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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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Form 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2003



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to



Commission File Number 333-60778



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DRESSER, INC.

(Exact name of registrant as specified in its charter)



|Delaware (State or other jurisdiction of  incorporation or organization) |  | 75-2795365 (I.R.S. Employer Identification No.)
|------------------------------------------------------------------------ |  | -----------------------------------------------



15455 Dallas
Parkway, Suite 1100

Addison, Texas 75001

(Address of principal executive offices) (zip code)



(972) 361-9800

(Registrants telephone number, including area code)



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes ̈No x



The number of shares outstanding of common stock (par value $0.01 per share) as of December 4, 2003 was 1,000.



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DRESSER, INC.



INDEX



|           |  |                                                                                                                             |  | PageNo.
|---------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | -------
|           |  | PART I. FINANCIAL INFORMATION                                                                                               |  |        
|           |  |                                                                                                                            
|Item 1.    |  | Financial Statements                                                                                                        |  |        
|           |  | Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002 (unaudited) |  | 3      
|           |  | Condensed Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002                            |  | 4      
|           |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 (unaudited)           |  | 5      
|           |  | Notes to Condensed Consolidated Financial Statements as of September 30, 2003 (unaudited)                                   |  | 6      
|           |  |                                                                                                                            
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                       |  | 26     
|           |  |                                                                                                                            
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                                                  |  | 49     
|           |  |                                                                                                                            
|Item 4.    |  | Controls and Procedures                                                                                                     |  | 51     
|           |  |                                                                                                                            
|           |  | PART II. OTHER INFORMATION                                                                                                  |  |        
|           |  |                                                                                                                            
|Item 1.    |  | Legal Proceedings                                                                                                           |  | 53     
|           |  |                                                                                                                            
|Item 2.    |  | Defaults Upon Senior Securities                                                                                             |  | 53     
|           |  |                                                                                                                            
|Item 6.    |  | Exhibits and Reports on Form 8-K:                                                                                           |  |        
|           |  |                                                                                                                            
|           |  | Exhibits                                                                                                                    |  | 54     
|           |  | Reports on Form 8-K                                                                                                         |  | 54     
|           |  |                                                                                                                            
|Signatures |  |                                                                                                                             |  | 55     



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. |  | Financial Statements
|------- |  | --------------------



DRESSER, INC.

Condensed Consolidated Statements of Operations

(in millions)

(unaudited)



|                                                                               |  | Three Months Ended September 30, |       |   | Nine Months Ended September 30, |  
|------------------------------------------------------------------------------ |  | -------------------------------- | ----- | - | ------------------------------- | -
|                                                                               |  | 2003                             |       |   | 2002                            |  
|Revenues                                                                       |  | $                                | 417.5 |   |                                 | $
|Cost of revenues                                                               |  |                                  | 306.1 |   |                                 |  
|                                                                               |  |                                  |       |   |                                 |  
|Gross profit                                                                   |  |                                  | 111.4 |   |                                 |  
|Selling, engineering, administrative and general expenses and general expenses |  |                                  | 88.8  |   |                                 |  
|                                                                               |  |                                  |       |   |                                 |  
|Operating income                                                               |  |                                  | 22.6  |   |                                 |  
|Equity earnings of unconsolidated subsidiaries                                 |  |                                  | 0.5   |   |                                 |  
|Interest expense                                                               |  |                                  | (21.2 | ) |                                 |  
|Interest income                                                                |  |                                  | 0.5   |   |                                 |  
|Other (deductions) income, net                                                 |  |                                  | (0.8  | ) |                                 |  
|                                                                               |  |                                  |       |   |                                 |  
|Income (loss) before taxes                                                     |  |                                  | 1.6   |   |                                 |  
|(Provision) benefit for income taxes                                           |  |                                  | (10.8 | ) |                                 |  
|                                                                               |  |                                  |       |   |                                 |  
|Net (loss) income                                                              |  | $                                | (9.2  | ) |                                 | $
|                                                                               |  |                                  |       |   |                                 |  



See accompanying notes
to condensed consolidated financial statements



3



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DRESSER, INC.

Condensed Consolidated Balance Sheets

(in millions, except share information)



|                                                                                 |  | September 30, 2003 |         |   | December 31, 2002 |  
|-------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | -
|                                                                                 |  | (unaudited)        |         |   |                   |  
|ASSETS                                                                           |  |                    |         |   |                   |  
|Current assets:                                                                  |  |                    |         |   |                   |  
|Cash and equivalents                                                             |  | $                  | 113.2   |   |                   | $
|Restricted cash                                                                  |  |                    |        |   |                   |  
|Receivables                                                                      |  |                    | 300.0   |   |                   |  
|Inventories                                                                      |  |                    | 318.7   |   |                   |  
|Other current assets                                                             |  |                    | 18.3    |   |                   |  
|                                                                                 |  |                    |         |   |                   |  
|Total current assets                                                             |  |                    | 750.2   |   |                   |  
|Property, plant and equipment                                                    |  |                    | 204.1   |   |                   |  
|Investments in unconsolidated subsidiaries                                       |  |                    | 10.0    |   |                   |  
|Deferred financing fees and other assets                                         |  |                    | 68.0    |   |                   |  
|Deferred tax assets                                                              |  |                    | 4.7     |   |                   |  
|Prepaid and intangible pension assets                                            |  |                    | 60.7    |   |                   |  
|Goodwill                                                                         |  |                    | 312.4   |   |                   |  
|Intangibles                                                                      |  |                    | 12.3    |   |                   |  
|                                                                                 |  |                    |         |   |                   |  
|Total assets                                                                     |  | $                  | 1,422.4 |   |                   | $
|                                                                                 |  |                    |         |   |                   |  
|LIABILITIES, MANDATORILY REDEEMABLE COMMON STOCK AND SHAREHOLDERS DEFICIT      
|Current liabilities:                                                             |  |                    |         |   |                   |  
|Accounts and notes payable                                                       |  | $                  | 201.0   |   |                   | $
|Deferred revenue                                                                 |  |                    | 38.5    |   |                   |  
|Accrued expenses                                                                 |  |                    | 165.7   |   |                   |  
|                                                                                 |  |                    |         |   |                   |  
|Total current liabilities                                                        |  |                    | 405.2   |   |                   |  
|Pension and other retiree benefit obligations                                    |  |                    | 322.1   |   |                   |  
|Long-term debt                                                                   |  |                    | 958.9   |   |                   |  
|Other liabilities                                                                |  |                    | 30.2    |   |                   |  
|Commitments and contingencies                                                    |  |                    |         |   |                   |  
|                                                                                 |  |                    |         |   |                   |  
|Total liabilities                                                                |  |                    | 1,716.4 |   |                   |  
|                                                                                 |  |                    |         |   |                   |  
|Mandatorily redeemable common stock                                              |  |                    | 7.9     |   |                   |  
|                                                                                 |  |                    |         |   |                   |  
|Shareholders deficit:                                                           |  |                    |         |   |                   |  
|Common stock, $0.01 par value; issued and outstanding: 1,000 in 2003 and 2002    |  |                    |         |   |                   |  
|Capital in excess of par value                                                   |  |                    | 447.5   |   |                   |  
|Dividends in excess of net book value                                            |  |                    | (595.8  | ) |                   |  
|Accumulated deficit                                                              |  |                    | (100.2  | ) |                   |  
|Accumulated other comprehensive loss                                             |  |                    | (53.4   | ) |                   |  
|                                                                                 |  |                    |         |   |                   |  
|Total shareholders deficit                                                      |  |                    | (301.9  | ) |                   |  
|                                                                                 |  |                    |         |   |                   |  
|Total liabilities, mandatorily redeemable common stock and shareholders deficit |  | $                  | 1,422.4 |   |                   | $
|                                                                                 |  |                    |         |   |                   |  



See accompanying notes
to condensed consolidated financial statements



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DRESSER, INC.

Condensed Consolidated Statements of Cash Flows

(in millions)

(unaudited)



|                                                                                          |  | Nine Months Ended September 30, |      
|----------------------------------------------------------------------------------------- |  | ------------------------------- | -----
|                                                                                          |  | 2003                            |      
|Cash flows from operating activities:                                                     |  |                                 |      
|Net (loss) income                                                                         |  | $                               | (32.2
|Adjustments to reconcile net (loss) income to cash flow provided by operating activities: |  |                                 |      
|Depreciation and amortization                                                             |  |                                 | 31.7 
|Equity earnings of unconsolidated affiliates                                              |  |                                 | (2.0 
|Loss on repayment of debt                                                                 |  |                                 | 0.1  
|Impairment of assets                                                                      |  |                                 | 4.6  
|Other changes, net                                                                        |  |                                 |      
|Receivables                                                                               |  |                                 | (19.6
|Inventories                                                                               |  |                                 | 0.2  
|Accounts payable                                                                          |  |                                 | 10.0 
|Income tax payable                                                                        |  |                                 | 9.6  
|Deferred revenue                                                                          |  |                                 | 19.4 
|Other                                                                                     |  |                                 | 14.7 
|                                                                                          |  |                                 |      
|Net cash provided by operating activities                                                 |  |                                 | 36.5 
|                                                                                          |  |                                 |      
|Cash flows from investing activities:                                                     |  |                                 |      
|Asset acquisitions                                                                        |  |                                 | (15.4
|Capital expenditures                                                                      |  |                                 | (17.8
|Distributions from unconsolidated subsidiaries                                            |  |                                 | 1.5  
|                                                                                          |  |                                 |      
|Net cash used in investing activities                                                     |  |                                 | (31.7
|                                                                                          |  |                                 |      
|Cash flow from financing activities:                                                      |  |                                 |      
|Proceeds from the issuance of long-term debt                                              |  |                                 |     
|Repayment of long-term debt (including current portion)                                   |  |                                 | (8.8 
|Decrease in short-term notes payable                                                      |  |                                 | (9.1 
|Changes in restricted cash                                                                |  |                                 | 7.5  
|Payment of deferred financing fees                                                        |  |                                 | (3.9 
|Proceeds from the issuance of stock                                                       |  |                                 |     
|                                                                                          |  |                                 |      
|Net cash used in financing activities                                                     |  |                                 | (14.3
|                                                                                          |  |                                 |      
|Effect of translation adjustments on cash                                                 |  |                                 | 3.9  
|                                                                                          |  |                                 |      
|Net decrease in cash and equivalents                                                      |  |                                 | (5.6 
|Cash and equivalents, beginning of period                                                 |  |                                 | 118.8
|                                                                                          |  |                                 |      
|Cash and equivalents, end of period                                                       |  | $                               | 113.2
|                                                                                          |  |                                 |      
|Supplemental disclosure of cash flow information:                                         |  |                                 |      
|Cash payments during the period for:                                                      |  |                                 |      
|Interest                                                                                  |  | $                               | 48.5 
|Income taxes                                                                              |  |                                 | 9.0  



See accompanying notes
to condensed consolidated financial statements



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DRESSER, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



Note 1. Organization and Basis of Presentation



Dresser, Inc. was originally incorporated in 1998, under the name of Dresser
Equipment Group, Inc. under the laws of the state of Delaware. The certificate of incorporation was amended and restated on April 9, 2001 and again on July 3, 2002. As used in this report, the terms Dresser, the Company,
we or us refer to Dresser, Inc. and its subsidiaries and affiliates unless the context indicates otherwise.



In January 2001, Halliburton Company (Halliburton), together with its wholly-owned subsidiary Dresser B.V., signed an Agreement and Plan of
Recapitalization with DEG Acquisitions, LLC, an entity owned by affiliates of First Reserve Corporation (First Reserve) and Odyssey Investment Partners, LLC (Odyssey), to effect the recapitalization of its businesses relating
to, among other things, the design, manufacture and marketing of flow control, measurement systems and compression and power systems for customers primarily in the energy industry. Halliburton originally acquired the businesses as part of its
acquisition of Dresser Industries, Inc. in 1998. Dresser Industries operations consisted of the Companys businesses and certain other operating units retained by Halliburton following the consummation of the recapitalization transaction.
In order to accomplish this transaction, Halliburton effected the reorganization of various legal entities that comprised the Dresser Equipment Group (DEG) business segment of Halliburton. Simultaneously and contingent upon completion of
the recapitalization, the acquisition of certain foreign entities was consummated. The transaction has been accounted for as a leveraged recapitalization. No adjustments or revaluation of the Companys historical basis of accounting for
operations were required.



In connection with the
recapitalization in April 2001, Dresser paid Halliburton approximately $1,300 million to redeem our common equity and acquire the stock of certain foreign subsidiaries from Dresser B.V. The recapitalization transaction and related expenses were
financed through the issuance of $300.0 million of senior subordinated notes, $720.0 million of borrowings under our credit facility, and approximately $400.0 million of common equity contributed by DEG Acquisitions, LLC.



On July 3, 2002, Dresser modified its corporate structure by forming a
Delaware holding company and two Bermuda holding companies between the existing shareholders and Dresser. Dresser is now wholly-owned by Dresser Holdings, Inc., a Delaware corporation. Dresser Holdings, Ltd., a Bermuda corporation, is the 100%
holder of Dresser Holdings, Inc., and Dresser, Ltd., a Bermuda corporation, is the 100% holder of Dresser Holdings, Ltd. The former direct shareholders of Dresser collectively hold all of the shares of Dresser, Ltd. in proportion to their prior
direct ownership interests in Dresser. Dresser Holdings, Inc. and Dresser Holdings, Ltd., have no assets or liabilities, other than common stock holdings of Dresser and Dresser Holdings, Inc., respectively, conduct no operations outside of Dresser
and have no transactions to date other than those incidental to their formation.



The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2003, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2003. For further information, refer to the financial statements and footnotes thereto included in our annual report on Form 10-K, for the year ended December 31, 2002.





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DRESSER, INC.

Notes to Condensed Consolidated Financial Statements  (Continued)

(unaudited)



Note 2. Stock-based compensation



We apply Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and the related interpretations in accounting for our stock based plans. No stock-based compensation has been reflected in net income. The following table illustrates the effect on net income
(loss) if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation for the three and nine months ended September 30, 2003 and 2002, respectively.



|                                                                                                                |  | Three months ended |      |   | Nine months ended  |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---- | - | ------------------ | -
|                                                                                                                |  | September 30, 2003 |      |   | September 30, 2002 |  
|Net (loss) income as reported                                                                                   |  | $                  | (9.2 | ) |                    | $
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects      |  |                    |     |   |                    |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |  |                    | (0.3 | ) |                    |  
|                                                                                                                |  |                    |      |   |                    |  
|Pro forma net (loss) income                                                                                     |  | $                  | (9.5 | ) |                    | $
|                                                                                                                |  |                    |      |   |                    |  



Note 3. Restructuring and Other
Exit Activities



During 2002 and 2003, we initiated
restructuring programs affecting several business units in an effort to obtain manufacturing efficiencies and cost savings. We adopted SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activities in 2002 and have
recognized costs associated with exit or disposal activities as incurred rather than at the date of a commitment to an exit or disposal plan.



We incurred $15.8 million of restructuring charges for the nine months ended September 30, 2003. Restructuring charges of $3.5 million and $12.3 million
have been reflected in cost of revenues and selling, engineering, general and administrative expenses, respectively, in our condensed consolidated statement of operations. The restructuring charges consist of $15.9 million related to the initiatives
taken during the nine months ended September 30, 2003 and a reduction of $0.1 million as a result of changes in estimates related to the initiatives undertaken in 2002.



In 2003, we decided to (1) consolidate a valve operation in Germany (EDG) into an existing facility in Italy,
(2) consolidate an instrument operation in Shelton, Connecticut into an existing facility in Stratford, Connecticut, (3)consolidate an instrument operation in Berea, Kentucky with existing operations in Brazil, into a new facility in Sao Caetano,
Brazil, (4) consolidate a retail fueling dispenser manufacturing operation in Germany into an existing facility in Sweden, (5) consolidate two Canadian retail fueling dispenser plant operations, (6) consolidate certain flow control operations in
Houston, Texas into a new facility, and (7) continue a reduction in our workforce. The costs incurred associated with these actions are as follows:



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DRESSER, INC.

Notes to Condensed Consolidated Financial Statements  (Continued)

(unaudited)



|Description                                 |  | Restructuring Charge |      | Cash Payments |   |      | Non-Cash Charges |  |   | Accrued at 9/30/03
|------------------------------------------- |  | -------------------- | ---- | ------------- | - | ---- | ---------------- |  | - | ------------------
|                                            |  | (in millions)       
|Consolidate EDG operations                  |  |                      |      |               |   |      |                  |  |   |                   
|Termination benefits                        |  | $                    | 0.4  |               | $ | (0.4 | )                |  | $ |                  
|Write-down of fixed assets                  |  |                      | 0.1  |               |   |     |                  |  |   | (0.1              
|Other exit activities                       |  |                      | 0.1  |               |   | (0.1 | )                |  |   |                  
|Consolidate Shelton operations              |  |                      |      |               |   |      |                  |  |   |                   
|Termination benefits                        |  |                      | 0.7  |               |   | (0.7 | )                |  |   |                  
|Write-down of fixed assets                  |  |                      | 0.8  |               |   |     |                  |  |   | (0.8              
|Other exit activities                       |  |                      | 1.2  |               |   | (0.2 | )                |  |   |                  
|Consolidate Berea operations                |  |                      |      |               |   |      |                  |  |   |                   
|Termination benefits                        |  |                      | 1.9  |               |   |     |                  |  |   |                  
|Consolidate German manufacturing operations |  |                      |      |               |   |      |                  |  |   |                   
|Termination benefits                        |  |                      | 5.1  |               |   | (3.3 | )                |  |   |                  
|Write-down of fixed assets                  |  |                      | 0.6  |               |   |     |                  |  |   | (0.6              
|Consolidate Canadian operations             |  |                      |      |               |   |      |                  |  |   |                   
|Termination benefits                        |  |                      | 0.5  |               |   | (0.5 | )                |  |   |                  
|Houston Consolidation                       |  |                      |      |               |   |      |                  |  |   |                   
|Termination benefits                        |  |                      | 1.2  |               |   | (0.4 | )                |  |   |                  
|Write-down of fixed assets                  |  |                      | 1.3  |               |   |     |                  |  |   | (1.3              
|Company wide reduction in force             |  |                      |      |               |   |      |                  |  |   |                   
|Termination benefits                        |  |                      | 2.0  |               |   | (1.7 | )                |  |   |                  
|                                            |  |                      |      |               |   |      |                  |  |   |                   
|Total                                       |  | $                    | 15.9 |               | $ | (7.3 | )                |  | $ | (2.8              
|                                            |  |                      |      |               |   |      |                  |  |   |                   



The following table
details the 2003 restructuring charges by segment.



|Segment                       |  | Restructuring Charge |      | Cash Payments |   |      | Non-Cash Charges |  |   | Accruedat9/30/03
|----------------------------- |  | -------------------- | ---- | ------------- | - | ---- | ---------------- |  | - | ----------------
|                              |  | (in millions)       
|Flow Control                  |  | $                    | 8.5  |               | $ | (2.6 | )                |  | $ | (2.2            
|Measurement Systems           |  |                      | 7.1  |               |   | (4.4 | )                |  |   | (0.6            
|Compression and Power Systems |  |                      | 0.3  |               |   | (0.3 | )                |  |   |                
|                              |  |                      |      |               |   |      |                  |  |   |                 
|Total                         |  | $                    | 15.9 |               | $ | (7.3 | )                |  | $ | (2.8            
|                              |  |                      |      |               |   |      |                  |  |   |                 



In connection with the
activities in the first quarter of 2003, we incurred certain restructuring charges related to termination benefits. We anticipate a workforce reduction of approximately 771 employees, of which approximately 336 had been terminated through September
30, 2003. During the remainder of 2003, we expect to incur approximately $0.4 million in additional expenses for these 2003 initiatives.



