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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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Form 10-Q



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|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005



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 001-32372



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DRESSER, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 75-2795365                          
|(State or other jurisdiction of incorporation or organization) |  | (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 a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer x



Indicate by check mark whether the registrant is a shell company (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 January 31, 2006 was 1,000.



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##### Table of Contents

DRESSER, INC.



INDEX



|                              |  |                                                                                                                            |  |        
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | -------
|                              |  |                                                                                                                            |  | PageNo.
|PART I. FINANCIAL INFORMATION |  |                                                                                                                           
|Item 1.                       |  | Financial Statements                                                                                                       |  |        
|                              |  |                                                                                                                           
|                              |  | Condensed Consolidated Statements of Operations for the three and nine months endedSeptember 30, 2005 and 2004 (unaudited) |  | 3      
|                              |  |                                                                                                                           
|                              |  | Condensed Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004                           |  | 4      
|                              |  |                                                                                                                           
|                              |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 (unaudited)          |  | 5      
|                              |  |                                                                                                                           
|                              |  | Notes to Condensed Consolidated Financial Statements as of September 30, 2005 (unaudited)                                  |  | 6      
|                              |  |                                                                                                                           
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                      |  | 29     
|                              |  |                                                                                                                           
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                                                 |  | 58     
|                              |  |                                                                                                                           
|Item 4.                       |  | Controls and Procedures                                                                                                    |  | 60     
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                           
|                              |  |                                                                                                                           
|Item 6.                       |  | Exhibits                                                                                                                   |  | 66     
|                              | 
|Signatures                    |  | 67                                                                                                                        



ii



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



DRESSER, INC.



CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except share and per share amounts)

(unaudited)



|                                                                    |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  
|------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------- | - | ----- | ---- |  | - | --------------- | - |  | - | ------- | -
|                                                                    |  | Three Months EndedSeptember 30, |         |   | Nine Months Ended September 30, |  
|                                                                    |  | 2005                            |         |   | 2004 (Restated)                 |   |       | 2005 |  |   | 2004 (Restated) |  
|Revenues                                                            |  | $                               | 427.4   |   |                                 | $ | 385.9 |      |  | $ | 1,245.3         |   |  | $ | 1,057.1 |  
|Cost of revenues                                                    |  |                                 | 298.8   |   |                                 |   | 270.7 |      |  |   | 871.1           |   |  |   | 738.7   |  
|                                                                    |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  
|Gross profit                                                        |  |                                 | 128.6   |   |                                 |   | 115.2 |      |  |   | 374.2           |   |  |   | 318.4   |  
|Selling, engineering, administrative and general expenses           |  |                                 | 89.9    |   |                                 |   | 90.0  |      |  |   | 287.0           |   |  |   | 240.9   |  
|Impairment of assets                                                |  |                                 | 12.0    |   |                                 |   |      |      |  |   | 14.9            |   |  |   |        |  
|                                                                    |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  
|Operating income                                                    |  |                                 | 26.7    |   |                                 |   | 25.2  |      |  |   | 72.3            |   |  |   | 77.5    |  
|Interest expense                                                    |  |                                 | (23.0   | ) |                                 |   | (20.3 | )    |  |   | (67.1           | ) |  |   | (69.4   | )
|Interest income                                                     |  |                                 | 0.1     |   |                                 |   | 0.6   |      |  |   | 0.9             |   |  |   | 1.5     |  
|Other income (expense), net                                         |  |                                 | 0.5     |   |                                 |   | (0.1  | )    |  |   | (1.0            | ) |  |   | (0.8    | )
|                                                                    |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  
|Income before income taxes                                          |  |                                 | 4.3     |   |                                 |   | 5.4   |      |  |   | 5.1             |   |  |   | 8.8     |  
|Provision for income taxes                                          |  |                                 | (3.2    | ) |                                 |   | (3.7  | )    |  |   | (7.5            | ) |  |   | (5.5    | )
|                                                                    |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  
|Income before equity interests                                      |  |                                 | 1.1     |   |                                 |   | 1.7   |      |  |   | (2.4            | ) |  |   | 3.3     |  
|Equity in earnings of unconsolidated subsidiaries                   |  |                                 | 1.1     |   |                                 |   | 0.7   |      |  |   | 3.1             |   |  |   | 1.8     |  
|Minority owners share of consolidated subsidiaries                 |  |                                 | (0.2    | ) |                                 |   | (0.2  | )    |  |   | (0.6            | ) |  |   | (0.3    | )
|                                                                    |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  
|Net income from continuing operations                               |  |                                 | 2.0     |   |                                 |   | 2.2   |      |  |   | 0.1             |   |  |   | 4.8     |  
|Net income (loss) from discontinued operations, net of income taxes |  |                                 | (23.8   | ) |                                 |   | 0.4   |      |  |   | (29.7           | ) |  |   | 0.9     |  
|                                                                    |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  
|Net income (loss)                                                   |  | $                               | (21.8   | ) |                                 | $ | 2.6   |      |  | $ | (29.6           | ) |  | $ | 5.7     |  
|                                                                    |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  
|Basic and diluted net income (loss) per share                       |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  
|Net income from continuing operations                               |  | $                               | 2,000   |   |                                 | $ | 2,200 |      |  | $ | 100             |   |  | $ | 4,800   |  
|Net income (loss) from discontinued operations, net of income taxes |  |                                 | (23,800 | ) |                                 |   | 400   |      |  |   | (29,700         | ) |  |   | 900     |  
|                                                                    |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  
|Net income (loss) per share                                         |  | $                               | (21,800 | ) |                                 | $ | 2,600 |      |  | $ | (29,600         | ) |  | $ | 5,700   |  
|                                                                    |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  
|Basic and diluted weighted average shares outstanding               |  |                                 | 1,000   |   |                                 |   | 1,000 |      |  |   | 1,000           |   |  |   | 1,000   |  
|                                                                    |  |                                 |         |   |                                 |   |       |      |  |   |                 |   |  |   |         |  



See accompanying notes
to condensed consolidated financial statements



3



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##### Table of Contents

DRESSER, INC.



CONDENSED
CONSOLIDATED BALANCE SHEETS

(in millions, except share information)

(unaudited)



|                                                                               |  |                   |         |   |                  |   |         |  
|------------------------------------------------------------------------------ |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                               |  | September 30,2005 |         |   | December 31,2004 |  
|ASSETS                                                                         |  |                   |         |   |                  |   |         |  
|Current assets:                                                                |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                      |  | $                 | 82.1    |   |                  | $ | 89.6    |  
|Accounts receivable, net of allowance for doubtful accounts of $10.8
and $11.1 |  |                   | 303.8   |   |                  |   | 347.8   |  
|Notes receivable                                                               |  |                   | 2.0     |   |                  |   | 3.0     |  
|Inventories                                                                    |  |                   | 190.7   |   |                  |   | 192.6   |  
|Current assets from discontinued operations                                    |  |                   | 286.1   |   |                  |   | 237.7   |  
|Other current assets                                                           |  |                   | 32.9    |   |                  |   | 35.5    |  
|                                                                               |  |                   |         |   |                  |   |         |  
|Total current assets                                                           |  |                   | 897.6   |   |                  |   | 906.2   |  
|                                                                               |  |                  
|Property, plant and equipment, net                                             |  |                   | 138.1   |   |                  |   | 167.2   |  
|Investments in unconsolidated subsidiaries                                     |  |                   | 8.0     |   |                  |   | 8.3     |  
|Goodwill                                                                       |  |                   | 261.2   |   |                  |   | 279.4   |  
|Long-term assets from discontinued operations                                  |  |                   | 144.4   |   |                  |   | 164.6   |  
|Other assets                                                                   |  |                   | 135.4   |   |                  |   | 138.5   |  
|                                                                               |  |                   |         |   |                  |   |         |  
|Total assets                                                                   |  | $                 | 1,584.7 |   |                  | $ | 1,664.2 |  
|                                                                               |  |                   |         |   |                  |   |         |  
|LIABILITIES AND SHAREHOLDERS DEFICIT                                          |  |                   |         |   |                  |   |         |  
|Current liabilities:                                                           |  |                   |         |   |                  |   |         |  
|Accounts payable                                                               |  | $                 | 168.2   |   |                  | $ | 225.4   |  
|Notes payable                                                                  |  |                   | 26.9    |   |                  |   | 10.7    |  
|Current maturities of long-term debt                                           |  |                   | 216.5   |   |                  |   | 3.0     |  
|Accrued payroll and other compensation                                         |  |                   | 55.6    |   |                  |   | 50.3    |  
|Deferred revenue                                                               |  |                   | 14.4    |   |                  |   | 15.6    |  
|Accrued expenses                                                               |  |                   | 120.7   |   |                  |   | 112.7   |  
|Current liabilities from discontinued operations                               |  |                   | 153.8   |   |                  |   | 127.9   |  
|                                                                               |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                      |  |                   | 756.1   |   |                  |   | 545.6   |  
|                                                                               |  |                  
|Pension and other retiree benefit obligations                                  |  |                   | 322.3   |   |                  |   | 328.6   |  
|Long-term debt, net of current maturities                                      |  |                   | 844.8   |   |                  |   | 1,061.3 |  
|Long-term liabilities from discontinued operations                             |  |                   | 13.4    |   |                  |   | 16.5    |  
|Other liabilities                                                              |  |                   | 28.0    |   |                  |   | 29.0    |  
|                                                                               |  |                   |         |   |                  |   |         |  
|Total liabilities                                                              |  |                   | 1,964.6 |   |                  |   | 1,981.0 |  
|                                                                               |  |                  
|Commitments and contingencies                                                  |  |                   |        |   |                  |   |        |  
|Minority interest                                                              |  |                   | 3.5     |   |                  |   | 2.9     |  
|Mandatorily redeemable common stock of Dresser, Ltd.                           |  |                   | 11.5    |   |                  |   | 6.7     |  
|                                                                               |  |                  
|Shareholders deficit:                                                         |  |                   |         |   |                  |   |         |  
|Common stock $0.01 par value; issued and outstanding: 1,000 shares             |  |                   |        |   |                  |   |        |  
|Additional paid in capital                                                     |  |                   | 454.9   |   |                  |   | 455.7   |  
|Loan to Dresser, Ltd.                                                          |  |                   | (1.6    | ) |                  |   | (1.6    | )
|Dividends in excess of net book value                                          |  |                   | (605.6  | ) |                  |   | (605.6  | )
|Accumulated deficit                                                            |  |                   | (188.1  | ) |                  |   | (158.5  | )
|Accumulated other comprehensive loss                                           |  |                   | (54.5   | ) |                  |   | (16.4   | )
|                                                                               |  |                   |         |   |                  |   |         |  
|Total shareholders deficit                                                    |  |                   | (394.9  | ) |                  |   | (326.4  | )
|                                                                               |  |                   |         |   |                  |   |         |  
|Total liabilities and shareholders deficit                                    |  | $                 | 1,584.7 |   |                  | $ | 1,664.2 |  
|                                                                               |  |                   |         |   |                  |   |         |  



See accompanying notes
to condensed consolidated financial statements



4



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##### Table of Contents

DRESSER, INC.



CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)



|                                                                                   |  |                                |       |   |                 |   |        |  
|---------------------------------------------------------------------------------- |  | ------------------------------ | ----- | - | --------------- | - | ------ | -
|                                                                                   |  | Nine Months EndedSeptember 30, |      
|                                                                                   |  | 2005                           |       |   | 2004 (Restated) |  
|Cash flows from operating activities:                                              |  |                                |       |   |                 |   |        |  
|Net income (loss)                                                                  |  | $                              | (29.6 | ) |                 | $ | 5.7    |  
|Adjustments to reconcile net income to net cash from operating activities:         |  |                                |       |   |                 |   |        |  
|Depreciation and amortization                                                      |  |                                | 26.4  |   |                 |   | 26.0   |  
|Equity in earnings of unconsolidated subsidiaries, adjusted for cash distributions |  |                                | 0.2   |   |                 |   | (0.7   | )
|Loss on repayment of debt                                                          |  |                                |      |   |                 |   | 11.5   |  
|Amortization of deferred financing fees, net of amortization of bond premium       |  |                                | 3.7   |   |                 |   | 3.6    |  
|Impairment of assets                                                               |  |                                | 14.9  |   |                 |   |       |  
|Other non-cash changes in income                                                   |  |                                | 6.1   |   |                 |   | 5.8    |  
|Changes in operating assets and liabilities, net of acquisition of business:       |  |                                |       |   |                 |   |        |  
|Accounts receivable                                                                |  |                                | 30.3  |   |                 |   | (49.0  | )
|Inventories                                                                        |  |                                | (9.7  | ) |                 |   | (30.0  | )
|Accounts payable                                                                   |  |                                | (43.7 | ) |                 |   | 28.3   |  
|Accrued expenses                                                                   |  |                                | 23.3  |   |                 |   | 20.6   |  
|Other                                                                              |  |                                | (10.4 | ) |                 |   | (10.9  | )
|                                                                                   |  |                                |       |   |                 |   |        |  
|Cash provided by continuing operations                                             |  |                                | 11.5  |   |                 |   | 10.9   |  
|Cash (used in) provided by discontinued operations                                 |  |                                |      |   |                 |   | 18.8   |  
|                                                                                   |  |                                |       |   |                 |   |        |  
|Net cash provided by operating activities                                          |  |                                | 11.5  |   |                 |   | 29.7   |  
|                                                                                   |  |                                |       |   |                 |   |        |  
|Cash flows from investing activities:                                              |  |                                |       |   |                 |   |        |  
|Acquisition of businesses                                                          |  |                                |      |   |                 |   | (174.0 | )
|Capital expenditures                                                               |  |                                | (15.5 | ) |                 |   | (25.2  | )
|Proceeds from sale of assets                                                       |  |                                | 0.2   |   |                 |   | 4.2    |  
|Changes in restricted cash                                                         |  |                                | (2.1  | ) |                 |   | (1.6   | )
|Discontinued operations                                                            |  |                                | (10.4 | ) |                 |   | (11.3  | )
|                                                                                   |  |                                |       |   |                 |   |        |  
|Net cash used in investing activities                                              |  |                                | (27.8 | ) |                 |   | (207.9 | )
|                                                                                   |  |                                |       |   |                 |   |        |  
|Cash flows from financing activities:                                              |  |                                |       |   |                 |   |        |  
|Proceeds from issuance of long-term debt                                           |  |                                |      |   |                 |   | 172.2  |  
|Repayment of long-term debt (including current portion)                            |  |                                | (2.2  | ) |                 |   | (46.9  | )
|Net change in short-term notes payable                                             |  |                                | 15.3  |   |                 |   | 5.9    |  
|Purchase of shares, net of proceeds from escrow and exercise of stock options      |  |                                |      |   |                 |   | (1.9   | )
|Discontinued operations                                                            |  |                                | (0.2  | ) |                 |   | 0.6    |  
|                                                                                   |  |                                |       |   |                 |   |        |  
|Net cash provided by financing activities                                          |  |                                | 12.9  |   |                 |   | 129.9  |  
|                                                                                   |  |                                |       |   |                 |   |        |  
|Effect of translation adjustments on cash                                          |  |                                | (4.1  | ) |                 |   | (0.6   | )
|                                                                                   |  |                                |       |   |                 |   |        |  
|Net decrease in cash and cash equivalents                                          |  |                                | (7.5  | ) |                 |   | (48.9  | )
|Cash and cash equivalents, beginning of period                                     |  |                                | 89.6  |   |                 |   | 144.1  |  
|                                                                                   |  |                                |       |   |                 |   |        |  
|Cash and cash equivalents, end of period                                           |  | $                              | 82.1  |   |                 | $ | 95.2   |  
|                                                                                   |  |                                |       |   |                 |   |        |  
|Supplemental disclosure of cash flow information:                                  |  |                                |       |   |                 |   |        |  
|Cash payments during the period for:                                               |  |                                |       |   |                 |   |        |  
|Interest                                                                           |  | $                              | 50.8  |   |                 | $ | 33.1   |  
|Income taxes                                                                       |  | $                              | 9.0   |   |                 | $ | 9.5    |  





See accompanying notes to condensed consolidated financial statements



5



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##### Table of Contents

DRESSER, INC.



NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Note 1. Organization and Basis of Presentation



The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (U.S. 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 U.S. 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, 2005, are not necessarily indicative of the results that may be expected for the year ended December 31, 2005. 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, 2004. As used in this report, the terms Dresser, the Company, we, our or us refer to Dresser, Inc. and its predecessors,
subsidiaries and affiliates unless the context indicates otherwise.



During the third quarter of 2005, we agreed to sell our worldwide on/off valves and instruments businesses. Our results for all periods presented reflect these businesses as discontinued operations. See Note 2. Discontinued
Operations.



Restatement of Historical Financial Statements



We have restated our financial statements and other
information for errors identified in amounts we had previously reported in our historical financial statements for the first nine months of 2004 and periods prior to 2004. Errors identified in our 2004 restatement which relate to the three and nine
months ended September 30, 2004, consisted of accounting for foreign currency translation; inventory, including capitalization of inventory costs, the elimination of profits related to intercompany inventory transfers, and excess and obsolete
inventory; capitalization and amortization of deferred financing fees; and other adjustments primarily of a control-related or bookkeeping nature.



The following table sets forth the effects of these errors:



|                             |  |                                      |      |   |                                     |   |      |  
|---------------------------- |  | ------------------------------------ | ---- | - | ----------------------------------- | - | ---- | -
|                             |  | Adjustment to Net Income (Loss)      |     
|                             |  | Three Months EndedSeptember 30, 2004 |      |   | Nine Months EndedSeptember 30, 2004 |  
|                             |  | (in millions)                        |     
|Foreign currency translation |  | $                                    | 0.4  |   |                                     | $ | (0.2 | )
|Inventory costing            |  |                                      | (0.9 | ) |                                     |   | (2.4 | )
|Deferred financing fees      |  |                                      | (0.3 | ) |                                     |   | 4.3  |  
|On/off adjustments           |  |                                      | 0.2  |   |                                     |   | 0.2  |  
|Other                        |  |                                      | (0.9 | ) |                                     |   |     |  
|                             |  |                                      |      |   |                                     |   |      |  
|Total adjustments            |  | $                                    | (1.5 | ) |                                     | $ | 1.9  |  
|                             |  |                                      |      |   |                                     |   |      |  



6



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##### Table of Contents

DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



The following table sets forth the effects of the restatement on our previously reported statements
of operations for the three and nine months ended September 30, 2004, after giving effect to the discontinued operations treatment of our on/off valves and instruments businesses.



|                                                             |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  
|------------------------------------------------------------ |  | ------------------------------------------------- | ----- | - | ----------------------------------- | - | ----- | ----------- |  | - | ----------- | - |  | - | ------- | -
|                                                             |  | Three Months Ended September 30, 2004             |       |   | Nine Months EndedSeptember 30, 2004 |  
|                                                             |  | As Reported                                       |       |   | AsRestated                          |   |       | As Reported |  |   | As Restated |  
|                                                             |  | (in millions, except share and per share amounts) |      
|Revenues                                                     |  | $                                                 | 352.1 |   |                                     | $ | 385.9 |             |  | $ | 1,008.5     |   |  | $ | 1,057.1 |  
|Cost of revenues                                             |  |                                                   | 234.5 |   |                                     |   | 270.7 |             |  |   | 686.7       |   |  |   | 738.7   |  
|                                                             |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  
|Gross profit                                                 |  |                                                   | 117.6 |   |                                     |   | 115.2 |             |  |   | 321.8       |   |  |   | 318.4   |  
|Selling, engineering, administrative, and general expenses   |  |                                                   | 90.0  |   |                                     |   | 90.0  |             |  |   | 241.7       |   |  |   | 240.9   |  
|                                                             |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  
|Operating income                                             |  |                                                   | 27.6  |   |                                     |   | 25.2  |             |  |   | 80.1        |   |  |   | 77.5    |  
|Interest expense                                             |  |                                                   | (19.8 | ) |                                     |   | (20.3 | )           |  |   | (73.3       | ) |  |   | (69.4   | )
|Interest income                                              |  |                                                   | 0.4   |   |                                     |   | 0.6   |             |  |   | 0.9         |   |  |   | 1.5     |  
|Other income (expense), net                                  |  |                                                   | (0.7  | ) |                                     |   | (0.1  | )           |  |   | (0.8        | ) |  |   | (0.8    | )
|                                                             |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  
|Income before income taxes                                   |  |                                                   | 7.5   |   |                                     |   | 5.4   |             |  |   | 6.9         |   |  |   | 8.8     |  
|Provision for income taxes                                   |  |                                                   | (4.0  | ) |                                     |   | (3.7  | )           |  |   | (9.0        | ) |  |   | (5.5    | )
|                                                             |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  
|Income (loss) before equity interests                        |  |                                                   | 3.5   |   |                                     |   | 1.7   |             |  |   | (2.1        | ) |  |   | 3.3     |  
|Equity in earnings of unconsolidated subsidiaries            |  |                                                   | 0.8   |   |                                     |   | 0.7   |             |  |   | 2.3         |   |  |   | 1.8     |  
|Minority owner's share of consolidated subsidiaries          |  |                                                   | (0.2  | ) |                                     |   | (0.2  | )           |  |   | (0.3        | ) |  |   | (0.3    | )
|                                                             |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  
|Net income (loss) from continuing operations                 |  |                                                   | 4.1   |   |                                     |   | 2.2   |             |  |   | (0.1        | ) |  |   | 4.8     |  
|Net income from discontinued operations, net of income taxes |  |                                                   |      |   |                                     |   | 0.4   |             |  |   | 3.9         |   |  |   | 0.9     |  
|                                                             |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  
|Net income                                                   |  | $                                                 | 4.1   |   |                                     | $ | 2.6   |             |  | $ | 3.8         |   |  | $ | 5.7     |  
|                                                             |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  
|Basic and diluted net income (loss) per share                |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  
|Net income (loss) from continuing operations                 |  | $                                                 | 4,100 |   |                                     | $ | 2,200 |             |  | $ | (100        | ) |  | $ | 4,800   |  
|Net income from discontinued operations, net of income taxes |  |                                                   |      |   |                                     |   | 400   |             |  |   | 3,900       |   |  |   | 900     |  
|                                                             |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  
|Net income per share                                         |  | $                                                 | 4,100 |   |                                     | $ | 2,600 |             |  | $ | 3,800       |   |  | $ | 5,700   |  
|                                                             |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  
|Basic and diluted weighted average shares outstanding        |  |                                                   | 1,000 |   |                                     |   | 1,000 |             |  |   | 1,000       |   |  |   | 1,000   |  
|                                                             |  |                                                   |       |   |                                     |   |       |             |  |   |             |   |  |   |         |  



Note 2. Discontinued Operations



Under SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets,we classify assets to be disposed of as held for sale or, if appropriate, discontinued operations when they have received appropriate approvals by our management or Board of Directors and when they meet other
criteria. During the third quarter of 2005, management committed to a plan to sell our worldwide on/off valve business and our instruments business and we determined we met the required criteria for discontinued operations treatment for both
businesses. The sale of both businesses has allowed us to repay a portion of our debt and will allow us to concentrate our resources on other highly regarded products. The results of both businesses, which were part of the flow control segment, are
reflected as discontinued operations for all periods presented.



