potential damages, if any, related to thismatter since the Company is no longer entering into property protection agreements with homeowners in advance of sale. The Companyhas not received any additional significant claims other than the lawsuits discussed below and the Company's remediation efforts are resultingin a lower level of contamination than when originally disclosed to the homeowners. Additionally, the Company is unable to predict futuremarket values of homes in the affected areas and how potential buyers of such homes may view the underground contamination in making apurchase decision.

The Company is a named defendant in two lawsuits regarding this contamination. In Valice v. Cooper Cameron Corporation (80th Jud. Dist.Ct., Harris County, filed June 21, 2002), the plaintiffs claim that the contaminated underground water has reduced property values and threatensthe health of the area residents. The case is filed as a class action. The complaint filed seeks an analysis of the contamination, reclamation andrecovery of actual damages for the loss of property value. The Company is of the opinion that there is no health risk to area residents andthat the lawsuit essentially reflects concerns over possible declines in property value. Counsel for each of the Company, its insurer and theValice plaintiffs are currently negotiating a possible settlement alternative under which homeowners in the affected area would be indemnifiedfor a loss of property value, if any, due to the contamination upon any sale within a limited timeframe. However, there are still significantunresolved issues related to a settlement of this matter including the methodology of quantifying and allocating damages, attorneys’ fees forplaintiffs’ attorneys, agreement on a settlement by all interested parties, a fairness opinion rendered by the Court and the ability of the plaintiffsto obtain approval of the members of the putative class. Absent a settlement with the plaintiffs, the Company does not believe a class would becertified and thus the Company believes it has no liability to the putative class at this point in time. Therefore, the Company has not recordeda liability for this possible settlement in its financial statements.

In Kramer v. Cameron Iron Works, Inc., Cooper Industries, Inc., Cooper Cameron Corporation, andTzunming Hsu and Shan Shan Hsu (190thJudicial District, Harris County, filed May 29, 2003), the plaintiff purchased one of the homes in the area and alleges a failure by the defendantsto disclose the presence of contamination and seeks to recover unspecified monetary damages.

The Company believes any potential exposure from existing agreements and any settlement of the class action, or, based on its review of thefacts and law, any potential exposure from these, or similar, suits will not have a material adverse effect on its financial condition or liquidity.

The Company had been named as a defendant in a suit brought by a purchaser of an option to purchase a parcel of the same formermanufacturing site, Silber/I-10 Venture Ltd., f/k/a Rocksprings Ltd. v. Falcon Interests Realty Corp., Cooper Industries Inc. and Cooper CameronCorporation (212th Judicial District Court, Galveston County, filed August 15, 2002) that alleged fraud and breach of contract regarding theenvironmental condition of the parcel under option. The parties have settled this matter and the case has been dismissed.

The Company has been named as a defendant in a number of multi-defendant, multi-plaintiff tort lawsuits since 1995, 215 of which havebeen closed and 236 of which remained open as of December 31, 2005. Of the 215 cases closed, 57 have been by a settlement at a costof approximately $22,207 per case. The Company made no settlement payments in the remaining 158 cases. At December 31, 2005, theCompany’s consolidated balance sheet included a liability of $3,465,000 for the 236 cases which remain open, which includes legal costs.

The Company believes, based on its review of the facts and law, that the potential exposure from the remaining suits will not have a materialadverse effect on its financial condition or liquidity.

Tax ContingenciesThe Company has operations in over 35 countries. As a result, the Company is subject to various tax filing requirements in these countries.

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Accumulated other elements of comprehensive income comprised the following:December 31,

(dollars in thousands) 2005 2004

Accumulated foreign currency translation gain $ 47,489 $ 96,600Accumulated adjustments to record minimum pension liabilities, net of tax (1,507) (1,507)Change in fair value of derivatives accounted for as cash flow hedges, net of tax (8,518) (119)

$ 37,464 $ 94,974

Note 19: Unaudited Quarterly Operating Results

Unaudited quarterly operating results were as follows (prior period earnings per share amounts have been revised to reflect the 2-for-1stock split effective December 15, 2005):

2005 (by quarter)

(dollars in thousands, except per share data) 1 2 3 4

Revenues $ 547,888 $594,784 $636,613 $738,562Revenues less cost of sales (exclusive of depreciation

and amortization) $ 140,622 $171,853 $186,785 $222,310Income from liquidation of LIFO inventory layers

at Cooper Compression $ — $ — $ — $ 4,033Net income $ 28,591 $ 38,630 $ 49,218 $ 54,691Earnings per share:

Basic $ 0.27 $ 0.35 $ 0.44 $ 0.48Diluted $ 0.26 $ 0.35 $ 0.43 $ 0.47

2004 (by quarter)

(dollars in thousands, except per share data) 1 2 3 4

Revenues $ 462,497 $544,633 $538,467 $547,248Revenues less cost of sales (exclusive of depreciation

and amortization) $ 116,758 $128,211 $143,182 $144,426Plant closing, business realignment and other related costs $ 3,494 $ 562 $ 95 $ 1,945Income from liquidation of LIFO inventory layers,

primarily at Cooper Compression $ — $ — $ 4,319 $ 5,365Net income $ 17,250 $ 18,683 $ 29,484 $ 28,998Earnings per share:

Basic $ 0.16 $ 0.18 $ 0.28 $ 0.27Diluted $ 0.16 $ 0.17 $ 0.27 $ 0.27

Note 20: Contingencies

The Company is subject to a number of contingencies which include environmental matters, litigation and tax contingencies.