During 2002, we decided to: (1) consolidate manufacturing of our standard design rotary blower products at our Houston, Texas manufacturing plant and
downsize our Connersville, Indiana facility; (2) cease manufacturing fuel dispensers at a Canadian manufacturing facility and consolidate North American fuel dispenser manufacturing in our Austin, Texas facility; (3) discontinue several small
product lines; and (4) initialize a company wide reduction in our workforce. In 2002, we incurred $6.0 million in expenses related to these activities. During 2003, we revised these costs by $0.1 million. In connection with these 2002 activities, we
incurred certain restructuring charges related to termination benefits for approximately 295 employees. Accrued liabilities at September 30, 2003 related to the 2002 restructuring initiatives are as follows:



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DRESSER, INC.

Notes to Condensed Consolidated Financial Statements  (Continued)

(unaudited)



|Description                              |  | Reserved at 12/31/2002 |     | Cash Payments |   |      | Changes in Estimates |  |   | Accrued at 9/30/03
|---------------------------------------- |  | ---------------------- | --- | ------------- | - | ---- | -------------------- |  | - | ------------------
|                                         |  | (in millions)         
|Discontinuation of several product lines |  |                        |     |               |   |      |                      |  |   |                   
|Termination benefits                     |  | $                      | 0.4 |               | $ | (0.4 | )                    |  | $ |                  
|Company wide reduction in force          |  |                        |     |               |   |      |                      |  |   |                   
|Termination benefits                     |  |                        | 1.9 |               |   | (1.6 | )                    |  |   | (0.1              
|                                         |  |                        |     |               |   |      |                      |  |   |                   
|Total                                    |  | $                      | 2.3 |               | $ | (2.0 | )                    |  | $ | (0.1              
|                                         |  |                        |     |               |   |      |                      |  |   |                   



Note 4. Business Segment
Information



We operate under three reportable segments:
flow control, measurement systems and compression and power systems. The business segments are organized around the products and services provided to the customers each serves. During the second quarter of 2002, we made changes to our internal
corporate structure with the reorganization of certain of our operating units.



Flow Control. The flow control segment designs, manufactures and markets valves and actuators. These products are used to start, stop and control the flow of liquids and gases and to protect process equipment
from excessive pressure. In addition, it is a leading supplier of natural gas meters, regulators, digital and analog pressure and temperature gauges, transducers, and piping specialties such as couplings and conductors.



Measurement Systems. The measurement systems segment is a leading
supplier of fuel dispensers, pumps, peripherals and point-of-sale systems and software for the retail fueling industry.



Compression and Power Systems. The compression and power systems segment designs, manufactures and markets natural gas fueled engines used
primarily in natural gas compression and power generation applications and rotary blowers and vacuum pumps.



The table below presents revenues and operating income by segment.



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DRESSER, INC.

Notes to Condensed Consolidated Financial Statements  (Continued)

(unaudited)



|                                       |  | Three Months Ended September 30, |       |   | Nine Months Ended September 30, |  
|-------------------------------------- |  | -------------------------------- | ----- | - | ------------------------------- | -
|                                       |  | (in millions)                    |      
|                                       |  | 2003                             |       |   | 2002                            |  
|Revenues:                              |  |                                  |       |   |                                 |  
|Flow Control                           |  | $                                | 253.8 |   |                                 |  
|Measurement Systems                    |  |                                  | 96.0  |   |                                 |  
|Compression and Power Systems          |  |                                  | 69.5  |   |                                 |  
|Reconciling Items, Including Corporate |  |                                  | (1.8  | ) |                                 |  
|                                       |  |                                  |       |   |                                 |  
|Total                                  |  | $                                | 417.5 |   |                                 | $
|                                       |  |                                  |       |   |                                 |  
|Operating income:                      |  |                                  |       |   |                                 |  
|Flow Control                           |  | $                                | 13.6  |   |                                 | $
|Measurement Systems                    |  |                                  | 13.1  |   |                                 |  
|Compression and Power Systems          |  |                                  | 1.4   |   |                                 |  
|Reconciling Items, Including Corporate |  |                                  | (5.5  | ) |                                 |  
|                                       |  |                                  |       |   |                                 |  
|Total                                  |  | $                                | 22.6  |   |                                 | $
|                                       |  |                                  |       |   |                                 |  



Note 5. Receivables



Accounts receivable are stated at their estimated net realizable value.
Included in receivables are notes receivable of $3.9 million and $7.9 million as of September 30, 2003 and December 31, 2002, respectively. Allowances for doubtful accounts of $9.9 million and $8.9 million as of September 30, 2003 and December 31,
2002, respectively, are netted in the receivable balance.



Note 6.
Inventories



Inventories are stated at the lower of cost
or market. A portion of the United States inventory costs is determined using the last-in, first-out (LIFO) method. All other inventories are valued on a first-in, first-out (FIFO) basis.



Inventories on a LIFO method represented $53.5 million and $49.3 million of our inventories as of September 30, 2003 and
December 31, 2002, respectively. The excess of FIFO over LIFO costs as of September 30, 2003 and December 31, 2002, were $70.2 million and $70.2 million, respectively. Inventories are summarized as follows:



|                                 |  | September 30, 2003 |       |   | December 31,2002 |  
|-------------------------------- |  | ------------------ | ----- | - | ---------------- | -
|                                 |  | (in millions)      |      
|Finished products and parts      |  | $                  | 200.5 |   |                  | $
|In-process products and parts    |  |                    | 111.4 |   |                  |  
|Raw materials and supplies       |  |                    | 73.4  |   |                  |  
|                                 |  |                    |       |   |                  |  
|Total inventory                  |  | $                  | 385.3 |   |                  | $
|Less:                            |  |                    |       |   |                  |  
|LIFO reserve and full absorption |  |                    | (66.6 | ) |                  |  
|                                 |  |                    |       |   |                  |  
|Inventories, net                 |  | $                  | 318.7 |   |                  | $
|                                 |  |                    |       |   |                  |  



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##### Table of Contents

DRESSER, INC.

Notes to Condensed Consolidated Financial Statements  (Continued)

(unaudited)



Note 7. Acquisitions



In March 2003, we acquired certain assets of Tokheim North America and its
MSI business unit for cash consideration of $15.0 million and assumed liabilities; as a result, we recorded approximately $6.0 million in intangible assets. The intangible assets are amortized over five years on an accelerated basis and are included
in our measurement systems segment. In addition, we incurred approximately $3.4 million of acquisition costs related to the portions of the business not acquired.



Note 8. Debt



In March 2002, we issued an additional $250.0 million of 9 3/8% senior subordinated notes due 2011 under the indenture that governs the 2001 notes. The
notes were issued at 102.5% of their principal amounts plus accrued interest from October 15, 2001. We recorded a $6.3 million premium which is amortized over the term of the notes, and recorded as a reduction to interest expense. The net proceeds
were used to repay existing indebtedness under the Tranche A term loans of the credit facility. This repayment significantly reduced the principal balances of the Tranche A term loans. As a result, we recorded a loss of $12.9 million, which
represented a write-off of an allocable portion of the unamortized debt issuance costs. This loss has been reflected in interest expense in our condensed consolidated financial statements.



In March 2002, we also obtained an amendment to the credit facility that
among other things increased the amount by which the Tranche B term loan can be increased from $95.0 million to $195.0 million.



As a condition of the third amendment to our credit facility in December 2002, we deposited $7.5 million in a segregated account with the administrative
agent of our credit facility during 2002. Those funds were applied, at our option, to our Tranche B term loan on January 10, 2003. As a result of this prepayment, we wrote off an allocable portion of unamortized deferred financing charges of
approximately $0.1 million in the first quarter of 2003.



We
entered into a sixth amendment and waiver to our credit agreement on August 5, 2003, which extended to December 15, 2003 our deadline for providing our senior lenders with audited financial statements for the fiscal years ended December 31, 2001 and
December 31, 2002. This amendment also waived, among other things, any default or event of default relating in any respect to the 2001 re-audit, revision or restatement of any financial statement delivered to the senior lenders prior to August 5,
2003, including any default or event of default relating in any respect to any errors contained in such financial statements. The amendment grants a suspension period to deliver audited financials with respect to the waiver, which began on March 31,
2003 and ends on the earlier of (1) December 15, 2003 and (2) the date on which the administrative agent receives the audited annual financial statements for the years ended December 31, 2002 and 2001.



Effective January 1, 2003, the applicable margin on our Tranche B term loan
was increased from 3.50% to 3.75%. In addition, effective March 31, 2003, the applicable margin on our Tranche B term loan was increased by an additional 0.50% per annum and, effective August 5, 2003, the applicable margin on our Tranche B term loan
was further increased by an additional 0.50% per annum. The aggregate 1.00% per annum increase will remain in effect during the suspension period referred to above.



Total deferred financing fees incurred in connection with obtaining all of the amendments to the credit facility to date
were $6.1 million.



Under the indenture that governs our senior
subordinated notes, certain covenants require that we furnish to all holders of the notes all quarterly and annual financial information required to be contained in a filing with the SEC on Forms 10-Q and 10-K within the time period specified in the
SECs rules and regulations. In 2002, we determined that our 2001 financial statements, which had been previously been audited by Arthur Andersen LLP (Andersen), needed to be restated and re-audited, which resulted in a delay in the
filing of our annual report on



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##### Table of Contents

DRESSER, INC.

Notes to Condensed Consolidated Financial Statements  (Continued)

(unaudited)



Form 10-K for 2002 and our quarterly reports on Form 10-Q for the periods
ended March 31, 2003, June 30, 2003 and September 30, 2003.



The failure to perform under this covenant would constitute an event of default if the default continues for a period of 30 days after we receive a written notice specifying the default (and demanding that the default be remedied) from the
trustee or holders of at least 25% of the outstanding principal amount of the notes. On December 4, 2003 we completed a consent solicitation to amend the indenture of our senior subordinated notes to provide that Dresser will only be obligated to
furnish to the holders of the senior subordinated notes a report by Dressers certified independent accountants with respect to annual information for fiscal years beginning after December 31, 2000. Each holder that consented also waived all
events of default with respect to breaches of the reporting provision of the indenture and all rights to cause the principal and accrued interest on the senior subordinated notes to be immediately due and payable. We entered into a supplemental
indenture with the trustee for the holders and the guarantors of the senior subordinated notes on December 4, 2003 to put into effect the amendment.



Capital leases



In March 2003, we entered into a lease for certain software licenses related to our enterprise-wide reporting, or ERP, system, and as a result, we
incurred a capital lease obligation of $5.5 million which is included in our total debt.



Interest Rate Swaps



In March 2003, we terminated a fair value interest rate swap; this swap was not eligible to receive accounting treatment as a hedge. The interest rate
swap had a notional amount of $100.0 million and was scheduled to mature in October 2003. Under the interest rate swap agreement, we received a fixed interest rate of 9.375% and paid a variable rate of LIBOR plus 6.20%. As a result of the
termination, we received cash proceeds of $1.6 million.



The
principal balance of our Euro Tranche A term loan was significantly reduced with the use of proceeds from our offering of senior subordinated notes. As a result, an interest rate swap, which was designated as a hedge on the Euro Tranche A, became
ineffective and no longer eligible to receive accounting treatment as a hedge. As a result, changes in the fair market value of the interest rate swap were recorded through earnings rather than accumulated other comprehensive income. The unrealized
loss was reclassified from accumulated other comprehensive income and we recorded a charge to earnings of $0.6 million, which is reflected in interest expense in our condensed consolidated statement of operations. This swap was terminated in April
2002.



Note 9. Comprehensive Income



The following table sets forth the components of comprehensive income, net
of income tax expense:



|                                                 |  | Three MonthsEndedSeptember 30, |       |   | Nine MonthsEndedSeptember 30,
|------------------------------------------------ |  | ------------------------------ | ----- | - | -----------------------------
|                                                 |  | (in millions)                 
|                                                 |  | 2003                           |       |   | 2002                         
|Net (loss) income                                |  | $                              | (9.2  | ) |                              
|Other comprehensive income                       |  |                                |       |   |                              
|Foreign currency translation adjustment          |  |                                | (8.0  | ) |                              
|Unrealized (loss) gain on derivative instruments |  |                                | (3.5  | ) |                              
|                                                 |  |                                |       |   |                              
|Comprehensive (loss) income                      |  | $                              | (20.7 | ) |                              
|                                                 |  |                                |       |   |                              





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##### Table of Contents

DRESSER, INC.

Notes to Condensed Consolidated Financial Statements  (Continued)

(unaudited)



Note 10. Commitments and Contingencies



Halliburton Indemnifications



In accordance with the agreement relating to our recapitalization
transaction, Halliburton agreed to indemnify the Company for certain items. Those indemnified items include any product liability claim or product warranty claim arising out of any products relating to any discontinued product or service line of the
Company. In addition, Halliburton has agreed to indemnify the Company for certain other claims and liabilities, including any other product liability claim made on or prior to closing of the Recapitalization, any other loss, liability, damage or
expense resulting from any action, suit or proceeding initiated prior to the closing, any asbestos claims (present or future) based on or arising out of events or occurrences with respect to the Companys businesses prior to the closing,
certain environmental liability claims against the Company, to the extent that notice is given to Halliburton prior to the fifth anniversary of the closing, and any loss, liability, damage or expense relating to workers compensation, general
liability, and automobile liability arising out of events or occurrences prior to the closing as to which the Company notifies Halliburton prior to the third anniversary of the closing date. The maximum aggregate amount of all losses indemnifiable
by Halliburton pursuant to the recapitalization agreement is $950.0 million. In the case of certain general indemnities in the Agreement, other than those described above, there is an aggregate $15.0 million deductible that is applicable prior to
the indemnification obligations. In addition, any single claim for such indemnities is subject to a threshold of $0.5 million in the case where there was no knowledge of such claim by Halliburton and a $0.1 million threshold if there was knowledge.
For purposes of determining the threshold or maximum amount of indemnity and other overall indemnity obligations, such amounts shall be offset by insurance proceeds received by the Company or the amount of tax benefit received by the Company.



Company Indemnifications



Under the agreement relating to our recapitalization transaction, the
Company agreed to indemnify Halliburton for all assumed obligations of the businesses as set forth in the agreement. This includes certain environmental matters including those arising out of acts by the Company which take place after the closing.
The Company has the same aggregate indemnity deductible and maximum indemnity obligation as set forth above in the Halliburton indemnity, but does not have the single claim thresholds described above. In addition, the indemnifiable amounts have the
same offsets as set forth above with regard to insurance proceeds and tax benefits received by Halliburton.



Environmental



The
Companys businesses and some of the Companys products are subject to regulation under various and changing federal, state, local and foreign laws and regulations relating to the environment and to employee safety and health. These
environmental laws and regulations govern the generation, storage, transportation, handling, disposal and emission of various substances.



These environmental laws also impose liability for personal injury or property damage related to releases of hazardous substances. Permits are required
for operation of the Companys businesses, and these permits are subject to renewal, modification and, in certain circumstances, revocation. The Company believes it is substantially in compliance with these laws and permitting requirements. The
Companys businesses also are subject to regulation under substantial, various and changing federal, state, local and foreign laws and regulations which allow regulatory authorities and private parties to compel (or seek reimbursement for)
cleanup of environmental contamination at sites now or formerly owned or operated by the Companys businesses and at facilities where their waste is or has been disposed. Going forward, the Company expects to incur ongoing capital and operating
costs for investigation and remediation and to maintain compliance with currently applicable environmental laws and regulations; however, the Company does not expect those costs, in the aggregate, to be material.



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##### Table of Contents

DRESSER, INC.

Notes to Condensed Consolidated Financial Statements  (Continued)

(unaudited)



In April 2001, the Company completed the recapitalization
transaction. Halliburton originally acquired the Companys businesses as part of its acquisition of Dresser Industries in 1998. Dresser Industries operations consisted of the Companys businesses, as well as other operating units. As
Halliburton has publicly disclosed, it has been subject to numerous lawsuits involving asbestos claims associated with, among other things, the operating units of Dresser Industries that were retained by Halliburton or disposed of by Dresser
Industries or Halliburton prior to the recapitalization transaction. These lawsuits have resulted in significant expense for Halliburton.



The Company has not historically incurred, and in the future the Company does not believe that it will incur, any material liability as a result of the
past use of asbestos in products manufactured by the units of Dresser Industries retained by Halliburton, or as a result of the past use of asbestos in products manufactured by the businesses currently owned by the Company or any predecessor
entities of those businesses.



Pursuant to the recapitalization
agreement, all liabilities related to asbestos claims arising out of events occurring prior to the consummation of the recapitalization transaction, are defined to be excluded liabilities, whether they resulted from activities of
Halliburton, Dresser Industries or any predecessor entities of any of the Companys businesses. The recapitalization agreement further provides, subject to certain limitations and exceptions, that Halliburton will indemnify the Company and hold
it harmless against losses and liabilities that the Company actually incurs which arise out of or result from excluded liabilities, as well as certain other liabilities in existence as of the closing of the recapitalization transaction.
The maximum aggregate amount of losses indemnifiable by Halliburton pursuant to the recapitalization agreement is $950.0 million. All indemnification claims are subject to notice and procedural requirements that may result in Halliburton denying
indemnification claims for some losses.



The Company is
responsible for evaluating and addressing the environmental impact of sites where the Company is operating or has maintained operations. As a result, the Company spends money each year assessing and remediating contaminated properties to avoid
future liabilities, to comply with legal and regulatory requirements, or to respond to claims by third parties.



Note 11. Accrued Warranties



We offer warranties on the sale of certain of our products and we record an accrual for estimated future claims. Such accruals are based upon historical
experience and managements estimate of the level of future claims. The following shows the activity of our warranty accrual for the three and nine months ended September 30, 2003, respectively:



|                                                        |  | Three Months Ended September 30, 2003 |      |   | Nine Months Ended September 30, 2003 |  
|------------------------------------------------------- |  | ------------------------------------- | ---- | - | ------------------------------------ | -
|Balance at the beginning of the period                  |  | $                                     | 20.8 |   |                                      | $
|Accruals for warranties issued during the period        |  |                                       | 5.6  |   |                                      |  
|Accruals related to pre-existing warranties             |  |                                       | 0.1  |   |                                      |  
|Settlements made (in cash or in kind) during the period |  |                                       | (4.0 | ) |                                      |  
|                                                        |  |                                       |      |   |                                      |  
|Balance at the end of the period                        |  | $                                     | 22.5 |   |                                      | $
|                                                        |  |                                       |      |   |                                      |  



Note 12. Recent Accounting
Pronouncements



In August 2001, the FASB issued SFAS No.
143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. An entity shall
recognize the cumulative effect of adoption of SFAS No.



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##### Table of Contents

DRESSER, INC.

Notes to Condensed Consolidated Financial Statements  (Continued)

(unaudited)



143 as a change in accounting principle. We adopted this statement as of
January 1, 2003. This statement had no material impact on our results of operations or financial position.



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendments of FASB No. 13 and Technical
Corrections. SFAS No. 145 rescinds SFAS No. 4 Reporting Gains and Losses from Extinguishment of Debt, which required all gains and losses from the extinguishment of debt to be classified as an extraordinary item. This statement
also amends SFAS No. 13, Accounting for Leases and requires that certain lease modifications that have the economic effects similar to the sale-leaseback transaction be accounted for in the same manner as a sale-leaseback transaction.
This statement also makes technical corrections to existing pronouncements. The statement is effective for fiscal years beginning after May 15, 2002. We elected early application of this statement. During 2002 and 2003, we extinguished our Tranche A
term loans and made optional prepayments on our Tranche B term loan, and as a result, we recorded a loss for the write-off of unamortized debt issuance costs. These costs have been reflected as interest expense in our condensed consolidated
statements of operations, and have not been classified as extraordinary items.