On/Off
Valve Business



In November 2005, we completed the sale of
substantially all of our worldwide on/off valve business to Cooper Cameron Corporation, with the remaining portion of the sale, the Brazilian operation, completed in



7



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##### Table of Contents

DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



January 2006. The total purchase price was approximately $223.8 million in cash, subject to post-closing adjustments. Net cash proceeds of $190.3 million,
excluding the portion attributed to Brazil, were used to repay a portion of our Tranche C term loan in December 2005. Net cash proceeds from the January 2006 sale of the Brazilian operation of $21.3 million are being used to repay outstanding
short-term debt in Brazil. In connection with the sale, Cooper Cameron has assumed certain liabilities, which include ordinary course customer/vendor contracts, leases and other commercial agreements; specified agency/distributor agreements; working
capital liabilities, including payables and accrued payroll; specified severance, change of control and employment agreements; product warranty/product liability for products shipped post-closing, as well as product warranty/product liability for
products shipped pre-closing, but only to the extent of warranty reserves; and liquidated damages on shipped products to the extent of reserves, plus 50% of liquidated damages on backlog shipped within 180 days of the closing.



We retained all liabilities not specifically assumed, including litigation,
environmental (whether known or unknown), debt, certain pension liabilities and other benefit plans; product warranty/product liability for products shipped pre-closing in excess of warranty reserves; and liquidated damages on shipped products in
excess of reserves, plus 50% of liquidated damages on backlog shipped within 180 days of the closing (net of unused reserves from shipped products).



We expect to record a gain associated with the sale of our on/off valve business. However, we are unable to estimate the amount of the gain due to the
ongoing settlement of post-closing adjustments.



Instruments Business



Also in November 2005, we sold our instruments business
to Ashcroft Holdings, Inc., an affiliate of KPS Special Situations Fund II, L.P. (Ashcroft), for approximately $34.0 million in cash, subject to certain post-closing adjustments. Net cash proceeds of $24.7 million were used to repay a
portion of our Tranche C term loan in December 2005. Ashcroft assumed certain liabilities which include ordinary course contracts, leases, distributor and sales agent contracts, and other commercial agreements; working capital liabilities, including
payables and accrued payroll; termination or severance obligations that may be payable to certain distributors, sales agents and employees; and liabilities under the units German pension plan.



We retained all liabilities not specifically assumed, including certain known
environmental liabilities, such as remediation obligations at our Stratford, Connecticut facility; certain pension and frozen retiree medical and life insurance liabilities; specified litigation; and pre-closing product and export control
liabilities.



After adjusting the instruments assets to their
estimated fair value, we recognized pre-tax impairment charges during the third quarter of 2005 of $22.7 million. The impairment charges were based on a comparison of the carrying value of these assets to their estimated fair value, less transaction
costs. During the fourth quarter of 2005, we recognized a curtailment gain of $12.6 million due to the recognition of unamortized prior service costs associated with the retained other post retirement benefit plans upon the sale of the business.
Excluding this item, we do not expect the gain or loss on sale to be significant.



8



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##### Table of Contents

The assets and liabilities of both discontinued businesses are classified as current and long-term assets
from discontinued operations and current and long-term liabilities from discontinued operations in our balance sheets for all periods presented. The summarized financial results and position data of our discontinued operations were as follows:



|                                                                    |  |                                  |       |   |                 |   |       |       |  |   |                 |   |  |      |      |   |                 |   |       |   |  |   |       |  
|------------------------------------------------------------------- |  | -------------------------------- | ----- | - | --------------- | - | ----- | ----- |  | - | --------------- | - |  | ---- | ---- | - | --------------- | - | ----- | - |  | - | ----- | -
|                                                                    |  | On/Off Valves                    |       |   | Instruments     |   |       | Total | 
|Results of Discontinued Operations                                  |  | Three months ended September 30, |      
|                                                                    |  | 2005                             |       |   | 2004 (restated) |   |       | 2005  |  |   | 2004 (restated) |   |  | 2005 |      |   | 2004 (restated) |  
|                                                                    |  | (in millions)                    |      
|Revenue.                                                            |  | $                                | 122.5 |   |                 | $ | 98.5  |       |  | $ | 28.9            |   |  | $    | 29.5 |   |                 | $ | 151.4 |   |  | $ | 128.0 |  
|Cost of revenue                                                     |  |                                  | 98.2  |   |                 |   | 76.8  |       |  |   | 20.1            |   |  |      | 21.5 |   |                 |   | 118.3 |   |  |   | 98.3  |  
|                                                                    |  |                                  |       |   |                 |   |       |       |  |   |                 |   |  |      |      |   |                 |   |       |   |  |   |       |  
|Gross profit                                                        |  |                                  | 24.3  |   |                 |   | 21.7  |       |  |   | 8.8             |   |  |      | 8.0  |   |                 |   | 33.1  |   |  |   | 29.7  |  
|Selling, engineering, administrative and general expenses.          |  |                                  | 22.2  |   |                 |   | 17.9  |       |  |   | 8.5             |   |  |      | 8.2  |   |                 |   | 30.7  |   |  |   | 26.1  |  
|Impairment of instruments business                                  |  |                                  |      |   |                 |   |      |       |  |   | 22.7            |   |  |      |     |   |                 |   | 22.7  |   |  |   |      |  
|                                                                    |  |                                  |       |   |                 |   |       |       |  |   |                 |   |  |      |      |   |                 |   |       |   |  |   |       |  
|                                                                    |  |                                  |       |   |                 |  
|Operating income (loss)                                             |  |                                  | 2.1   |   |                 |   | 3.8   |       |  |   | (22.4           | ) |  |      | (0.2 | ) |                 |   | (20.3 | ) |  |   | 3.6   |  
|Interest expense                                                    |  |                                  | (0.3  | ) |                 |   | (0.4  | )     |  |   |                |   |  |      |     |   |                 |   | (0.3  | ) |  |   | (0.4  | )
|Interest income                                                     |  |                                  | 0.1   |   |                 |   |      |       |  |   |                |   |  |      |     |   |                 |   | 0.1   |   |  |   |      |  
|Other income (expense), net                                         |  |                                  | (0.1  | ) |                 |   | 0.1   |       |  |   | (0.2            | ) |  |      | (0.3 | ) |                 |   | (0.3  | ) |  |   | (0.2  | )
|Provision for income tax                                            |  |                                  | (3.6  | ) |                 |   | (2.2  | )     |  |   | 0.4             |   |  |      |     |   |                 |   | (3.2  | ) |  |   | (2.2  | )
|Equity in earnings of unconsolidated subsidiaries                   |  |                                  |      |   |                 |   |      |       |  |   | 0.2             |   |  |      | 0.1  |   |                 |   | 0.2   |   |  |   | 0.1   |  
|Minority owners share of consolidated subsidiaries                 |  |                                  |      |   |                 |   | (0.5  | )     |  |   |                |   |  |      |     |   |                 |   |      |   |  |   | (0.5  | )
|                                                                    |  |                                  |       |   |                 |   |       |       |  |   |                 |   |  |      |      |   |                 |   |       |   |  |   |       |  
|Net income (loss) from discontinued operations, net of income taxes |  | $                                | (1.8  | ) |                 | $ | 0.8   |       |  | $ | (22.0           | ) |  | $    | (0.4 | ) |                 | $ | (23.8 | ) |  | $ | 0.4   |  
|                                                                    |  |                                  |       |   |                 |   |       |       |  |   |                 |   |  |      |      |   |                 |   |       |   |  |   |       |  
|                                                                    |  |                                  |      
|                                                                    |  | On/Off Valves                    |       |   | Instruments     |   |       | Total | 
|                                                                    |  | Nine months ended September 30,  |      
|                                                                    |  | 2005                             |       |   | 2004 (restated) |   |       | 2005  |  |   | 2004 (restated) |   |  | 2005 |      |   | 2004 (restated) |  
|                                                                    |  | (in millions)                    |      
|Revenue.                                                            |  | $                                | 328.0 |   |                 | $ | 316.1 |       |  | $ | 90.4            |   |  | $    | 87.7 |   |                 | $ | 418.4 |   |  | $ | 403.8 |  
|Cost of revenue                                                     |  |                                  | 262.5 |   |                 |   | 246.6 |       |  |   | 63.2            |   |  |      | 63.9 |   |                 |   | 325.7 |   |  |   | 310.5 |  
|                                                                    |  |                                  |       |   |                 |   |       |       |  |   |                 |   |  |      |      |   |                 |   |       |   |  |   |       |  
|Gross profit                                                        |  |                                  | 65.5  |   |                 |   | 69.5  |       |  |   | 27.2            |   |  |      | 23.8 |   |                 |   | 92.7  |   |  |   | 93.3  |  
|Selling, engineering, administrative and general expenses.          |  |                                  | 70.3  |   |                 |   | 58.5  |       |  |   | 25.9            |   |  |      | 24.6 |   |                 |   | 96.2  |   |  |   | 83.1  |  
|Impairment of instruments business                                  |  |                                  |      |   |                 |   |      |       |  |   | 22.7            |   |  |      |     |   |                 |   | 22.7  |   |  |   |      |  
|                                                                    |  |                                  |       |   |                 |   |       |       |  |   |                 |   |  |      |      |   |                 |   |       |   |  |   |       |  
|                                                                    |  |                                  |       |   |                 |  
|Operating income (loss)                                             |  |                                  | (4.8  | ) |                 |   | 11.0  |       |  |   | (21.4           | ) |  |      | (0.8 | ) |                 |   | (26.2 | ) |  |   | 10.2  |  
|Interest expense                                                    |  |                                  | (1.0  | ) |                 |   | (1.3  | )     |  |   | (0.1            | ) |  |      | (0.1 | ) |                 |   | (1.1  | ) |  |   | (1.4  | )
|Interest income.                                                    |  |                                  | 0.1   |   |                 |   |      |       |  |   |                |   |  |      |     |   |                 |   | 0.1   |   |  |   |      |  
|Other income (expense), net                                         |  |                                  |      |   |                 |   | 0.1   |       |  |   | (0.6            | ) |  |      | (0.2 | ) |                 |   | (0.6  | ) |  |   | (0.1  | )
|Provision for income tax                                            |  |                                  | (3.0  | ) |                 |   | (7.6  | )     |  |   | 0.7             |   |  |      |     |   |                 |   | (2.3  | ) |  |   | (7.6  | )
|Equity earnings of unconsolidated subsidiaries                      |  |                                  |      |   |                 |   |      |       |  |   | 0.4             |   |  |      | 0.3  |   |                 |   | 0.4   |   |  |   | 0.3   |  
|Minority owners share of consolidated subsidiaries                 |  |                                  |      |   |                 |   | (0.5  | )     |  |   |                |   |  |      |     |   |                 |   |      |   |  |   | (0.5  | )
|                                                                    |  |                                  |       |   |                 |   |       |       |  |   |                 |   |  |      |      |   |                 |   |       |   |  |   |       |  
|Net income (loss) from discontinued operations, net of income taxes |  | $                                | (8.7  | ) |                 | $ | 1.7   |       |  | $ | (21.0           | ) |  | $    | (0.8 | ) |                 | $ | (29.7 | ) |  | $ | 0.9   |  
|                                                                    |  |                                  |       |   |                 |   |       |       |  |   |                 |   |  |      |      |   |                 |   |       |   |  |   |       |  



9



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##### Table of Contents

Financial Position Data of Discontinued Operations



|                                              |  |                   |       |                  |   |                   |  |                  |      |                   |   |                  |  |   |       |  |   |      
|--------------------------------------------- |  | ----------------- | ----- | ---------------- | - | ----------------- |  | ---------------- | ---- | ----------------- | - | ---------------- |  | - | ----- |  | - | -----
|                                              |  | On/Off Valves     |       | Instruments      |   | Total            
|                                              |  | September 30,2005 |       | December 31,2004 |   | September 30,2005 |  | December 31,2004 |      | September 30,2005 |   | December 31,2004
|                                              |  | (in millions)    
|ASSETS                                        |  |                   |       |                  |   |                   |  |                  |      |                   |   |                 
|Cash and cash equivalents                     |  | $                 | 6.7   |                  | $ | 9.0               |  | $                |     |                   | $ |                 |  | $ | 6.7   |  | $ | 9.0  
|Accounts and notes receivable                 |  |                   | 87.1  |                  |   | 77.0              |  |                  | 14.8 |                   |   | 14.8             |  |   | 101.9 |  |   | 91.8 
|Inventories                                   |  |                   | 154.1 |                  |   | 120.2             |  |                  | 14.9 |                   |   | 15.0             |  |   | 169.0 |  |   | 135.2
|Other current assets                          |  |                   | 6.6   |                  |   | 0.4               |  |                  | 1.9  |                   |   | 1.3              |  |   | 8.5   |  |   | 1.7  
|                                              |  |                   |       |                  |   |                   |  |                  |      |                   |   |                  |  |   |       |  |   |      
|Total current assets                          |  | $                 | 254.5 |                  | $ | 206.6             |  | $                | 31.6 |                   | $ | 31.1             |  | $ | 286.1 |  | $ | 237.7
|                                              |  |                   |       |                  |   |                   |  |                  |      |                   |   |                  |  |   |       |  |   |      
|                                              |  |                   |       |                  |   |                  
|Property, plant and equipment                 |  | $                 | 55.9  |                  | $ | 47.8              |  | $                | 6.6  |                   | $ | 25.6             |  | $ | 62.5  |  | $ | 73.4 
|Investments in unconsolidated subsidiaries    |  |                   |      |                  |   |                  |  |                  | 0.9  |                   |   | 1.0              |  |   | 0.9   |  |   | 1.0  
|Goodwill and other assets                     |  |                   | 80.5  |                  |   | 84.6              |  |                  | 0.5  |                   |   | 5.6              |  |   | 81.0  |  |   | 90.2 
|                                              |  |                   |       |                  |   |                   |  |                  |      |                   |   |                  |  |   |       |  |   |      
|Total long-term assets                        |  | $                 | 136.4 |                  | $ | 132.4             |  | $                | 8.0  |                   | $ | 32.2             |  | $ | 144.4 |  | $ | 164.6
|                                              |  |                   |       |                  |   |                   |  |                  |      |                   |   |                  |  |   |       |  |   |      
|                                              |  |                   |       |                  |   |                  
|LIABILITIES                                   |  |                   |       |                  |   |                   |  |                  |      |                   |   |                 
|Accounts and notes payable                    |  | $                 | 87.9  |                  | $ | 79.2              |  | $                | 5.6  |                   | $ | 7.6              |  | $ | 93.5  |  | $ | 86.8 
|Accrued payroll and other compensation        |  |                   | 10.5  |                  |   | 7.9               |  |                  | 3.2  |                   |   | 2.4              |  |   | 13.7  |  |   | 10.3 
|Deferred revenue                              |  |                   | 32.1  |                  |   | 16.6              |  |                  |     |                   |   |                 |  |   | 32.1  |  |   | 16.6 
|Other accrued expenses                        |  |                   | 12.8  |                  |   | 12.5              |  |                  | 1.7  |                   |   | 1.7              |  |   | 14.5  |  |   | 14.2 
|                                              |  |                   |       |                  |   |                   |  |                  |      |                   |   |                  |  |   |       |  |   |      
|Total current liabilities                     |  | $                 | 143.3 |                  | $ | 116.2             |  | $                | 10.5 |                   | $ | 11.7             |  | $ | 153.8 |  | $ | 127.9
|                                              |  |                   |       |                  |   |                   |  |                  |      |                   |   |                  |  |   |       |  |   |      
|                                              |  |                   |       |                  |   |                  
|Pension and other retiree benefit obligations |  | $                 | 11.0  |                  | $ | 13.6              |  | $                | 1.6  |                   | $ | 1.5              |  | $ | 12.6  |  | $ | 15.1 
|Long term debt, net of current maturities     |  |                   | 0.3   |                  |   | 0.5               |  |                  |     |                   |   |                 |  |   | 0.3   |  |   | 0.5  
|Other liabilities                             |  |                   | 0.5   |                  |   | 0.3               |  |                  |     |                   |   |                 |  |   | 0.5   |  |   | 0.3  
|Minority interest                             |  |                   |      |                  |   | 0.6               |  |                  |     |                   |   |                 |  |   |      |  |   | 0.6  
|                                              |  |                   |       |                  |   |                   |  |                  |      |                   |   |                  |  |   |       |  |   |      
|Total long-term liabilities                   |  | $                 | 11.8  |                  | $ | 15.0              |  | $                | 1.6  |                   | $ | 1.5              |  | $ | 13.4  |  | $ | 16.5 
|                                              |  |                   |       |                  |   |                   |  |                  |      |                   |   |                  |  |   |       |  |   |      



Note 3. Impairment of Assets



Our impairment charges from continuing operations for the
nine months ended September 30, 2005, were recorded in connection with assets that are no longer expected to provide value in the future. During the second quarter of 2005, we impaired $2.9 million of capitalized expenses associated with our
previously announced initial public offering because these costs are no longer expected to provide value in any future initial public offering. During the third quarter of 2005, we impaired $12.0 million in capitalized software costs as a result of
discontinuing our previously announced plans to implement an enterprise resource planning (ERP) system after a pilot installation at our U.S. retail fueling operation indicated that the intended benefits of the system would not be realized in a
timely manner and the cost to complete the implementation at our other locations would be significantly higher than originally expected.



For additional asset impairments on our discontinued operations see Note 2. Discontinued Operations.



10



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##### Table of Contents

DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



Note 4. Business Segment Information



We aggregate our business units into 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. The business units aggregated share like businesses, operational and economic features.



Flow Control. Operations of the flow control segment include the
design, manufacture and marketing of 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, this segment also includes the design,
manufacture and marketing of natural gas meters, regulators, digital and analog pressure and temperature gauges, transducers, and piping specialties such as couplings and pipe fabrications. In September 2005, we agreed to sell our on/off valves and
instruments product lines. See Note 2. Discontinued Operations.



Measurement Systems. Operations of the measurement systems segment consist of the design, manufacture and marketing of fuel dispensers, pumps, peripherals and point-of-sale systems and software for the retail
fueling industry.



Compression and Power Systems.
Operations of the compression and power systems segment consist of the design, manufacture and marketing of natural gas-fueled engines used primarily in natural gas compression and power generation applications. We also manufacture positive
displacement blowers and centrifugal compressors used in air and gas applications.



11



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##### Table of Contents

DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



We evaluate performance based on the operating income or loss from each business segment which
excludes interest, other income (deductions) and income taxes. The following table presents information by reportable segment for the three and nine months ended September 30, 2005 and 2004.



|                                               |  |             |       |                   |   |                             |  |   |                                         |   |  |       |       |   |  |   |        
|---------------------------------------------- |  | ----------- | ----- | ----------------- | - | --------------------------- |  | - | --------------------------------------- | - |  | ----- | ----- | - |  | - | -------
|                                               |  | FlowControl |       | MeasurementSystem |   | Compressionand PowerSystems |  |   | ReconcilingItems,IncludingCorporate (1) |   |  | Total
|Three Months Ended September 30, 2005          |  |             |       |                   |   |                             |  |   |                                         |   |  |       |       |   |  |   |        
|Revenue from external customers                |  | $           | 158.6 |                   | $ | 159.8                       |  | $ | 109.5                                   |   |  | $     | (0.5  | ) |  | $ | 427.4  
|Operating income                               |  |             | 21.0  |                   |   | 18.5                        |  |   | 19.9                                    |   |  |       | (32.7 | ) |  |   | 26.7   
|Depreciation and amortization                  |  |             | 1.9   |                   |   | 2.3                         |  |   | 1.8                                     |   |  |       | 1.5   |   |  |   | 7.5    
|Capital expenditures                           |  |             | 2.2   |                   |   | 1.9                         |  |   | 0.8                                     |   |  |       | (0.7  | ) |  |   | 4.2    
|                                               |  |             |       |                   |  
|Three Months Ended September 30, 2004Restated |  |             |       |                   |   |                             |  |   |                                         |   |  |       |       |   |  |   |        
|Revenue from external customers                |  |             | 148.2 |                   |   | 162.5                       |  |   | 75.8                                    |   |  |       | (0.6  | ) |  |   | 385.9  
|Operating income                               |  |             | 15.6  |                   |   | 25.4                        |  |   | (5.0                                    | ) |  |       | (10.8 | ) |  |   | 25.2   
|Depreciation and amortization                  |  |             | 2.5   |                   |   | 3.0                         |  |   | 3.3                                     |   |  |       | 0.7   |   |  |   | 9.5    
|Capital expenditures                           |  |             | 1.9   |                   |   | 1.6                         |  |   | 0.8                                     |   |  |       | 2.4   |   |  |   | 6.7    
|                                               |  |             |       |                   |  
|Nine Months Ended September 30, 2005           |  |             |       |                   |   |                             |  |   |                                         |   |  |       |       |   |  |   |        
|Revenue from external customers                |  |             | 477.2 |                   |   | 470.4                       |  |   | 299.5                                   |   |  |       | (1.8  | ) |  |   | 1,245.3
|Operating income                               |  |             | 55.5  |                   |   | 50.1                        |  |   | 46.3                                    |   |  |       | (79.6 | ) |  |   | 72.3   
|Depreciation and amortization                  |  |             | 5.7   |                   |   | 8.2                         |  |   | 5.5                                     |   |  |       | 7.0   |   |  |   | 26.4   
|Goodwill                                       |  |             | 159.5 |                   |   | 101.7                       |  |   |                                        |   |  |       |      |   |  |   | 261.2  
|Total assets                                   |  |             | 424.1 |                   |   | 410.1                       |  |   | 167.9                                   |   |  |       | 582.6 |   |  |   | 1,584.7
|Capital expenditures                           |  |             | 7.8   |                   |   | 3.6                         |  |   | 2.1                                     |   |  |       | 2.0   |   |  |   | 15.5   
|                                               |  |             |       |                   |  
|Nine Months Ended September 30, 2004Restated  |  |             |       |                   |   |                             |  |   |                                         |   |  |       |       |   |  |   |        
|Revenue from external customers                |  |             | 435.0 |                   |   | 391.5                       |  |   | 232.1                                   |   |  |       | (1.5  | ) |  |   | 1,057.1
|Operating income                               |  |             | 41.5  |                   |   | 56.1                        |  |   | 11.0                                    |   |  |       | (31.1 | ) |  |   | 77.5   
|Depreciation and amortization                  |  |             | 7.6   |                   |   | 6.0                         |  |   | 10.2                                    |   |  |       | 2.2   |   |  |   | 26.0   
|Goodwill                                       |  |             | 296.8 |                   |   | 99.2                        |  |   |                                        |   |  |       |      |   |  |   | 396.0  
|Total assets                                   |  |             | 471.9 |                   |   | 427.9                       |  |   | 147.8                                   |   |  |       | 582.6 |   |  |   | 1,630.2
|Capital expenditures                           |  |             | 8.6   |                   |   | 2.2                         |  |   | 1.8                                     |   |  |       | 12.6  |   |  |   | 25.2   

---

|(1) | Revenue and operating income represents inter-segment eliminations, which are not considered significant, and certain corporate overhead cost not allocated to each business segment.
Assets primarily consist of cash, deferred financing fees, prepaid and intangible pension costs and deferred tax assets. Also included in total assets are assets from discontinued operations of $430.5 million at September 30, 2005 and $380.5 million
at September 30, 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



Note 5. 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) or weighted average cost basis.