Environmental MattersThe Company’s worldwide operations are subject to domestic and international regulations with regard to air, soil and water quality as well

as other environmental matters. The Company, through its environmental management system and active third party audit program, believesit is in substantial compliance with these regulations.

The Company has been identified as a potentially responsible party (PRP) with respect to four sites designated for cleanup under theComprehensive Environmental Response Compensation and Liability Act (CERCLA) or similar state laws. The Company’s involvement attwo of the sites has been resolved with de minimis payment. A third is believed to also be at a de minimis level. The fourth site is Osborne,Pennsylvania (a landfill into which the Cooper Compression operation in Grove City, Pennsylvania deposited waste), where remediation iscomplete and remaining costs relate to ongoing ground water treatment and monitoring.The Company is also engaged in site cleanup underthe Voluntary Cleanup Plan of the Texas Commission on Environmental Quality at former manufacturing locations in Houston and MissouriCity, Texas. Additionally, the Company has discontinued operations at a number of other sites which had previously been in existence for

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Reconciliation of GAAP to Non-GAAP Financial Information

Year ended December 31, 2005Cooper

Cameron Cooper Corporate(dollars in thousands) Cameron Valves Compression and other Total

Income (loss) beforeincome taxes andcumulative effectof accounting change $ 178,939 $ 101,539 $ 26,675 $ (44,141) $ 263,012

Depreciation and amortization 43,736 16,787 15,387 2,488 78,398Interest income — — — (13,060) (13,060)Interest expense — — — 11,953 11,953

EBITDA $ 222,675 $ 118,326 $ 42,062 $ (42,760) $ 340,303

EBITDA (as a percent of revenues) 14.8% 18.9% 10.9% N/A 13.5%

Year ended December 31, 2004Cooper

Cameron Cooper Corporate(dollars in thousands) Cameron Valves Compression and other Total

Income (loss) beforeincome taxes andcumulative effectof accounting change $ 118,828 $ 37,836 $ 24,627 $ (48,372) $ 132,919

Depreciation and amortization 51,330 12,197 16,896 2,418 82,841Interest income — — — (4,874) (4,874)Interest expense — — — 17,753 17,753

EBITDA $ 170,158 $ 50,033 $ 41,523 $ (33,075) $ 228,639

EBITDA (as a percent of revenues) 12.1% 14.3% 12.2% N/A 10.9%

Year ended December 31, 2003Cooper

Cameron Cooper Corporate(dollars in thousands) Cameron Valves Compression and other Total

Income (loss) beforeincome taxes andcumulative effectof accounting change $ 63,364 $ 33,694 $ 10,268 $ (29,723) $ 77,603

Depreciation and amortization 51,211 12,724 17,210 2,420 83,565Interest income — — — (5,198) (5,198)Interest expense — — — 8,157 8,157

EBITDA $ 114,575 $ 46,418 $ 27,478 $ (24,344) $ 164,127

EBITDA (as a percent of revenues) 11.2% 15.1% 8.9% N/A 10.0%

Earnings before interest, taxes, depreciation and amortization expense (EBITDA) is a non-GAAP financial measure. Accordingly, thisschedule provides a reconciliation of EBITDA to income (loss) before income taxes and cumulative effect of accounting change, the mostdirectly comparable financial measure calculated and presented in accordance with Generally Accepted Accounting Principles in the UnitedStates (GAAP). The Company believes the presentation of EBITDA is useful to the Company's investors because EBITDA is viewed as anappropriate measure for evaluating the Company's performance and liquidity and reflects the resources available for strategic opportunitiesincluding, among others, investing in the business, strengthening the balance sheet, repurchasing the Company's securities and making strategicacquisitions. In addition, EBITDA is a widely used benchmark in the investment community. The presentation of EBITDA, however, is not meantto be considered in isolation or as a substitute for the Company's financial results prepared in accordance with GAAP.

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of changes in interest rates in the near term will not be material to these instruments.

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Selected Consolidated Historical Financial Data of Cooper Cameron Corporation

The following table sets forth selected historical financial data for the Company for each of the five years in the period ended December31, 2005. This information should be read in conjunction with the consolidated financial statements of the Company and notes thereto includedelsewhere in this Annual Report.