In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 supersedes guidance provided by EITF Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The standard requires companies to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company elected early adoption of SFAS No. 146 as of July
2002. See Note 3 for disclosure of our costs associated with exit activities.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure, which amends FASB Statement No. 123, Accounting for Stock-Based Compensation. SFAS
No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require
more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS No. 148 are in effect for fiscal years ending after December 15, 2002,
with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The transition guidance
provided in the statement had no impact on our results of operations or financial position, as we elected not to change the accounting of our stock based compensation from APB No. 25 Accounting for Stock Issued to Employees. We have
implemented the disclosure provisions of this statement, see Note 2.



In April 2002, the FASB issued SFAS No. 149 Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities. The statement amends and clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, the statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed
in SFAS No. 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. The statement is effective for contracts entered into or modified after June 30, 2003, except
as stated below and for hedging relationships designated after June 30, 2003. The provisions of this statement that relate to SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should
continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to existing
contracts as well as new contracts entered into after June 30, 2003. SFAS No. 149 should be applied prospectively. Adoption of the provisions of SFAS No. 149 did not have a material effect on our results of operations and financial position.



In May 2003, the FASB issued SFAS No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The statement establishes standards for how an issuer classifies and



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##### Table of Contents

DRESSER, INC.

Notes to Condensed Consolidated Financial Statements  (Continued)

(unaudited)



measures certain financial instruments that are within its scope as a
liability. Many of those instruments were previously classified as equity. SFAS No. 150 is to be implemented by reporting a cumulative effect of a change in accounting principle for financial instruments created before the issuance date of the
statement and still existing at the beginning of the interim period of adoption. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. For Dresser, which is considered a nonpublic entity as defined by this statement, mandatorily redeemable financial instruments are subject
to the provisions of SFAS No. 150 for the first fiscal period beginning after December 15, 2003. In November 2003, the FASB issued FASB Staff Position (FSP) 150-3, which deferred indefinitely the effective date of certain provisions of
SFAS No. 150. We are still evaluating the impact this statement may have on our results of operations and financial position.



In November 2002, the FASB issued FASB Interpretation No. (FIN) 45 Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation supercedes FIN 34 Disclosure of Indirect Guarantee of Indebtedness of Others. FIN 45 addresses the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under guarantees. It also requires that a guarantor recognize a liability, at the inception of a guarantee, for the fair value of the obligation undertaken in issuing the guarantee.
The initial measurement and recognition provisions of FIN 45 are effective for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for interim or annual periods ending after December 15, 2002. See Note
14. The adoption of the measurement and recognition provisions of this interpretation did not have a material impact on our results of operations or financial position.



In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. In October 2003, the FASB issued FSP 46-6, Effective Date
of FASB Interpretation No. 46, Consolidation of Variable Interest Entities. The FSP is effective for financial statements issued after October 9, 2003 and extends the effective date for applying the provisions of FIN 46 to variable interest
entities created or acquired prior to February 1, 2003, to the first interim or annual period beginning after December 15, 2003. We do not believe that this interpretation will have a material effect on our results of operations and financial
position.



Note 13. Subsequent Events



We have entered into an agreement relating to the divestiture of a valve
manufacturing operation located in Italy. Among other things, the divestiture is conditioned upon the approval of our board of directors and the ability of the purchaser to obtain financing. We expect to receive approximately $23.5 million in cash
(plus the assumption of approximately $4.6 million in debt) and recognize a loss of approximately $4.0 million as a result of the transaction.



Note 14. Supplemental Guarantor Information



In connection with our senior subordinated notes due 2011, our wholly-owned domestic subsidiaries guaranteed, jointly and severally, our obligation to pay
principal and interest on the senior subordinated notes on a full and unconditional basis. The following supplemental condensed consolidating financial information presents the balance sheets as of September 30, 2003 and December 31, 2002 and the
statements of operations and cash flows for the three and nine months ended September 30, 2003 and 2002, respectively. In the condensed consolidating



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DRESSER, INC.

Notes to Condensed Consolidated Financial Statements  (Continued)

(unaudited)



financial statements, the investments in wholly-owned subsidiaries are
accounted for using the equity method. Certain prior year amounts have been reclassified to conform to current year presentation.





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##### Table of Contents

DRESSER, INC.

CONDENSED CONSOLIDATING BALANCE SHEETS

September 30, 2003

(in millions)

(unaudited)



|                                                                                          |  | Parent |         |   | SubsidiaryGuarantors |   | Non- Guarantor Subsidiaries |  | Eliminations |       |  | Total Consolidated |       
|----------------------------------------------------------------------------------------- |  | ------ | ------- | - | -------------------- | - | --------------------------- |  | ------------ | ----- |  | ------------------ | ------
|ASSETS                                                                                    |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|Current Assets:                                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|Cash and equivalents                                                                      |  | $      | 66.5    |   |                      | $ | 0.3                         |  | $            | 46.4  |  | $                  |      
|Receivables                                                                               |  |        | 121.1   |   |                      |   | 2.7                         |  |              | 176.2 |  |                    |      
|Inventories                                                                               |  |        | 139.6   |   |                      |   | 12.4                        |  |              | 166.7 |  |                    |      
|Other current assets                                                                      |  |        | 8.7     |   |                      |   |                            |  |              | 9.6   |  |                    |      
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|Total current assets                                                                      |  |        | 335.9   |   |                      |   | 15.4                        |  |              | 398.9 |  |                    |      
|                                                                                          |  |        |         |   |                     
|Property, plant and equipment                                                             |  |        | 130.7   |   |                      |   | 0.2                         |  |              | 73.2  |  |                    |      
|Investments in consolidated subsidiaries                                                  |  |        | 465.6   |   |                      |   | 428.0                       |  |              |      |  |                    | (893.6
|Investment in unconsolidated subsidiaries                                                 |  |        | 0.5     |   |                      |   |                            |  |              | 9.5   |  |                    |      
|Deferred financing fees and other assets                                                  |  |        | 46.6    |   |                      |   |                            |  |              | 21.4  |  |                    |      
|Deferred tax assets                                                                       |  |        |        |   |                      |   |                            |  |              | 4.7   |  |                    |      
|Prepaid and intangible pension assets                                                     |  |        | 50.3    |   |                      |   |                            |  |              | 10.4  |  |                    |      
|Goodwill                                                                                  |  |        | 105.0   |   |                      |   | 23.8                        |  |              | 183.6 |  |                    |      
|Intangibles                                                                               |  |        | 6.3     |   |                      |   |                            |  |              | 6.0   |  |                    |      
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|Total assets                                                                              |  | $      | 1,140.9 |   |                      | $ | 467.4                       |  | $            | 707.7 |  | $                  | (893.6
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|                                                                                         
|LIABILITIES, MANDATORILY REDEEMABLE COMMON STOCK AND SHAREHOLDERS (DEFICIT) EQUITY      
|                                                                                          |  |        |         |   |                     
|Current liabilities:                                                                      |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|Accounts and notes payable                                                                |  | $      | 83.2    |   |                      | $ | 1.3                         |  | $            | 116.5 |  | $                  |      
|Deferred revenue                                                                          |  |        | 12.0    |   |                      |   |                            |  |              | 26.5  |  |                    |      
|Accrued expenses                                                                          |  |        | 82.8    |   |                      |   | 0.5                         |  |              | 82.4  |  |                    |      
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|Total current liabilities                                                                 |  |        | 178.0   |   |                      |   | 1.8                         |  |              | 225.4 |  |                    |      
|                                                                                          |  |        |         |   |                     
|Pension and other retiree benefit obligations                                             |  |        | 296.0   |   |                      |   |                            |  |              | 26.1  |  |                    |      
|Long-term debt                                                                            |  |        | 954.5   |   |                      |   |                            |  |              | 4.4   |  |                    |      
|Other liabilities                                                                         |  |        | 6.4     |   |                      |   |                            |  |              | 23.8  |  |                    |      
|Commitments and contingencies                                                             |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|Total liabilities                                                                         |  |        | 1,434.9 |   |                      |   | 1.8                         |  |              | 279.7 |  |                    |      
|Mandatorily redeemable common stock                                                       |  |        | 7.9     |   |                      |   |                            |  |              |      |  |                    |      
|Shareholders (deficit) equity:                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|Shareholders (deficit) equity, net                                                       |  |        | (301.9  | ) |                      |   | 465.6                       |  |              | 428.0 |  |                    | (893.6
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|Total shareholders (deficit) equity                                                      |  |        | (301.9  | ) |                      |   | 465.6                       |  |              | 428.0 |  |                    | (893.6
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                    |       
|Total liabilities, mandatorily redeemable common stock and shareholders (deficit) equity |  | $      | 1,140.9 |   |                      | $ | 467.4                       |  | $            | 707.7 |  | $                  | (893.6
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                    |       



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DRESSER, INC.

CONDENSED CONSOLIDATING BALANCE SHEETS

December 31, 2002

(in millions)



|                                                                                          |  | Parent |         |   | SubsidiaryGuarantors |   | Non- Guarantor Subsidiaries |  | Eliminations |       |  | TotalConsolidated |       
|----------------------------------------------------------------------------------------- |  | ------ | ------- | - | -------------------- | - | --------------------------- |  | ------------ | ----- |  | ----------------- | ------
|ASSETS                                                                                    |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|Current Assets:                                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|Cash and equivalents                                                                      |  | $      | 62.7    |   |                      | $ | 0.5                         |  | $            | 55.6  |  | $                 |      
|Restricted cash                                                                           |  |        | 7.5     |   |                      |   |                            |  |              |      |  |                   |      
|Receivables                                                                               |  |        | 85.6    |   |                      |   | 2.4                         |  |              | 167.6 |  |                   |      
|Inventories                                                                               |  |        | 135.3   |   |                      |   | 15.1                        |  |              | 149.6 |  |                   |      
|Other current assets                                                                      |  |        | 8.0     |   |                      |   | 0.1                         |  |              | 7.2   |  |                   |      
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|Total current assets                                                                      |  |        | 299.1   |   |                      |   | 18.1                        |  |              | 380.0 |  |                   |      
|                                                                                          |  |        |         |   |                     
|Property, plant and equipment                                                             |  |        | 137.0   |   |                      |   | 0.2                         |  |              | 71.7  |  |                   |      
|Investments in consolidated subsidiaries                                                  |  |        | 438.8   |   |                      |   | 399.3                       |  |              |      |  |                   | (838.1
|Investment in unconsolidated subsidiaries                                                 |  |        | 0.1     |   |                      |   |                            |  |              | 7.2   |  |                   |      
|Deferred financing fees and other assets                                                  |  |        | 53.4    |   |                      |   |                            |  |              | 19.8  |  |                   |      
|Deferred tax assets                                                                       |  |        |        |   |                      |   |                            |  |              | 4.7   |  |                   |      
|Prepaid and intangible pension assets                                                     |  |        | 50.3    |   |                      |   |                            |  |              | 10.4  |  |                   |      
|Goodwill                                                                                  |  |        | 112.8   |   |                      |   | 23.8                        |  |              | 163.9 |  |                   |      
|Intangibles                                                                               |  |        | 2.0     |   |                      |   |                            |  |              | 4.2   |  |                   |      
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|Total assets                                                                              |  | $      | 1,093.5 |   |                      | $ | 441.4                       |  | $            | 661.9 |  | $                 | (838.1
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|                                                                                         
|LIABILITIES, MANDATORILY REEDEMABLE COMMON STOCK AND SHAREHOLDERS (DEFICIT) EQUITY      
|                                                                                          |  |        |         |   |                     
|Current liabilities:                                                                      |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|Accounts and notes payable                                                                |  | $      | 68.8    |   |                      | $ | 0.8                         |  | $            | 118.9 |  | $                 |      
|Deferred revenue                                                                          |  |        | 11.8    |   |                      |   |                            |  |              | 7.1   |  |                   |      
|Accrued expenses                                                                          |  |        | 43.9    |   |                      |   | 1.8                         |  |              | 74.6  |  |                   |      
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|Total current liabilities                                                                 |  |        | 124.5   |   |                      |   | 2.6                         |  |              | 200.6 |  |                   |      
|                                                                                          |  |        |         |   |                     
|Pension and other retiree benefit obligations                                             |  |        | 290.2   |   |                      |   |                            |  |              | 24.1  |  |                   |      
|Long-term debt                                                                            |  |        | 959.8   |   |                      |   |                            |  |              | 3.5   |  |                   |      
|Other liabilities                                                                         |  |        | 6.7     |   |                      |   |                            |  |              | 34.4  |  |                   |      
|Commitments and contingencies                                                             |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|Total liabilities                                                                         |  |        | 1,381.2 |   |                      |   | 2.6                         |  |              | 262.6 |  |                   |      
|                                                                                          |  |        |         |   |                     
|Mandatorily redeemable common stock                                                       |  |        | 7.9     |   |                      |   |                            |  |              |      |  |                   |      
|                                                                                          |  |        |         |   |                     
|Shareholders (deficit) equity:                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|Shareholders (deficit) equity, net                                                       |  |        | (295.6  | ) |                      |   | 438.8                       |  |              | 399.3 |  |                   | (838.1
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|Total shareholders (deficit) equity                                                      |  |        | (295.6  | ) |                      |   | 438.8                       |  |              | 399.3 |  |                   | (838.1
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                   |       
|Total liabilities, mandatorily redeemable common stock and shareholders (deficit) equity |  | $      | 1,093.5 |   |                      | $ | 441.4                       |  | $            | 661.9 |  | $                 | (838.1
|                                                                                          |  |        |         |   |                      |   |                             |  |              |       |  |                   |       



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DRESSER, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2003

(in millions)

(unaudited)



|                                                          |  | Parent |       |   | Subsidiary Guarantors |   |      | Non- Guarantor Subsidiaries |  |   | Eliminations |   |  | Total Consolidated |      
|--------------------------------------------------------- |  | ------ | ----- | - | --------------------- | - | ---- | --------------------------- |  | - | ------------ | - |  | ------------------ | -----
|Revenues                                                  |  | $      | 239.3 |   |                       | $ | 8.2  |                             |  | $ | 194.9        |   |  | $                  | (24.9
|Cost of revenues                                          |  |        | 185.2 |   |                       |   | 6.8  |                             |  |   | 138.9        |   |  |                    | (24.8
|                                                          |  |        |       |   |                       |   |      |                             |  |   |              |   |  |                    |      
|Gross profit                                              |  |        | 54.1  |   |                       |   | 1.4  |                             |  |   | 56.0         |   |  |                    | (0.1 
|Selling, engineering, administrative and general expenses |  |        | 64.2  |   |                       |   | (0.9 | )                           |  |   | 25.6         |   |  |                    | (0.1 
|                                                          |  |        |       |   |                       |   |      |                             |  |   |              |   |  |                    |      
|Operating (loss) income                                   |  |        | (10.1 | ) |                       |   | 2.3  |                             |  |   | 30.4         |   |  |                    |     
|Equity earnings of unconsolidated subsidiaries            |  |        |      |   |                       |   |     |                             |  |   | 0.5          |   |  |                    |     
|Equity earnings of consolidated subsidiaries              |  |        | 21.3  |   |                       |   | 18.8 |                             |  |   |             |   |  |                    | (40.1
|Interest expense                                          |  |        | (20.5 | ) |                       |   |     |                             |  |   | (0.7         | ) |  |                    |     
|Interest income                                           |  |        |      |   |                       |   |     |                             |  |   | 0.5          |   |  |                    |     
|Other income (deductions), net                            |  |        | 0.1   |   |                       |   | 0.2  |                             |  |   | (1.1         | ) |  |                    |     
|                                                          |  |        |       |   |                       |   |      |                             |  |   |              |   |  |                    |      
|(Loss) income before taxes                                |  |        | (9.2  | ) |                       |   | 21.3 |                             |  |   | 29.6         |   |  |                    | (40.1
|Provision for income taxes                                |  |        |      |   |                       |   |     |                             |  |   | (10.8        | ) |  |                    |     
|                                                          |  |        |       |   |                       |   |      |                             |  |   |              |   |  |                    |      
|Net (loss) income                                         |  | $      | (9.2  | ) |                       | $ | 21.3 |                             |  | $ | 18.8         |   |  | $                  | (40.1
|                                                          |  |        |       |   |                       |   |      |                             |  |   |              |   |  |                    |      



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DRESSER, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2002

(in millions)

(unaudited)



|                                                          |  | Parent |       |   | Subsidiary Guarantors |   |      | Non- Guarantor Subsidiaries |  |   | Eliminations |   |  | Total Consolidated |      
|--------------------------------------------------------- |  | ------ | ----- | - | --------------------- | - | ---- | --------------------------- |  | - | ------------ | - |  | ------------------ | -----
|Revenues                                                  |  | $      | 256.0 |   |                       | $ | 11.6 |                             |  | $ | 176.4        |   |  | $                  | (36.1
|Cost of revenues                                          |  |        | 193.6 |   |                       |   | 9.7  |                             |  |   | 141.5        |   |  |                    | (36.0
|                                                          |  |        |       |   |                       |   |      |                             |  |   |              |   |  |                    |      
|Gross profit                                              |  |        | 62.4  |   |                       |   | 1.9  |                             |  |   | 34.9         |   |  |                    | (0.1 
|Selling, engineering, administrative and general expenses |  |        | 33.6  |   |                       |   | 0.6  |                             |  |   | 46.0         |   |  |                    | (0.1 
|                                                          |  |        |       |   |                       |   |      |                             |  |   |              |   |  |                    |      
|Operating income                                          |  |        | 28.8  |   |                       |   | 1.3  |                             |  |   | (11.1        | ) |  |                    |     
|Equity earnings of unconsolidated subsidiaries            |  |        | 0.1   |   |                       |   |     |                             |  |   | 0.7          |   |  |                    |     
|Equity earnings of consolidated subsidiaries              |  |        | (6.1  | ) |                       |   | (7.3 | )                           |  |   |             |   |  |                    | 13.4 
|Interest expense                                          |  |        | (22.8 | ) |                       |   | (0.1 | )                           |  |   | 1.3          |   |  |                    |     
|Interest income                                           |  |        | 0.2   |   |                       |   |     |                             |  |   | 0.7          |   |  |                    |     
|Other deductions, net                                     |  |        | (0.2  | ) |                       |   |     |                             |  |   | (1.6         | ) |  |                    |     
|                                                          |  |        |       |   |                       |   |      |                             |  |   |              |   |  |                    |      
|Income (loss) before taxes                                |  |        |      |   |                       |   | (6.1 | )                           |  |   | (10.0        | ) |  |                    | 13.4 
|Benefit for income taxes                                  |  |        | 0.2   |   |                       |   |     |                             |  |   | 2.7          |   |  |                    |     
|                                                          |  |        |       |   |                       |   |      |                             |  |   |              |   |  |                    |      
|Net income (loss)                                         |  | $      | 0.2   |   |                       | $ | (6.1 | )                           |  | $ | (7.3         | ) |  | $                  | 13.4 
|                                                          |  |        |       |   |                       |   |      |                             |  |   |              |   |  |                    |      



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DRESSER, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2003

(in millions)