Inventories accounted for under the LIFO method represented $73.4 million and $60.6 million of our total inventories as of September 30, 2005, and
December 31, 2004, respectively. The excess of FIFO over LIFO costs were $86.5 million and $79.3 million as of September 30, 2005, and December 31, 2004. Inventories are summarized as follows:



|                              |  |                   |       |   |                  |   |       |  
|----------------------------- |  | ----------------- | ----- | - | ---------------- | - | ----- | -
|                              |  | September 30,2005 |       |   | December 31,2004 |  
|                              |  | (in millions)     |      
|Finished products and parts   |  | $                 | 142.8 |   |                  | $ | 163.3 |  
|In-process products and parts |  |                   | 59.7  |   |                  |   | 53.1  |  
|Raw materials and supplies    |  |                   | 74.7  |   |                  |   | 55.5  |  
|                              |  |                   |       |   |                  |   |       |  
|Inventories                   |  |                   | 277.2 |   |                  |   | 271.9 |  
|Less:                         |  |                   |       |   |                  |   |       |  
|LIFO reserve                  |  |                   | (86.5 | ) |                  |   | (79.3 | )
|                              |  |                   |       |   |                  |   |       |  
|Total inventories             |  | $                 | 190.7 |   |                  | $ | 192.6 |  
|                              |  |                   |       |   |                  |   |       |  



Note 6. Pension and Other Retiree
Benefit Obligations



We sponsor several qualified and
nonqualified pension plans and other postretirement benefit plans that cover a significant number of our employees. The following tables provide information related to our net periodic benefit cost for the three and nine months ended September 30,
2005 and 2004:



|                                   |  |                                  |      |   |                                 |   |      |                       |  |   |                           |   |  |      |      |   |                 |   |       |      |  |   |                 |   |  |   |      |   |  |   |      |  
|---------------------------------- |  | -------------------------------- | ---- | - | ------------------------------- | - | ---- | --------------------- |  | - | ------------------------- | - |  | ---- | ---- | - | --------------- | - | ----- | ---- |  | - | --------------- | - |  | - | ---- | - |  | - | ---- | -
|                                   |  | Defined Benefit Plans            |      |   | OtherPostretirement Plans       |   |      | Defined Benefit Plans |  |   | OtherPostretirement Plans |  
|                                   |  | Three Months Ended September 30, |      |   | Nine Months Ended September 30, |  
|                                   |  | 2005                             |      |   | 2004 (Restated)                 |   |      | 2005                  |  |   | 2004 (Restated)           |   |  | 2005 |      |   | 2004 (Restated) |   |       | 2005 |  |   | 2004 (Restated) |  
|                                   |  | (in millions)                    |     
|                                   |  |                                  |      |   |                                 |   |      |                      
|Service cost                       |  | $                                | 2.0  |   |                                 | $ | 1.8  |                       |  | $ | 0.6                       |   |  | $    | 0.5  |   |                 | $ | 6.0   |      |  | $ | 5.2             |   |  | $ | 1.8  |   |  | $ | 1.6  |  
|Interest cost                      |  |                                  | 4.7  |   |                                 |   | 4.4  |                       |  |   | 2.5                       |   |  |      | 3.2  |   |                 |   | 14.1  |      |  |   | 13.4            |   |  |   | 7.4  |   |  |   | 8.1  |  
|Amortization of prior service cost |  |                                  | 0.5  |   |                                 |   | 0.5  |                       |  |   | (1.9                      | ) |  |      | (1.8 | ) |                 |   | 1.6   |      |  |   | 1.6             |   |  |   | (5.6 | ) |  |   | (5.6 | )
|Amortization of net loss           |  |                                  | 1.7  |   |                                 |   | 1.3  |                       |  |   | 0.5                       |   |  |      | 1.5  |   |                 |   | 5.1   |      |  |   | 4.1             |   |  |   | 1.5  |   |  |   | 2.2  |  
|Transition obligation              |  |                                  | 0.5  |   |                                 |   | 0.5  |                       |  |   |                          |   |  |      |     |   |                 |   | 1.6   |      |  |   | 1.3             |   |  |   |     |   |  |   |     |  
|Expected return on assets          |  |                                  | (4.5 | ) |                                 |   | (4.2 | )                     |  |   |                          |   |  |      |     |   |                 |   | (13.5 | )    |  |   | (12.7           | ) |  |   |     |   |  |   |     |  
|                                   |  |                                  |      |   |                                 |   |      |                       |  |   |                           |   |  |      |      |   |                 |   |       |      |  |   |                 |   |  |   |      |   |  |   |      |  
|Net periodic benefit cost          |  | $                                | 4.9  |   |                                 | $ | 4.3  |                       |  | $ | 1.7                       |   |  | $    | 3.4  |   |                 | $ | 14.9  |      |  | $ | 12.9            |   |  | $ | 5.1  |   |  | $ | 6.3  |  
|                                   |  |                                  |      |   |                                 |   |      |                       |  |   |                           |   |  |      |      |   |                 |   |       |      |  |   |                 |   |  |   |      |   |  |   |      |  



13



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##### Table of Contents

DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



We made cash contributions of approximately $19.3 million to our pension benefit plans during the
nine months ended September 30, 2005 compared to $6.0 million for the nine months ended September 30, 2004. We have made additional cash contributions of $1.7 million throughout the remainder of 2005.



Note 7. Debt



In September 2005, we committed to use the net cash proceeds from the sale of substantially all of our on/off valves
business and our instruments business to repay a portion of our Tranche C term loan. In November 2005, we received net cash proceeds of $190.3 million from our on/off valves business, excluding the portion attributed to Brazil, and $24.7 million
from our instruments business. As a result, we have reclassified $215 million of our Tranche C term loan from long-term debt to current maturities of long-term debt in our balance sheet at September 30, 2005. In December 2005, we repaid $215 million
of our Tranche C term loan using these net cash proceeds. Also in December 2005, we made a subsequent optional prepayment of $20 million on our Tranche C term loan. We expect to write-off approximately $2 million in deferred financing fees
associated with the repayments of our Tranche C term loan in the fourth quarter of 2005. Net cash proceeds from the January 2006 sale of the Brazilian portion of our on/off business of $21.3 million are being used to repay outstanding short-term
debt in Brazil.



Throughout 2005, we entered into several
amendments and waivers to our credit agreement that, among other things, amended certain financial covenants under our senior secured credit facility and extended to February 15, 2006, our deadline for providing our senior lenders with audited
financial statements for the year ended December 31, 2004, and restated audited financial statements, to the extent that financial statements for earlier years were required to be restated in connection with the preparation of the 2004
financial statements. The amendments also waived any default or event of default relating in any respect to the re-audit, revision or restatement of any financial statement delivered to the lenders prior to February 15, 2006, including any
default or event of default relating in any respect to any errors contained in such financial statements.



In addition, we entered into several consents and waivers to our senior unsecured term loan agreement and extended to February 15, 2006, the deadline
for providing these lenders with audited financial statements for the year ended December 31, 2004 and extended to February 15, 2006, our deadline for providing these lenders with unaudited financial statements for the first, second and third
fiscal quarters of 2005. The consents also waived any default or event of default relating in any respect to the re-audit, revision or restatement of any financial statement delivered to the lenders under the credit agreement prior to
February 15, 2006, including any default or event of default relating in any respect to any errors contained in such financial statements.



Prior to the filing of this Form 10-Q with the SEC, we had not been timely in furnishing certain annual and quarterly financial information required to be
contained in our 2004 Form 10-K and our 2005 First, Second and Third Quarter Reports on Form 10-Q as required by Section 4.03(a) of the indenture governing our senior subordinated notes. In addition, because of the restatement of prior period
financial information described in our 2004 Form 10-K, certain of our prior SEC filings may be deemed not to have complied with Section 4.03(a). On December 6, 2005, we commenced a solicitation of consents from the holders of these notes and on
December 19, 2005, executed a supplemental indenture extending the financial statement delivery requirement to February 15, 2006, and waiving past defaults. With the filing of this Form 10-Q, and the subsequent filing of a Current Report on
Form 8-K to report certain pro forma financial information associated with the sale of our on/off valve business, we expect to satisfy the applicable requirements of Section 4.03(a) of the indenture on or prior to February 15, 2006.



14



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##### Table of Contents

DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



Note 8. Comprehensive Income (Loss)



The following table sets forth the components of comprehensive income (loss), net of income tax effects:



|                                                 |  |                                 |       |   |                                |   |      |      |  |   |                 |   |  |   |      |  
|------------------------------------------------ |  | ------------------------------- | ----- | - | ------------------------------ | - | ---- | ---- |  | - | --------------- | - |  | - | ---- | -
|                                                 |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |  
|                                                 |  | 2005                            |       |   | 2004 (Restated)                |   |      | 2005 |  |   | 2004 (Restated) |  
|                                                 |  | (in millions)                   |      
|                                                 |  |                                 |       |  
|Net income (loss)                                |  | $                               | (21.8 | ) |                                | $ | 2.6  |      |  | $ | (29.6           | ) |  | $ | 5.7  |  
|Other comprehensive (loss) income                |  |                                 |       |   |                                |   |      |      |  |   |                 |   |  |   |      |  
|Foreign currency translation adjustment          |  |                                 | 1.9   |   |                                |   | (0.5 | )    |  |   | (34.1           | ) |  |   | (5.8 | )
|Unrealized gain (loss) on derivative instruments |  |                                 | 0.8   |   |                                |   | 0.5  |      |  |   | (4.0            | ) |  |   | (3.4 | )
|                                                 |  |                                 |       |   |                                |   |      |      |  |   |                 |   |  |   |      |  
|Comprehensive income (loss)                      |  | $                               | (19.1 | ) |                                | $ | 2.6  |      |  | $ | (67.7           | ) |  | $ | (3.5 | )
|                                                 |  |                                 |       |   |                                |   |      |      |  |   |                 |   |  |   |      |  



Note 9. Commitments and
Contingencies



Halliburton Indemnifications



In accordance with the agreement relating to our recapitalization
transaction, Halliburton agreed to indemnify us 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 Dresser. In
addition, Halliburton has agreed to indemnify us 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 our businesses prior to the closing; and certain environmental liability claims
against us, to the extent that notice is given to Halliburton prior to April 2006. Halliburton had also agreed to indemnify us against 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, but such rights with respect to those claims expired in April 2004. 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 recapitalization agreement, other than those described above, there is an aggregate $15 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 us or the amount of tax benefit received by us. All indemnification claims are subject to notice and
procedural requirements that may result in Halliburton denying indemnification claims for some losses.



Under the agreement relating to our recapitalization transaction, we agreed to indemnify Halliburton for all assumed obligations of the businesses as set
forth in the recapitalization agreement. This includes certain environmental matters including those arising out of acts by us which take place after the closing. We have the same aggregate indemnity deductible and maximum indemnity obligation as
set forth above in the Halliburton indemnity, but do 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.



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DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



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. In December 2003, certain affiliates of Halliburton filed a petition for relief under the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Western District of Pennsylvania. Those affiliates filed a plan
of reorganization that became effective on January 20, 2005, which requires asbestos plaintiffs with claims against us or Halliburton to look for relief exclusively to a trust established under the plan. The plan prevents us from asserting our right
to indemnification under the recapitalization agreement with Halliburton as it relates to asbestos claims based on events occurring prior to the closing of the recapitalization. However, this indemnification right is unnecessary because the plan
also prevents those asbestos plaintiffs from asserting claims against us.



We have not historically incurred, and in the future we do not believe that we will incur, any material liability as a result of the past use of asbestos in products manufactured by the businesses currently owned by
us or any predecessor entities of those businesses.



Environmental Matters



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. These environmental laws and regulations govern the generation, storage, transportation,
handling, disposal and emission of various regulated substances. These environmental laws also impose liability for personal injury or property damage related to releases of hazardous substances. Under environmental laws, permits are required for
operation of our businesses, and these permits are subject to renewal, modification and, in certain circumstances, revocation. We believe we are substantially in compliance with these laws and permitting requirements. Various and changing
environmental laws 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 our businesses and at facilities where our waste is or has
been disposed.



As a result, we spend money each year assessing
and remediating contaminated properties to avoid future liabilities, to comply with legal and regulatory requirements, to minimize pollution costs, or to respond to claims by third parties. Several such sites are currently being investigated and/or
remediated under applicable environmental law. While we do not expect that the costs for such activities will be, in the aggregate, material, and also believe that the Halliburton indemnity (discussed above) will provide coverage for many of these
costs, we have set aside reserves for these costs. However, in the event that we were to incur these costs ourselves, these reserves may not fully cover the costs of such investigation and/or remediation. Going forward, we expect to incur ongoing
capital and operating costs for investigation and remediation and to maintain compliance with currently applicable environmental laws and regulations; however, we do not expect those costs, in the aggregate, to be material.



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. Pursuant to the recapitalization agreement with Halliburton, 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 our businesses. The recapitalization agreement provides for certain
indemnification obligations of Halliburton for losses and liabilities that we incur



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##### Table of Contents

DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



arising out of, among others, such excluded liabilities. Those affiliates filed a plan of reorganization that became effective on January 20,
2005, which requires asbestos plaintiffs with claims against us or Halliburton to look for relief exclusively to a trust established under the plan. The plan prevents us from asserting our right to indemnification under the recapitalization
agreement with Halliburton as it relates to asbestos claims based on events occurring prior to the closing of the recapitalization. However, this indemnification right is unnecessary because the plan also prevents those asbestos plaintiffs from
asserting claims against us. See Halliburton Indemnifications.



We have not incurred, and do not believe that we will incur, any material liability as a result of the past use of asbestos in products manufactured by the businesses currently owned by us or any predecessor entities
of our businesses.



Export Controls and Economic Sanctions Under Applicable
Commerce and Treasury Department Regulations



In April
2004, we received allegations that the Dubai branch of one of our U.S. subsidiaries may have engaged in transactions involving the sale of control valves and related parts to Iraq without required authorization. Upon initial investigation, we found
transactions by the branch relating to Iraq, Iran and Sudan that appeared to have been undertaken without the required prior U.S. governmental authorizations. A short time after the Dubai branch investigation commenced, we expanded the investigation
to include other Dresser affiliates that since January 1999 may have engaged in transactions relating to U.S.-sanctioned countries (including those countries already mentioned, Libya (prior to April 2004), Cuba and Syria (since mid-May 2004)) to
determine whether there were any other violations of U.S. laws related to export controls and economic sanctions. The investigation was completed and voluntary disclosures to the U.S. Commerce and Treasury departments were made in late April 2005.
The investigation identified a significant number of sales by certain of our other foreign affiliates to sanctioned countries (in addition to the sales by the Dubai branch) that appear to have been performed without required U.S. government
authorization.



In response to the foregoing, we have
undertaken and are continuing to implement a comprehensive remedial program that is designed to prevent further unlawful transactions by our foreign subsidiaries and branches, and unlawful facilitations by U.S. persons of otherwise legal
transactions by our foreign subsidiaries, involving sanctioned countries. While our foreign subsidiaries may lawfully conduct business with sanctioned countries (other than Cuba), pursuant to a recently adopted company-wide policy they will no
longer be permitted to accept new business (other than such business as they are contractually obligated to undertake in compliance with U.S. laws) intended to or for Iran or Sudan. We have also adopted a requirement that the U.S. export/import
compliance and/or legal department conduct a review of all proposed transactions by our foreign subsidiaries relating to sanctioned countries to determine whether such sales are consistent with the new policy and in compliance with applicable U.S.
laws. In addition, we have issued further guidance and provided additional training to our employees concerning the application of U.S. foreign trade controls, and we have reorganized our management team that oversees compliance with these controls.
Primary responsibility for overseeing such compliance resides with a newly created corporate officer position titled Executive Vice President, Ethics and Compliance, which reports directly to the Chief Executive Officer and to the Audit Committee.
We have also established the position of Corporate Export/Import Compliance Director, reporting directly to the new Executive Vice President. At each business unit, there are separate compliance and export/import compliance functions, which have
dual reporting relationships to the business unit management and the corporate compliance organization. We have also taken appropriate disciplinary action against personnel who failed to meet their obligations under Company policy or otherwise
engaged in wrongful conduct.



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##### Table of Contents

DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



While our investigation has been completed and voluntary disclosure reports have been submitted to
the U.S. Commerce and Treasury departments, it remains unclear as to what extent the various activities reported to these government agencies violate U.S. export control and economic sanctions regulations and what penalties the government agencies
may seek to impose for conduct that is found to be unlawful. Accordingly, we are unable to determine at this time the extent of violations or the nature or size of the penalties to which we may be subject as a result of any unauthorized dealings
with U.S.-sanctioned countries. If we are found to be in violation of the applicable U.S. Commerce and Treasury department regulations restricting dealings with Iran, Sudan and Cuba (and in the past, Iraq and Libya), we could be subject to civil or
criminal penalties, including fines and/or suspension of the privilege to engage in export trading or to have our foreign affiliates receive U.S.-origin goods, software or technology.



We believe that a loss in connection with this matter is probable and currently estimate our minimum probable liability to
be approximately $0.8 million, which we recorded as a reserve in the fourth quarter of 2004. Given that the resolution of these issues is inherently uncertain at this time, we are not able to reasonably estimate the maximum amount or a meaningful
range of probable or reasonably likely liability that could result from an adverse resolution of this matter or any related private causes of action that may arise. Since the U.S. Commerce and Treasury departments could impose aggregate penalties in
excess of the reserve, and these amounts could be substantial, we cannot currently predict whether the ultimate resolution of this matter will have a material adverse effect on our business, including our ability to do business outside the United
States, or on our financial condition. In addition, our expenses related to the investigation and remedial actions have been and may continue to be substantial.



Other Contingencies



We are involved in various litigation, claims and administrative proceedings and product liability matters. Amounts recorded for identified contingent
liabilities are estimates, which are reviewed periodically and adjusted to reflect additional information when it becomes available. Subject to the uncertainties inherent in estimating future costs for contingent liabilities, we believe that the
liability which may result from these legal matters would not have a material adverse effect on our financial condition, results of operations, liquidity or cash flows.



Note 10. 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. Accrued warranties are included in accrued expenses in our balance sheet. The following reflects the activity of our warranty accrual:



|                                                        |  |                                 |      |   |                                |   |      |      |  |   |       |   |  |   |       |  
|------------------------------------------------------- |  | ------------------------------- | ---- | - | ------------------------------ | - | ---- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                        |  | Three Months EndedSeptember 30, |      |   | Nine Months EndedSeptember 30, |  
|                                                        |  | 2005                            |      |   | 2004                           |   |      | 2005 |  |   | 2004  |  
|                                                        |  | (in millions)                   |     
|Balance at the beginning of the period                  |  | $                               | 20.4 |   |                                | $ | 19.0 |      |  | $ | 21.5  |   |  | $ | 18.8  |  
|Accruals for warranties issued during the period        |  |                                 | 7.4  |   |                                |   | 7.2  |      |  |   | 15.0  |   |  |   | 13.3  |  
|Changes in accruals related to pre-existing warranties  |  |                                 | (0.3 | ) |                                |   | 0.2  |      |  |   | (0.7  | ) |  |   | 2.1   |  
|Settlements made (in cash or in kind) during the period |  |                                 | (5.8 | ) |                                |   | (7.5 | )    |  |   | (14.1 | ) |  |   | (15.3 | )
|                                                        |  |                                 |      |   |                                |   |      |      |  |   |       |   |  |   |       |  
|Balance at the end of the period                        |  | $                               | 21.7 |   |                                | $ | 18.9 |      |  | $ | 21.7  |   |  | $ | 18.9  |  
|                                                        |  |                                 |      |   |                                |   |      |      |  |   |       |   |  |   |       |  



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DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



Note 11. New Accounting Pronouncements Issued But Not Yet Adopted



There are several accounting standards and interpretations that have not yet
been adopted by us. Below is a discussion of significant standards that may impact us.



Inventory Costing. In November 2004, the FASB issued SFAS No. 151, Inventory Costsan Amendment of ARB No. 43, Chapter 4. This statement clarifies the accounting for idle facility expense,
freight, handling costs and wasted material to require these items to be expensed as current period charges, regardless of whether they meet the criterion of abnormal previously defined in Accounting Research Bulletin (ARB)
43. This statement also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement are effective for fiscal years beginning after
June 15, 2005. We will adopt this provisions of this standard on January 1, 2006, and have not yet determined the impact this pronouncement will have on our financial statements.



Accounting for Stock-Based Compensation. In December 2004, the FASB issued SFAS No. 123(R), Share Based
Payments, which establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. This standard requires a public entity to measure the cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of the award. This eliminates the exception to account for such awards using the intrinsic method previously allowable under APB Opinion No. 25. In March 2005, the Securities and Exchange
Commission released Staff Accounting Bulletin (SAB) 107, Share Based Payments, which expresses views of the Staff about the application of SFAS No. 123(R). SFAS No. 123(R) is effective for annual reporting periods beginning on or
after June 15, 2005. We adopted the fair value method of accounting for stock options under SFAS No. 123 on January 1, 2004, based on the modified prospective method as provided by SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure. We will apply the provisions of SFAS No. 123(R) on a prospective basis, and therefore do not expect the adoption of SFAS No. 123(R) to have a material impact on our financial statements. Further, we
do not anticipate any significant changes in our compensation strategy as a result of our adoption of SFAS No. 123(R).



Exchanges of Nonmonetary Assets. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, which eliminates the
exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 will be effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 did not have a material impact on our financial statements.



Accounting for Asset Retirement Obligations. In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, Accounting for Conditional
Asset Retirement Obligations. FIN No. 47 requires companies to record a liability for those asset retirement obligations in which the timing or amount of settlement of the obligation are uncertain. FIN No. 47 will require us to accrue a
liability when a range of scenarios indicate that the potential timing and settlement amounts of our conditional asset retirement obligations can be determined and disclose information regarding unrecognized conditional asset retirement obligations.
We will adopt the provisions of this standard in the fourth quarter of 2005 and have not yet determined the impact, if any, that this pronouncement will have on our financial statements.



Accounting Changes and Error Corrections. In June 2005, the FASB issued FASB No. 154, Accounting Changes and
Error Corrections, which requires the retrospective application of changes to accounting principles, changes in estimates, and reporting entities. SFAS No. 154 will be effective for accounting changes and corrections occurring in fiscal years
beginning after December 15, 2005. We will adopt the provisions of this



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DRESSER, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



standard in the first quarter of 2006 and we do not believe this standard will have a material impact on our financial statements.