Year Ended December 31,

(dollars in thousands, except per share data) 2005 2004 2003 2002 2001

Income Statement Data:Revenues $ 2,517,847 $ 2,092,845 $ 1,634,346 $ 1,538,100 $ 1,562,899

Costs and expenses: Cost of sales (exclusive of depreciation and amortization shown separately below) 1,796,277 1,560,268 1,181,650 1,102,504 1,081,078 Selling and administrative expenses 381,267 300,124 288,569 273,105 251,303 Depreciation and amortization 78,398 82,841 83,565 77,907 83,095 Non-cash write-down of technology investment — 3,814 — — — Interest income (13,060) (4,874) (5,198) (8,542) (8,640) Interest expense 11,953 17,753 8,157 7,981 13,481 Total costs and expenses 2,254,835 1,959,926 1,556,743 1,452,955 1,420,317

Income before income taxes and cumulative effect of accounting change 263,012 132,919 77,603 85,145 142,582

Income tax provision (91,882) (38,504) (20,362) (24,676) (44,237)

Income before cumulative effect of accounting change 171,130 94,415 57,241 60,469 98,345

Cumulative effect of accounting change — — 12,209 — —

Net income $ 171,130 $ 94,415 $ 69,450 $ 60,469 $ 98,345

Basic earnings per share:1

Before cumulative effect of accounting change $ 1.55 $ 0.89 $ 0.53 $ 0.56 $ 0.91 Cumulative effect of accounting change — — 0.11 — —

Net income per share $ 1.55 $ 0.89 $ 0.64 $ 0.56 $ 0.91

Diluted earnings per share:1

Before cumulative effect of accounting change $ 1.52 $ 0.88 $ 0.52 $ 0.55 $ 0.87 Cumulative effect of accounting change — — 0.10 — —

Net income per share $ 1.52 $ 0.88 $ 0.62 $ 0.55 $ 0.87

Balance Sheet Data (at the end of period):Total assets $ 3,098,562 $ 2,356,430 $ 2,140,685 $ 1,997,670 $ 1,875,052Stockholders’ equity $ 1,594,763 $ 1,228,247 $ 1,136,723 $ 1,041,303 $ 923,281Long-term debt $ 444,435 $ 458,355 $ 204,061 $ 462,942 $ 459,142Other long-term obligations $ 137,503 $ 141,568 $ 119,982 $ 118,615 $ 114,858

1 Prior year earnings per share amounts have been revised to reflect the 2-for-1 stock split effective December 15, 2005.

Stockholder Information

Transfer Agent and Registrar

Computershare Trust Company, N.A.

General correspondence about your shares should be addressed to:

Computershare Trust Company, N.A.Shareholder ServicesP.O. Box 43069Providence, RI 02940-3069

Website: www.equiserve.comE-mail: equiserve@equiserve.com

Telephone inquiries can be made to the Telephone ResponseCenter at (781) 575-2725, Monday through Friday, 8:30 a.m. to7:00 p.m., Eastern Time.

Additional Stockholder Assistance

For additional assistance regarding your holdings, write to:

Corporate SecretaryCooper Cameron Corporation1333 West Loop South, Suite 1700Houston,Texas 77027Telephone: (713) 513-3322

Annual Meeting

The Annual Meeting of Stockholders will be held at10:00 a.m., Friday, May 5, 2006, at the Company’s corporateheadquarters in Houston, Texas. A meeting notice and proxymaterials are being mailed to all stockholders of record onMarch 10, 2006.

Certifications

The Company filed with the Securities and Exchange Commission,as Exhibit 31 to its Annual Report on Form 10-K for the 2005fiscal year, certifications of its Chief Executive Officer and ChiefFinancial Officer regarding the quality of the Company's publicdisclosures. The Company also submitted to the New YorkStock Exchange (NYSE) the previous year's certification of itsChief Executive Officer certifying that he was not aware of anyviolations by the Company of the NYSE corporate governancelisting standards.

Stockholders of Record

The approximate number of record holders of Cooper Cameroncommon stock was 1,305 as of February 16, 2006.

Common Stock Prices

Cooper Cameron common stock is listed on the New YorkStock Exchange under the symbol CAM. The trading activityduring 2005 and 2004 was as follows (revised to reflect the2-for-1 stock split effective December 15, 2005):

High Low Last2005First Quarter $29.805 $25.52 $28.605Second Quarter 31.99 26.76 31.025Third Quarter 37.695 30.86 36.965Fourth Quarter 43.10 32.21 41.40

High Low Last2004First Quarter $24.745 $20.025 $22.025Second Quarter 25.405 21.465 24.35Third Quarter 27.65 23.48 27.42Fourth Quarter 28.37 23.62 26.905

The following documents are available on theCompany’s website at www.coopercameron.com:

• The Company’s filings with the Securities andExchange Commission (SEC).

• The charters of the Committeesof the Board.

• Other documents that may be requiredto be made so available by the SEC orthe New York Stock Exchange.

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