(unaudited)



|                                                          |  | Parent |       |   | SubsidiaryGuarantors |   |      | Non- GuarantorSubsidiaries |  |   | Eliminations |   |  | TotalConsolidated |      
|--------------------------------------------------------- |  | ------ | ----- | - | -------------------- | - | ---- | -------------------------- |  | - | ------------ | - |  | ----------------- | -----
|Revenues                                                  |  | $      | 694.5 |   |                      | $ | 25.3 |                            |  | $ | 536.1        |   |  | $                 | (72.1
|Cost of revenues                                          |  |        | 532.8 |   |                      |   | 20.6 |                            |  |   | 389.8        |   |  |                   | (71.8
|                                                          |  |        |       |   |                      |   |      |                            |  |   |              |   |  |                   |      
|Gross profit                                              |  |        | 161.7 |   |                      |   | 4.7  |                            |  |   | 146.3        |   |  |                   | (0.3 
|Selling, engineering, administrative and general expenses |  |        | 184.4 |   |                      |   | (0.8 | )                          |  |   | 89.2         |   |  |                   | (0.3 
|                                                          |  |        |       |   |                      |   |      |                            |  |   |              |   |  |                   |      
|Operating income                                          |  |        | (22.7 | ) |                      |   | 5.5  |                            |  |   | 57.1         |   |  |                   |     
|Equity earnings of unconsolidated subsidiaries            |  |        |      |   |                      |   |     |                            |  |   | 2.0          |   |  |                   |     
|Equity earnings of consolidated subsidiaries              |  |        | 52.0  |   |                      |   | 46.3 |                            |  |   |             |   |  |                   | (98.3
|Interest expense                                          |  |        | (61.8 | ) |                      |   |     |                            |  |   | (1.1         | ) |  |                   |     
|Interest income                                           |  |        | 0.1   |   |                      |   |     |                            |  |   | 2.3          |   |  |                   |     
|Other income, net                                         |  |        | 0.3   |   |                      |   | 0.2  |                            |  |   | 6.9          |   |  |                   |     
|                                                          |  |        |       |   |                      |   |      |                            |  |   |              |   |  |                   |      
|(Loss) income before taxes                                |  |        | (32.1 | ) |                      |   | 52.0 |                            |  |   | 67.2         |   |  |                   | (98.3
|Provision for income taxes                                |  |        | (0.1  | ) |                      |   |     |                            |  |   | (20.9        | ) |  |                   |     
|                                                          |  |        |       |   |                      |   |      |                            |  |   |              |   |  |                   |      
|Net (loss) income                                         |  | $      | (32.2 | ) |                      | $ | 52.0 |                            |  | $ | 46.3         |   |  | $                 | (98.3
|                                                          |  |        |       |   |                      |   |      |                            |  |   |              |   |  |                   |      



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DRESSER, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2002

(in millions)

(unaudited)



|                                                          |  | Parent |       |   | SubsidiaryGuarantors |   |      | Non- GuarantorSubsidiaries |  |   | Eliminations |   |  | TotalConsolidated |       
|--------------------------------------------------------- |  | ------ | ----- | - | -------------------- | - | ---- | -------------------------- |  | - | ------------ | - |  | ----------------- | ------
|Revenues                                                  |  | $      | 760.9 |   |                      | $ | 19.7 |                            |  | $ | 531.8        |   |  | $                 | (101.7
|Cost of revenues                                          |  |        | 568.3 |   |                      |   | 16.3 |                            |  |   | 405.2        |   |  |                   | (101.4
|                                                          |  |        |       |   |                      |   |      |                            |  |   |              |   |  |                   |       
|Gross profit                                              |  |        | 192.6 |   |                      |   | 3.4  |                            |  |   | 126.6        |   |  |                   | (0.3  
|Selling, engineering, administrative and general expenses |  |        | 136.4 |   |                      |   | 1.0  |                            |  |   | 103.7        |   |  |                   | (0.3  
|                                                          |  |        |       |   |                      |   |      |                            |  |   |              |   |  |                   |       
|Operating income                                          |  |        | 56.2  |   |                      |   | 2.4  |                            |  |   | 22.9         |   |  |                   |      
|Equity earnings of unconsolidated subsidiaries            |  |        | 0.1   |   |                      |   |     |                            |  |   | 2.5          |   |  |                   |      
|Equity earnings of consolidated subsidiaries              |  |        | 19.4  |   |                      |   | 17.3 |                            |  |   |             |   |  |                   | (36.7 
|Interest expense                                          |  |        | (74.8 | ) |                      |   | (0.3 | )                          |  |   | (3.7         | ) |  |                   |      
|Interest income                                           |  |        | 0.6   |   |                      |   |     |                            |  |   | 1.4          |   |  |                   |      
|Other deductions, net                                     |  |        | (0.2  | ) |                      |   |     |                            |  |   | (0.3         | ) |  |                   |      
|                                                          |  |        |       |   |                      |   |      |                            |  |   |              |   |  |                   |       
|Income (loss) before taxes                                |  |        | 1.3   |   |                      |   | 19.4 |                            |  |   | 22.8         |   |  |                   | (36.7 
|Provision for income taxes                                |  |        | (0.2  | ) |                      |   |     |                            |  |   | (5.5         | ) |  |                   |      
|                                                          |  |        |       |   |                      |   |      |                            |  |   |              |   |  |                   |       
|Net income (loss)                                         |  | $      | 1.1   |   |                      | $ | 19.4 |                            |  | $ | 17.3         |   |  | $                 | (36.7 
|                                                          |  |        |       |   |                      |   |      |                            |  |   |              |   |  |                   |       



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DRESSER, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September, 2003

(in millions)

(unaudited)



|                                                                                                     |  | Parent |       |   | Subsidiary Guarantors |   |       | Non- Guarantor Subsidiaries |  |   | Eliminations |   |  | Total Consolidated |      
|---------------------------------------------------------------------------------------------------- |  | ------ | ----- | - | --------------------- | - | ----- | --------------------------- |  | - | ------------ | - |  | ------------------ | -----
|Cash flows from operating activities:                                                                |  |        |       |   |                       |   |       |                             |  |   |              |   |  |                    |      
|Net (loss) income                                                                                    |  | $      | (32.2 | ) |                       | $ | 52.0  |                             |  | $ | 46.3         |   |  | $                  | (98.3
|Adjustments to reconcile net (loss) income to cash flows (used in) provided by operating activities: |  |        |       |   |                       |   |       |                             |  |   |              |   |  |                    |      
|Depreciation and amortization                                                                        |  |        | 18.6  |   |                       |   |      |                             |  |   | 13.1         |   |  |                    |     
|Equity earnings of unconsolidated affiliates                                                         |  |        |      |   |                       |   |      |                             |  |   | (2.0         | ) |  |                    |     
|Equity earnings of consolidated affiliates                                                           |  |        | (52.0 | ) |                       |   | (46.3 | )                           |  |   |             |   |  |                    | 98.3 
|Loss on repayment of debt                                                                            |  |        | 0.1   |   |                       |   |      |                             |  |   |             |   |  |                    |     
|Impairment of assets                                                                                 |  |        | 1.5   |   |                       |   |      |                             |  |   | 3.1          |   |  |                    |     
|Other changes, net                                                                                   |  |        | 59.1  |   |                       |   | (5.9  | )                           |  |   | (18.9        | ) |  |                    |     
|                                                                                                     |  |        |       |   |                       |   |       |                             |  |   |              |   |  |                    |      
|Net cash (used in) provided by operating activities                                                  |  |        | (4.9  | ) |                       |   | (0.2  | )                           |  |   | 41.6         |   |  |                    |     
|                                                                                                     |  |        |       |   |                       |   |       |                             |  |   |              |   |  |                    |      
|Cash flows from investing activities:                                                                |  |        |       |   |                       |   |       |                             |  |   |              |   |  |                    |      
|Asset acquisitions                                                                                   |  |        | (15.4 | ) |                       |   |      |                             |  |   |             |   |  |                    |     
|Capital expenditures                                                                                 |  |        | (10.3 | ) |                       |   |      |                             |  |   | (7.5         | ) |  |                    |     
|Distributions from unconsolidated subsidiaries                                                       |  |        |      |   |                       |   |      |                             |  |   | 1.5          |   |  |                    |     
|                                                                                                     |  |        |       |   |                       |   |       |                             |  |   |              |   |  |                    |      
|Net cash used in investing activities                                                                |  |        | (25.7 | ) |                       |   |      |                             |  |   | (6.0         | ) |  |                    |     
|                                                                                                     |  |        |       |   |                       |   |       |                             |  |   |              |   |  |                    |      
|Cash flows from financing activities:                                                                |  |        |       |   |                       |   |       |                             |  |   |              |   |  |                    |      
|Changes in intercompany activity                                                                     |  |        | 38.3  |   |                       |   |      |                             |  |   | (38.3        | ) |  |                    |     
|Proceeds from the issuance of long-term debt                                                         |  |        |      |   |                       |   |      |                             |  |   |             |   |  |                    |     
|Repayment of debt (including current portion)                                                        |  |        | (7.5  | ) |                       |   |      |                             |  |   | (1.3         | ) |  |                    |     
|Decrease in short-term notes payable                                                                 |  |        |      |   |                       |   |      |                             |  |   | (9.1         | ) |  |                    |     
|Changes in restricted cash                                                                           |  |        | 7.5   |   |                       |   |      |                             |  |   |             |   |  |                    |     
|Payment of deferred financing fees                                                                   |  |        | (3.9  | ) |                       |   |      |                             |  |   |             |   |  |                    |     
|                                                                                                     |  |        |       |   |                       |   |       |                             |  |   |              |   |  |                    |      
|Net cash provided by (used in) financing activities:                                                 |  |        | 34.4  |   |                       |   |      |                             |  |   | (48.7        | ) |  |                    |     
|Effect of translation adjustments on cash                                                            |  |        |      |   |                       |   |      |                             |  |   | 3.9          |   |  |                    |     
|Net increase (decrease) in cash and equivalents                                                      |  |        | 3.8   |   |                       |   | (0.2  | )                           |  |   | (9.2         | ) |  |                    |     
|Cash and equivalents, beginning of period                                                            |  |        | 62.7  |   |                       |   | 0.5   |                             |  |   | 55.6         |   |  |                    |     
|                                                                                                     |  |        |       |   |                       |   |       |                             |  |   |              |   |  |                    |      
|Cash and equivalents, end of period                                                                  |  | $      | 66.5  |   |                       | $ | 0.3   |                             |  | $ | 46.4         |   |  | $                  |     
|                                                                                                     |  |        |       |   |                       |   |       |                             |  |   |              |   |  |                    |      



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DRESSER, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2002

(in millions)

(unaudited)



|                                                                                              |  |        |        |   | Subsidiary |   |       | Non-Guarantor |  |   |              |   |  | Total        |      
|--------------------------------------------------------------------------------------------- |  | ------ | ------ | - | ---------- | - | ----- | ------------- |  | - | ------------ | - |  | ------------ | -----
|                                                                                              |  | Parent |        |   | Guarantors |   |       | Subsidiaries  |  |   | Eliminations |   |  | Consolidated |      
|Cash flows from operating activities:                                                         |  |        |        |   |            |   |       |               |  |   |              |   |  |              |      
|Net income                                                                                    |  | $      | 1.1    |   |            |   | 19.4  |               |  | $ | 17.3         |   |  | $            | (36.7
|Adjustments to reconcile net income to cash flows provided by (used in) operating activities: |  |        |        |   |            |   |       |               |  |   |              |   |  |              |      
|Depreciation and amortization                                                                 |  |        | 21.6   |   |            |   |      |               |  |   | 11.1         |   |  |              |     
|Equity earnings of consolidated affiliates                                                    |  |        | (19.4  | ) |            |   | (17.3 | )             |  |   |             |   |  |              | 36.7 
|Equity earnings of unconsolidated affiliates                                                  |  |        | (0.1   | ) |            |   |      |               |  |   | (2.5         | ) |  |              |     
|Loss on extinguishment of debt                                                                |  |        | 15.4   |   |            |   |      |               |  |   |             |   |  |              |     
|Impairment of assets                                                                          |  |        | 1.4    |   |            |   |      |               |  |   |             |   |  |              |     
|Other changes, net                                                                            |  |        | 77.4   |   |            |   | 5.2   |               |  |   | (44.5        | ) |  |              |     
|                                                                                              |  |        |        |   |            |   |       |               |  |   |              |   |  |              |      
|Net cash provided by (used in) operating activities                                           |  |        | 97.4   |   |            |   | 7.3   |               |  |   | (18.6        | ) |  |              |     
|                                                                                              |  |        |        |   |           
|Cash flows from investing activities:                                                         |  |        |        |   |            |   |       |               |  |   |              |   |  |              |      
|Asset acquisitions                                                                            |  |        | (21.4  | ) |            |   |      |               |  |   |             |   |  |              |     
|Capital expenditures                                                                          |  |        | (7.7   | ) |            |   |      |               |  |   | (3.3         | ) |  |              |     
|                                                                                              |  |        |        |   |            |   |       |               |  |   |              |   |  |              |      
|Net cash used in investing activities                                                         |  |        | (29.1  | ) |            |   |      |               |  |   | (3.3         | ) |  |              |     
|                                                                                              |  |        |        |   |           
|Cash flows from financing activities:                                                         |  |        |        |   |            |   |       |               |  |   |              |   |  |              |      
|Changes in intercompany activity                                                              |  |        | (109.0 | ) |            |   |      |               |  |   | 109.0        |   |  |              |     
|Proceeds from the issuance of long term debt                                                  |  |        | 256.3  |   |            |   |      |               |  |   |             |   |  |              |     
|Repayment of debt (including current portion)                                                 |  |        | (208.2 | ) |            |   | (7.1  | )             |  |   | (98.3        | ) |  |              |     
|Increase in short-term notes payable                                                          |  |        |       |   |            |   |      |               |  |   | (9.4         | ) |  |              |     
|Payment of deferred financing fees                                                            |  |        | (8.2   | ) |            |   |      |               |  |   | (0.1         | ) |  |              |     
|Proceeds from the issuance of stock                                                           |  |        | 10.0   |   |            |   |      |               |  |   |             |   |  |              |     
|                                                                                              |  |        |        |   |            |   |       |               |  |   |              |   |  |              |      
|Net cash (used in) provided by financing activities                                           |  |        | (59.1  | ) |            |   | (7.1  | )             |  |   | 1.2          |   |  |              |     
|                                                                                              |  |        |        |   |           
|Effect of translation adjustments on cash                                                     |  |        |       |   |            |   |      |               |  |   | 2.2          |   |  |              |     
|Net increase (decrease) in cash and equivalents                                               |  |        | 9.2    |   |            |   | 0.2   |               |  |   | (18.5        | ) |  |              |     
|Cash and equivalents, beginning of period                                                     |  |        | 35.4   |   |            |   |      |               |  |   | 66.3         |   |  |              |     
|                                                                                              |  |        |        |   |            |   |       |               |  |   |              |   |  |              |      
|Cash and equivalents, end of period                                                           |  | $      | 44.6   |   |            | $ | 0.2   |               |  | $ | 47.8         |   |  | $            |     
|                                                                                              |  |        |        |   |            |   |       |               |  |   |              |   |  |              |      



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|Item 
2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|-------- |  | -------------------------------------------------------------------------------------



Certain statements in this report constitute forward-looking statements as that term is defined under §21E
of the Securities and Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. The words believe, expect, anticipate, intend, estimate and other
expressions, which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Although
forward-looking statements reflect managements good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results,
performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the impact of general economic conditions in the regions
in which we do business; general industry conditions, including competition and product, raw material and energy prices; changes in exchange rates and currency values; capital expenditure requirements; access to capital markets and the risks and
uncertainties described below under Certain Risk Factors.



Critical Accounting Policies and Estimates



Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent liabilities. On an on-going basis, we evaluate our estimates, including bad debts,
inventories, long-lived tangible and intangible assets, income taxes, warranty obligations, pensions and other post-retirement benefits, and contingencies and litigation. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. In our annual report on Form 10-K for the year ended December 31, 2002, we identified and disclosed critical accounting policies, which included reserves of uncollectible
accounts receivable, inventory reserves, impairment of long-lived assets and goodwill, product warranties, income taxes, other contingencies and pension and other post retirement benefit obligations. These critical accounting policies affect
significant judgments and estimates used in the preparation of our financial statements. We reviewed our policies and have determined that those critical policies remain and have not changed since December 31, 2002.



Overview



We design, manufacture and market highly engineered equipment and services sold primarily to customers in the energy
industry. Our primary business segments are flow control, measurement systems and compression and power systems. We sell our products and services to customers including major oil companies, multinational engineering and construction companies and
other industrial firms. Our total revenues by geographic region for the three months ended September 30, 2003, consisted of North America (53.0%), Europe/Africa (27.0%), Latin America (4.4%), Asia (9.8%) and the Middle East (5.8%). We have pursued a
strategy of customer, geographic and product diversity to mitigate the impact of an economic downturn on our business in any one part of the world or in any single business segment.



For the nine months ended September 30, 2003, we generated revenues of $1,183.8 million, operating income of $39.9 million
and net loss of $32.2 million.



We believe that in order to
maintain our competitiveness, we need to continue to focus on increasing operational efficiency and cash flow. This focus includes our on-going initiatives to increase manufacturing efficiencies, consolidate raw material sources, increase global
procurement and improve working capital efficiency. We believe these initiatives offer us opportunities to improve our profitability and cash flow. The continuation of reengineering, plant consolidations and the implementation of a new
enterprise-wide reporting, or ERP, system is



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critical to achieving these improvements. We have incurred and will continue to incur significant costs to implement
these initiatives. See Restructuring and Other Exit Activities for a detail of these activities.



Market Forces; Outlook



Our product offerings include valves, instruments, meters, natural gas fueled engines, retail fuel dispensing systems, blowers and natural gas fueled
power generation systems. These products are used to produce, transport, process, store and deliver oil and gas and their related by-products, and in other general industrial applications.



Long-term demand for energy infrastructure equipment and services is driven
by increases in worldwide energy consumption, which is a function of worldwide population growth, rate of industrialization and the levels of energy consumption per capita. In the short term, demand for our products is affected by overall worldwide
economic conditions and by fluctuations in the level of activity and capital spending by major, national and independent oil and gas companies, gas distribution companies, gas compression companies, pipeline companies, power generation companies and
petrochemical processing plants and customers access to capital. Energy demand and the level of oil and gas prices affect all of these activities and is a significant factor in determining our primary customers level of cash flow.



Flow Control  The first nine months of 2003 was impacted
by reduced volume in our on/off valves product line, a weak natural gas distribution market, a slowdown in new construction and aftermarket sales in our pressure relief valve business and soft market conditions in our non-energy related business;
all of which negatively impacted our results in this segment. However we did see increased international project activity in our on/off product line resulting in increased bookings for the first nine months of 2003 as compared to 2002.



Measurement Systems  The segment was positively impacted in the
first nine months of 2003, by the acquisition of certain North American assets of Tokheim in March 2003. We have substantially completed the integration of these assets with our existing retail fueling business. In addition, market conditions for
this segment have improved in the U.S.



Compression and Power
Systems  The first nine months of 2003 was impacted by the continued decline in demand for our gas compression equipment, but we were able to offset part of the impact that the reduced sales volume had on our operating income by reducing
costs. However, on May 1, 2003, our collective bargaining agreement at our Waukesha, Wisconsin manufacturing plant expired, and a labor strike commenced on May 2, 2003 which resulted in a negative impact in our results of operations in the second
and third quarters of 2003.



Restructuring and Other Exit Activities



During 2002 and 2003, we initiated restructuring programs
affecting several business units in an effort to obtain manufacturing efficiencies and cost savings. We adopted SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activities in 2002 and have recognized costs associated
with exit or disposal activities as incurred rather than at the date of a commitment to an exit or disposal plan.



We incurred $15.8 million of restructuring charges for the nine months ended September 30, 2003. Restructuring charges of $3.5 million and $12.3 million
have been reflected in cost of revenues and selling, engineering, general and administrative expenses, respectively, in our condensed consolidated statement of operations. The restructuring charges consist of $15.9 million related to the initiatives
taken during the nine months ended September 30, 2003 and a reduction of $0.1 million as a result of changes in estimates related to the initiatives undertaken in 2002.