Note 12. Income Taxes



Our provision for income taxes differs from the statutory U.S. federal income tax rate due to the distribution of pre-tax
income across geographical jurisdictions with different tax rates and the use of net operating losses in certain foreign jurisdictions for which a valuation allowance had been previously recorded. Additionally, we have provided a full valuation
allowance against our U.S. deferred tax assets, and therefore have not provided any tax expense or benefit related to our U.S. operations for the periods presented.



Note 13. Supplemental Guarantor Information



In connection with our senior subordinated notes due 2011, certain of 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, 2005, and December
31, 2004, the statements of operations for the three months and nine ended September 30, 2005 and 2004, and cash flows for the nine months ended September 30, 2005 and 2004. In the condensed consolidating financial statements, 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.



20



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DRESSER, INC.



CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2005

(in millions)

(unaudited)



|                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|---------------------------------------------------------- |  | ------ | ------- | - | -------------------- | - | --------------------------- |  | ------------ | ----- |  | ----------------- | -------- | - |  | - | ------- | -
|                                                           |  | Parent |         |   | SubsidiaryGuarantors |   | Non- Guarantor Subsidiaries |  | Eliminations |       |  | TotalConsolidated |         
|ASSETS                                                     |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|Current assets:                                            |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|Cash and cash equivalents                                  |  | $      | 35.7    |   |                      | $ |                            |  | $            | 46.4  |  | $                 |         |   |  | $ | 82.1    |  
|Accounts receivable, net                                   |  |        | 133.4   |   |                      |   |                            |  |              | 170.4 |  |                   |         |   |  |   | 303.8   |  
|Notes receivable                                           |  |        | 0.1     |   |                      |   |                            |  |              | 1.9   |  |                   |         |   |  |   | 2.0     |  
|Inventories                                                |  |        | 84.5    |   |                      |   |                            |  |              | 106.2 |  |                   |         |   |  |   | 190.7   |  
|Current assets from discontinued operations                |  |        | 89.8    |   |                      |   |                            |  |              | 196.3 |  |                   |         |   |  |   | 286.1   |  
|Other current assets                                       |  |        | 11.5    |   |                      |   |                            |  |              | 21.4  |  |                   |         |   |  |   | 32.9    |  
|                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|Total current assets                                       |  |        | 355.0   |   |                      |   |                            |  |              | 542.6 |  |                   |         |   |  |   | 897.6   |  
|Property, plant and equipment, net                         |  |        | 75.2    |   |                      |   |                            |  |              | 62.9  |  |                   |         |   |  |   | 138.1   |  
|Investments in and advances with consolidated subsidiaries |  |        | 526.6   |   |                      |   | 517.3                       |  |              |      |  |                   | (1,043.9 | ) |  |   |        |  
|Investments in unconsolidated subsidiaries                 |  |        |        |   |                      |   |                            |  |              | 8.0   |  |                   |          |   |  |   | 8.0     |  
|Goodwill                                                   |  |        | 70.2    |   |                      |   | 9.3                         |  |              | 181.7 |  |                   |         |   |  |   | 261.2   |  
|Long-term asset from discontinued operations               |  |        | 47.5    |   |                      |   |                            |  |              | 96.9  |  |                   |         |   |  |   | 144.4   |  
|Other assets                                               |  |        | 97.1    |   |                      |   |                            |  |              | 38.3  |  |                   |         |   |  |   | 135.4   |  
|                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|Total assets                                               |  | $      | 1,171.6 |   |                      | $ | 526.6                       |  | $            | 930.4 |  | $                 | (1,043.9 | ) |  | $ | 1,584.7 |  
|                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|LIABILITIES AND SHAREHOLDERS(DEFICIT) EQUITY              |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|Current liabilities:                                       |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|Accounts payable                                           |  | $      | 68.3    |   |                      | $ |                            |  | $            | 99.9  |  | $                 |         |   |  | $ | 168.2   |  
|Notes payable                                              |  |        | 1.3     |   |                      |   |                            |  |              | 25.6  |  |                   |         |   |  |   | 26.9    |  
|Current maturities of long-term debt                       |  |        | 215.7   |   |                      |   |                            |  |              | 0.8   |  |                   |         |   |  |   | 216.5   |  
|Accrued payroll and other compensation                     |  |        | 30.2    |   |                      |   |                            |  |              | 25.4  |  |                   |         |   |  |   | 55.6    |  
|Deferred revenue                                           |  |        | 8.6     |   |                      |   |                            |  |              | 5.8   |  |                   |         |   |  |   | 14.4    |  
|Accrued expenses                                           |  |        | 54.4    |   |                      |   |                            |  |              | 66.3  |  |                   |         |   |  |   | 120.7   |  
|Current liabilities from discontinued operations           |  |        | 22.2    |   |                      |   |                            |  |              | 131.6 |  |                   |         |   |  |   | 153.8   |  
|                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|Total current liabilities                                  |  |        | 400.7   |   |                      |   |                            |  |              | 355.4 |  |                   |         |   |  |   | 756.1   |  
|                                                           |  |        |         |   |                     
|Pension and other retiree benefits obligations             |  |        | 285.2   |   |                      |   |                            |  |              | 37.1  |  |                   |         |   |  |   | 322.3   |  
|Long-term debt, net of current maturities                  |  |        | 843.8   |   |                      |   |                            |  |              | 1.0   |  |                   |         |   |  |   | 844.8   |  
|Long-term liabilities from discontinued operations         |  |        | 0.1     |   |                      |   |                            |  |              | 13.3  |  |                   |         |   |  |   | 13.4    |  
|Other liabilities                                          |  |        | 25.2    |   |                      |   |                            |  |              | 2.8   |  |                   |         |   |  |   | 28.0    |  
|                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|Total liabilities                                          |  |        | 1,555.0 |   |                      |   |                            |  |              | 409.6 |  |                   |         |   |  |   | 1,964.6 |  
|                                                           |  |        |         |   |                     
|Commitments and contingencies                              |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|Minority interest                                          |  |        |        |   |                      |   |                            |  |              | 3.5   |  |                   |         |   |  |   | 3.5     |  
|Mandatorily redeemable common stock of Dresser, Ltd.       |  |        | 11.5    |   |                      |   |                            |  |              |      |  |                   |         |   |  |   | 11.5    |  
|                                                           |  |        |         |   |                     
|Shareholders (deficit) equity:                            |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|Total shareholders (deficit) equity                       |  |        | (394.9  | ) |                      |   | 526.6                       |  |              | 517.3 |  |                   | (1,043.9 | ) |  |   | (394.9  | )
|                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  
|Total liabilities and shareholders (deficit) equity       |  | $      | 1,171.6 |   |                      | $ | 526.6                       |  | $            | 930.4 |  | $                 | (1,043.9 | ) |  | $ | 1,584.7 |  
|                                                           |  |        |         |   |                      |   |                             |  |              |       |  |                   |          |   |  |   |         |  



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DRESSER, INC.



CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2004  Restated

(in millions)

(unaudited)



|                                                          |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|--------------------------------------------------------- |  | ------ | ------- | - | -------------------- | - | --------------------------- |  | ------------ | ------- |  | ----------------- | -------- | - |  | - | ------- | -
|                                                          |  | Parent |         |   | SubsidiaryGuarantors |   | Non- Guarantor Subsidiaries |  | Eliminations |         |  | TotalConsolidated |         
|ASSETS                                                    |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|Current assets:                                           |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|Cash and cash equivalents                                 |  | $      | 24.2    |   |                      | $ |                            |  | $            | 65.4    |  | $                 |         |   |  | $ | 89.6    |  
|Accounts receivable, net                                  |  |        | 107.9   |   |                      |   |                            |  |              | 239.9   |  |                   |         |   |  |   | 347.8   |  
|Notes receivable                                          |  |        | 1.0     |   |                      |   |                            |  |              | 2.0     |  |                   |         |   |  |   | 3.0     |  
|Inventories                                               |  |        | 72.2    |   |                      |   |                            |  |              | 120.4   |  |                   |         |   |  |   | 192.6   |  
|Current assets from discontinued operations               |  |        | 70.6    |   |                      |   | 14.3                        |  |              | 152.8   |  |                   |         |   |  |   | 237.7   |  
|Other current assets                                      |  |        | 11.8    |   |                      |   |                            |  |              | 23.7    |  |                   |         |   |  |   | 35.5    |  
|                                                          |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|Total current assets                                      |  |        | 287.7   |   |                      |   | 14.3                        |  |              | 604.2   |  |                   |         |   |  |   | 906.2   |  
|                                                          |  |        |         |   |                     
|Property, plant and equipment, net                        |  |        | 94.9    |   |                      |   |                            |  |              | 72.3    |  |                   |         |   |  |   | 167.2   |  
|Investments in and advance with consolidated subsidiaries |  |        | 612.7   |   |                      |   | 581.6                       |  |              |        |  |                   | (1,194.3 | ) |  |   |        |  
|Investments in unconsolidated subsidiaries                |  |        |        |   |                      |   |                            |  |              | 8.3     |  |                   |         |   |  |   | 8.3     |  
|Goodwill                                                  |  |        | 70.2    |   |                      |   | 9.3                         |  |              | 199.9   |  |                   |         |   |  |   | 279.4   |  
|Long-term assets from discontinued operations             |  |        | 66.0    |   |                      |   | 7.9                         |  |              | 90.7    |  |                   |         |   |  |   | 164.6   |  
|Other assets                                              |  |        | 86.0    |   |                      |   | 0.4                         |  |              | 52.1    |  |                   |         |   |  |   | 138.5   |  
|                                                          |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|Total assets                                              |  | $      | 1,217.5 |   |                      | $ | 613.5                       |  | $            | 1,027.5 |  | $                 | (1,194.3 | ) |  | $ | 1,664.2 |  
|                                                          |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|LIABILITIES AND SHAREHOLDERS (DEFICIT) EQUITY            |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|Current liabilities:                                      |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|Accounts payable                                          |  | $      | 78.8    |   |                      | $ |                            |  | $            | 146.6   |  | $                 |         |   |  | $ | 225.4   |  
|Notes payable                                             |  |        |        |   |                      |   |                            |  |              | 10.7    |  |                   |         |   |  |   | 10.7    |  
|Current maturities of long-term debt                      |  |        | 2.0     |   |                      |   |                            |  |              | 1.0     |  |                   |         |   |  |   | 3.0     |  
|Accrued payroll and other compensation                    |  |        | 24.9    |   |                      |   | 0.1                         |  |              | 25.3    |  |                   |         |   |  |   | 50.3    |  
|Deferred revenue                                          |  |        | 4.9     |   |                      |   |                            |  |              | 10.7    |  |                   |         |   |  |   | 15.6    |  
|Accrued expenses                                          |  |        | 33.9    |   |                      |   | 0.1                         |  |              | 78.7    |  |                   |         |   |  |   | 112.7   |  
|Current liabilities from discontinued operations          |  |        | 21.1    |   |                      |   | 0.6                         |  |              | 106.2   |  |                   |         |   |  |   | 127.9   |  
|                                                          |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|Total current liabilities                                 |  |        | 165.6   |   |                      |   | 0.8                         |  |              | 379.2   |  |                   |         |   |  |   | 545.6   |  
|                                                          |  |        |         |   |                     
|Pension and other retiree benefits obligations            |  |        | 289.1   |   |                      |   |                            |  |              | 39.5    |  |                   |         |   |  |   | 328.6   |  
|Long-term debt, net of current maturities                 |  |        | 1,059.5 |   |                      |   |                            |  |              | 1.8     |  |                   |         |   |  |   | 1,061.3 |  
|Long-term liabilities from discontinued operations        |  |        |        |   |                      |   |                            |  |              | 16.5    |  |                   |         |   |  |   | 16.5    |  
|Other liabilities                                         |  |        | 23.0    |   |                      |   |                            |  |              | 6.0     |  |                   |         |   |  |   | 29.0    |  
|                                                          |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|Total liabilities                                         |  |        | 1,537.2 |   |                      |   | 0.8                         |  |              | 443.0   |  |                   |         |   |  |   | 1,981.0 |  
|                                                          |  |        |         |   |                     
|Commitments and contingencies                             |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|Minority interest                                         |  |        |        |   |                      |   |                            |  |              | 2.9     |  |                   |         |   |  |   | 2.9     |  
|Mandatorily redeemable common stock of Dresser, Ltd.      |  |        | 6.7     |   |                      |   |                            |  |              |        |  |                   |         |   |  |   | 6.7     |  
|                                                          |  |        |         |   |                     
|Shareholders (deficit) equity:                           |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|Total shareholders (deficit) equity                      |  |        | (326.4  | ) |                      |   | 612.7                       |  |              | 581.6   |  |                   | (1,194.3 | ) |  |   | (326.4  | )
|                                                          |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  
|Total liabilities and shareholders (deficit) equity      |  | $      | 1,217.5 |   |                      | $ | 613.5                       |  | $            | 1,027.5 |  | $                 | (1,194.3 | ) |  | $ | 1,664.2 |  
|                                                          |  |        |         |   |                      |   |                             |  |              |         |  |                   |          |   |  |   |         |  



22



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##### Table of Contents

DRESSER, INC.



CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2005

(in millions)

(unaudited)



|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|--------------------------------------------------------- |  | ------ | ----- | - | -------------------- | - | ---- | --------------------------- |  | - | ------------ | - |  | ----------------- | ----- | - |  | - | ----- | -
|                                                          |  | Parent |       |   | SubsidiaryGuarantors |   |      | Non- Guarantor Subsidiaries |  |   | Eliminations |   |  | TotalConsolidated |      
|Revenues                                                  |  | $      | 254.9 |   |                      | $ |     |                             |  | $ | 181.4        |   |  | $                 | (8.9  | ) |  | $ | 427.4 |  
|Cost of revenues                                          |  |        | 178.7 |   |                      |   |     |                             |  |   | 129.0        |   |  |                   | (8.9  | ) |  |   | 298.8 |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Gross profit                                              |  |        | 76.2  |   |                      |   |     |                             |  |   | 52.4         |   |  |                   |      |   |  |   | 128.6 |  
|Selling, engineering, administrative and general expenses |  |        | 63.7  |   |                      |   |     |                             |  |   | 26.2         |   |  |                   |      |   |  |   | 89.9  |  
|Impairment of assets                                      |  |        | 12.0  |   |                      |   |     |                             |  |   |             |   |  |                   |      |   |  |   | 12.0  |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Operating income                                          |  |        | 0.5   |   |                      |   |     |                             |  |   | 26.2         |   |  |                   |      |   |  |   | 26.7  |  
|Interest expense                                          |  |        | (22.2 | ) |                      |   |     |                             |  |   | (7.0         | ) |  |                   | 6.2   |   |  |   | (23.0 | )
|Interest income                                           |  |        | 6.3   |   |                      |   |     |                             |  |   |             |   |  |                   | (6.2  | ) |  |   | 0.1   |  
|Other income (expense), net                               |  |        | 0.7   |   |                      |   |     |                             |  |   | (0.2         | ) |  |                   |      |   |  |   | 0.5   |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Income (loss) before income taxes                         |  |        | (14.7 | ) |                      |   |     |                             |  |   | 19.0         |   |  |                   |      |   |  |   | 4.3   |  
|Provision for income taxes                                |  |        |      |   |                      |   |     |                             |  |   | (3.2         | ) |  |                   |      |   |  |   | (3.2  | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Income (loss) before equity interests                     |  |        | (14.7 | ) |                      |   |     |                             |  |   | 15.8         |   |  |                   |      |   |  |   | 1.1   |  
|Equity in earnings of unconsolidated subsidiaries         |  |        |      |   |                      |   |     |                             |  |   | 1.1          |   |  |                   |      |   |  |   | 1.1   |  
|Equity in earnings of consolidated subsidiaries           |  |        | 16.7  |   |                      |   | 16.7 |                             |  |   |             |   |  |                   | (33.4 | ) |  |   |      |  
|Minority owners share of consolidated subsidiaries       |  |        |      |   |                      |   |     |                             |  |   | (0.2         | ) |  |                   |      |   |  |   | (0.2  | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Net income (loss) from continuing operations              |  |        | 2.0   |   |                      |   | 16.7 |                             |  |   | 16.7         |   |  |                   | (33.4 | ) |  |   | 2.0   |  
|Net income (loss) from discontinued operations            |  |        | (23.8 | ) |                      |   | (5.2 | )                           |  |   | (5.2         | ) |  |                   | 10.4  |   |  |   | (23.8 | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Net income (loss)                                         |  | $      | (21.8 | ) |                      | $ | 11.5 |                             |  | $ | 11.5         |   |  | $                 | (23.0 | ) |  | $ | (21.8 | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  



23



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DRESSER, INC.



CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2004  Restated

(in
millions)

(unaudited)



|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|--------------------------------------------------------- |  | ------ | ----- | - | -------------------- | - | ---- | --------------------------- |  | - | ------------ | - |  | ----------------- | ----- | - |  | - | ----- | -
|                                                          |  | Parent |       |   | SubsidiaryGuarantors |   |      | Non- Guarantor Subsidiaries |  |   | Eliminations |   |  | TotalConsolidated |      
|Revenues                                                  |  | $      | 218.1 |   |                      | $ |     |                             |  | $ | 185.4        |   |  | $                 | (17.6 | ) |  | $ | 385.9 |  
|Cost of revenues                                          |  |        | 150.6 |   |                      |   |     |                             |  |   | 137.7        |   |  |                   | (17.6 | ) |  |   | 270.7 |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Gross profit                                              |  |        | 67.5  |   |                      |   |     |                             |  |   | 47.7         |   |  |                   |      |   |  |   | 115.2 |  
|Selling, engineering, administrative and general expenses |  |        | 61.4  |   |                      |   | (0.1 | )                           |  |   | 28.7         |   |  |                   |       |   |  |   | 90.0  |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Operating income                                          |  |        | 6.1   |   |                      |   | 0.1  |                             |  |   | 19.0         |   |  |                   |       |   |  |   | 25.2  |  
|Interest expense                                          |  |        | (20.0 | ) |                      |   |     |                             |  |   | (6.6         | ) |  |                   | 6.3   |   |  |   | (20.3 | )
|Interest income                                           |  |        | 6.3   |   |                      |   |     |                             |  |   | 0.6          |   |  |                   | (6.3  | ) |  |   | 0.6   |  
|Other income (expense), net                               |  |        | 0.5   |   |                      |   |     |                             |  |   | (0.6         | ) |  |                   |      |   |  |   | (0.1  | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Income (loss) before income taxes                         |  |        | (7.1  | ) |                      |   | 0.1  |                             |  |   | 12.4         |   |  |                   |      |   |  |   | 5.4   |  
|Provision for income taxes                                |  |        | (0.1  | ) |                      |   |     |                             |  |   | (3.6         | ) |  |                   |      |   |  |   | (3.7  | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Income (loss) before equity interests                     |  |        | (7.2  | ) |                      |   | 0.1  |                             |  |   | 8.8          |   |  |                   |      |   |  |   | 1.7   |  
|Equity in earnings of unconsolidated subsidiaries         |  |        |      |   |                      |   |     |                             |  |   | 0.7          |   |  |                   |      |   |  |   | 0.7   |  
|Equity in earnings of consolidated subsidiaries           |  |        | 9.4   |   |                      |   | 9.3  |                             |  |   |             |   |  |                   | (18.7 | ) |  |   |      |  
|Minority owners share of consolidated subsidiaries       |  |        |      |   |                      |   |     |                             |  |   | (0.2         | ) |  |                   |      |   |  |   | (0.2  | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Net income (loss) from continuing operations              |  |        | 2.2   |   |                      |   | 9.4  |                             |  |   | 9.3          |   |  |                   | (18.7 | ) |  |   | 2.2   |  
|Net income (loss) from discontinued operations            |  |        | 0.4   |   |                      |   | 5.2  |                             |  |   | 4.0          |   |  |                   | (9.2  | ) |  |   | 0.4   |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Net income (loss)                                         |  | $      | 2.6   |   |                      | $ | 14.6 |                             |  | $ | 13.3         |   |  | $                 | (27.9 | ) |  | $ | 2.6   |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |       |  



24



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DRESSER, INC.



CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2005

(in millions)

(unaudited)



|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|--------------------------------------------------------- |  | ------ | ----- | - | -------------------- | - | ---- | --------------------------- |  | - | ------------ | - |  | ----------------- | ----- | - |  | - | ------- | -
|                                                          |  | Parent |       |   | SubsidiaryGuarantors |   |      | Non- Guarantor Subsidiaries |  |   | Eliminations |   |  | TotalConsolidated |      
|Revenues                                                  |  | $      | 729.4 |   |                      | $ |     |                             |  | $ | 544.6        |   |  | $                 | (28.7 | ) |  | $ | 1,245.3 |  
|Cost of revenues                                          |  |        | 501.5 |   |                      |   |     |                             |  |   | 398.3        |   |  |                   | (28.7 | ) |  |   | 871.1   |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Gross profit                                              |  |        | 227.9 |   |                      |   |     |                             |  |   | 146.3        |   |  |                   |      |   |  |   | 374.2   |  
|Selling, engineering, administrative and general expenses |  |        | 190.9 |   |                      |   |     |                             |  |   | 96.1         |   |  |                   |      |   |  |   | 287.0   |  
|Impairment of assets                                      |  |        | 14.9  |   |                      |   |     |                             |  |   |             |   |  |                   |      |   |  |   | 14.9    |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Operating income                                          |  |        | 22.1  |   |                      |   |     |                             |  |   | 50.2         |   |  |                   |      |   |  |   | 72.3    |  
|Interest expense                                          |  |        | (64.6 | ) |                      |   |     |                             |  |   | (21.3        | ) |  |                   | 18.8  |   |  |   | (67.1   | )
|Interest income                                           |  |        | 18.9  |   |                      |   |     |                             |  |   | 0.8          |   |  |                   | (18.8 | ) |  |   | 0.9     |  
|Other income (expense), net                               |  |        | (1.1  | ) |                      |   |     |                             |  |   | 0.1          |   |  |                   |      |   |  |   | (1.0    | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Income (loss) before income taxes                         |  |        | (24.7 | ) |                      |   |     |                             |  |   | 29.8         |   |  |                   |      |   |  |   | 5.1     |  
|Provision for income taxes                                |  |        | (0.1  | ) |                      |   |     |                             |  |   | (7.4         | ) |  |                   |      |   |  |   | (7.5    | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Income (loss) before equity interests                     |  |        | (24.8 | ) |                      |   |     |                             |  |   | 22.4         |   |  |                   |      |   |  |   | (2.4    | )
|Equity in earnings of unconsolidated subsidiaries         |  |        |      |   |                      |   |     |                             |  |   | 3.1          |   |  |                   |      |   |  |   | 3.1     |  
|Equity in earnings of consolidated subsidiaries           |  |        | 24.9  |   |                      |   | 24.9 |                             |  |   |             |   |  |                   | (49.8 | ) |  |   |        |  
|Minority owners share of consolidated subsidiaries       |  |        |      |   |                      |   |     |                             |  |   | (0.6         | ) |  |                   |      |   |  |   | (0.6    | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Net income (loss) from continuing operations              |  |        | 0.1   |   |                      |   | 24.9 |                             |  |   | 24.9         |   |  |                   | (49.8 | ) |  |   | 0.1     |  
|Net income (loss) from discontinued operations            |  |        | (29.7 | ) |                      |   | (6.1 | )                           |  |   | (6.1         | ) |  |                   | 12.2  |   |  |   | (29.7   | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Net income (loss)                                         |  | $      | (29.6 | ) |                      | $ | 18.8 |                             |  | $ | 18.8         |   |  | $                 | (37.6 | ) |  | $ | (29.6   | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  



25



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##### Table of Contents

DRESSER, INC.



CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2004  Restated

(in
millions)

(unaudited)



|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|--------------------------------------------------------- |  | ------ | ----- | - | -------------------- | - | ---- | --------------------------- |  | - | ------------ | - |  | ----------------- | ----- | - |  | - | ------- | -
|                                                          |  | Parent |       |   | SubsidiaryGuarantors |   |      | Non- Guarantor Subsidiaries |  |   | Eliminations |   |  | TotalConsolidated |      
|Revenues                                                  |  | $      | 637.8 |   |                      | $ |     |                             |  | $ | 457.0        |   |  | $                 | (37.7 | ) |  | $ | 1,057.1 |  
|Cost of revenues                                          |  |        | 442.3 |   |                      |   |     |                             |  |   | 334.1        |   |  |                   | (37.7 | ) |  |   | 738.7   |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Gross profit                                              |  |        | 195.5 |   |                      |   |     |                             |  |   | 122.9        |   |  |                   |      |   |  |   | 318.4   |  
|Selling, engineering, administrative and general expenses |  |        | 154.3 |   |                      |   |     |                             |  |   | 86.6         |   |  |                   |      |   |  |   | 240.9   |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Operating income                                          |  |        | 41.2  |   |                      |   |     |                             |  |   | 36.3         |   |  |                   |      |   |  |   | 77.5    |  
|Interest expense                                          |  |        | (68.9 | ) |                      |   | (0.1 | )                           |  |   | (16.1        | ) |  |                   | 15.7  |   |  |   | (69.4   | )
|Interest income                                           |  |        | 16.2  |   |                      |   |     |                             |  |   | 1.0          |   |  |                   | (15.7 | ) |  |   | 1.5     |  
|Other income (expense), net                               |  |        | 0.4   |   |                      |   | (0.1 | )                           |  |   | (1.1         | ) |  |                   |      |   |  |   | (0.8    | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Income (loss) before income taxes                         |  |        | (11.1 | ) |                      |   | (0.2 | )                           |  |   | 20.1         |   |  |                   |      |   |  |   | 8.8     |  
|Provision for income taxes                                |  |        | (0.1  | ) |                      |   |     |                             |  |   | (5.4         | ) |  |                   |      |   |  |   | (5.5    | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Income (loss) before equity interests                     |  |        | (11.2 | ) |                      |   | (0.2 | )                           |  |   | 14.7         |   |  |                   |      |   |  |   | 3.3     |  
|Equity in earnings of unconsolidated subsidiaries         |  |        |      |   |                      |   |     |                             |  |   | 1.8          |   |  |                   |      |   |  |   | 1.8     |  
|Equity in earnings of consolidated subsidiaries           |  |        | 16.0  |   |                      |   | 16.2 |                             |  |   |             |   |  |                   | (32.2 | ) |  |   |        |  
|Minority owners share of consolidated subsidiaries       |  |        |      |   |                      |   |     |                             |  |   | (0.3         | ) |  |                   |      |   |  |   | (0.3    | )
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Net income (loss) from continuing operation               |  |        | 4.8   |   |                      |   | 16.0 |                             |  |   | 16.2         |   |  |                   | (32.2 | ) |  |   | 4.8     |  
|Net income (loss) from discontinued operation             |  |        | 0.9   |   |                      |   | 19.8 |                             |  |   | 17.9         |   |  |                   | (37.7 | ) |  |   | 0.9     |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  
|Net income (loss)                                         |  | $      | 5.7   |   |                      | $ | 35.8 |                             |  | $ | 34.1         |   |  | $                 | (69.9 | ) |  | $ | 5.7     |  
|                                                          |  |        |       |   |                      |   |      |                             |  |   |              |   |  |                   |       |   |  |   |         |  



26



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##### Table of Contents

DRESSER, INC.



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2005

(in millions)

(unaudited)



|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|------------------------------------------------------------------------------- |  | ------ | ------ | - | -------------------- | - | ----- | --------------------------- |  | - | ------------ | - |  | ----------------- | ----- | - |  | - | ----- | -
|                                                                                |  | Parent |        |   | SubsidiaryGuarantors |   |       | Non- Guarantor Subsidiaries |  |   | Eliminations |   |  | TotalConsolidated |      
|Cash flows from operating activities:                                           |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Net income (loss)                                                               |  | $      | (29.6  | ) |                      | $ | 18.8  |                             |  | $ | 18.8         |   |  | $                 | (37.6 | ) |  | $ | (29.6 | )
|Adjustments to reconcile net income to net cash from operating activities       |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Depreciation and amortization                                                   |  |        | 15.3   |   |                      |   |      |                             |  |   | 11.1         |   |  |                   |      |   |  |   | 26.4  |  
|Equity earnings of unconsolidated subsidiaries, adjusted for cash distributions |  |        |       |   |                      |   |      |                             |  |   | 0.2          |   |  |                   |      |   |  |   | 0.2   |  
|Equity earnings of consolidated subsidiaries                                    |  |        | (24.9  | ) |                      |   | (24.9 | )                           |  |   |             |   |  |                   | 49.8  |   |  |   |      |  
|Amortization of deferred financing fees, net of amortization of bond premium    |  |        | 3.7    |   |                      |   |      |                             |  |   |             |   |  |                   |      |   |  |   | 3.7   |  
|Impairment of assets                                                            |  |        | 14.9   |   |                      |   |      |                             |  |   |             |   |  |                   |      |   |  |   | 14.9  |  
|Other non-cash changes in income                                                |  |        | 4.9    |   |                      |   |      |                             |  |   | 1.2          |   |  |                   |      |   |  |   | 6.1   |  
|Changes in operating assets and liabilities                                     |  |        | (99.3  | ) |                      |   | (1.0  | )                           |  |   | 90.1         |   |  |                   |       |   |  |   | (10.2 | )
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Cash provided by continuing operations                                          |  |        | (115.0 | ) |                      |   | (7.1  | )                           |  |   | 121.4        |   |  |                   | 12.2  |   |  |   | 11.5  |  
|Cash provided by discontinued operations                                        |  |        | 30.0   |   |                      |   | 28.9  |                             |  |   | (46.7        | ) |  |                   | (12.2 | ) |  |   |      |  
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Net cash provided by (used in) operating activities                             |  |        | (85.0  | ) |                      |   | 21.8  |                             |  |   | 74.7         |   |  |                   |      |   |  |   | 11.5  |  
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Cash flows from investing activities:                                           |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Capital expenditures                                                            |  |        | (7.0   | ) |                      |   |      |                             |  |   | (8.5         | ) |  |                   |      |   |  |   | (15.5 | )
|Proceeds from sale of assets                                                    |  |        |       |   |                      |   |      |                             |  |   | 0.2          |   |  |                   |      |   |  |   | 0.2   |  
|Changes in restricted cash                                                      |  |        |       |   |                      |   |      |                             |  |   | (2.1         | ) |  |                   |      |   |  |   | (2.1  | )
|Discontinued operations                                                         |  |        | (1.2   | ) |                      |   |       |                             |  |   | (9.2         | ) |  |                   |       |   |  |   | (10.4 | )
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Net cash used in investing activities                                           |  |        | (8.2   | ) |                      |   |      |                             |  |   | (19.6        | ) |  |                   |      |   |  |   | (27.8 | )
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Cash flows from financing activities:                                           |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Advances from (to) affiliates:                                                  |  |        | 111.0  |   |                      |   | (21.8 | )                           |  |   | (89.2        | ) |  |                   |      |   |  |   |      |  
|Repayment of long-term debt (including current portion)                         |  |        | (1.5   | ) |                      |   |      |                             |  |   | (0.7         | ) |  |                   |      |   |  |   | (2.2  | )
|Net change in short-term notes payable                                          |  |        | 1.3    |   |                      |   |      |                             |  |   | 14.0         |   |  |                   |      |   |  |   | 15.3  |  
|Discontinued operations                                                         |  |        | (6.1   | ) |                      |   |      |                             |  |   | 5.9          |   |  |                   |      |   |  |   | (0.2  | )
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Net cash provided by (used in) financing activities                             |  |        | 104.7  |   |                      |   | (21.8 | )                           |  |   | (70.0        | ) |  |                   |      |   |  |   | 12.9  |  
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Effect of translation adjustments on cash                                       |  |        |       |   |                      |   |      |                             |  |   | (4.1         | ) |  |                   |      |   |  |   | (4.1  | )
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Net increase (decrease) in cash and cash equivalents                            |  |        | 11.5   |   |                      |   |      |                             |  |   | (19.0        | ) |  |                   |      |   |  |   | (7.5  | )
|Cash and cash equivalents, beginning of period                                  |  |        | 24.2   |   |                      |   |      |                             |  |   | 65.4         |   |  |                   |      |   |  |   | 89.6  |  
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  
|Cash and cash equivalents, end of period                                        |  | $      | 35.7   |   |                      | $ |      |                             |  | $ | 46.4         |   |  | $                 |      |   |  | $ | 82.1  |  
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |       |  



27



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##### Table of Contents

DRESSER, INC.



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2004  Restated

(in
millions)

(unaudited)



|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|------------------------------------------------------------------------------- |  | ------ | ------ | - | -------------------- | - | ----- | --------------------------- |  | - | ------------ | - |  | ----------------- | ----- | - |  | - | ------ | -
|                                                                                |  | Parent |        |   | SubsidiaryGuarantors |   |       | Non- Guarantor Subsidiaries |  |   | Eliminations |   |  | TotalConsolidated |      
|Cash flows from operating activities:                                           |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Net income (loss)                                                               |  | $      | 5.7    |   |                      | $ | 35.8  |                             |  | $ | 34.1         |   |  | $                 | (69.9 | ) |  | $ | 5.7    |  
|Adjustments to reconcile net income to net cash from operating activities       |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Depreciation and amortization                                                   |  |        | 18.7   |   |                      |   |      |                             |  |   | 7.3          |   |  |                   |      |   |  |   | 26.0   |  
|Equity earnings of unconsolidated subsidiaries, adjusted for cash distributions |  |        |       |   |                      |   |      |                             |  |   | (0.7         | ) |  |                   |      |   |  |   | (0.7   | )
|Equity earnings of consolidated subsidiaries                                    |  |        | (16.0  | ) |                      |   | (16.2 | )                           |  |   |             |   |  |                   | 32.2  |   |  |   |       |  
|Loss on repayment of debt                                                       |  |        | 11.5   |   |                      |   |      |                             |  |   |             |   |  |                   |      |   |  |   | 11.5   |  
|Amortization of deferred financing fees, net of amortization of bond premium    |  |        | 3.6    |   |                      |   |      |                             |  |   |             |   |  |                   |      |   |  |   | 3.6    |  
|Other non-cash changes in net income                                            |  |        | 2.0    |   |                      |   | 0.2   |                             |  |   | 3.6          |   |  |                   |      |   |  |   | 5.8    |  
|Changes in operating assets and liabilities                                     |  |        | (35.0  | ) |                      |   | (4.5  | )                           |  |   | (1.5         | ) |  |                   |      |   |  |   | (41.0  | )
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Cash (used in) provided by continuing operations                                |  |        | (9.5   | ) |                      |   | 15.3  |                             |  |   | 42.8         |   |  |                   | (37.7 | ) |  |   | 10.9   |  
|Cash (used in) provided by discontinued operations                              |  |        | (11.2  | ) |                      |   | (15.3 | )                           |  |   | 7.6          |   |  |                   | 37.7  |   |  |   | 18.8   |  
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Net cash (used in) provided by operating activities                             |  |        | (20.7  | ) |                      |   |      |                             |  |   | 50.4         |   |  |                   |      |   |  |   | 29.7   |  
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Cash flows from investing activities:                                           |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Acquisition of assets                                                           |  |        |       |   |                      |   |      |                             |  |   | (174.0       | ) |  |                   |      |   |  |   | (174.0 | )
|Capital expenditures                                                            |  |        | (21.2  | ) |                      |   |      |                             |  |   | (4.0         | ) |  |                   |      |   |  |   | (25.2  | )
|Proceeds from sale of assets                                                    |  |        | 1.9    |   |                      |   |      |                             |  |   | 2.3          |   |  |                   |      |   |  |   | 4.2    |  
|Changes in restricted cash                                                      |  |        |       |   |                      |   |      |                             |  |   | (1.6         | ) |  |                   |      |   |  |   | (1.6   | )
|Discontinued operations                                                         |  |        | (6.1   | ) |                      |   |      |                             |  |   | (5.2         | ) |  |                   |      |   |  |   | (11.3  | )
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Net cash used in investing activities                                           |  |        | (25.4  | ) |                      |   |      |                             |  |   | (182.5       | ) |  |                   |      |   |  |   | (207.9 | )
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Cash flows from financing activities:                                           |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Advances from (to) affiliates                                                   |  |        | (116.6 | ) |                      |   |      |                             |  |   | 116.6        |   |  |                   |      |   |  |   |       |  
|Proceeds from the issuance of long term debt                                    |  |        | 172.2  |   |                      |   |      |                             |  |   |             |   |  |                   |      |   |  |   | 172.2  |  
|Repayment of long-term debt (including current portion)                         |  |        | (45.0  | ) |                      |   |      |                             |  |   | (1.9         | ) |  |                   |      |   |  |   | (46.9  | )
|Net change in short-term notes payable                                          |  |        | (0.4   | ) |                      |   |      |                             |  |   | 6.3          |   |  |                   |      |   |  |   | 5.9    |  
|Purchase of shares, net of proceeds from escrow and exercise of stock options   |  |        | (1.9   | ) |                      |   |      |                             |  |   |             |   |  |                   |      |   |  |   | (1.9   | )
|Discontinued operations                                                         |  |        |       |   |                      |   |      |                             |  |   | 0.6          |   |  |                   |      |   |  |   | 0.6    |  
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Net cash provided by financing activities                                       |  |        | 8.3    |   |                      |   |      |                             |  |   | 121.6        |   |  |                   |      |   |  |   | 129.9  |  
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Effect of translation adjustments on cash                                       |  |        |       |   |                      |   |      |                             |  |   | (0.6         | ) |  |                   |      |   |  |   | (0.6   | )
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Net decrease in cash and cash equivalents                                       |  |        | (37.8  | ) |                      |   |      |                             |  |   | (11.1        | ) |  |                   |      |   |  |   | (48.9  | )
|Cash and cash equivalents, beginning of period                                  |  |        | 80.2   |   |                      |   |      |                             |  |   | 63.9         |   |  |                   |      |   |  |   | 144.1  |  
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  
|Cash and cash equivalent, end of period                                         |  | $      | 42.4   |   |                      |   |      |                             |  | $ | 52.8         |   |  | $                 |      |   |  | $ | 95.2   |  
|                                                                                |  |        |        |   |                      |   |       |                             |  |   |              |   |  |                   |       |   |  |   |        |  



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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 Section 21E of the Securities and
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words believe, expect, anticipate, intend, estimate, plan and other expressions,
that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. Although forward-looking statements reflect managements good faith beliefs, undue 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; the purchasing plans or decisions of our customers; 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.



Restatement of Historical Financial
Statements



As discussed in Note 1 of the Notes to
Condensed Consolidated Financial Statements, we have restated our historical financial statements and other financial information for errors identified in amounts we have previously reported. In light of the restatement, our previously filed
financial statements and other financial information for the years ended December 31, 2003, and prior, and for each of the first three quarters in 2004 should no longer be relied upon. All restated financial information is included in our
Annual Report on Form 10-K for the year ended December 31, 2004.



Management and our independent registered public accounting firm have identified six material weaknesses regarding elements of our internal control over financial reporting. Two of the six material weaknesses specifically relate to our
on/off valve business substantially all of which was sold in November 2005. As a result of these material weaknesses, our chief executive officer and chief financial officer concluded that, as of September 30, 2005, our disclosure controls and
procedures were not effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SECs rules and
forms.



To address the material weaknesses, we performed
additional analyses and other post-closing procedures to ensure that the consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements
included in this report fairly present in all material respects our financial position, results of operations and cash flows for the periods presented. See Item 4. Controls and Procedures for information concerning each of our six
material weaknesses.



Critical Accounting Policies and Estimates



Our discussion and analysis of our financial condition
and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 assets and liabilities. On an on-going basis, we evaluate our estimates, including our allowance for
uncollectible accounts, inventory valuation and obsolescence, long-lived tangible and intangible assets, income taxes, reserve for warranty obligations, pensions and other post-retirement benefits, and contingencies and litigation. We base



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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, 2004, 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 in conjunction with the preparation of this report and have determined that those critical policies remain and have not changed since December 31, 2004.



Outlook



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



There are several key indicators that drive our business. Over the long-term, demand for energy infrastructure and oilfield equipment is driven by
fluctuations in worldwide economic activity and energy consumption, which is a function of global population, industrial growth, the levels of energy consumption per capita and changes in energy usage patterns. 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, pipeline companies, power
generation companies and petrochemical processing plants, as well as our customers access to capital. Activity levels can vary substantially in different geographic regions throughout the world. For example, prior to 2004, U.S. markets were
relatively weak while international markets were relatively strong. The level of oil and gas prices affects all of these activities and is a significant factor in determining our primary customers level of cash flow. Our business is subject to
cyclicality, which has caused revenue and earnings to fluctuate in the past. Our customers perception of oil and gas prices in the near-to-long-term will impact our business, and as such, continued expectation of high prices would be expected
to correspond to strength in our business. See Certain Risk FactorsOur business is cyclical in nature and our business and operating results could be harmed during economic or industry downturns.



We believe that in order to maintain our competitiveness, we need to continue
to focus on 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 have
improved global procurement through increased coordination among our business units and increased outsourcing of non-core manufacturing functions.



Flow Control. Our control valve business has successfully expanded into new market segments, including steam conditioning, gas to liquids and
hydrocarbon upstream projects such as offshore platforms. In addition, the business has benefited from higher energy prices which are driving increased investment in oil production from non-traditional sources, such as Canadian tar sands and new
hydrocarbon processing methods including coal liquefication. Demand for infrastructure and industrial capacity, particularly for power generation, is strong in China, Korea and India. Aftermarket sales continue to represent a significant component
of control valve revenues. Most recently, aftermarket sales have benefited from increased oil production capacity in Russia and West Africa and from spending in North America, Western Europe, Japan and other mature markets where new project activity
is limited.



Our pressure relief product line is benefiting
from increased spending in the energy industry. In addition, the pressure relief product line is experiencing improved aftermarket demand in the United States in 2005 as compared to 2004 and a continuation of international demand relative to 2004.



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Our natural gas solutions business, which primarily addresses the natural gas utility market, began to
experience improved market conditions during 2004, which has continued in 2005 due to general economic expansion and the continued growth in the demand for natural gas.



Measurement Systems. The market for new equipment strengthened during 2004 across all customer segments especially in
North America, Asia and Latin America. During 2005, we have witnessed a leveling-off in demand in developed markets primarily because of a decline in spending on retail operations by major oil companies. However, this leveling off in demand from
major oil companies has been offset by stronger independent fuel marketers and high volume retailers, especially in North America, as they implement aggressive building and upgrade programs. Our European operations have experienced a reduction in
business primarily because of the loss of some low-margin service contracts. However, elsewhere internationally, we are experiencing increased market activity from the national oil companies in Latin America, Eastern Europe and Asia, and we have
been successful in a number of recent tenders. We expect dispenser sales to grow in the future as customers move to replace and upgrade the oldest portion of their installed base to reduce contract maintenance costs and add new technology features.



Compression and Power Systems. During 2004, gas
compression-related engine sales and parts sales began to recover from relatively low levels in 2003, and U.S. activity has continued to strengthen in 2005. We have experienced strong Canadian activity since 2004, and we expect this demand to
continue through 2006. Engine sales into power generation applications remain relatively strong, although competition based upon price and engine efficiency remains intense. The domestic power generation market has remained flat in 2005 while
international markets for engines and parts are relatively strong, especially in Pakistan, Bangladesh and South America. Because of the high demand and long product delivery lead times that we believe are currently common across the industry, we are
making investments in our business to shorten our delivery schedules.



Our blower and compressor business is being driven by increased demand in the environmental and primary metals market. Governmental regulation in both the water and clean air segments is driving demand for our products for wastewater
treatment and flue gas desulphurization. High purity steel demand is driving the need for increased global capacity in direct reduced iron. The process to produce this product utilizes our large rotary lobe and centrifugal blowers.



Discontinued Operations.



During the third quarter of 2005, we agreed to sell our worldwide on/off
valves and instruments businesses. Our results for all periods presented reflect these businesses as discontinued operations.



On/Off Valve Business



In November 2005, we completed the sale of substantially all of our worldwide on/off valve business to Cooper Cameron Corporation, with the remaining
portion of the sale, the Brazilian operation, completed in January 2006. The total purchase price was approximately $223.8 million in cash, subject to post-closing adjustments. In connection with the sale, Cooper Cameron assumed certain liabilities
which include ordinary course customer/vendor contracts, leases and other commercial agreements; specified agency/distributor agreements; working capital liabilities, including payables and accrued payroll; specified severance, change of control and
employment agreements; product warranty/product liability for products shipped post-closing, as well as product warranty/product liability for products shipped pre-closing, but only to the extent of warranty reserves; and liquidated damages on
shipped products to the extent of reserves, plus 50% of liquidated damages on backlog shipped within 180 days of the closing.



We retained all liabilities not specifically assumed, including litigation, environmental (whether known or unknown), debt, certain pension liabilities
and other benefit plans; product warranty/product liability for products shipped pre-closing in excess of warranty reserves; and liquidated damages on shipped products in excess of reserves, plus 50% of liquidated damages on backlog shipped within
180 days of the closing (net of unused reserves from shipped products).



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Instruments Business



Also in November 2005, we sold our instruments business to Ashcroft Holdings, Inc., an affiliate of KPS Special Situations
Fund II, L.P. (Ashcroft), for approximately $34.0 million in cash, subject to certain post-closing adjustments. Ashcroft assumed certain liabilities which include ordinary course contracts, leases, distributor and sales agent contracts,
and other commercial agreements; working capital liabilities, including payables and accrued payroll; termination or severance obligations that may be payable to certain distributors, sales agents and employees; and liabilities under the units
German pension plan.