In 2003, we decided to (1) consolidate a valve operation in Germany (EDG) into an existing facility in Italy,
(2) consolidate an instrument operation in Shelton, Connecticut into an existing facility in Stratford, Connecticut, (3) consolidate an instrument operation in Berea, Kentucky with exiting operations in Brazil into a new facility in Sao Caetano,
Brazil, (4) consolidate a retail fueling dispenser manufacturing operation in Germany into an existing facility in Sweden, (5) consolidate two Canadian retail fueling dispenser plant operations, (6) consolidate certain



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flow control operations in Houston, Texas into a new facility, and (7) continue a reduction in our workforce. The costs
incurred associated with these actions are as follows:



|Description                                 |  | Restructuring Charge |      | Cash Payments |   |      | Non-Cash Charges |  |   | Accrued at9/30/03
|------------------------------------------- |  | -------------------- | ---- | ------------- | - | ---- | ---------------- |  | - | -----------------
|                                            |  | (in millions)       
|Consolidate EDG operations                  |  |                      |      |               |   |      |                  |  |   |                  
|Termination benefits                        |  | $                    | 0.4  |               | $ | (0.4 | )                |  | $ |                 
|Write-down of fixed assets                  |  |                      | 0.1  |               |   |     |                  |  |   | (0.1             
|Other exit activities                       |  |                      | 0.1  |               |   | (0.1 | )                |  |   |                 
|Consolidate Shelton operations              |  |                      |      |               |   |      |                  |  |   |                  
|Termination benefits                        |  |                      | 0.7  |               |   | (0.7 | )                |  |   |                 
|Write-down of fixed assets                  |  |                      | 0.8  |               |   |     |                  |  |   | (0.8             
|Other exit activities                       |  |                      | 1.2  |               |   | (0.2 | )                |  |   |                 
|Consolidate Berea operations                |  |                      |      |               |   |      |                  |  |   |                  
|Termination benefits                        |  |                      | 1.9  |               |   |     |                  |  |   |                 
|Consolidate German manufacturing operations |  |                      |      |               |   |      |                  |  |   |                  
|Termination benefits                        |  |                      | 5.1  |               |   | (3.3 | )                |  |   |                 
|Write-down of fixed assets                  |  |                      | 0.6  |               |   |     |                  |  |   | (0.6             
|Consolidate Canadian plant operations       |  |                      |      |               |   |      |                  |  |   |                  
|Termination benefits                        |  |                      | 0.5  |               |   | (0.5 | )                |  |   |                 
|Houston Consolidation                       |  |                      |      |               |   |      |                  |  |   |                  
|Termination benefits                        |  |                      | 1.2  |               |   | (0.4 | )                |  |   |                 
|Write-down of fixed assets                  |  |                      | 1.3  |               |   |     |                  |  |   | (1.3             
|Company wide reduction in force             |  |                      |      |               |   |      |                  |  |   |                  
|Termination benefits                        |  |                      | 2.0  |               |   | (1.7 | )                |  |   |                 
|                                            |  |                      |      |               |   |      |                  |  |   |                  
|Total                                       |  | $                    | 15.9 |               | $ | (7.3 | )                |  | $ | (2.8             
|                                            |  |                      |      |               |   |      |                  |  |   |                  



The following table
details the 2003 restructuring charges by segment.



|Segment                       |  | Restructuring Charge |      | Cash Payments |   |      | Non-Cash Charges |  |   | Accrued at9/30/03
|----------------------------- |  | -------------------- | ---- | ------------- | - | ---- | ---------------- |  | - | -----------------
|                              |  | (in millions)       
|Flow Control                  |  | $                    | 8.5  |               | $ | (2.6 | )                |  | $ | (2.2             
|Measurement Systems           |  |                      | 7.1  |               |   | (4.4 | )                |  |   | (0.6             
|Compression and Power Systems |  |                      | 0.3  |               |   | (0.3 | )                |  |   |                 
|                              |  |                      |      |               |   |      |                  |  |   |                  
|Total                         |  | $                    | 15.9 |               | $ | (7.3 | )                |  | $ | (2.8             
|                              |  |                      |      |               |   |      |                  |  |   |                  



In connection with the
activities in the first quarter of 2003, we incurred certain restructuring charges related to termination benefits. We anticipate a workforce reduction of approximately 771 employees, of which approximately 336 had been terminated through September
30, 2003. During the remainder of 2003, we expect to incur approximately $0.4 million in additional expenses for these 2003 initiatives.



During 2002, we decided to: (1) consolidate manufacturing of our standard design rotary blower products at our Houston, Texas manufacturing plant and
downsize our Connersville, Indiana facility; (2) cease manufacturing fuel dispensers at a Canadian manufacturing facility and consolidate North American fuel dispenser manufacturing in our Austin, Texas facility; (3) discontinue several small
product lines; and (4) initialize a company wide reduction in our workforce. In 2002, we incurred $6.0 million in expenses related to these activities. During 2003, we revised these costs by $0.1 million. In connection with these 2002 activities, we
incurred certain restructuring charges related to termination benefits for approximately 295 employees. Accrued liabilities at September 30, 2003 related to the 2002 restructuring initiatives are as follows:



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|Description                              |  | Reserved at12/31/2002 |     | Cash Payments |   |      | Changes inEstimates |  |   | Accrued at9/30/03
|---------------------------------------- |  | --------------------- | --- | ------------- | - | ---- | ------------------- |  | - | -----------------
|                                         |  | (in millions)        
|Discontinuation of several product lines |  |                       |     |               |   |      |                     |  |   |                  
|Termination benefits                     |  | $                     | 0.4 |               | $ | (0.4 | )                   |  | $ |                 
|Company wide reduction in force          |  |                       |     |               |   |      |                     |  |   |                  
|Termination benefits                     |  |                       | 1.9 |               |   | (1.6 | )                   |  |   | (0.1             
|                                         |  |                       |     |               |   |      |                     |  |   |                  
|Total                                    |  | $                     | 2.3 |               | $ | (2.0 | )                   |  | $ | (0.1             
|                                         |  |                       |     |               |   |      |                     |  |   |                  



Results of Operations



The following table presents selected financial
information regarding each of our segments for the three and nine months ended September 30, 2003 and 2002, respectively.



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|                                                           |  | Three Months Ended September 30, |       |   | Nine Months Ended September 30, |  
|---------------------------------------------------------- |  | -------------------------------- | ----- | - | ------------------------------- | -
|                                                           |  | 2003                             |       |   | 2002                            |  
|                                                           |  | (in millions)                    |      
|Revenues:                                                  |  |                                  |       |   |                                 |  
|Flow Control                                               |  | $                                | 253.8 |   |                                 | $
|Measurement Systems                                        |  |                                  | 96.0  |   |                                 |  
|Compression and Power Systems                              |  |                                  | 69.5  |   |                                 |  
|Reconciling Items, Including Corporate                     |  |                                  | (1.8  | ) |                                 |  
|                                                           |  |                                  |       |   |                                 |  
|Total                                                      |  | $                                | 417.5 |   |                                 | $
|                                                           |  |                                  |       |   |                                 |  
|Gross profit:                                              |  |                                  |       |   |                                 |  
|Flow Control                                               |  | $                                | 68.6  |   |                                 | $
|Measurement Systems                                        |  |                                  | 29.3  |   |                                 |  
|Compression and Power Systems                              |  |                                  | 13.5  |   |                                 |  
|Reconciling Items, Including Corporate                     |  |                                  |      |   |                                 |  
|                                                           |  |                                  |       |   |                                 |  
|Total                                                      |  | $                                | 111.4 |   |                                 | $
|                                                           |  |                                  |       |   |                                 |  
|Selling, engineering, administrative and general expenses: |  |                                  |       |   |                                 |  
|Flow Control                                               |  | $                                | 55.0  |   |                                 | $
|Measurement Systems                                        |  |                                  | 16.2  |   |                                 |  
|Compression and Power Systems                              |  |                                  | 12.1  |   |                                 |  
|Reconciling Items, Including Corporate                     |  |                                  | 5.5   |   |                                 |  
|                                                           |  |                                  |       |   |                                 |  
|Total                                                      |  | $                                | 88.8  |   |                                 | $
|                                                           |  |                                  |       |   |                                 |  
|Operating income:                                          |  |                                  |       |   |                                 |  
|Flow Control                                               |  | $                                | 13.6  |   |                                 | $
|Measurement Systems                                        |  |                                  | 13.1  |   |                                 |  
|Compression and Power Systems                              |  |                                  | 1.4   |   |                                 |  
|Reconciling Items, Including Corporate                     |  |                                  | (5.5  | ) |                                 |  
|                                                           |  |                                  |       |   |                                 |  
|Total                                                      |  | $                                | 22.6  |   |                                 | $
|                                                           |  |                                  |       |   |                                 |  
|Depreciation and amortization:                             |  |                                  |       |   |                                 |  
|Flow Control                                               |  | $                                | 5.8   |   |                                 | $
|Measurement Systems                                        |  |                                  | 1.2   |   |                                 |  
|Compression and Power Systems                              |  |                                  | 2.7   |   |                                 |  
|Reconciling Items, Including Corporate                     |  |                                  | 0.7   |   |                                 |  
|                                                           |  |                                  |       |   |                                 |  
|Total                                                      |  | $                                | 10.4  |   |                                 | $
|                                                           |  |                                  |       |   |                                 |  
|Bookings:                                                  |  |                                  |       |   |                                 |  
|Flow Control                                               |  | $                                | 252.2 |   |                                 | $
|Measurement Systems                                        |  |                                  | 98.1  |   |                                 |  
|Compression and Power Systems                              |  |                                  | 86.7  |   |                                 |  
|                                                           |  |                                  |       |   |                                 |  
|Total                                                      |  | $                                | 437.0 |   |                                 | $
|                                                           |  |                                  |       |   |                                 |  



|                                       |  | September 30, |      
|-------------------------------------- |  | ------------- | -----
|                                       |  | 2003          |      
|                                       |  | (in millions) |      
|Backlog:                               |  |               |      
|Flow Control                           |  | $             | 345.7
|Measurement Systems                    |  |               | 49.5 
|Compression and Power Systems          |  |               | 77.6 
|Reconciling Items, Including Corporate |  |               | (0.6 
|                                       |  |               |      
|Total                                  |  | $             | 472.2
|                                       |  |               |      



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Three months ended September 30, 2003 as compared to the three months ended September 30, 2002



Consolidated



Revenues.Revenues were $417.5 million and $407.9 million for the three months ended September 30, 2003 and 2002,
respectively. This was an increase of $9.6 million, or 2.4%. Positive increases from our measurement segment, due to the Tokheim asset purchase and increased equipment service revenue in the U.S. market were offset in part by decreases in our flow
control segment and our compression and power systems segment. In our flow control segment, our pressure relief and instruments product lines were impacted by reduced demand from soft markets while our on/off and piping and metering specialties
product lines benefited from higher sales volume. Our control valves product line decreased due primarily to project revenues from the prior year not repeating in the current period. Our compression and power systems segment was impacted by a
decline in our gas compression engine sales as a result of a labor strike which ended in the month of July and weak natural gas compression demand.



Cost of revenues.Cost of revenues as a percentage of revenues were 73.3% and 75.7% for the three months ended September 30, 2003 and 2002
respectively. During the third quarter of 2003, we incurred approximately $2.4 million in restructuring charges. In 2002, we decided to discontinue several small product lines which resulted in inventory markdowns of approximately $3.9 million and
incurred non-cash charges of approximately $5.7 million related to inventory shrinkage and establishment of additional reserves for excess and obsolete inventory. In addition, during the third quarter of 2002, cost of revenues as a percentage of
revenues, was negatively impacted by a substantial volume of low margin third-party buyouts associated with Barracuda-Caratinga, a large off-shore project substantially completed in 2002.



Gross Profit.Gross profit was $111.4 million and $99.1 million for the three months ended September 30, 2003 and
2002, respectively. This was an increase of $12.3 million or 12.4%. As a percentage of revenues, gross profit increased to 26.7% in 2003 from 24.3% in 2002, primarily as a result of the factors discussed above.



Selling, Engineering, Administrative and General Expenses. Selling,
engineering, administrative and general expenses were $88.8 million and $80.1 million for the three months ended September 30, 2003 and 2002, respectively. This was an increase of $8.7 million or 10.9%. During the quarter, we incurred restructuring
charges of $4.0 million and approximately $2.7 million in expenses associated with the restatement and re-audit of our financial statements. As a percentage of revenues, these costs rose to 21.3% of revenues in 2003 from 19.6% of revenues in 2002.



Operating Income.Operating income was $22.6 million
and $19.0 million for the three months ended September 30, 2003 and 2002, respectively. This was an increase of $3.6 million or 18.9% which was a result of the factors discussed above.



Interest Expense.Interest expense was $21.2 million and $21.6 million for the three months ended September 30, 2003
and 2002, respectively. This was a decrease of $0.4 million or 1.9%. The decline in interest expense can primarily be attributable to a decline in our debt balance in 2003 as compared to 2002.



(Provision) benefit for income taxes.(Provision) benefit for income
taxes was ($10.8) million and $2.9 million for the three months ended September 30, 2003 and 2002, respectively. The provision for income taxes primarily resulted from changes in the geographical distribution of taxable income in various foreign
jurisdictions. We have provided a full valuation allowance against domestic deferred tax assets. Therefore, no deferred income tax expense or benefit has been recorded during the periods indicated above for our U.S. operations.



Bookings and Backlog.Bookings were $437.0 million and $377.0 million
for the three months ended September 30, 2003 and 2002, respectively. This was an increase of $60.0 million or 15.9%. The increase in bookings is primarily attributable to strong increases in our on/off product line primarily from increased
international project activity, as well as bookings in our measurement systems segment which benefited from the



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Tokheim asset purchase. Backlog at September 30, 2003 was $472.2 million compared to $373.0 million at September 30,
2002.



Segment Analysis



Flow Control.Revenues were $253.8 million and $254.9 million for the
three months ended September 30, 2003 and 2002, respectively. This was a decrease of $1.1 million or 0.4%. The decline is primarily attributable to declines in revenues of approximately $10.6 million in our control valves product line. Contributing
to the decline was the non-recurrence of major project shipments from our U.S., Japanese and French operations in 2003. A decline in our control valve product line was largely offset by increases in our on/off product line from increased
international demand, as well as our metering and piping specialties product line which benefited from increased demand in U.S. markets.



Gross profit was $68.6 million and $59.9 million for the three months ended September 30, 2003 and 2002, respectively. This was an increase of $8.7
million or 14.5%. Gross profit in 2002 was impacted by several factors. In the third quarter of 2002, we decided to exit certain product lines which resulted in inventory markdowns of $3.7 million. We also recorded additional reserves of
approximately $5.2 million related to inventory shrinkage and excess and obsolete inventory. In addition, in our on/off valve product line, we had a substantial volume of low margin third-party buyouts associated with the Barracuda-Caratinga
project. In comparison, we incurred $2.4 million in restructuring charges in the third quarter of 2003. As a percentage of revenues, gross margins increased to 27.0% in 2003 from 23.5% in 2002.



Selling, engineering, administrative, and general expenses were $55.0 million
and $49.2 million for the three months ended September 30, 2003 and 2002, respectively. This was an increase of $5.8 million or 11.8%. During the quarter, we incurred approximately $2.6 million in restructuring charges. In addition, administrative
and general costs in our on/off product line increased by approximately $1.0 million in part due to additional costs associated with the Houston, Texas plant consolidations. During the third quarter of 2002, the segment was impacted by restructuring
charges of $1.8 million related to severance costs and the impairment of assets.



Operating income was $13.6 million and $10.7 million for the three months ended September 30, 2003 and 2002, respectively. This was an increase of $2.9 million or 27.1% as a result of the factors discussed above.



Bookings were $252.2 million and $228.2 million for the three
months ended September 30, 2003 and 2002, respectively, an increase of $24.0 million or 10.5%. Backlog at September 30, 2003 was $345.7 million compared to $279.0 million at September 30, 2002. The increase resulted primarily from increases in
international project bookings and backlog.



Measurement
Systems.Revenues were $96.0 million and $80.8 million for the three months ended September 30, 2003 and 2002, respectively. This was an increase of $15.2 million or 18.8%. The increases in revenue can primarily be attributed to sales of $8.3
million related to the Tokheim asset purchase, $5.5 million as a result of increased equipment and service revenue in the U.S. market, and higher export sales in Brazil of $1.6 million.



Gross profit was $29.3 million and $21.7 million for the three months ended September 30, 2003 and 2002, respectively. This
was an increase of $7.6 million or 35.0%, primarily generated from increased sales volume, as discussed above. As a percentage of revenues, gross margins increased to 30.5% in 2003 as compared to 26.9% for the same period in 2002.



Selling, engineering, administrative, and general expenses were $16.2 million
and $13.6 million for the three months ended September 30, 2003 and 2002, respectively. This was an increase of $2.6 million or 19.1%. The increase in these expenses is primarily attributable to the selling, engineering, administrative and general
expenses associated with the Tokheim asset purchase and an increase in restructuring charges. Included in these expenses in 2003 are $2.1 million associated with the Tokheim asset purchase. During the third quarter of 2003, we incurred $1.4 million
in restructuring charges as compared to $0.4 million in 2002. As a percentage of revenue, expenses were 16.9% in 2003 as compared to 16.8% for the same period in 2002.



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Operating income was $13.1 million and $8.1 million for the three months ended September 30, 2003 and
2002, respectively. The increase of $5.0 million or 61.7% was a result of the factors discussed above.



Bookings were $98.1 million and $82.7 million for the three months ended September 30, 2003 and 2002, respectively, an increase of 18.6%. The increase in
bookings was primarily a result of increased bookings to our U.S distributors and high volume retailers offset in part by declines in bookings from our major oil customers. Backlog at September 30, 2003 was $49.5 million compared to $47.9 million at
September 30, 2002, an increase of 3.3%. Bookings and backlog were also positively impacted by the Tokheim asset purchase.



Compression and Power Systems.Revenues were $69.5 million and $73.1 million for the three months ended September 30, 2003 and 2002 respectively.
This was a decrease of $3.6 million or 4.9%. In our Waukesha division, original equipment sales declined approximately $4.8 million as a result of the negative impact of the strike and diminished gas compression demand. Aftermarket part sales were
up approximately $2.0 million from the prior year. We also experienced a decline in our blower product line of approximately $0.8 million in part due to the lower sales of small rotary blowers.



Gross profit was $13.5 million and $17.4 million for the three months ended
September 30, 2003 and 2002, respectively. This was a decrease of $3.9 million or 22.4%. As a percentage of revenues, gross margins decreased to 19.4% in 2003 from 23.8% in 2002. Margins for the segment were negatively impacted by the effect of the
strike.



Selling, engineering, administrative, and general
expenses were $12.1 million and $13.5 million for the three months ended September 30, 2003 and 2002, respectively. This was a decrease of $1.4 million or 10.4%. The decrease is primarily a result of certain charges taken in the third quarter of
2002. In 2002, we recognized an impairment charge of approximately $0.9 million and restructuring charges of $0.3 million. As a percentage of revenue, these costs decreased to 17.4% in 2003 from 18.5% in 2002.



Operating income was $1.4 million and $3.9 million for the three months ended
September 30, 2003 and 2002, respectively. The decrease of $2.5 million or 64.1% was a result of the factors discussed above.



Bookings were $86.7 million and $66.1 million for the three months ended September 30, 2003 and 2002, respectively. Backlog at September 30, 2003 was
$77.6 million compared to $49.6 million at September 30, 2002. This increase in backlog is primarily attributable to delayed shipments from our Waukesha plant as a result of the strike.



Nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002



Consolidated



Revenues.Revenues were $1,183.8 million and $1,210.7 million for the nine months ended September 30, 2003 and 2002,
respectively. This was a decrease of $26.9 million, or 2.2%. In our flow control segment, our on/off product line and our metering and piping specialties product line was impacted by weak markets in the first half of 2003. Our compression and power
systems segment was significantly impacted by a labor strike and weak natural gas compression demand. However, we did have increases in revenue from our retail fueling business, which benefited from the Tokheim asset purchase as well as increased
sales in our U.S. market.