We retained all liabilities not
specifically assumed, including certain known environmental liabilities, such as remediation obligations at our Stratford, Connecticut facility; certain pension and frozen retiree medical and life insurance liabilities; specified litigation; and
pre-closing product and export control liabilities.



Results of Operations



Three months ended September 30, 2005 compared to the three months
ended September 30, 2004



Consolidated



The following table presents selected financial information regarding
consolidated results for the three months ended September 30, 2005 and 2004, respectively.



|                                                          |  |                                   |       |   |             |       |   |                 |   |       |             |  |       |          |  |   |          |   |  |       |   
|--------------------------------------------------------- |  | --------------------------------- | ----- | - | ----------- | ----- | - | --------------- | - | ----- | ----------- |  | ----- | -------- |  | - | -------- | - |  | ----- | --
|                                                          |  | Three months ended September 30,  |      
|                                                          |  | 2005                              |       |   | % ofRevenue |       |   | 2004 (Restated) |   |       | % ofRevenue |  |       | $ Change |  |   | % Change |  
|                                                          |  | (in millions, except percentages) |      
|                                                          |  |                                   |       |   |             |      
|Revenue                                                   |  | $                                 | 427.4 |   |             | 100.0 | % |                 | $ | 385.9 |             |  | 100.0 | %        |  | $ | 41.5     |   |  | 10.8  | % 
|Cost of revenue                                           |  |                                   | 298.8 |   |             | 69.9  |   |                 |   | 270.7 |             |  | 70.1  |          |  |   | 28.1     |   |  | 10.4  |   
|                                                          |  |                                   |       |   |             |       |   |                 |   |       |             |  |       |          |  |   |          |   |  |       |   
|Gross profit                                              |  |                                   | 128.6 |   |             | 30.1  |   |                 |   | 115.2 |             |  | 29.9  |          |  |   | 13.4     |   |  | 11.6  |   
|Selling, engineering, administrative and general expenses |  |                                   | 89.9  |   |             | 21.0  |   |                 |   | 90.0  |             |  | 23.3  |          |  |   | (0.1     | ) |  |      |   
|Impairment of assets                                      |  |                                   | 12.0  |   |             | 2.8   |   |                 |   |      |             |  |      |          |  |   | 12.0     |   |  | N.M.  |   
|                                                          |  |                                   |       |   |             |       |   |                 |   |       |             |  |       |          |  |   |          |   |  |       |   
|Operating income                                          |  |                                   | 26.7  |   |             | 6.3   | % |                 |   | 25.2  |             |  | 6.6   | %        |  |   | 1.5      |   |  | 6.0   |   
|                                                          |  |                                   |       |   |             |       |   |                 |   |       |             |  |       |          |  |   |          |   |  |       |   
|Interest expense                                          |  |                                   | (23.0 | ) |             |       |   |                 |   | (20.3 | )           |  |       |          |  |   | (2.7     | ) |  | 13.3  |   
|Interest income                                           |  |                                   | 0.1   |   |             |       |   |                 |   | 0.6   |             |  |       |          |  |   | (0.5     | ) |  | (83.3 | ) 
|Other income (expense), net                               |  |                                   | 0.5   |   |             |       |   |                 |   | (0.1  | )           |  |       |          |  |   | 0.6      |   |  | N.M.  |   
|Provision for income tax                                  |  |                                   | (3.2  | ) |             |       |   |                 |   | (3.7  | )           |  |       |          |  |   | 0.5      |   |  | 13.5  |   
|Equity earnings of unconsolidated subsidiaries            |  |                                   | 1.1   |   |             |       |   |                 |   | 0.7   |             |  |       |          |  |   | 0.4      |   |  | 57.1  |   
|Minority owners share of consolidated subsidiaries       |  |                                   | (0.2  | ) |             |       |   |                 |   | (0.2  | )           |  |       |          |  |   |         |   |  |      |   
|Discontinued operations, net of income taxes              |  |                                   | (23.8 | ) |             |       |   |                 |   | 0.4   |             |  |       |          |  |   | (24.2    | ) |  | N.M.  |   
|                                                          |  |                                   |       |   |             |       |   |                 |   |       |             |  |       |          |  |   |          |   |  |       |   
|Net income                                                |  | $                                 | (21.8 | ) |             |       |   |                 | $ | 2.6   |             |  |       |          |  | $ | (24.4    | ) |  | N.M.  |   
|                                                          |  |                                   |       |   |             |       |   |                 |   |       |             |  |       |          |  |   |          |   |  |       |   
|Other items:                                              |  |                                   |       |   |             |       |   |                 |   |       |             |  |       |          |  |   |          |   |  |       |   
|Depreciation and amortization                             |  | $                                 | 7.5   |   |             |       |   |                 | $ | 9.5   |             |  |       |          |  | $ | (2.0     | ) |  | (21.1 | )%
|Bookings                                                  |  |                                   | 421.7 |   |             |       |   |                 |   | 431.1 |             |  |       |          |  |   | (9.4     | ) |  | (2.2  | ) 
|Backlog                                                   |  |                                   | 493.9 |   |             |       |   |                 |   | 434.0 |             |  |       |          |  |   | 59.9     |   |  | 13.8  |   



Revenues.
Revenue in our compression and power systems segment increased $33.7 million due to higher sales of natural gas engines and aftermarket parts resulting from a strong gas compression market. We also experienced higher sales of industrial blowers
resulting from strong demand in waste water treatment applications. Our flow control segment increased revenue $10.4 million primarily due to higher global demand across our product lines. In addition, we experienced the favorable effect of changes
in foreign currency



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exchange rates of $4.0 million. Revenue decreased in our measurement systems segment by $6.7 million primarily due to lower dispenser and system sales.



Gross Profit.Our flow control segment increased gross
profit by $4.9 million due to volume growth in all our product lines, partially offset by higher employee costs and manufacturing costs. The compression and power systems segment gross profit increased $16.3 million primarily due to higher demand
for natural gas engines and industrial blowers. In addition, changes in foreign currency exchange rates contributed $1.2 million to gross profit. Gross profit in our measurement systems segment decreased $5.3 million due to lower U.S. volumes and
unfavorable product mix in our European business. Our U.S. dispenser business was unfavorably impacted in the third quarter due to lower capital spending by major oil companies as a result of their focus on higher margin areas of their businesses
and hurricanes affecting their Gulf of Mexico refining operations. U.S. independent marketers also slowed their equipment expenditures in the third quarter due to the negative impact of high oil prices on their operating costs and cash flow. Gross
profit margins remained constant compared to 2004.



Selling,
Engineering, Administrative and General Expenses.Our flow control segment expenses remained relatively constant due to higher selling and general expenses associated with increased volumes, which were offset by reduced restructuring expenses in
2005. Our compression and power systems segment decreased $8.6 million primarily due to non-recurring engineering expenses associated with the 2004 acquisition of product technology, partially offset by higher selling expenses associated with
volume increases in 2005. Our measurement segment increased $2.8 million primarily due to engineering expenses associated with new product development. The effect of changes in foreign currency exchange rates was negligible in the third quarter of
2005.



Corporate and other expenses increased $18.9 million
primarily due to asset impairment charges of $12.0 million as a result of discontinuing our previously announced plans to implement an ERP system after a pilot installation at our U.S. retail fueling operation indicated that the intended benefits of
the system would not be realized in a timely manner and the cost to complete the implementation at our other locations would be significantly higher than originally expected. In addition, we incurred $1.0 million in severance expenses associated
with the discontinuance of our ERP system and $2.9 million in higher legal, accounting fees and consulting fees.



Interest Expense.Interest expense increased primarily due to higher average interest rates in 2005.



Provision for Income Taxes. Provision for income taxes from continuing
operations during the third quarter of 2005 was $0.5 million lower than 2004. The decrease was due to changes in the distribution of pretax income across geographical jurisdictions with different tax rates. Through 2005, we continued to provide a
full valuation allowance against our U.S. deferred tax assets and therefore, we have not provided any tax expense or benefit related to our U.S. operations during 2005 or 2004.



Discontinued Operations. For the three months ended September 30, 2005, loss from our discontinued operations was
$23.8 million compared to income of $0.4 million during 2004. Despite higher revenues of $23.4 million, our gross profit from discontinued operations was relatively flat year-over-year primarily due to declining performance in both our
instruments and on/off valve businesses. We experienced higher selling, engineering, administrative and general expenses of $4.6 million primarily due to higher selling expenses as compared to 2004. In addition, we recorded $22.7 million of pre-tax
impairment charges related to our instruments business during the third quarter of 2005. During the fourth quarter of 2005, we recognized a curtailment gain of $12.6 million due to the recognition of unamortized prior service costs associated with
retained other post retirement benefit plans upon completion of the sale of this business. The impairment charges were based on a comparison of the carrying value of these assets to their estimated fair value, less transaction costs.



Bookings and Backlog.Our measurement systems segment decreased
bookings $8.5 million due to lower capital spending associated with retail operations by major oil companies and independents. It decreased backlog



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$25.5 million due to improved lead time in the completion of open orders in the U.S. and lower demand in Europe. Our flow control segment increased bookings
$8.2 million and backlog $42.0 million due to improved market conditions generating stronger demand across all our product lines. The compression and power systems segment increased bookings $15.9 million and backlog $68.4 million due to strong
demand for natural gas engines and industrial blowers. Capacity constraints and recently announced price increases in our natural gas engines business contributed to higher customer order activity during the first half of 2005 as customers locked in
prices and production slots. Stronger demand in our industrial blowers business is primarily due to the placement of wastewater treatment centers in new urban developments and the refurbishment of existing treatment centers with energy efficient
equipment to reduce lifetime operating costs.



Flow Control



As a result of the sale of our on/off valves and instruments businesses
in November 2005, the results of these businesses are no longer reflected in our flow control segment. See Note 2. Discontinued Operations. The following table presents selected financial information regarding continuing operations
results for our flow control segment for the three months ended September 30, 2005 and 2004, respectively.



|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|--------------------------------------------------------- |  | --------------------------------- | ----- | ----------- | ----- | - | --------------- | - | ----------- |  | ----- | -------- |  | - | -------- | - |  | ----- | --
|                                                          |  | Three months ended September 30,  |      
|                                                          |  | 2005                              |       | % ofRevenue |       |   | 2004 (Restated) |   | % ofRevenue |  |       | $ Change |  |   | % Change |  
|                                                          |  | (in millions, except percentages) |      
|                                                          |  |                                   |       |             |       |  
|Revenue                                                   |  | $                                 | 158.6 |             | 100.0 | % |                 | $ | 148.2       |  | 100.0 |          |  | $ | 10.4     |   |  | 7.0   | % 
|Cost of revenue                                           |  |                                   | 103.4 |             | 65.2  |   |                 |   | 97.9        |  | 66.1  |          |  |   | 5.5      |   |  | 5.6   |   
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Gross profit                                              |  |                                   | 55.2  |             | 34.8  |   |                 |   | 50.3        |  | 33.9  |          |  |   | 4.9      |   |  | 9.7   |   
|Selling, engineering, administrative and general expenses |  |                                   | 34.2  |             | 21.6  |   |                 |   | 34.7        |  | 23.4  |          |  |   | (0.5     | ) |  | (1.4  | ) 
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Operating income                                          |  | $                                 | 21.0  |             | 13.2  | % |                 | $ | 15.6        |  | 10.5  | %        |  | $ | 5.4      |   |  | 34.6  | % 
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Other items:                                              |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Depreciation and amortization                             |  | $                                 | 1.9   |             |       |   |                 | $ | 2.5         |  |       |          |  | $ | (0.6     | ) |  | (24.0 | )%
|Bookings                                                  |  |                                   | 152.8 |             |       |   |                 |   | 144.6       |  |       |          |  |   | 8.2      |   |  | 5.7   |   
|Backlog                                                   |  |                                   | 222.2 |             |       |   |                 |   | 180.2       |  |       |          |  |   | 42.0     |   |  | 23.3  |   



Revenues.
Revenue in our control valves business increased $6.5 million primarily due to stronger demand in North America and Asia. Improved market conditions are a result of increased energy prices and higher spending related to upgrades, maintenance, and
environmental and safety projects. During the third quarter, control valves experienced slightly lower revenue from Europe due to the timing of project shipments. Our pressure relief business increased revenues $3.6 million primarily due to
continued strong demand in the global market. Our pressure relief business is experiencing high demand in the Asian market due to industrial growth and in the North American market due to recovering demand for energy related products. Our natural
gas solutions product line increased revenue by $1.9 million due to price improvements and overall higher sales volumes resulting from a strong natural gas market. The impact of changes in foreign exchanges rates was negligible during the third
quarter of 2005.



Gross Profit.Gross profit in
our natural gas solutions product line increased $1.3 million due to higher volume. Our pressure relief product line increased $1.4 million primarily due to volume growth which was partially offset by higher costs resulting from growth in
international projects which tend to experience lower margins. Our control valves product line increased $2.6 million due to higher volumes and improved variable costs attributed to cost savings initiatives, partially offset by slightly higher
manufacturing costs driven by inflationary increases. Gross profit as a percent of revenues was 34.8% in 2005 compared to 33.9% in 2004.



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##### Table of Contents

Selling, Engineering, Administrative and General Expenses.We experienced slightly higher selling
and general expenses associated with increased volumes which were offset by reduced restructuring expenses in 2005. Our 2005 expenses were higher by $1.8 million due to a gain recognized on the sale of property during 2004.



Bookings and Backlog.Bookings increased $8.2 million and backlog
increased $42.0 million compared to 2004. Bookings and backlog in our control valves product line were positively impacted by the improved market conditions discussed above. Our natural gas solutions and pressure relief product lines increased
bookings and backlog due to strong demand primarily in North America.



Measurement Systems



The following table
presents selected financial information regarding results for our measurement systems segment for the three months ended September 30, 2005 and 2004, respectively.



|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|--------------------------------------------------------- |  | --------------------------------- | ----- | ----------- | ----- | - | --------------- | - | ----------- |  | ----- | -------- |  | - | -------- | - |  | ----- | --
|                                                          |  | Three months ended September 30,  |      
|                                                          |  | 2005                              |       | % ofRevenue |       |   | 2004 (Restated) |   | % ofRevenue |  |       | $ Change |  |   | % Change |  
|                                                          |  | (in millions, except percentages) |      
|                                                          |  |                                   |       |             |       |  
|Revenue                                                   |  | $                                 | 159.8 |             | 100.0 | % |                 | $ | 162.5       |  | 100.0 | %        |  | $ | (2.7     | ) |  | (1.7  | )%
|Cost of revenue                                           |  |                                   | 117.0 |             | 73.2  |   |                 |   | 115.6       |  | 71.1  |          |  |   | 1.4      |   |  | 1.2   |   
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Gross profit                                              |  |                                   | 42.8  |             | 26.8  |   |                 |   | 46.9        |  | 28.9  |          |  |   | (4.1     | ) |  | (8.7  | ) 
|Selling, engineering, administrative and general expenses |  |                                   | 24.3  |             | 15.2  |   |                 |   | 21.5        |  | 13.2  |          |  |   | 2.8      |   |  | 13.0  |   
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Operating income                                          |  | $                                 | 18.5  |             | 11.6  | % |                 | $ | 25.4        |  | 15.6  | %        |  | $ | (6.9     | ) |  | (27.2 | )%
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Other items:                                              |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Depreciation and amortization                             |  | $                                 | 2.3   |             |       |   |                 | $ | 3.0         |  |       |          |  | $ | (0.7     | ) |  | (23.3 | )%
|Bookings                                                  |  |                                   | 154.9 |             |       |   |                 |   | 163.4       |  |       |          |  |   | (8.5     | ) |  | (5.2  | ) 
|Backlog                                                   |  |                                   | 105.5 |             |       |   |                 |   | 131.0       |  |       |          |  |   | (25.5    | ) |  | (19.5 | ) 



Revenues.Revenue decreased $6.7 million primarily due to lower U.S. dispenser and software/point-of-sale business. Our U.S. dispenser business was unfavorably impacted in the third quarter of 2005 due to lower capital spending by major oil companies and
independent fuel marketers as a result of their focus on higher margin areas of their businesses, hurricanes affecting their Gulf of Mexico refining operations and reduced cash flow due to the resulting high wholesale fuel prices. We expect
dispenser sales to recover in the future as customers move to replace and upgrade the oldest portion of their installed base to reduce contract maintenance costs and add new technology features. In 2004 and the first half of 2005, our
software/point-of-sale business benefited from the planned, staggered installations of equipment by two large customers. These installations were completed by mid-2005, reducing third quarter revenues from this portion of the business. Changes in
foreign currency exchange rates favorably impacted revenues by $4.0 million.



Gross Profit.Gross profit decreased $6.1 million primarily due to lower volume in the U.S. attributed to the factors described above and in the U.K. due to the loss of certain service contracts. Partially
offsetting the decrease were favorable changes in foreign currency exchange rates which contributed $1.2 million to gross profit. As a percentage of revenues, gross profit decreased to 26.8% in 2005 compared to 28.9 % in 2004. The decline in margin
was primarily due to a larger proportion of measurement systems revenue coming from the acquisition of the distribution business of Nuovo Pignone, which consistently generates lower margins than the rest of our measurement systems segment. We have
recently implemented various cost reduction strategies across the measurement systems segment to improve margin.



35



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##### Table of Contents

Selling, Engineering, Administrative and General Expenses.Selling, engineering, administrative
and general expenses increased primarily due to engineering expenses associated with new product development. The impact of changes in foreign currency exchange rates was negligible during the third quarter of 2005.



Bookings and Backlog.Bookings decreased $8.5 million primarily
due to lower capital spending associated with retail operations by major oil companies and independents for reasons discussed above. Backlog decreased $25.5 million due to improved lead time in the completion of open orders in the U.S. and lower
demand resulting from the factors discussed above.



Compression and Power
Systems



The following table presents selected financial
information regarding results for our compression and power systems segment for the three months ended September 30, 2005 and 2004, respectively.



|                                                          |  |                                   |       |              |       |   |                 |   |      |              |  |       |          |  |   |          |   |  |       |   
|--------------------------------------------------------- |  | --------------------------------- | ----- | ------------ | ----- | - | --------------- | - | ---- | ------------ |  | ----- | -------- |  | - | -------- | - |  | ----- | --
|                                                          |  | Three months ended September 30,  |      
|                                                          |  | 2005                              |       | % of Revenue |       |   | 2004 (Restated) |   |      | % of Revenue |  |       | $ Change |  |   | % Change |  
|                                                          |  | (in millions, except percentages) |      
|Revenue                                                   |  | $                                 | 109.5 |              | 100.0 | % |                 | $ | 75.8 |              |  | 100.0 | %        |  | $ | 33.7     |   |  | 44.5  | % 
|Cost of revenue                                           |  |                                   | 75.2  |              | 68.7  |   |                 |   | 57.8 |              |  | 76.3  |          |  |   | 17.4     |   |  | 30.1  |   
|                                                          |  |                                   |       |              |       |   |                 |   |      |              |  |       |          |  |   |          |   |  |       |   
|Gross profit                                              |  |                                   | 34.3  |              | 31.3  |   |                 |   | 18.0 |              |  | 23.7  |          |  |   | 16.3     |   |  | 90.6  |   
|Selling, engineering, administrative and general expenses |  |                                   | 14.4  |              | 13.2  |   |                 |   | 23.0 |              |  | 30.3  |          |  |   | (8.6     | ) |  | (37.4 | ) 
|                                                          |  |                                   |       |              |       |   |                 |   |      |              |  |       |          |  |   |          |   |  |       |   
|Operating income                                          |  | $                                 | 19.9  |              | 18.1  | % |                 | $ | (5.0 | )            |  | (6.6  | )%       |  | $ | 24.9     |   |  | N.M   |   
|                                                          |  |                                   |       |              |       |   |                 |   |      |              |  |       |          |  |   |          |   |  |       |   
|Other items:                                              |  |                                   |       |              |       |   |                 |   |      |              |  |       |          |  |   |          |   |  |       |   
|Depreciation and amortization                             |  | $                                 | 1.8   |              |       |   |                 | $ | 3.3  |              |  |       |          |  | $ | (1.5     | ) |  | (45.5 | )%
|Bookings                                                  |  |                                   | 113.9 |              |       |   |                 |   | 98.0 |              |  |       |          |  |   | 15.9     |   |  | 16.2  |   
|Backlog                                                   |  |                                   | 166.2 |              |       |   |                 |   | 97.8 |              |  |       |          |  |   | 68.4     |   |  | 69.9  |   



Revenues.Revenue increased $14.6 million due to higher sales of natural gas engines as a result of a strong gas compression market resulting from higher energy prices. More of our customers have placed engine capacity in service as energy prices
increased during 2005. We also experienced higher service parts sales of $7.7 million as compared to 2004. Our industrial blowers business increased revenue by $9.3 million primarily due to demand in the waste water treatment and primary metals
market as well as stronger demand in our domestic blowers market.



Gross Profit.Gross profit related to our natural gas engines business increased $10.6 million primarily due to higher sales and favorable product mix, partially offset by higher warranty costs and metal surcharge increases during
2005. Our industrial blowers business increased $3.9 million primarily due to higher demand in 2005. As a percentage of revenues, gross profit increased to 31.3% in 2005 compared to 23.7% in 2004.



Selling, Engineering, Administrative and General Expenses.Expenses
decreased primarily due to non-recurring engineering expenses in 2004 which included a $12.3 million acquisition of product technology. Partially offsetting the decrease was an increase in selling expenses of $2.4 million associated with higher
sales volume.



Bookings and Backlog.Bookings increased
$15.9 million and backlog increased $68.4 million due to higher demand for natural gas engines and industrial blowers. Capacity constraints and recently announced price increases in our natural gas engines business contributed to higher customer
order activity during the first half of 2005 as customers locked in prices and production slots. Stronger demand in our industrial blowers business is primarily due to the placement of wastewater treatment centers in new urban developments and the
refurbishment of existing treatment centers with energy efficient equipment to reduce lifetime operating costs.



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##### Table of Contents

Nine months ended September 30, 2005 compared to the nine months ended September 30, 2004



Consolidated



The following table presents selected financial information regarding consolidated results for the nine months ended
September 30, 2005 and 2004, respectively.



|                                                          |  |                                   |         |   |             |       |   |                 |   |         |             |  |       |          |  |   |          |   |  |       |  
|--------------------------------------------------------- |  | --------------------------------- | ------- | - | ----------- | ----- | - | --------------- | - | ------- | ----------- |  | ----- | -------- |  | - | -------- | - |  | ----- | -
|                                                          |  | Nine months ended September 30,   |        
|                                                          |  | 2005                              |         |   | % ofRevenue |       |   | 2004 (Restated) |   |         | % ofRevenue |  |       | $ Change |  |   | % Change |  
|                                                          |  | (in millions, except percentages) |        
|                                                          |  |                                   |         |   |             |      
|Revenue                                                   |  | $                                 | 1,245.3 |   |             | 100.0 | % |                 | $ | 1,057.1 |             |  | 100.0 | %        |  | $ | 188.2    |   |  | 17.8  | %
|Cost of revenue                                           |  |                                   | 871.1   |   |             | 69.9  |   |                 |   | 738.7   |             |  | 69.9  |          |  |   | 132.4    |   |  | 17.9  |  
|                                                          |  |                                   |         |   |             |       |   |                 |   |         |             |  |       |          |  |   |          |   |  |       |  
|Gross profit                                              |  |                                   | 374.2   |   |             | 30.1  |   |                 |   | 318.4   |             |  | 30.1  |          |  |   | 55.8     |   |  | 17.5  |  
|Selling, engineering, administrative and general expenses |  |                                   | 287.0   |   |             | 23.1  |   |                 |   | 240.9   |             |  | 22.8  |          |  |   | 46.1     |   |  | 19.1  |  
|Impairment of assets                                      |  |                                   | 14.9    |   |             | 1.2   |   |                 |   |        |             |  |      |          |  |   | 14.9     |   |  | N.M.  |  
|                                                          |  |                                   |         |   |             |       |   |                 |   |         |             |  |       |          |  |   |          |   |  |       |  
|Operating income                                          |  |                                   | 72.3    |   |             | 5.8   | % |                 |   | 77.5    |             |  | 7.3   | %        |  |   | (5.2     | ) |  | (6.7  | )
|Interest expense                                          |  |                                   | (67.1   | ) |             |       |   |                 |   | (69.4   | )           |  |       |          |  |   | 2.3      |   |  | 3.3   |  
|Interest income                                           |  |                                   | 0.9     |   |             |       |   |                 |   | 1.5     |             |  |       |          |  |   | (0.6     | ) |  | (40.0 | )
|Other income (expense), net                               |  |                                   | (1.0    | ) |             |       |   |                 |   | (0.8    | )           |  |       |          |  |   | (0.2     | ) |  | 25.0  |  
|Provision for income tax                                  |  |                                   | (7.5    | ) |             |       |   |                 |   | (5.5    | )           |  |       |          |  |   | (2.0     | ) |  | 36.4  |  
|Equity earnings of unconsolidated affiliates              |  |                                   | 3.1     |   |             |       |   |                 |   | 1.8     |             |  |       |          |  |   | 1.3      |   |  | 72.2  |  
|Minority owners share of consolidated subsidiaries       |  |                                   | (0.6    | ) |             |       |   |                 |   | (0.3    | )           |  |       |          |  |   | (0.3     | ) |  | 100.0 |  
|Discontinued operations, net of income taxes              |  |                                   | (29.7   | ) |             |       |   |                 |   | 0.9     |             |  |       |          |  |   | (30.6    | ) |  | N.M.  |  
|                                                          |  |                                   |         |   |             |       |   |                 |   |         |             |  |       |          |  |   |          |   |  |       |  
|Net income                                                |  | $                                 | (29.6   | ) |             |       |   |                 | $ | 5.7     |             |  |       |          |  | $ | (35.3    | ) |  | N.M.  | %
|                                                          |  |                                   |         |   |             |       |   |                 |   |         |             |  |       |          |  |   |          |   |  |       |  
|Other items:                                              |  |                                   |         |   |             |       |   |                 |   |         |             |  |       |          |  |   |          |   |  |       |  
|Depreciation and amortization                             |  | $                                 | 26.4    |   |             |       |   |                 | $ | 26.0    |             |  |       |          |  | $ | 0.4      |   |  | 1.5   | %
|Bookings                                                  |  |                                   | 1,312.1 |   |             |       |   |                 |   | 1,136.3 |             |  |       |          |  |   | 175.8    |   |  | 15.5  |  
|Backlog                                                   |  |                                   | 493.9   |   |             |       |   |                 |   | 434.0   |             |  |       |          |  |   | 59.9     |   |  | 13.8  |  



Revenues.
Revenue in our measurement systems segment increased $66.4 million primarily due to the acquisition of Nuovo Pignone distribution business in June 2004 and higher volumes associated with dispenser sales. Revenue in our compression and power systems
segment increased $67.4 million due to higher sales of natural gas engines and aftermarket parts resulting from a strong gas compression market as well as higher sales of industrial blowers resulting from strong demand in waste water treatment
applications. Our flow control segment increased revenue $33.7 million primarily due to higher global demand across our product lines. In addition, we experienced the favorable effect of changes in foreign currency exchange rates of $21.0 million.



Gross Profit.Our measurement systems segment increased
gross profit $11.0 million primarily due to the acquisition of the Nuovo Pignone distribution business. Our flow control segment increased $12.7 million due to volume growth in all our product lines, partially offset by higher employee and
manufacturing costs. The compression and power systems segment increased $29.7 million primarily due to higher sales and favorable mix of natural gas engines and increased demand for industrial blowers. In addition, changes in foreign currency
exchange rates contributed $6.1 million to gross profit. Gross profit margins remained constant compared to 2004.



Selling, Engineering, Administrative and General Expenses.Expenses in our measurement systems segment increased $19.0 million primarily due to the
acquisition of the Nuovo Pignone distribution business and higher expenses associated with an information systems implementation. Expenses in our flow control segment were relatively unchanged compared to 2004. Our compression and power systems
segment decreased $5.6 million



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##### Table of Contents

primarily due to non-recurring engineering expenses in 2004 which included a $12.3 million acquisition of product technology, partially offset by an increase
in selling expenses associated with higher sales volume in 2005. In addition, the unfavorable effect of changes in foreign currency exchange rates contributed $2.7 million to expenses.



Corporate and other expenses increased $44.8 million partially due to $12.0 million in asset impairment charges as a result
of discontinuing our previously announced plans to implement an ERP system after a pilot installation at our U.S. retail fueling operation indicated that the intended benefits of the system would not be realized in a timely manner and the cost to
complete the implementation at our other locations would be significantly higher than originally expected. We also wrote-off $2.9 million of capitalized expenses associated with our previously announced initial public offering as these costs are no
longer expected to provide value in any future initial public offering. Also contributing to the increase in corporate expenses were higher legal, accounting and consulting fees of $9.7 million associated with our export controls investigation and
the restatement of our prior period financial statements, $3.0 million of severance expenses associated with the departure of the President of our Flow Service division during the second quarter of 2005 and $6.5 million of deferred compensation
costs due to the increase in value of our underlying stock. In addition, we recorded a credit of $3.0 million in 2004 to recognize the effect of the retiree prescription drug benefit covered by Medicare under the Medicare Prescription Drug,
Improvement and Modernization Act of 2003.



Interest
Expense.Interest expense in 2005 decreased due to $11.5 million associated with the write-off of deferred financing fees during 2004, partially offset by higher average interest rates in 2005.



Provision for Income Taxes. Provision for income taxes from continuing
operations during the first nine months of 2005 was $2.0 million higher than 2004. The increase was due to changes in the distribution of pretax income across geographical jurisdictions with different tax rates. Through 2005, we continued to provide
a full valuation allowance against our U.S. deferred tax assets and therefore, we have not provided any tax expense or benefit related to our U.S. operations during 2005 or 2004.



Discontinued Operations.For the nine months ended September 30, 2005, the loss from our discontinued operations was
$29.7 million compared to income of $0.9 million during 2004. Despite higher revenues of $14.6 million, our gross profit from discontinued operations was relatively flat year-over-year primarily due to declining performance in both our
instruments and on/off value business. We experienced higher selling, engineering, administrative and general expenses of $13.5 million primarily due to severance costs associated with a reduction in workforce and higher selling expenses as compared
to 2004. In addition, we recorded $22.7 million of pre-tax impairment charges related to our instruments business during the third quarter of 2005. During the fourth quarter of 2005, we recognized a curtailment gain of $12.6 million due to the
recognition of unamortized prior service costs associated with retained other post retirement benefit plans upon completion of the sale of this business. The impairment charges were based on a comparison of the carrying value of these assets to
their estimated fair value, less transaction costs.



Bookings and Backlog.Our measurement systems segment increased bookings $59.0 million due to the acquisition of the Nuovo Pignone distribution business and higher U.S. dispenser sales. It decreased backlog $25.5 million due to
improved lead time in the completion of open orders in the U.S. and lower demand in Europe. Our flow control segment increased bookings $35.7 million and backlog $42.0 million due to improved market conditions generating stronger demand across all
our product lines. The compression and power systems segment increased bookings $106.1 million and backlog $68.4 million due to strong demand for natural gas engines and industrial blowers. Capacity constraints and recently announced price increases
in our natural gas engines business contributed to higher customer order activity during the first half of 2005 as customers locked in prices and production slots. Stronger demand in our industrial blowers business is primarily due to the placement
of wastewater treatment centers in new urban developments and the refurbishment of existing treatment centers with energy efficient equipment to reduce lifetime operating costs.



38



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##### Table of Contents

Flow Control



As a result of the sale of our on/off valves and instruments businesses in November 2005, the results of these businesses are no longer reflected in our
flow control segment. See Note 2. Discontinued Operations. The following table presents selected financial information regarding results for our flow control segment for the nine months ended September 30, 2005 and 2004, respectively.



|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|--------------------------------------------------------- |  | --------------------------------- | ----- | ----------- | ----- | - | --------------- | - | ----------- |  | ----- | -------- |  | - | -------- | - |  | ----- | --
|                                                          |  | Nine months ended September 30,   |      
|                                                          |  | 2005                              |       | % ofRevenue |       |   | 2004 (Restated) |   | % ofRevenue |  |       | $ Change |  |   | % Change |  
|                                                          |  | (in millions, except percentages) |      
|                                                          |  |                                   |       |             |       |  
|Revenue                                                   |  | $                                 | 477.2 |             | 100.0 | % |                 | $ | 435.0       |  | 100.0 | %        |  | $ | 42.2     |   |  | 9.7   | % 
|Cost of revenue                                           |  |                                   | 314.8 |             | 66.0  |   |                 |   | 288.0       |  | 66.2  |          |  |   | 26.8     |   |  | 9.3   |   
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Gross profit                                              |  |                                   | 162.4 |             | 34.0  |   |                 |   | 147.0       |  | 33.8  |          |  |   | 15.4     |   |  | 10.5  |   
|Selling, engineering, administrative and general expenses |  |                                   | 106.9 |             | 22.4  |   |                 |   | 105.5       |  | 24.3  |          |  |   | 1.4      |   |  | 1.3   |   
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Operating income                                          |  | $                                 | 55.5  |             | 11.6  | % |                 | $ | 41.5        |  | 9.5   | %        |  | $ | 14.0     |   |  | 33.7  | % 
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Other items:                                              |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Depreciation and amortization                             |  | $                                 | 5.7   |             |       |   |                 | $ | 7.6         |  |       |          |  | $ | (1.9     | ) |  | (25.0 | )%
|Bookings                                                  |  |                                   | 481.2 |             |       |   |                 |   | 445.5       |  |       |          |  |   | 35.7     |   |  | 8.0   |   
|Backlog                                                   |  |                                   | 222.2 |             |       |   |                 |   | 180.2       |  |       |          |  |   | 42.0     |   |  | 23.3  |   



Revenues.
Revenue in our control valves business increased $17.0 million due to stronger demand in North America, Europe and Asia. Improved market conditions are a result of increased energy prices and higher spending related to upgrades, maintenance, and
environmental and safety projects. Our pressure relief business increased $14.8 million due to continued strong demand in the global market, which resulted in increased booking. Our pressure relief business is experiencing high demand in the Asian
market due to industrial growth and in the North American market due to recovering demand for energy related products. Price improvements and overall higher sales volumes due to a strong natural gas market resulted in increased revenue for our
natural gas solutions product line of $7.2 million. In addition, favorable changes in foreign currency exchange rates contributed $8.5 million to the increase in revenues.



Gross Profit.Gross profit in our natural gas solutions product line increased $5.3 million primarily as a
result of higher volume and lower variable costs attributed to cost savings initiatives related to in-sourcing procurement. Gross profit in our control valves product line increased $5.0 million due to higher volumes. Our pressure relief product
line increased $4.1 million primarily due to volume growth which was partially offset by higher costs resulting from growth in international projects which tend to experience lower margins. In addition, changes in foreign currency exchange rates
increased gross profit by $2.7 million. Gross profit margins remained constant compared to 2004.



Selling, Engineering, Administrative and General Expenses.We experienced higher selling expenses of $2.3 million primarily due to commissions
associated with higher sales volumes. Our engineering and general expenses increased $1.9 million due to higher employee compensation and related costs. Our 2005 expenses were higher by $1.8 million due to a gain recognized on the sale of property
during 2004. In addition, changes in foreign currency exchange rates increased expenses by $1.3 million. Partially offsetting these increases to expense were lower restructuring charges in 2005 of $3.3 million.



Bookings and Backlog.Bookings increased $35.7 million and backlog
increased $42.0 million compared to 2004. Bookings and backlog in our control valves product line were positively impacted by the improved market conditions discussed above. Our natural gas solutions and pressure relief product lines increased
bookings and backlog due to strong demand primarily in North America.



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Measurement Systems



The following table presents selected financial information regarding results for our measurement systems segment for the nine months ended September 30,
2005 and 2004, respectively.



|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|--------------------------------------------------------- |  | --------------------------------- | ----- | ----------- | ----- | - | --------------- | - | ----------- |  | ----- | -------- |  | - | -------- | - |  | ----- | --
|                                                          |  | Nine months ended September 30,   |      
|                                                          |  | 2005                              |       | % ofRevenue |       |   | 2004 (Restated) |   | % ofRevenue |  |       | $ Change |  |   | % Change |  
|                                                          |  | (in millions, except percentages) |      
|                                                          |  |                                   |       |             |       |  
|Revenue                                                   |  | $                                 | 470.4 |             | 100.0 | % |                 | $ | 391.5       |  | 100.0 | %        |  | $ | 78.9     |   |  | 20.2  | % 
|Cost of revenue                                           |  |                                   | 343.9 |             | 73.1  |   |                 |   | 279.4       |  | 71.4  |          |  |   | 64.5     |   |  | 23.1  |   
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Gross profit                                              |  |                                   | 126.5 |             | 26.9  |   |                 |   | 112.1       |  | 28.6  |          |  |   | 14.4     |   |  | 12.8  |   
|Selling, engineering, administrative and general expenses |  |                                   | 76.4  |             | 16.2  |   |                 |   | 56.0        |  | 14.3  |          |  |   | 20.4     |   |  | 36.4  |   
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Operating income                                          |  | $                                 | 50.1  |             | 10.7  | % |                 | $ | 56.1        |  | 14.3  | %        |  | $ | (6.0     | ) |  | (10.7 | )%
|                                                          |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Other items:                                              |  |                                   |       |             |       |   |                 |   |             |  |       |          |  |   |          |   |  |       |   
|Depreciation and amortization                             |  | $                                 | 8.2   |             |       |   |                 | $ | 6.0         |  |       |          |  | $ | 2.2      |   |  | 36.7  | % 
|Bookings                                                  |  |                                   | 463.4 |             |       |   |                 |   | 404.4       |  |       |          |  |   | 59.0     |   |  | 14.6  |   
|Backlog                                                   |  |                                   | 105.5 |             |       |   |                 |   | 131.0       |  |       |          |  |   | (25.5    | ) |  | (19.5 | ) 



Revenues.The
increase in revenue was primarily due to the June 2004 acquisition of the distribution business of Nuovo Pignone which contributed $68.6 million in 2005. We also experienced higher U.S. dispenser sales of $4.2 million as a result of stronger sales
by third-party distributors compared to 2004. Our U.S. dispenser business was unfavorably impacted in the third quarter due to lower capital spending by major oil companies as a result of their focus on higher margin areas of their businesses and
hurricanes affecting their Gulf of Mexico refining operations. We expect dispenser sales to recover in the future as customers move to replace and upgrade the oldest portion of their installed base to reduce contract maintenance costs and add new
technology features. Partially offsetting the increase in revenue were lower sales in our European markets of $9.7 million, primarily attributable to the loss of low-margin service contracts. Our software/point-of-sale business was favorably
impacted by the completion of planned, staggered implementations during the latter part of 2004 and early 2005, which were completed by mid-2005. Changes in foreign currency exchange rates favorably impacted revenues by $12.5 million.



Gross Profit.Gross profit increased due to the acquisition of the
distribution business of Nuovo Pignone which contributed $13.6 million of additional gross profit during 2005. Changes in foreign currency exchange rates favorably impacted gross profit by $3.4 million. As a percentage of revenues, gross profit
decreased to 26.9% in 2005 compared to 28.6% in 2004. The decline in margin was primarily due to a larger proportion of measurement systems revenue coming from the acquired Nuovo Pignone distribution business, which consistently generates lower
margins than the rest of our measurement systems segment. We have recently implemented various cost reduction strategies across the measurement systems segment to improve margin.



Selling, Engineering, Administrative and General Expenses.The acquisition of the distribution business of Nuovo
Pignone contributed $12.6 million of additional expenses in 2005. We also incurred $2.8 million in expenses in 2005 related to an information systems implementation. Changes in foreign currency unfavorably impacted expenses by $1.4 million.



Bookings and Backlog.Bookings increased $59.0 million
primarily due to the acquisition of the distribution business of Nuovo Pignone and higher U.S. dispenser sales. Backlog decreased $25.5 million due to improved lead time in the completion of open orders in the U.S. and lower demand resulting from
the factors discussed above.



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Compression and Power Systems



The following table presents selected financial information regarding results for our compression and power systems segment
for the nine months ended September 30, 2005 and 2004, respectively.



|                                                          |  |                                   |       |              |       |   |                 |   |              |  |       |          |  |   |          |   |  |       |   
|--------------------------------------------------------- |  | --------------------------------- | ----- | ------------ | ----- | - | --------------- | - | ------------ |  | ----- | -------- |  | - | -------- | - |  | ----- | --
|                                                          |  | Nine months ended September 30,   |      
|                                                          |  | 2005                              |       | % of Revenue |       |   | 2004 (Restated) |   | % of Revenue |  |       | $ Change |  |   | % Change |  
|                                                          |  | (in millions, except percentages) |      
|Revenue                                                   |  | $                                 | 299.5 |              | 100.0 | % |                 | $ | 232.1        |  | 100.0 | %        |  | $ | 67.4     |   |  | 29.0  | % 
|Cost of revenue                                           |  |                                   | 210.4 |              | 70.3  |   |                 |   | 172.7        |  | 74.4  |          |  |   | 37.7     |   |  | 21.8  |   
|                                                          |  |                                   |       |              |       |   |                 |   |              |  |       |          |  |   |          |   |  |       |   
|Gross profit                                              |  |                                   | 89.1  |              | 29.7  |   |                 |   | 59.4         |  | 25.6  |          |  |   | 29.7     |   |  | 50.0  |   
|Selling, engineering, administrative and general expenses |  |                                   | 42.8  |              | 14.3  |   |                 |   | 48.4         |  | 20.9  |          |  |   | (5.6     | ) |  | (11.6 | ) 
|                                                          |  |                                   |       |              |       |   |                 |   |              |  |       |          |  |   |          |   |  |       |   
|Operating (loss) income                                   |  | $                                 | 46.3  |              | 15.4  | % |                 | $ | 11.0         |  | 4.7   | %        |  | $ | 35.3     |   |  | N.M.  |   
|                                                          |  |                                   |       |              |       |   |                 |   |              |  |       |          |  |   |          |   |  |       |   
|Other items:                                              |  |                                   |       |              |       |   |                 |   |              |  |       |          |  |   |          |   |  |       |   
|Depreciation and amortization                             |  | $                                 | 5.5   |              |       |   |                 | $ | 10.2         |  |       |          |  | $ | (4.7     | ) |  | (46.1 | )%
|Bookings                                                  |  |                                   | 367.5 |              |       |   |                 |   | 261.4        |  |       |          |  |   | 106.1    |   |  | 40.6  |   
|Backlog                                                   |  |                                   | 166.2 |              |       |   |                 |   | 97.8         |  |       |          |  |   | 68.4     |   |  | 69.9  |   



Revenues.Revenues increased $32.5 million due to higher sales of natural gas engines as a result of a strong gas compression market due to higher energy prices. More of our customers are placing engine capacity in service as energy prices have continued
to increase throughout 2005. We also experienced higher service parts sales of $14.3 million as compared to 2004. Our industrial blowers business increased revenue by $15.1 million primarily due to strong demand in the waste water treatment market.



Gross Profit.Gross profit related to our
natural gas engines business increased $17.4 million primarily due to higher sales and favorable product mix, partially offset by higher warranty reserves and metal surcharge increases during 2005. Our industrial blowers business increased $9.6
million primarily due to higher demand in 2005 and impairment charges taken in 2004 related to our Houston facility. As a percentage of revenues, gross profit increased to 29.6% in 2005 compared to 25.6% in 2004.



Selling, Engineering, Administrative and General Expenses.Selling
expenses increased $6.4 million due to higher sales volume of natural gas engines and industrial blowers. Administrative expenses benefited $1.1 million in 2005 primarily due to non-recurring executive retirements and other severance-related
expenses incurred in 2004. Engineering expenses were lower compared to 2004 which included a non-recurring $12.3 million acquisition of product technology. In addition, in 2005 we reversed $1.2 million of restructuring expenses recorded in 2003
because we determined we could not establish an appropriate outsourcing partner for the manufacture of certain of our blowers.



Bookings and Backlog.Bookings increased $106.1 million and backlog increased $68.4 million due to higher demand for natural gas engines and
industrial blowers. Capacity constraints and recently announced price increases in our natural gas engines business contributed to higher customer order activity during the first half of 2005 as customers locked in prices and production slots.
Stronger demand in our industrial blowers business is primarily due to the placement of wastewater treatment centers in new urban developments and the refurbishment of existing treatment centers with energy efficient equipment to reduce lifetime
operating costs.



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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 senior secured credit facility.



Cash and cash equivalents were $82.1 million and $95.2 million as of
September 30, 2005 and 2004, respectively. A significant portion of our cash and cash equivalents is utilized in our international operations and may not be immediately available to service debt in the United States. In addition, due to our
geographic diversity, our cash requirements tend to be higher than the requirements for similar, but less geographically diverse, companies.



Net cash flows provided by continuing operating activities were $11.5 million for the nine months ended September 30, 2005, compared to $10.9 million
for the same period in 2004. The year-over-year change in cash from continuing operations of $0.6 million resulted primarily from a smaller 2005 increase in working capital of $30.8 million and $14.9 million in non-cash impairment charges in 2005,
offset by a decrease in our net income of $35.3 million and the non-cash acceleration of deferred financing fees associated with debt in 2004 of $11.5 million. Changes in working capital were the result of a decrease in accounts receivable primarily
due to improved collections and an increase in other accrued expenses partially offset by an increase in accounts payable resulting from higher production levels.



We had no cash flows from operating activities for discontinued operations for the nine months ended September 30, 2005
compared to net cash flows provided by discontinued operations of $18.8 million for the same period in 2004. The year-over-year change resulted primarily from an increase in inventory of $33.8 due to higher bookings and backlog within our
discontinued businesses, partially offset by a 2005 asset impairment of $22.7 million within our instruments business.