Cost of revenues.Cost of
revenues as a percentage of revenues were 73.6% and 73.4% for the nine months ended September 30, 2003 and 2002 respectively. These costs as a percentage of revenue were primarily impacted by our compression and power systems segment, where the
strike and a reduction in sales of our relatively high margin gas compression equipment had a significant negative impact on our cost of revenues as a percentage of revenue.



Gross Profit.Gross profit was $312.4 million and $322.3 million for the nine months ended September 30, 2003 and
2002, respectively. This was a decline of $9.9 million or 3.1%. As a percentage of revenues, gross profit decreased to 26.4% in 2003 from 26.6% in 2002, primarily as a result of the factors discussed above.



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Selling, Engineering, Administrative and General Expenses. Selling, engineering, administrative
and general expenses were $272.5 million and $240.8 million for the nine months ended September 30, 2003 and 2002, respectively. This was an increase of $31.7 million or 13.2%. Approximately $13.3 million of the increase can be attributable to a
rise in these expenses at our corporate headquarters. We incurred approximately $8.4 million in expenses associated with the restatement and re-audit of our financial statements and an additional $4.2 million in acquisition-related costs. We also
incurred restructuring expenses in our business segments of approximately $12.3 million in 2003 as compared to $2.5 million in 2002. In addition, we had a write-off of $2.4 million in software costs which were impaired as a result of the ERP
implementation. As a percentage of revenues, these costs rose to 23.0% of revenues in 2003 from 19.9% of revenues in 2002.



Operating Income.Operating income was $39.9 million and $81.5 million for the nine months ended September 30, 2003 and 2002, respectively. This
was a decrease of $41.6 million or 51.0%, primarily as a result of the factors discussed above.



Interest Expense.Interest expense was $62.9 million and $78.8 million for the nine months ended September 30, 2003 and 2002, respectively. This
was a decrease of $15.9 million or 20.2%. This variance was primarily a result of a charge taken in 2002 for the write-off of unamortized deferred financing fees. In 2002, we extinguished our Tranche A term loan and made optional pre-payments on our
Tranche B term loan, and as a result, we wrote off $15.4 million of unamortized deferred financing fees. During 2003, we recorded a $0.1 million charge related to unamortized deferred financing fees as a result of the optional prepayment on our
Tranche B term loan.



Provision for income taxes.Provision for income taxes was $21.0 million and $5.7 million for the nine months ended September 30, 2003 and 2002, respectively. The provision for income taxes was impacted by changes in the geographical distribution of taxable income in
various foreign jurisdictions. We have provided a full valuation allowance against domestic deferred tax assets. Therefore, no deferred income tax expense or benefit has been recorded during the periods indicated above for our U.S. operations.



Bookings and Backlog.Bookings were $1,300.4 million
and $1,157.7 million for the nine months ended September 30, 2003 and 2002, respectively. This was an increase of $142.7 million or 12.3%. The increase in bookings is primarily attributable to strong increases in our on/off product line primarily
from increased international project activity, as well as bookings in our measurement systems segment which benefited from the Tokheim asset purchase. Backlog at September 30, 2003 was $472.2 million compared to $373.0 million at September 30, 2002.



Segment Analysis



Flow Control.Revenues were $729.3 million and $775.1 million for the
nine months ended September 30, 2003 and 2002, respectively. This was a decrease of $45.8 million or 5.9%. The decrease was primarily a result of lower sales volume in our on/off product line. In 2002, this product line had significant sales related
to the Barracuda-Caratinga project, which was substantially completed in 2002. Our metering and piping specialties product line experienced a decline of approximately $4.8 million as a result of a continued downturn in the North American local gas
distribution markets. Our control valves product line experienced a decline of approximately $4.7 million primarily as a result of major project shipments in 2002 not repeating in 2003. Our pressure relief product line experienced a decline of
approximately $4.3 million as a result of the general downturn in new construction project business. In addition, our instruments product line experience a decline of approximately $4.1 million primarily due to continued economic weakness in its
U.S. based markets.



Gross profit was $205.5 million and $212.3
million for the nine months ended September 30, 2003 and 2002, respectively. This was a decline of $6.8 million or 3.2%. Gross profit was impacted by a loss in sales volume in all of our product lines in this segment. As a percentage of revenues,
gross profit remained relatively stable at 28.2% in 2003 as compared to 27.4% in 2002.



Selling, engineering, administrative, and general expenses were $161.8 million and $148.5 million for the nine months ended September 30, 2003 and 2002, respectively. This was an increase of $13.3 million or 9.0%. We
experienced higher selling expenses in our on/off valves due to commissions associated with increased project group



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sales and a higher content of commissionable international sales. Our control valves product line was also impacted by
higher selling costs. In addition, we incurred approximately $5.3 million in restructuring charges and $2.4 million for the write-off of certain software costs. As a percentage of revenue, these costs increased to 22.2% in 2003 from 19.2% in 2002.



Operating income was $43.7 million and $63.8 million for the
nine months ended September 30, 2003 and 2002, respectively. This was a decrease of $20.1 million or 31.5% as a result of the factors discussed above.



Bookings were $799.3 million and $732.0 million for the nine months ended September 30, 2003 and 2002, respectively, an increase of $67.3 million or 9.2%.
Backlog at September 30, 2003 was $345.7 million compared to $279.0 million at September 30, 2002, an increase of $66.7 million or 23.9%. The increase resulted from continued increases in international project.



Measurement Systems.Revenues were $263.0 million and $225.4 million
for the nine months ended September 30, 2003 and 2002, respectively. This was an increase of $37.6 million or 16.7%. The increases in revenue can primarily be attributed to sales of approximately $25.0 million related to the Tokheim asset purchase
as well as increased equipment, systems, and service revenue in the U.S. market.



Gross profit was $66.5 million and $57.0 million for the nine months ended September 30, 2003 and 2002, respectively. This was an increase of $9.5 million or 16.7%. As a percentage of revenues, gross margins remained
flat at 25.3%. The positive contribution to gross profit from increased Tokheim assets sales volume was mitigated in part by transition related expenses and higher operating costs in the first half of the year as we consolidated the Tokheim assets
into our Dresser Wayne business. In addition, as a result of our German restructuring, we experienced lower volumes and higher manufacturing costs as we shifted production from Germany to Sweden.



Selling, engineering, administrative, and general expenses were $49.3 million
and $41.2 million for the nine months ended September 30, 2003 and 2002, respectively. This was an increase of $8.1 million or 19.7%. The increase is primarily attributable to the $6.7 million of restructuring charges in 2003 as compared to $0.4
million in 2002. In addition, included in these expenses in 2003 are $5.9 million associated with the Tokheim asset purchase which were offset in part with certain U.S cost savings achieved. As a percentage of revenue, these costs increased to 18.7%
in 2003 from 18.3% in 2002.



Operating income was $17.2 million
and $15.8 million for the nine months ended September 30, 2003 and 2002, respectively. The increase of $1.4 million or 8.9% was a result of the factors discussed above.



Bookings were $268.1 million and $216.5 million for the nine months ended September 30, 2003 and 2002, respectively, an
increase of 23.8%. The increase in bookings was primarily a result of increased bookings to our U.S distributors and high volume retailers offset in part by declines in bookings from our major oil customers. Backlog at September 30, 2003 was $49.5
million compared to $47.9 million at September 30, 2002, an increase of 3.3%. Bookings and backlog also benefited from the Tokheim asset purchase.



Compression and Power Systems.Revenues were $195.6 million and $213.0 million for the nine months ended September 30, 2003 and 2002 respectively.
This was a decrease of $17.4 million or 8.2%. The decrease in sales reflects lower demand for our principal gas compression related product line and strikerelated production delays. Sales of this product declined approximately $12.2 million.
However, sales of certain smaller sized engines into shallow gas compression applications increased, primarily in North America. Power generation related products also showed some improvement as a result of an increase in domestic power generation
markets. Aftermarket service parts sales volume also increased by approximately $4.1 million.



Gross profit was $40.5 million and $53.0 million for the nine months ended September 30, 2003 and 2002, respectively. This was a decrease of $12.5 million or 23.6%. As a percentage of revenues, gross margins decreased
to 20.7% in 2003 from 24.9% in 2002. Margins for the segment were negatively impacted by the effect of the strike.



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Selling, engineering, administrative, and general expenses were $35.8 million and $38.8 million for the
nine months ended September 30, 2003 and 2002, respectively. This was a decrease of $3.0 million or 7.7%. The reduction in expenses is primarily a result of certain restructuring and cost savings initiatives undertaken in 2002, which have resulted
in savings in payroll as a result of head count reductions, as well as technical engineering services, maintenance, travel, supplies, and advertising expenses. However, these savings were in part offset by strike related costs. In addition, 2002 was
impacted by an impairment charge of $0.9 million. As a percentage of revenue, these costs increased to 18.3% in 2003 from 18.2% in 2002.



Operating income was $4.7 million and $14.2 million for the nine months ended September 30, 2003 and 2002, respectively. The decrease of $9.5 million or
66.9% was a result of the factors discussed above.



Bookings
were $233.0 million and $209.2 million for the nine months ended September 30, 2003 and 2002, respectively. Backlog at September 30, 2003 was $77.6 million compared to $49.6 million at September 30, 2002, an increase of 56.5%, which was primarily
due to strike-related production delays.



Liquidity and Capital Resources



Our primary source of cash is from operations. The
primary cash uses are to fund principal and interest payments on our debt, working capital and capital expenditures. We expect to fund these cash needs with operating cash flow and, if necessary, borrowings under the revolving credit portion of our
credit facility.



Cash and equivalents were $113.2 million and
$92.6 million as of September 30, 2003 and 2002, respectively. A significant portion of our cash and equivalents is utilized in our international operations and may not be immediately available to service debt in the United States.



Net cash flows generated from operating activities was $36.5 million and
$86.1 million for the nine months ended September 30, 2003 and 2002, respectively. Decreases in operating cash flow are attributable to a significant decline in operating income.



Net cash flows used in investing activities was $31.7 million for the nine months ended September 30, 2003. Net cash flows
used in investing activities resulted from the acquisition of certain assets of Tokheim North America for approximately $15.4 million and capital expenditures of $17.8 million. Net cash flows used in investing activities was $32.4 million for the
nine months ended September 30, 2002, resulting from cash used for the Modern acquisition and capital expenditures.



Net cash flows used in financing activities was $14.3 million for the nine months ended September 30, 2003 resulting primarily from the repayment of debt
and payment of deferred financing fees in connection with the amendments to our credit agreement. A repayment of $7.5 million was made with the application of the $7.5 million in restricted cash which was placed in escrow in December 2002. Net cash
flows used in financing activities was $65.0 million for the nine months ended September 30, 2002, resulting primarily from the repayment of debt with the proceeds from the issuance of additional senior subordinated notes and the payment of deferred
financing fees. In addition, we issued an additional 250,000 shares of class B common stock for proceeds of $10.0 million.



We entered into a sixth amendment and waiver to our credit agreement on August 5, 2003, which extended to December 15, 2003 our deadline for providing our
senior lenders with audited financial statements for the fiscal years ended December 31, 2001 and December 31, 2002. This amendment also waived, among other things, any default or event of default relating in any respect to the 2001 re-audit,
revision or restatement of any financial statement delivered to the senior lenders prior to August 5, 2003, including any default or event of default relating in any respect to any errors contained in such financial statements. The amendment grants
a suspension period to deliver audited financials with respect to the waiver, which began on March 31, 2003 and ends on the earlier of (1) December 15, 2003 or (2) the date on which the administrative agent receives the audited annual financial
statements for the years ended December 31, 2002 and 2001.



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Effective January 1, 2003, the applicable margin on our Tranche B term loan was increased from 3.50% to
3.75%. In addition, effective March 31, 2003, the applicable margin on our Tranche B term loan was increased by an additional 0.50% per annum and, effective August 5, 2003, the applicable margin on our Tranche B term loan was further increased by an
additional 0.50% per annum. The aggregate 1.00% per annum increase will remain in effect during the suspension period referred to above.



Total deferred financing fees incurred in connection with obtaining all of the amendments to the credit facility to date were $6.1 million.



Under the indenture that governs our senior subordinated notes, certain
covenants require that we furnish to all holders of the notes all quarterly and annual financial information required to be contained in a filing with the SEC on Forms 10-Q and 10-K within the time period specified in the SECs rules and
regulations. In 2002, we determined that our 2001 financial statements, which had been previously been audited by Andersen, needed to be restated and re-audited, which resulted in a delay in the filing of our annual report on Form 10-K for 2002 and
our quarterly reports on Form 10-Q for the periods ended March 31, 2003, June 30, 2003 and September 30, 2003. Please see our annual report on Form 10-K for the year ended December 31, 2002 for a summary of accounting errors and restatements of our
financial statements for 1998 through 2001.



The failure to
perform under this covenant would constitute an event of default if the default continues for a period of 30 days after we receive a written notice specifying the default (and demanding that the default be remedied) from the trustee or holders of at
least 25% of the outstanding principal amount of the notes. On December 4, 2003 we completed a consent solicitation to amend the indenture of our senior subordinated notes to provide that Dresser will only be obligated to furnish to the holders of
the senior subordinated notes a report by Dressers certified independent accountants with respect to annual information for fiscal years beginning after December 31, 2000. Each holder that consented also waived all events of default with
respect to breaches of the reporting provision of the indenture and all rights to cause the principal and accrued interest on the senior subordinated notes to be immediately due and payable. We entered into a supplemental indenture with the trustee
for the holders and the guarantors of the senior subordinated notes on December 4, 2003 to put into effect the amendment.



As of September 30, 2003, we had $555.2 million of senior subordinated notes, including a $5.2 million premium, $396.6 million of debt consisting of the
Tranche B term loan under the credit facility, $4.2 million of other long-term debt and $5.0 million in capital leases. In addition, we have a $100.0 million revolving credit facility, subject to certain conditions, of which $70.5 million was
available and $29.5 million was utilized for letters of credit as of September 30, 2003.



The following tables set forth the contractual cash commitments for debt and lease obligations as well as commitments for the next several years:



|                                   |  | Remainder of  2003 |     | 2004 |   | 2005 |  | 2006 |      | 2007 |   | 2008 andThereafter |  | Total
|---------------------------------- |  | ------------------ | --- | ---- | - | ---- |  | ---- | ---- | ---- | - | ------------------ |  | -----
|                                   |  | (in millions)     
|Contractual Cash Obligations       |  |                    |     |      |   |      |  |      |      |      |   |                    |  |      
|Long-Term Debt1                    |  | $                  | 0.2 |      | $ | 0.9  |  | $    | 3.1  |      | $ | 5.2                |  | $    
|Capital Lease Obligations          |  |                    | 0.6 |      |   | 2.0  |  |      | 2.4  |      |   |                   |  |      
|Operating Leases                   |  |                    | 4.9 |      |   | 14.4 |  |      | 12.6 |      |   | 10.6               |  |      
|                                   |  |                    |     |      |   |      |  |      |      |      |   |                    |  |      
|Total Contractual Cash Obligations |  | $                  | 5.7 |      | $ | 17.3 |  | $    | 18.1 |      | $ | 15.8               |  | $    
|                                   |  |                    |     |      |   |      |  |      |      |      |   |                    |  |      



|1 | Excludes a $5.2 premium, which is being amortized over the term of the notes.
|- | -----------------------------------------------------------------------------



|                  |  | Remainder of  2003 |     | 2004 |   | 2005 |  | 2006 |     | 2007 |   | 2008 andThereafter |  | Total
|----------------- |  | ------------------ | --- | ---- | - | ---- |  | ---- | --- | ---- | - | ------------------ |  | -----
|                  |  | (in millions)     
|Commitments       |  |                    |     |      |   |      |  |      |     |      |   |                    |  |      
|Letters of Credit |  | $                  | 2.9 |      | $ | 24.8 |  | $    | 1.7 |      | $ |                   |  | $    
|                  |  |                    |     |      |   |      |  |      |     |      |   |                    |  |      
|Total Commitments |  | $                  | 2.9 |      | $ | 24.8 |  | $    | 1.7 |      | $ |                   |  | $    
|                  |  |                    |     |      |   |      |  |      |     |      |   |                    |  |      



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Our ability to make payments on and to refinance our indebtedness, including our senior subordinated
notes, to achieve specified ratios required under our credit agreement, and to fund planned capital expenditures and research and development efforts will depend on our ability to achieve cost savings and generate cash in the future. This, to a
certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, we have recently experienced weakness in demand for some of our products as a result of
general economic conditions. However, based on our current level of operations and anticipated cost savings and operating improvements, we believe our cash flows from operations and available cash will allow us to achieve our required financial
ratios, and together with available borrowings under the credit facility will be adequate to meet our future liquidity needs for at least the next few years. We cannot assure you, however, that our business will generate sufficient cash flows from
operations, that currently anticipated cost savings and operating improvements will be realized on schedule or that future borrowings will be available to us under the revolving credit portion of our credit facility in an amount sufficient to enable
us to achieve our financial ratios or to pay our indebtedness, including the notes, or to fund our other liquidity needs. If general economic conditions do not improve and we are unable to achieve the financial ratios specified in our credit
facility, we expect that we would be required to seek approval from our senior lenders to modify these ratios. In the past, we have had to seek approval for the modification of these financial ratios. In addition, if we consummate an acquisition,
our debt service requirements could increase. We may need to refinance all or a portion of our indebtedness, including the notes on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including the
credit facility and the notes, on commercially reasonable terms or at all. See Certain Risk Factors.



Recent Accounting Pronouncements



In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. An entity shall recognize the cumulative effect of adoption of SFAS No. 143 as a change in accounting principle. We adopted
this statement as of January 1, 2003. This statement had no material impact on our results of operations or financial position.



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendments of FASB No. 13 and Technical
Corrections. SFAS No. 145 rescinds SFAS No. 4 Reporting Gains and Losses from Extinguishment of Debt, which required all gains and losses from the extinguishment of debt to be classified as an extraordinary item. This statement
also amends SFAS No. 13, Accounting for Leases and requires that certain lease modifications that have the economic effects similar to the sale-leaseback transaction be accounted for in the same manner as a sale-leaseback transaction.
This statement also makes technical corrections to existing pronouncements. The statement is effective for fiscal years beginning after May 15, 2002. We elected early application of this statement. During 2002 and 2003, we extinguished our Tranche A
term loans and made optional prepayments on our Tranche B term loan, and as a result, we recorded a loss for the write-off of unamortized debt issuance costs. These costs have been reflected as interest expense in our condensed consolidated
statements of operations, and have not been classified as extraordinary items.



In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 supersedes guidance provided by EITF Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The standard requires companies to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company elected early adoption of SFAS No. 146 as of July
2002. See Note 3 to our condensed consolidated financial statements for disclosure of our costs associated with exit activities.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure, which amends FASB
Statement No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting



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for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS No. 148 are in effect for fiscal years ending after December 15,
2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The transition guidance
provided in the statement had no impact on our results of operations or financial position, as we elected not to change the accounting of our stock based compensation from APB No. 25 Accounting for Stock Issued to Employees. We have
implemented the disclosure provisions of this statement, see Note 2 to our condensed consolidated financial statements.



In April 2002, the FASB issued SFAS No. 149 Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities. The statement amends
and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, the statement clarifies under what circumstances a contract with
an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. The statement
is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. The provisions of this statement that relate to SFAS No. 133 implementation issues that
have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued
securities or other securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after June 30, 2003. SFAS No. 149 should be applied prospectively. Adoption of the provisions of SFAS No. 149 did not
have a material effect on our results of operations and financial position.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The statement establishes standards for how an issuer classifies
and measures certain financial instruments that are within its scope as a liability. Many of those instruments were previously classified as equity. SFAS No. 150 is to be implemented by reporting a cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption. SFAS No. 150 is effective for financial instruments entered into or modified after May 31,
2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. For Dresser, which is considered a nonpublic entity as defined
by this statement, mandatorily redeemable financial instruments are subject to the provisions of SFAS No. 150 for the first fiscal period beginning after December 15, 2003. In November 2003, the FASB issued FASB Staff Position (FSP)
150-3, which deferred indefinitely the effective date of certain provisions of SFAS No. 150. We are still evaluating the impact this statement may have on our results of operations and financial position.



In November 2002, the FASB issued FASB Interpretation No. (FIN)
45 Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation supercedes FIN 34 Disclosure of Indirect Guarantee of Indebtedness of
Others. FIN 45 addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. It also requires that a guarantor recognize a liability, at the inception of a guarantee,
for the fair value of the obligation undertaken in issuing the guarantee. The initial measurement and recognition provisions of FIN 45 are effective for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective
for interim or annual periods ending after December 15, 2002. See Note 14 to our condensed consolidated financial statements. The adoption of the measurement and recognition provisions of this interpretation did not have a material impact on our
results of operations or financial position.



In January 2003,
the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN
46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be



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applied for the first interim or annual period beginning after June 15, 2003. In October 2003, the FASB issued FSP 46-6,
Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities. The FSP is effective for financial statements issued after October 9, 2003 and extends the effective date for applying the provisions of FIN 46 to
variable interest entities created or acquired prior to February 1, 2003, to the first interim or annual period beginning after December 15, 2003. We do not believe that this interpretation will have a material effect on our results of operations
and financial position.



Certain Risk Factors



Set forth below are important risks and uncertainties that could adversely
affect our results of operations or financial condition and cause our actual results to differ materially from those expressed in forward-looking statements made by our management.



Our independent auditors have reported to our audit committee material weaknesses and reportable conditions regarding various elements
of our system of internal controls.



Our independent
auditors have reported to our audit committee material weaknesses and reportable conditions regarding various elements of our system of internal controls. Reportable conditions are matters coming to the auditors
attention that, in its judgment, should be communicated to the audit committee because they represent significant deficiencies in the design or operation of internal controls, which could adversely affect the organizations ability to initiate,
record, process, and report financial data consistent with the assertions of management in the financial statements. A material weakness in internal controls is a reportable condition in which the design or operation of one or more of the internal
control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely
period by employees in the normal course of performing their assigned functions.



Our independent auditors noted material weaknesses with respect to our review and oversight of the financial reporting process (including corporate accounting of reserves and accruals) and with respect to accounting
for pension and postretirement benefits obligations, and they cited reportable conditions with respect to broad areas of concern regarding internal controls over financial reporting as it relates to the operation of our finance organization, revenue
recognition practices relating to bill and hold transactions, multiple element transactions and actual or de facto FOB destination transactions, specially designated charges (restructuring and exit activities), and intercompany accounting (balances,
confirmation and elimination) and consolidation. Their observations related as well to more general matters, including exposures related to our decentralized accounting organization, the size of our corporate accounting staff relative to the size of
our company, variety of systems used for operating and financial reporting, outdated finance policies and lack of internal training for business unit financial personnel.



We have taken and continue to take steps to correct these internal control deficiencies. For more information regarding the
steps we have taken or are in the process of taking, see Item 4. Controls and Procedures. The efficacy of the steps we have taken to date and the steps we are still in the process of taking to improve the reliability of our interim
financial statements is subject to continued management review supported by confirmation and testing by our internal auditors and external auditors.



We have restated our financial statements for fiscal years 1998 through 2001 as a result of accounting errors, and our financial statements for fiscal year 2000 and
earlier periods are unaudited.



Since Andersen, our
independent auditors for the years 1998 through 2001, have ceased operations, we are unable to give effect to the corrections of the errors contained in the financial statements for the years 1998 through 2000 without rendering those fiscal years
unaudited and, accordingly, the financial statements at December 31, 2000 and all earlier periods are unaudited. Unaudited annual financial information is not in compliance with the rules and regulations of the Securities and Exchange Commission for
filing reports.



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



The businesses of most of our customers, particularly oil, gas and chemical
companies, are, to varying degrees, cyclical and have historically experienced periodic downturns. Profitability in those industries is highly sensitive to supply and demand cycles and volatile product prices, and our customers in those industries
historically have tended to delay large capital projects, including expensive maintenance and upgrades, during industry downturns. For example, due to the recent downturn in the energy industry and overall industrial economy, many of our key
customers have reduced their capital spending, which has resulted in reduced demand for our products. These industry downturns have been characterized by diminished product demand, excess manufacturing capacity and subsequent accelerated erosion of
average selling prices. In addition, certain of our customers may experience reduced access to capital during economic downturns. Therefore, any significant downturn in our customers markets or in general economic conditions could result in a
reduction in demand for our products and services and could harm our business. In addition, because we only compete in some segments of the energy infrastructure industry, a downturn in the specific segments we serve may affect us more severely than
our competitors who compete in the industry as a whole. See Market Forces.



The loss of one of our large customers, or failure to win national, regional and global contracts from an existing customer, could reduce our cash flow, market share and profits.



For the nine months ended September 30, 2003, our largest customer
represented approximately 2.2% of total revenues, and our top ten customers collectively represented approximately 12.7% of total revenues. The loss of any of these customers, or class of customers, or decreases in these customers capital
expenditures, could decrease our cash flow, market share and profits. As a result of industry consolidation, especially among natural gas compression and major oil companies, our largest customers have become larger and, as a result, account for a
larger percentage of our sales. We could lose a large customer as a result of a merger or consolidation. Major oil companies and national oil companies have moved toward creating alliances and preferred supplier relationships with suppliers. In
addition, these customers are increasingly pursuing arrangements with suppliers that can meet a larger portion of their needs on a more global basis. Typically, a customer can terminate these arrangements at any time. The loss of a customer, or the
award of a contract to a competitor, could significantly reduce our cash flow, market share and profits.



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



Since we manufacture and sell our products worldwide, our business is subject to risks associated with doing business
internationally. Our sales outside North America, as a percentage of our total sales, were 47.0% for the nine months ended September 30, 2003. Accordingly, our future results could be harmed by a variety of factors, including:



| |  |  | changes in foreign currency exchange rates;
| | - |  | -------------------------------------------



| |  |  | exchange controls;
| | - |  | ------------------



| |  |  | changes in a specific countrys or regions political or economic conditions, particularly in emerging markets;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | hyperinflation;
| | - |  | ---------------



| |  |  | tariffs, other trade protection measures and import or export licensing requirements;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | potentially negative consequences from changes in tax laws;
| | - |  | -----------------------------------------------------------



| |  |  | difficulty in staffing and managing widespread operations;
| | - |  | ----------------------------------------------------------



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| |  |  | changing labor regulations;
| | - |  | ---------------------------



| |  |  | requirements relating to withholding taxes on remittances and other payments by subsidiaries;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | different regimes controlling the protection of our intellectual property;
| | - |  | --------------------------------------------------------------------------



| |  |  | restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses in these jurisdictions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | restrictions on our ability to repatriate dividends from our subsidiaries; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | unexpected changes in regulatory requirements.
| | - |  | ----------------------------------------------



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



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



In addition to currency translation risks, we incur currency transaction risk whenever we or one of our subsidiaries enter into either a purchase or a sales transaction using a currency other than the local currency of the transacting
entity. Given the volatility of exchange rates, we cannot assure you that we will be able to effectively manage our currency transaction and/or translation risks. It is possible that volatility in currency exchange rates will have a material adverse
effect on our financial condition or results of operations. We have in the past experienced and expect to continue to experience economic losses and gains and negative and positive impacts on earnings as a result of foreign currency exchange rate
fluctuations. We expect that the portion of our revenues denominated in non-dollar currencies will continue to increase in future periods.



Our expansion in emerging markets requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global
business depends, in part, upon our ability to succeed in differing economic, social and political conditions. We cannot assure you that we will continue to succeed in developing and implementing policies and strategies that are effective in each
location where we do business.



Disruptions and uncertainties caused by
war or terrorism could adversely affect our business.



Acts of war and/or acts of terrorism could have a material adverse impact on our business, results of operations and financial condition. The threat of terrorism and war and heightened security and military response to this threat, or any
future acts of terrorism, may cause further disruption to our economy and create further uncertainties. To the extent that such disruptions or uncertainties result in delays or cancellations of orders or the manufacture or shipment of our products,
our business, operating results and financial condition could be materially and adversely affected.



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If we are not able to apply new technology and software in our products or develop new products, we may not be able
to generate new sales.



Our success depends, in
significant part, on our ability to develop products and services that customers will accept. We may not be able to develop successful new products in a timely fashion. Our commitment to customizing products to address particular needs of our
customers could burden our resources or delay the delivery or installation of products. If there is a fundamental change in the energy industry, some of our products could become obsolete and we may need to develop new products rapidly. Our products
may not be marketed properly or satisfy the needs of the worldwide market.



In addition, there is intense competition to establish proprietary rights to these new products and the related technologies. The technology and software in our products, including electronic components, point-of-sale
systems and related products, is growing increasingly sophisticated and expensive. Several of our competitors have significantly greater financial, technical and marketing resources than we do. These competitors may develop proprietary products that
are superior to ours or integrate new technologies more quickly than we do. We may not be able to obtain rights to this technology. We may also face claims that our products infringe patents that our competitors hold. Any of these factors could harm
our relationship with customers and reduce our sales and profits.



Issued
patents that cover our proprietary technology may not provide us with substantial protection or be commercially beneficial to us.



Any issued patents that cover our proprietary technology may not provide us with substantial protection or be commercially beneficial to us. The issuance
of a patent is not conclusive as to its validity or its enforceability. Competitors may also be able to design around our patents. If we are unable to protect our patented technologies, our competitors could commercialize our technologies.



We face intense competition.



We encounter intense competition in all areas of our business. Competition
in our primary business segments is based on a number of considerations including product performance, customer service, product lead times, global reach, brand reputation, breadth of product line, quality of aftermarket service and support and
price. Additionally, customers for our products are attempting to reduce the number of vendors from which they purchase in order to increase their efficiency. Our customers increasingly demand more technologically advanced and integrated products
and we must continue to develop our expertise and technical capabilities in order to manufacture and market these products successfully. To remain competitive, we will need to invest continuously in research and development, manufacturing,
marketing, customer service and support and our distribution networks. We believe that in order to maintain our competitiveness, we need to continue to focus on increasing operational efficiency and cash flow. This focus includes our on-going
initiatives to increase manufacturing efficiencies, consolidate raw material sources, increase global procurement and improve working capital efficiency. We believe these initiatives offer us opportunities to improve our profitability and cash flow.
The continuation of re-engineering, plant consolidations, and the implementation of a new enterprise-wide reporting, or ERP, system is critical to achieving these improvements. We may have to adjust the prices of some of our products to stay
competitive. We cannot assure you that we will have sufficient resources to continue to make such investments, we will achieve our stated objectives or that we will maintain our competitive position. Some of our competitors have greater financial
and other resources than we do.



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



The success of
our business is largely dependent on our senior managers, as well as on our ability to attract and retain other qualified personnel. We cannot assure you that we will be able to attract and retain the personnel necessary for the development of our
business. The loss of the services of key personnel or the failure to attract additional personnel as required could have a material adverse effect on our business, financial condition and results of operations. We do not currently maintain
key person life insurance on any of our key employees.



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



Our operations and properties are subject to stringent laws and
regulations relating to environmental protection, including laws and regulations governing the investigation and clean up of contaminated properties as well as air emissions, water discharges, waste management, and workplace health and safety. Such
laws and regulations affect a significant percentage of our operations, are constantly changing, are different in every jurisdiction and can impose substantial fines and sanctions for violations. Further, they may require substantial expenditures
for the installation of costly pollution control equipment or operational changes to limit pollution emissions and/or decrease the likelihood of accidental hazardous substance releases. We must conform our operations and properties to these laws,
and adapt to regulatory requirements in all jurisdictions as these requirements change.



We have experienced, and expect to continue to experience, both operating and capital costs to comply with environmental laws and regulations, including potentially substantial costs for remediation and investigation
of some of our properties (many of which are sites of long-standing manufacturing operations). In addition, although we believe our operations are substantially in compliance and that we will be indemnified by Halliburton for certain contamination
and compliance costs (subject to certain exceptions and limitations), new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination, the imposition of new clean-up requirements,
new claims for property damage or personal injury arising from environmental matters, or the refusal and/or inability of Halliburton to meet its indemnification obligations could require us to incur costs or become the basis for new or increased
liabilities that could have a material adverse effect on our business, financial condition or results of operations.



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



As of September 30, 2003, we had approximately 7,600 employees.
Approximately 39% of our U.S. workforce and 45% of our global workforce is represented by labor unions. Currently, of our material collective bargaining agreements, one will expire in May 2004, three will expire in 2005, two will expire in 2006 and
two will expire in 2008. Two of our labor contracts will expire at the time the respective plants are closed. Although we believe that our relations with our employees are good, we cannot assure you that we will be successful in negotiating new
collective bargaining agreements, that such negotiations will not result in significant increases in the cost of labor or that a breakdown in such negotiations will not result in the disruption of our operations.



In May 2003, one of our collective bargaining agreements expired. The
bargaining unit responded by voting in favor of a strike that commenced on May 2, 2003. In July 2003, we announced the signing of a new three year labor agreement, and our union shop employees resumed work on July 28, 2003. The effect of the strike
negatively impacted our results of operations for the second and third quarters of 2003. One of our bargaining agreements expired in November 2003. On November 7, 2003, bargaining unit members voted in favor of a strike that commenced on that date.
On November 9, 2003, a new labor agreement was signed, and employees returned to work on November 10, 2003.



We rely on a limited number of third party suppliers and subcontractors for specific components and sub-assemblies and we may not be able to expediently obtain substitute suppliers and subcontractors if our
supplies are interrupted.



We rely on non-affiliated
suppliers and subcontractors for the supply of components and sub-assemblies that are incorporated in our products. If these suppliers or manufacturers experience financial, operational, manufacturing capacity or quality assurance difficulties, or
if there is any other disruption in our relationships, we may be required to locate alternative sources of supply. Our inability to obtain sufficient quantities of these components and sub-assemblies and the relatively long lead time needed to
qualify new subcontractors may result in delays in delivery, interruption or delays in manufacturing and the cancellation of orders for our products.



We are dependent on the availability of raw materials and components.



We require substantial amounts of raw materials that we purchase from
outside sources. The availability and prices of raw materials may be subject to curtailment or change due to, among other things, the supply of, and



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demand for, such raw materials, new laws or regulations, suppliers allocations to other purchasers, interruptions
in production by raw materials or component parts suppliers, changes in exchange rates and worldwide price levels. Any change in the supply of, or price for, these raw materials and components could materially affect our operating results.



We rely on independent distributors.



In addition to our own direct sales force, we depend on the services of
independent distributors to sell our products and provide service and aftermarket support to our customers. Many of these independent distributors are not bound to us by exclusive distribution contracts and may offer products and services that
compete with ours to our customers. In addition, the majority of the distribution contracts we have with these independent distributors are cancelable by the distributor after a short notice period. The loss of a substantial number of these
distributors or the decision by many of these distributors to offer competitors products to our customers could materially reduce our sales and profits.



We are controlled by First Reserve and Odyssey, whose interest may not be aligned with investors interest.



A holding company controlled by First Reserve, Odyssey and their affiliates
owns approximately 92.5% of the outstanding voting stock of our indirect parent company and, therefore, has the power, subject to certain exceptions, to control our affairs and policies. They also control the election of directors, appointment of
management, entering into of mergers, sales of substantially all of our assets and other extraordinary transactions. The directors so elected will have authority, subject to the terms of our debt, to issue additional stock, implement stock
repurchase programs, declare dividends and make other decisions about our capital stock.



The interests of First Reserve, Odyssey and their affiliates could conflict with your interests. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of
First Reserve and Odyssey as equity holders might conflict with interests of holders of our debt securities. Affiliates of First Reserve and Odyssey may also have an interest in pursuing acquisitions, divestitures, financings or other transactions
that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to investors. In addition, our sponsors or their affiliates currently own, and may in the future own, businesses that directly compete
with ours.



We may be faced with unexpected product claims or
regulations.



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



Our substantial indebtedness could
adversely affect our financial condition.



We are a
highly leveraged company. As of September 30, 2003, we had $961.0 million of outstanding long-term indebtedness, including the current portion of long-term debt, $12.0 million of short-term notes and a stockholders deficit of $301.9 million.
This level of indebtedness could have important consequences, including the following:



| |  | it may limit our ability to borrow money or sell stock to fund our working capital, capital expenditures and debt service requirements;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| |  | it may limit our flexibility in planning for, or reacting to, changes in our business;
| | - | --------------------------------------------------------------------------------------



| |  | we may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
| | - | ---------------------------------------------------------------------------------------------------------------



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| |  | it may make us more vulnerable to a downturn in our business or the economy;
| | - | ----------------------------------------------------------------------------



| |  | a substantial portion of our cash flows from operations could be dedicated to the repayment of our indebtedness and would not be available for other purposes; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | there would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional financing, as needed.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Despite our substantial indebtedness, we may still incur
significantly more debt. This could intensify the risks described above.



The terms of the indenture governing the notes do not prohibit us from incurring significant additional indebtedness in the future. As of September 30, 2003, we had $70.5 million available for additional borrowing
under the revolving credit facility, subject to certain conditions. All borrowings under the credit facility are senior to the notes.



Your right to receive payments on the notes will be junior to the borrowings under the credit facility and possibly all future borrowings.



The notes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors existing senior indebtedness including the credit facilities and will rank behind all of our and their future senior indebtedness, except any future indebtedness that expressly provides that it ranks equal with, or
subordinated in right of payment to, the notes and the guarantees. As a result, upon any distribution to our creditors or the creditors of the subsidiary guarantors in a bankruptcy, liquidation or reorganization or similar proceeding relating to us
or the subsidiary guarantors or our or their property, the holders of our senior indebtedness and senior indebtedness of the subsidiary guarantors will be entitled to be paid in full in cash before any payment may be made with respect to the notes
or the subsidiary guarantees. In addition, the credit facility is secured by substantially all of our assets and the assets of our wholly-owned domestic subsidiaries.



In addition, all payments on the notes and the subsidiary guarantees will be blocked in the event of a payment default on
senior debt and may be blocked for up to 179 consecutive days in the event of certain nonpayment defaults on senior indebtedness.



In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to us or the subsidiary guarantors, holders of the notes will
participate with trade creditors and all other holders of our senior subordinated indebtedness and the subsidiary guarantors in the assets remaining after we and the subsidiary guarantors have paid all of the senior indebtedness. However, because
the indenture requires that amounts otherwise payable to holders of the notes in a bankruptcy or similar proceeding be paid to holders of senior indebtedness instead, holders of the notes may receive less, ratably, than holders of trade payables in
any such proceeding. In any of these cases, we and the subsidiary guarantors may not have sufficient funds to pay all of our creditors and holders of notes may receive less, ratably, than the holders of senior indebtedness.



As of September 30, 2003, the notes and the subsidiary guarantees would have
been subordinated to $405.8 million of long-term indebtedness, including the current portion of long-term debt, $12.0 million of short-term indebtedness and approximately $70.5 million would have been available for borrowing as additional senior
indebtedness under the credit facility, subject to certain conditions. We will be permitted to borrow substantial additional indebtedness, including senior indebtedness, in the future under the terms of the indenture.



Restrictive covenants in the credit facility and the indenture may restrict our ability
to pursue our business strategies.



The credit
facility and the indenture limit our ability, among other things, to:



| |  |  | incur additional indebtedness or contingent obligations;
| | - |  | --------------------------------------------------------



| |  |  | pay dividends or make distributions to our stockholders;
| | - |  | --------------------------------------------------------



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| |  |  | repurchase or redeem our stock;
| | - |  | -------------------------------



| |  |  | make investments;
| | - |  | -----------------



| |  |  | grant liens;
| | - |  | ------------



| |  |  | make capital expenditures;
| | - |  | --------------------------



| |  |  | enter into transactions with our stockholders and affiliates;
| | - |  | -------------------------------------------------------------



| |  |  | sell assets; and
| | - |  | ----------------



| |  |  | acquire the assets of, or merge or consolidate with, other companies.
| | - |  | ---------------------------------------------------------------------



In addition, the credit facility requires us to maintain certain financial ratios. We may not be able to maintain these ratios. Covenants in the credit
facility may also impair our ability to finance future operations or capital needs or to enter into acquisitions or joint ventures or engage in other favorable business activities. See Liquidity and Capital Resources.



To service our indebtedness, will require a significant amount of cash. The ability
to generate cash depends on many factors beyond our control.



Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and research and development efforts will depend on our ability to generate cash in the future. This, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.



Based on our current level of operations and anticipated cost savings and operating improvements, we believe our cash flows from operations, available
cash and available borrowings under the credit facility will be adequate to meet our future liquidity needs for at least the next few years.



We cannot assure you, however, that our business will generate sufficient cash flows from operations, or that currently anticipated cost savings and
operating improvements will be realized on schedule or that future borrowings will be available to us under the credit facility in an amount sufficient to enable us to pay or refinance our indebtedness or to fund our other liquidity needs. Future
borrowings under our credit facility are conditioned on our continuing compliance with our financial covenants. If we consummate an acquisition, our debt service requirements could increase. We may need to refinance all or a portion of our
indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.



Material litigation or changes in legislation or regulations may affect our profitability



During the ordinary course of our business, we are from time to time threatened with, or may become a party to, legal
actions and other proceedings. While we are currently involved in a number of legal proceedings, we believe the results of these proceedings will not have a material effect on our business, financial condition or results of operations. In addition,
pursuant to the recapitalization agreement, we are indemnified by Halliburton for up to $950.0 million (in aggregate with all other losses) of losses arising out of all legal actions initiated prior to the closing of the recapitalization transaction
and certain legal actions arising after the closing. However, material litigation or litigation that is material in the aggregate, and for which we are not indemnified, may impact our future results of operations.



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Our businesses and some of our products are subject to regulation under various and changing federal,
state, local and foreign laws and regulations relating to the environment and to employee safety and health. Changes in legislation and regulations could increase our costs and make it more difficult to achieve our business plan.



Certain subsidiaries are not included as subsidiary guarantors.



The guarantors of the notes include our wholly-owned domestic subsidiaries.
However, our financial statements include both our wholly-owned and non-wholly-owned domestic subsidiaries and our foreign subsidiaries. The aggregate revenues for the nine months ended September 30, 2003 of our subsidiaries that are not guarantors
were $536.1 million. As of September 30, 2003, those subsidiaries held 49.8% of our total assets. Each of the subsidiary guarantors would be released from its guarantee of the notes if we transfer 5% or more of its voting stock to a third party so
that it is no longer wholly-owned. The indenture does not restrict our ability to do so.



Because a substantial portion of our operations are conducted by foreign and non-wholly-owned subsidiaries, our cash flows and our ability to service
debt, including our and the subsidiary guarantors ability to pay the interest on and principal of the notes when due, are dependent to a significant extent on interest payments, cash dividends and distributions and other transfers of cash from
our foreign and non-wholly-owned subsidiaries. In addition, any payment of interest, dividends, distributions, loans or advances by our foreign and non-wholly-owned subsidiaries to us and the subsidiary guarantors, as applicable, could be subject to
taxation or other restrictions on dividends or repatriation of earnings under applicable local law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdiction in which our foreign subsidiaries operate. Moreover,
payments to us and the subsidiary guarantors by the foreign and non-wholly-owned subsidiaries will be contingent upon these subsidiaries earnings.



Our foreign and non-wholly-owned subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts
due pursuant to the notes, or to make any funds available therefore, whether by dividends, loans, distributions or other payments. Any right that we or the subsidiary guarantors have to receive any assets of any of the foreign subsidiaries upon the
liquidation or reorganization of those subsidiaries, and the consequent rights of holders of notes to realize proceeds from the sale of any of those subsidiaries assets, will be effectively subordinated to the claims of that subsidiarys
creditors, including trade creditors and holders of debt of that subsidiary.



Federal and state laws permit a court to void the subsidiary guarantees under certain circumstances.



Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims with respect to a
guarantee could be subordinated to all other debts of that subsidiary guarantor under certain circumstances. While the relevant laws may vary from state to state, under such laws, the issuance of a guarantee will be a fraudulent conveyance if (1)
any of our subsidiaries issued subsidiary guarantees with the intent of hindering, delaying or defrauding creditors or (2) any of the subsidiary guarantors received less than reasonably equivalent value or fair consideration in return for issuing
their respective guarantees, and, in the case of (2) only, one of the following is also true:



| |  | any of the subsidiary guarantors were insolvent, or became insolvent, when they issued the guarantee;
| | - | -----------------------------------------------------------------------------------------------------



| |  | issuing the guarantees left the applicable subsidiary guarantor with an unreasonably small amount of capital; or
| | - | ----------------------------------------------------------------------------------------------------------------



| |  | the applicable subsidiary guarantor intended to, or believed that it would, be unable to pay debts as they matured.
| | - | -------------------------------------------------------------------------------------------------------------------



If the issuance of any guarantee were a fraudulent conveyance, a court could,
among other things, void any of the subsidiary guarantors obligations under their respective guarantees and require the repayment of any amounts paid thereunder.



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Generally, an entity will be considered insolvent if:



| |  | the sum of its debts is greater than the fair value of its property;
| | - | --------------------------------------------------------------------



| |  | the present fair value of its assets is less than the amount that it will be required to pay on its existing debts as they become due; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| |  | it cannot pay its debts as they become due.
| | - | -------------------------------------------



We believe, however, that immediately after issuance of the notes and the subsidiary guarantees, we and each of the subsidiary guarantors were solvent,
had sufficient capital to carry on our respective businesses and were able to pay our respective debts as they matured. We cannot be sure, however, as to what standard a court would apply in making such determinations or that a court would reach the
same conclusions with regard to these issues.



|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk
|------- |  | ----------------------------------------------------------



In the normal course of business, we use forward exchange contracts to manage our exposures to movements in the value of foreign currencies and interest
rates. It is our policy to utilize these financial instruments only where necessary to manage such exposures. The use of these financial instruments modifies the exposure of these risks with the intent to reduce the risk and variability to the
Company. We do not enter into these transactions for speculative purposes.



We are exposed to foreign currency fluctuation as a result of our international sales, production and investment activities. Our foreign currency risk management objective is to reduce the variability in the amount of
expected future cash flows from sales and purchases that are the result of changes in exchange rates relative to the business units functional currency. We use forward exchange contracts to hedge certain firm commitments and the related
receivables and payables. Generally, all firmly committed and anticipated transactions that are hedged are to be recognized within twelve months.



Our financial performance is also exposed to movements in short-term floating market interest rates. Our objective in managing this interest rate exposure
is to limit the impact of interest rate changes on earnings and cash flows, and to reduce overall borrowing costs.



The following tables provide information about our derivative instruments and other financial instruments that are sensitive to foreign currency exchange
rates and changes in interest rates. For foreign currency forward exchange agreements, the table presents the notional amounts and weighted-average exchange rates by expected (contractual) maturity dates. For debt obligations, the table presents
principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average variable rates are based on the implied forward rate in the yield curve.



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|                                      |  | 2003          |        |   | 2004 |   |        | 2005 |  |   | 2006 |   |  | 2007 |      |   | Thereafter |   |      | Total |  | FairValue
|------------------------------------- |  | ------------- | ------ | - | ---- | - | ------ | ---- |  | - | ---- | - |  | ---- | ---- | - | ---------- | - | ---- | ----- |  | ---------
|                                      |  | (in millions)
|Related forward contracts to sell USD |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|Euro                                  |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|Contract Amount                       |  | $             | 17.9   |   |      | $ | 42.3   |      |  | $ |     |   |  | $    |     |   |            | $ |     |       |  | $        
|Avg. Contract Rate                    |  |               | 1.1124 |   |      |   | 1.1247 |      |  |   |     |   |  |      |     |   |            |   |     |       |  |          
|Related forward contracts to sell GBP |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|Euro                                  |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|Contract Amount                       |  | $             | 0.1    |   |      | $ |       |      |  | $ |     |   |  | $    |     |   |            |   |     |       |  | $        
|Avg. Contract Rate                    |  |               | 0.7030 |   |      |   |       |      |  |   |     |   |  |      |     |   |            |   |     |       |  |          
|Related forward contracts to buy USD  |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|South African Rand                    |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|Contract Amount                       |  | $             | 0.3    |   |      | $ |       |      |  | $ |     |   |  | $    |     |   |            | $ |     |       |  | $        
|Avg. Contract Rate                    |  |               | 7.8381 |   |      |   |       |      |  |   |     |   |  |      |     |   |            |   |     |       |  |          
|Euro                                  |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|Contract Amount                       |  | $             | 0.3    |   |      | $ |       |      |  | $ |     |   |  | $    |     |   |            | $ |     |       |  | $        
|Avg. Contract Rate                    |  |               | 1.1347 |   |      |   |       |      |  |   |     |   |  |      |     |   |            |   |     |       |  |          
|Related forward contracts to buy EUR  |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|South African Rand                    |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|Contract Amount                       |  | $             | 0.1    |   |      | $ | 0.1    |      |  | $ |     |   |  | $    |     |   |            | $ |     |       |  | $        
|Avg. Contract Rate                    |  |               | 9.1116 |   |      |   | 9.7400 |      |  |   |     |   |  |      |     |   |            |   |     |       |  |          
|Related forward contracts to buy GBP  |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|Euro                                  |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|Contract Amount                       |  | $             | 0.2    |   |      | $ |       |      |  | $ |     |   |  | $    |     |   |            | $ |     |       |  | $        
|Avg. Contract Rate                    |  |               | 0.6695 |   |      |   |       |      |  |   |     |   |  |      |     |   |            |   |     |       |  |          
|Long-term debt                        |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|U.S. Dollar Functional Currency       |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|Fixed Rate                            |  | $             | 0.6    |   |      | $ | 2.6    |      |  | $ | 2.9  |   |  | $    | 0.7  |   |            | $ | 0.7  |       |  | $        
|Average Interest Rate                 |  |               | 9.28   | % |      |   | 99     | %    |  |   | 9.31 | % |  |      | 9.33 | % |            |   | 9.33 | %     |  |          
|Variable Rate                         |  | $             |       |   |      | $ |       |      |  | $ | 2.1  |   |  | $    | 4.1  |   |            | $ | 4.1  |       |  | $        
|Average Interest Rate                 |  |               | 4.70   | % |      |   | 4.99   | %    |  |   | 5.39 | % |  |      | 5.79 | % |            |   | 6.09 | %     |  |          
|Euro Functional Currency              |  |               |        |   |      |   |        |      |  |   |      |   |  |      |      |   |            |   |      |       |  |          
|Fixed Rate                            |  | $             | 0.3    |   |      | $ | 1.1    |      |  | $ | 1.2  |   |  | $    | 1.1  |   |            | $ | 0.6  |       |  | $        
|Average Interest Rate                 |  |               | 7.48   | % |      |   | 7.79   | %    |  |   | 8.42 | % |  |      | 8.17 | % |            |   | 9.75 | %     |  |          



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##### Table of Contents

|Item 
4. |  | Controls and Procedures
|-------- |  | -----------------------



We strive to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports
is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief
financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.



Our independent auditors, PwC, have reported to our audit
committee material weaknesses and reportable conditions under standards established by the American Institute of Certified Public Accountants regarding various elements of our system of internal controls. They noted material
weaknesses with respect to our review and oversight of the financial reporting process (including corporate accounting of reserves and accruals) and with respect to accounting for pension and postretirement benefits obligations, and they cited
reportable conditions with respect to broad areas of concern regarding internal controls over financial reporting as it relates to the operation of our finance organization, revenue recognition practices relating to bill and hold transactions,
multiple element transactions and actual or de facto FOB destination transactions, specially designated charges (restructuring and exit activities), and intercompany accounting (balances, confirmation and elimination) and consolidation. Their
observations related as well to more general matters, including exposures related to our decentralized accounting organization, the size of our corporate accounting staff relative to the size of our company, variety of systems used for operating and
financial reporting, general management oversight of operations, outdated finance policies and lack of internal training for business unit financial personnel.



Certain of the matters described above contributed to accounting errors in our financial statements, which necessitated the restatements described
elsewhere in this report and/or resulted in adjustments to our 2002 financial statements upon audit. We have conducted a review of the errors requiring restatement, including a separate review by our audit committee to determine what, if any,
remedial measures were necessary. We believe our management has taken or is in the process of taking the steps necessary to correct the errors and avoid similar errors in the future.



As required by SEC Rule 13a-15(b), we have carried out an evaluation, under the supervision and with the participation of
our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The evaluation examined those disclosure controls and procedures both
as of September 30, 2003, the end of the period covered by this report, and, because of the late filing of this report, during the weeks preceding the filing of this report. Based upon the foregoing, our chief executive officer and chief financial
officer concluded that, as of September 30, 2003, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure and that the following initiatives with respect to our disclosure
controls and procedures were required:



| |  | We have reviewed the adequacy of our accounting personnel. Our former chief accounting officer and vice president of finance, as well as a member of his staff, have left our
company. We have appointed a new chief accounting officer and significantly increased the number of management and staff personnel in our corporate accounting department to increase our depth of experience in accounting and SEC reporting matters. We
have appointed new controllers at two of our operating units. We are continuing to monitor and review the overall adequacy of our accounting personnel and expect to make additional changes in certain of our operating units and at our corporate
accounting department, including recruiting an experienced director of accounting;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | We, with the assistance of outside consultants, have undertaken a review and revision of, and continue to review and revise, a number of our disclosure and accounting policies and
procedures to address specific control weaknesses, including policies and procedures to:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | ensure that resources and closing processes are adequate to achieve complete and accurate financial reporting;
| | - | --------------------------------------------------------------------------------------------------------------



| |  | require deliberative and objective consideration of the effect on financial reporting and disclosure of unusual and/or nonrecurring transactions, among other things, to ensure that
we adhere to our reporting obligations;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | require regular reporting to our chief financial officer by our corporate accounting department of its adherence to closing schedules and processes, transactions that impact
reported results of operations deriving other than from business operations (e.g., income arising from estimate changes as compared to from actual economic events) and transactions that are individually material to our company;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | require additional periodic reporting to our audit committee of significant matters affecting income and that bear on the quality of our reported earnings; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | reflect current accounting and reporting guidance, financial pronouncements and regulations;
| | - | --------------------------------------------------------------------------------------------



| |  | We have modified our processes for periodic review of operating and financial results with our operating units as well as our procedures for monthly business management reviews, and
expanded the data provided by our operating units to our corporate finance group;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have commenced a project to inventory, assess and strengthen our internal controls over financial reporting, including establishing an internal project team to accomplish this
task;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have undertaken a plan to adopt an enterprise-wide reporting system (ERP) solution to replace the current variety of systems we used for operating and financial reporting
throughout our global organization. We have installed this system at our corporate accounting department and have begun design and configuration of the system for deployment in our various operating units, which we expect to be completed during
2005; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have begun to conduct training sessions for our financial personnel on key accounting matters, including current accounting and reporting guidelines and regulations.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



While we have taken or are in the process of
taking the foregoing steps in order to address the adequacy of our disclosure controls and procedures, and, in addition, to develop and implement a formal set of internal controls and procedures for financial reporting in accordance with the
SECs proposed rules to adopt the internal control report requirements included in Section 404 of the Sarbanes-Oxley Act of 2002, the efficacy of the steps we have taken to date and the steps we are still in the process of completing is subject
to continued management review supported by confirmation and testing by our internal and external auditors. As a result, it is likely that additional changes will be made to our internal controls and procedures.



Other than the foregoing initiatives and the re-audit of our 2001 financial
statements, since the date of the evaluation supervised by our management, there have been no changes in our disclosure controls and procedures, including our internal controls over financial reporting, that have materially affected, or are
reasonably likely to materially affect, our disclosure controls and procedures, including our internal controls over financial reporting.



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PART II. OTHER INFORMATION



|Item 1. |  | Legal Proceeding
|------- |  | ----------------



The Company is involved in various legal proceedings, none of which is deemed material for reporting purposes. Information relating to various commitments
and contingencies is described in Note 10 of the financial statements in this Form 10-Q.



|Item 2. |  | Defaults Upon Senior Securities
|------- |  | -------------------------------



Under the indenture that governs our senior subordinated notes, the covenants require that we furnish to all holders of the notes all quarterly and annual financial information required to be contained in a filing
with the SEC on Forms 10-Q and 10-K within the time period specified in the SECs rules and regulations. In 2002, we determined that our 2001 financial statements, which had been previously been audited by Andersen, needed to be restated and
re-audited, which resulted in a delay in the filing of our annual report on Form 10-K for 2002 and our quarterly reports on Form 10-Q for the periods ended March 31, 2003, June 30, 2003 and September 30, 2003.



The failure to perform under this covenant would constitute an event of
default if the default continues for a period of 30 days after we receive a written notice specifying the default (and demanding that the default be remedied) from the trustee or holders of at least 25% of the outstanding principal amount of the
notes. On December 4, 2003 we completed a consent solicitation to amend the indenture of our senior subordinated notes to provide that Dresser will only be obligated to furnish to the holders of the senior subordinated notes a report by
Dressers certified independent accountants with respect to annual information for fiscal years beginning after December 31, 2000. Each holder that consented also waived all events of default with respect to breaches of the reporting provision
of the indenture and all rights to cause the principal and accrued interest on the senior subordinated notes to be immediately due and payable. We entered into a supplemental indenture with the trustee for the holders and the guarantors of the
senior subordinated notes on December 4, 2003 to put into effect the amendment.



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|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------



|a.) | Exhibits
|--- | --------



|ExhibitNo. |  | Description of Exhibit                                                                                                   
|---------- |  | -------------------------------------------------------------------------------------------------------------------------
|           | 
|*31.1      |  | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                  
|           | 
|*31.2      |  | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                  
|           | 
|*32.1      |  | Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
|           | 
|*32.2      |  | Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.



* Filed herewith



|b.) | Report
s on Form 8-K
|--- | --------------------



Current
Report on Form 8-K dated August 13, 2003 reporting under Item 12. Results of Operations and Financial Condition providing a business update for the second quarter of 2003 and an update on our 2001 re-audit and 2002 audit.



Current Report on Form 8-K dated August 13, 2003 reporting under Item 7.
Financial Statements and Exhibits filing our Amendment No. 5 to the Credit Agreement and Amendment No. 6 and Waiver to the Credit Agreement.



Current Report on Form 8-K dated November 18, 2003 reporting under Item 9 Regulation FD Disclosure announcing the launch of a consent solicitation with
respect to our $550 million 9 3/8% senior subordinated notes due 2011 and Item 12. Results of Operations and Financial Condition announcing the operating results for the third quarter of fiscal year 2003.



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SIGNATURES



As required by the
Securities and Exchange Act of 1934, the registrant has authorized this report to be signed on behalf of the registrant by the undersigned authorized individuals.



|                       |  |  |  | DRESSER, INC.
|---------------------- |  |  |  | -------------
|                       |  |  | 
|Date:December 11, 2003 |  |  |  | By:          
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