Net cash flows used in investing activities were $27.8 million for the nine months ended September 30, 2005, primarily resulting from capital
expenditures from our continuing operations of $15.5 million. In 2004, cash used in investing activities was $207.9 million primarily due to the acquisition of the Nuovo Pignone distribution business in June 2004 for $174.0 million and capital
expenditures of $25.2 million. Our discontinued operations had capital expenditures of $8.6 million and $11.3 million for the nine months ended September 30, 2005 and 2004, respectively.



Net cash flows provided by financing activities were $12.9 million for the nine months ended September 30, 2005,
primarily resulting from changes in our short-term debt. The year-over-year change of $117.0 million resulted from the $175 million add-on to our Tranche C term loan in June 2004 and was partially offset by $45 million in prepayments of our
Tranche C term loan.



|                                                                                      |  |               |        
|------------------------------------------------------------------------------------- |  | ------------- | -------
|                                                                                      |  | (in millions)
|Total long-term debt, including current maturities outstanding at September 30, 2005: |  |               |        
|Tranche C term loan                                                                   |  | $             | 380.0  
|Senior unsecured term loan                                                            |  |               | 125.0  
|93/8%
senior subordinated notes                                                       |  |               | 550.0  
|Other debt                                                                            |  |               | 6.3    
|                                                                                      |  |               |        
|Total long-term debt, including current maturities                                    |  | $             | 1,061.3
|                                                                                      |  |               |        



In September 2005, we
committed to use net cash proceeds from the sale of substantially all of our on/off valves business and instruments business to repay a portion of our Tranche C term loan. In November 2005, we received net cash proceeds of $190.3 million from our
on/off valves business, excluding the portion attributed to Brazil, and $24.7 million from our instruments business. As a result, we have reclassified $215 million of our Tranche C term loan from long-term debt to current maturities of long-term
debt in our balance sheet at September 30, 2005. In December 2005, we repaid $215 million of our Tranche C term loan using these net cash



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proceeds. Also in December 2005, we made a subsequent optional prepayment of $20 million on our Tranche C term loan. Net cash proceeds from the January 2006
sale of the Brazilian portion of our on/off valve business are being used to repay short-term debt in Brazil.



Throughout 2005, we entered into several amendments and waivers to our credit agreement that, among other things, amended certain financial covenants
under our senior secured credit facility and extended to February 15, 2006, our deadline for providing our senior lenders with audited financial statements for the year ended December 31, 2004, and restated audited financial
statements, to the extent that financial statements for earlier years were required to be restated in connection with the preparation of the 2004 financial statements. The amendments also waived any default or event of default relating in any
respect to the re-audit, revision or restatement of any financial statement delivered to the lenders prior to February 15, 2006, including any default or event of default relating in any respect to any errors contained in such financial
statements.



In addition, we entered into several consents and
waivers to our senior unsecured term loan agreement and extended to February 15, 2006, the deadline for providing these lenders with audited financial statements for the year ended December 31, 2004 and extended to February 15, 2006, our
deadline for providing these lenders with unaudited financial statements for the first, second and third fiscal quarters of 2005. The consents also waived any default or event of default relating in any respect to the re-audit, revision or
restatement of any financial statement delivered to the lenders under the credit agreement prior to February 15, 2006, including any default or event of default relating in any respect to any errors contained in such financial statements.



Prior to the filing of this Form 10-Q with the SEC, we had not
been timely in furnishing certain annual and quarterly financial information required to be contained in our 2004 Form 10-K and our 2005 First, Second and Third Quarter Reports on Form 10-Q as required by Section 4.03(a) of the indenture governing
our senior subordinated notes. In addition, because of the restatement of prior period financial information described in our 2004 Form 10-K, certain of our prior SEC filings may be deemed not to have complied with Section 4.03(a). On
December 6, 2005, we commenced a solicitation of consents from holders of these notes and on December 19, 2005, executed a supplemental indenture extending the financial statement delivery requirement to February 15, 2006, and waiving
past defaults. With the filing of this Form 10-Q, and the subsequent filing of a Current Report on Form 8-K to report certain pro forma financial information associated with the sale of our on/off valve business, we expect to satisfy the
applicable requirements of Section 4.03(a) of the indenture on or prior to February 15, 2006.



We have a $100.0 million revolving credit facility, of which $35.4 million was available subject to certain conditions and $64.6 million was utilized for letters of credit as of September 30, 2005.



We believe cash flow from operating activities combined with availability
under our senior secured credit facility will be sufficient to enable us to meet our cash flow needs for the next twelve months.



Our long-term ability to make payments on and to refinance our indebtedness, including our existing credit facility, our senior unsecured term loan and
our senior subordinated notes, to achieve specified financial ratios required under our credit agreement, and to fund future acquisitions, planned capital expenditures and research and development efforts, will depend on our ability to generate cash
in the future. This cash generation ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. 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 revolving credit portion of
our senior secured credit facility will be adequate to meet our liquidity needs for at least the next twelve months. The revolving portion of our senior secured credit facility expires in April 2007 and we plan to refinance this portion prior to
expiration. There can be no assurance that we will be successful in our efforts to refinance this portion of the senior secured credit facility. We also cannot be assured, 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 or refinance our



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indebtedness, including our existing credit facility, our senior unsecured term loan or our senior subordinated notes, or to fund our acquisition strategy or
meet our other liquidity needs. If we are unable to achieve the financial ratios specified in our credit facility, we could 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, which could adversely impact our future earnings. We may need to refinance all or a portion of our indebtedness,
including our credit facility or senior subordinated notes on or before maturity.



We cannot be assured that we will be able to refinance any of our indebtedness, including our credit facility, our senior unsecured term loan and our senior subordinated notes, on commercially reasonable terms or at
all. See Certain Risk FactorsRestrictive covenants in our senior secured credit facility, the indenture governing our senior subordinated notes and our senior unsecured term loan may restrict our ability to pursue our business
strategies.



We may from time to time seek to retire our
outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our
liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. In addition, we may elect to issue additional shares to finance future acquisitions or to meet other liquidity needs. Any future equity
issuances will dilute the ownership interest in our company and may adversely impact earnings per share in future periods.



New Accounting Pronouncements Issued But Not Yet Adopted



There are several accounting standards and interpretations that have not yet been adopted by us. Below is a discussion of significant standards that may
impact us.



Inventory Costing. In November 2004, the
FASB issued SFAS 151, Inventory Costsan Amendment of ARB No. 43, Chapter 4. This statement clarifies the accounting for idle facility expense, freight, handling costs and wasted material to require these items to be expensed
as current period charges, regardless of whether they meet the criterion of abnormal previously defined in Accounting Research Bulletin (ARB) 43. This statement also requires that allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement are effective for fiscal years beginning after June 15, 2005. We will adopt the provisions of this standard on January 1, 2006,
and have not yet determined the impact this pronouncement will have on our financial statements.



Accounting for Stock-Based Compensation. In December 2004, the FASB issued SFAS no. 123(R), Share Based Payments, which establishes
standards for transactions in which an entity exchanges its equity instruments for goods or services. This standard requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on
the grant-date fair value of the award. This eliminates the exception to account for such awards using the intrinsic method previously allowable under APB Opinion No. 25. In March 2005, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) 107, Share Based Payments, which expresses views of the Staff about the application of SFAS No. 123(R). SFAS No. 123(R) is effective for annual reporting periods beginning on or after June 15, 2005. We adopted
the fair value method of accounting for stock options under SFAS No. 123 on January 1, 2004, based on the modified prospective method as provided by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. We
will apply the provisions of SFAS No. 123(R) on a prospective basis, and therefore do not expect the adoption of SFAS No. 123(R) to have a material impact on our financial statements. Further, we do not anticipate any significant changes in our
compensation strategy as a result of our adoption of SFAS No. 123(R).



Exchanges of Nonmonetary Assets. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, which eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with
a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 will be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 did
not have a material impact on our financial statements.



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Accounting for Asset Retirement Obligations. In March 2005, the FASB issued FASB Interpretation
(FIN) No. 47, Accounting for Conditional Asset Retirement Obligations. FIN No. 47 requires companies to record a liability for those asset retirement obligations in which the timing or amount of settlement of the obligation are
uncertain. FIN No. 47 will require us to accrue a liability when a range of scenarios indicate that the potential timing and settlement amounts of our conditional asset retirement obligations can be determined and disclose information regarding
unrecognized conditional asset retirement obligations. We will adopt the provisions of this standard in the fourth quarter of 2005 and have not yet determined the impact, if any, that this pronouncement will have on our financial statements.



Accounting Changes and Error Corrections. In June 2005,
the FASB issued FASB No. 154, Accounting Changes and Error Corrections, which requires the retrospective application of changes to accounting principles, changes in estimates, and reporting entities. SFAS No. 154 will be effective for
accounting changes and corrections occurring in fiscal years beginning after December 15, 2005. We will adopt the provisions of this standard in the first quarter of 2006 and we do not believe this standard will have a material impact on our
financial statements.



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. As a result of the sale of our on/off valves and instruments
businesses and their classification as discontinued operations in our financial statements, all financial information presented in these risk factors excludes the effect of our on/off valves and instruments businesses.



We have a history of net losses and we may not become profitable or sustain
profitability in the future.



Since 2001, we have had
a history of net losses. During the fiscal years 2004, 2003 and 2002, we reported significant net losses. For the nine months ended September 30, 2005, we reported net income from continuing operations of $0.1 million and at September 30,
2005, we had an accumulated stockholders deficit of $394.9 million. We cannot assure you that we will achieve profitability in the future. If we continue to incur net losses, our business, results of operations and financial condition
could be materially and adversely affected.



Our customers
businesses are cyclical in nature and our business and operating results could be harmed during economic or industry downturns.



The businesses of most of our customers, particularly oil, gas and engineering and construction companies, are, to varying degrees, cyclical and have
historically experienced periodic fluctuations. 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. These industry downturns have been characterized by diminished product demand, excess manufacturing capacity and subsequent accelerated erosion of average selling
prices. 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 operating results. For example, in 2001 and 2002 we
experienced the effects of a contracting global economy, which resulted in lower capital expenditures by our customers, which, in turn, adversely affected demand for and pricing of our products and services. In addition, because we only compete in
some segments of the energy infrastructure and oilfield equipment industries, a downturn in the specific segments we serve may affect us more severely than our competitors who compete in the industry as a whole.



Currently, oil and gas prices are high and our oil company customers are
experiencing increased profitability, resulting in a high level of demand for our products. The current level of oil and gas prices may not continue, and the results of any future industry downturns may have a material adverse effect on our
business, results of operations and financial condition.



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The loss of any of our large customers, or class of 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, 2005, our largest customer represented approximately 2.8% of our total revenues, and our top ten customers
collectively represented approximately 18.5% of our 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 greater percentage of our sales. We could also 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.



The recently completed
sale of our on/off valve business could impact our ability to maintain relationships with our current customers or attract new customers because our on/off valve product line gave us the ability to provide a comprehensive suite of valve products to
our customers.



We face intense competition in our industry. Increasing
competition and consolidation could require us to adjust the prices of our products, which could have a material adverse effect on our revenues, profitability and our ability to develop new and competitive products.



We encounter intense competition in all areas of our business. Some of our
competitors have greater financial and other resources than we do. 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. This focus includes our ongoing initiatives to increase manufacturing efficiencies, improve supply chain capabilities, reduce scrap and rework, consolidate raw material sources, increase global procurement and improve working
capital efficiency. We may have to adjust the prices of some of our products to stay competitive, which could have a material adverse effect on our revenues and profitability. We cannot assure you that we will have sufficient resources to continue
to make such investments, achieve our stated objectives or maintain our competitive position.



We have experienced material weaknesses in our internal controls. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results and our management
may not be able to provide its report on the effectiveness of our internal controls as required by the Sarbanes-Oxley Act of 2002.



Management and our independent registered public accounting firm have identified material weaknesses regarding elements of our internal control over
financial reporting. The Public Company Accounting Oversight Boards Auditing Standard No. 2 defines a material weakness as a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that
a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of these material weaknesses, our chief executive officer and chief financial officer concluded that, as of September 30, 2005, the
end of the period covered by this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in the reports we file or submit under the Securities and Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the SECs rules and forms.



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Overall six material weaknesses were identified and are described in detail in Item 4. Controls and
Procedures. We have taken and continue to take steps to correct these material weaknesses. 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, as well as audit committee oversight. We cannot be certain that these measures will ensure that we implement and maintain adequate
controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our
reporting obligations. In addition, we cannot assure you that we will not in the future identify further material weaknesses or significant deficiencies in our internal control over financial reporting that we have not discovered to date. Beginning
with the year ending December 31, 2007, under our current filing status, pursuant to Section 404 of the Sarbanes-Oxley Act, our management will be required to deliver a report that assesses the effectiveness of our internal control over financial
reporting, and we will be required to deliver an attestation report of our auditors on our managements assessment of and operating effectiveness of internal controls. Should we issue public equity prior to July 1, 2006 and otherwise satisfy
the definition of accelerated filer under applicable SEC rules, we will be required to be in compliance with Section 404 by December 31, 2006. We have substantial efforts ahead of us to complete documentation of our internal control
system and financial processes, design and assessment of our information systems, remediation of control deficiencies identified in these efforts and management testing of the design and operation of our internal controls. In addition, one of our
material weaknesses relates to our internal control over our financial organization, including inadequate accounting polices, procedures, training, experience, communication and oversight. As a result, we are not able to conclude that our internal
controls over financial accounting and reporting are effective, which could result in the inability of our external auditors to deliver an unqualified report, or any report, on our internal controls. Inferior internal controls could also cause
investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.



If we are found in violation of Commerce and Treasury Department regulations restricting dealings with sanctioned countries, we may be subject to civil or criminal
penalties, which may have a material adverse effect on our business or our ability to do business outside the United States.



In April 2004, we received allegations that the Dubai branch of one of our U.S. subsidiaries may have engaged in transactions involving the sale of
control valves and related parts to Iraq without required authorization. Upon initial investigation, we found transactions by the branch relating to Iraq, Iran and Sudan that appeared to have been undertaken without the required prior U.S.
governmental authorizations. A short time after the Dubai branch investigation commenced, we expanded the investigation to include other Dresser affiliates that since January 1999 may have engaged in transactions relating to U.S.-sanctioned
countries (including those countries already mentioned, Libya (prior to April 2004), Cuba and Syria (since mid-May 2004)) to determine whether there were any other violations of U.S. laws related to export controls and economic sanctions. The
investigation was completed and voluntary disclosures to the U.S. Commerce and Treasury departments were made in late April 2005. The investigation identified a significant number of sales by certain of our foreign affiliates to sanctioned countries
(in addition to the sales by the Dubai branch) that appear to have been performed without required U.S. government authorization.



In response to the foregoing, we have undertaken and are continuing to implement a comprehensive remedial program that is designed to prevent further
unlawful transactions by our foreign subsidiaries and branches, and unlawful facilitations by U.S. persons of otherwise legal transactions by our foreign subsidiaries, involving sanctioned countries. While our foreign subsidiaries may lawfully
conduct business with sanctioned countries (other than Cuba), pursuant to a recently adopted company-wide policy they will no longer be permitted to accept new business (other than such business as they are contractually obligated to undertake in
compliance with U.S. laws) intended to or for Iran or Sudan. We have also adopted a requirement that the U.S. export/import compliance and/or legal department conduct a review of all proposed transactions by our foreign subsidiaries relating to
sanctioned countries to determine whether such sales are consistent with the new policy and in compliance with applicable U.S. laws. In addition, we have issued further guidance and provided



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additional training to our employees concerning the application of U.S. foreign trade controls, and we have reorganized our management team that oversees
compliance with these controls. Primary responsibility for overseeing such compliance resides with a newly created corporate officer position titled Executive Vice President, Ethics and Compliance, which reports directly to the Chief Executive
Officer and the Audit Committee. We have also established the position of Corporate Export/Import Compliance Director, reporting directly to the new Executive Vice President. At each business unit, there are separate compliance and export/import
compliance functions, which have dual reporting relationships to the business unit management and the corporate compliance organization. We have also taken appropriate disciplinary action against personnel who failed to meet their obligations under
company-wide policy or otherwise engaged in wrongful conduct.



While our investigation has been completed, and voluntary disclosure reports have been submitted to the Commerce and Treasury departments, it remains unclear as to what extent the various activities reported to these government agencies
violate U.S. export control and economic sanctions regulations and what penalties the government agencies may seek to impose for conduct that is found to be unlawful. Accordingly, we are unable to determine at this time the extent of violations or
the nature or size of the penalties to which we may be subject as a result of any unauthorized dealings with U.S.-sanctioned countries. If we are found to be in violation of the applicable Commerce and Treasury department regulations restricting
dealings with Iran, Sudan, and Cuba (and in the past, Iraq and Libya), we could be subject to civil or criminal penalties, including fines and/or suspension of the privilege to engage in export trading or to have our foreign affiliates receive
U.S.-origin goods, software or technology.



We believe that a
loss in connection with this matter is probable and currently estimate our minimum probable liability to be approximately $0.8 million, which we recorded as a reserve in the fourth quarter of 2004. Given that the resolution of these issues is
inherently uncertain at this time, we are not able to reasonably estimate the maximum amount or a meaningful range of probable or reasonably likely liability that could result from an adverse resolution of this matter or any related private causes
of action that may arise. Since the Commerce and Treasury departments could impose aggregate penalties in excess of the reserve, and these amounts could be substantial, we cannot currently predict whether the ultimate resolution of this matter will
have a material adverse effect on our business, including our ability to do business outside the United States, or on our financial condition. In addition, our expenses related to the investigation and remedial actions have been and may continue to
be substantial.



The majority of our sales occur outside the United
States, and economic, political and other risks or negative events in the international markets where we have sales and operations could adversely affect our ability to transact business in these markets, which could adversely affect our business,
revenues and operating results.



Since we manufacture
and sell our products worldwide, our business is subject to risks associated with conducting business internationally. Our sales outside the United States for the nine months ended September 30, 2005 accounted for 62.0% of our total continuing
operations sales for that period. Since 2001, our sales outside the United States as a percentage of our total sales have increased, and we expect this percentage to continue to increase in the foreseeable future. Accordingly, significant negative
events affecting the markets where we operate, or other international markets, could jeopardize or limit our ability to transact business in the manner we expect, which could adversely affect our business, revenues and operating results. Some of
these factors include:



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



| |  |  | exchange controls or other currency restrictions;
| | - |  | -------------------------------------------------



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



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| |  |  | hyperinflation and adverse economic conditions stemming from governmental attempts to reduce inflation, or deflation;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | requirements relating to withholding taxes on remittances and other payments by non-U.S. 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 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. In 2004,
foreign currency appreciation (particularly the value of the Euro relative to the U.S. dollar) significantly increased our revenues and backlog. In the future, any foreign currency depreciation relative to the U.S. dollar would decrease our revenues
and backlog.



In addition to currency translation risks, we
incur currency transaction risks whenever we or one of our subsidiaries enter into a purchase or 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, particularly as a result of changes in the value of
the Euro. We expect that the percentage of our revenues denominated in non-U.S. 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.



We are subject to the Foreign Corrupt
Practices Act, or the FCPA, and our failure to comply with the laws and regulations thereunder could result in penalties which could harm our reputation and have a material adverse effect on our business, financial condition and results of
operations.



As a U.S. company, we are subject to the
FCPA, which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping



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business. Although we make every effort to comply with the FCPA and to ensure that our employees comply with the FCPA, we cannot assure you that such
precautions will protect us against liability under the FCPA, particularly as a result of actions taken in the past, or which may be taken in the future by our agents, employees and intermediaries for whom we may have exposure under the FCPA. If we
are not in compliance with such laws and regulations, we may be subject to criminal and civil penalties, which may cause harm to our reputation and to our brand names and could have an adverse effect on our business, financial condition and results
of operations.



Disruptions and uncertainties caused by war or terrorism,
particularly in the Middle East, could adversely affect our ability to transact business in the manner we expect, which could adversely affect our business, operating results and financial condition.



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 the economies of the
countries in which we do business and create further uncertainties. Because we operate in the Middle East and continue to have strong development activity there, deterioration of the political climate in the Middle East could directly impact our
facilities and could affect our sales, supply chain, production capability and ability to deliver our products and services to our customers. 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.



We may not be able to achieve all of our expected cost savings.



Our business plan anticipates cost savings. We may not be able to achieve all of our expected cost savings. A variety of risks could cause us not to
achieve the benefits of the expected cost savings, including, among others, the following:



| |  |  | higher than expected costs relating to facility consolidations;
| | - |  | ---------------------------------------------------------------



| |  |  | higher than expected severance costs related to headcount reductions;
| | - |  | ---------------------------------------------------------------------



| |  |  | delays in the anticipated timing of activities related to our cost-saving plan; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | other unexpected costs associated with operating our business.
| | - |  | --------------------------------------------------------------



If we are not able to apply new technology and software in our products or develop new products to meet our customers needs, 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. We may be unable to meet our
customers needs or their performance standards. Our products may not be marketed properly or satisfy the needs of the worldwide market in the future.



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, are growing increasingly sophisticated and expensive. Several of our competitors have significantly greater financial, technical and marketing resources
than we do, and have a lower debt burden. 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.



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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. Protecting our intellectual property can
be expensive and may not be cost effective.



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, which could have a material adverse effect on our business, results of operations and financial
condition.



The cost of compliance with environmental laws and
regulations and environmental 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 cleanup of contaminated properties as well as air emissions, water discharges, waste management and workplace health and safety. Such laws and regulations 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 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 relevant jurisdictions as these requirements change.



We have incurred, and may continue to incur, 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, new laws and
regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination, the imposition of new clean-up requirements or new claims for property damage or personal injury arising from environmental
matters 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.



If we are unsuccessful in negotiating new collective bargaining agreements, we could
experience disruptions in our operations.



As of
September 30, 2005, we had approximately 9,100 employees of which approximately 2,600 were located within our recently divested on/off and instruments divisions. Approximately 31% of our workforce in the United States is represented by labor
unions. Of our eight material collective bargaining agreements, one will expire in 2006, five will expire in 2008, one will expire in 2009 and one will expire in 2011. Although we believe that our relations with our employees are generally good, we
cannot assure you that we will be successful in negotiating new collective bargaining agreements. The renegotiation of our existing collective bargaining agreements could result in significant increases in our labor costs. In addition, a breakdown
in such negotiations could result in the disruption of our operations, which could have a material adverse effect on our business, financial condition and results of operations. For example, in May 2003, our labor agreement with the International
Association of Machinists & Aerospace Workers, AFL-CIO District 10 at our Waukesha, Wisconsin manufacturing plant expired and we failed to reach agreement on a new labor contract at that time. The bargaining unit voted in favor of a strike on
May 2, 2003. On July 23, 2003, we announced the signing of a new three-year labor agreement, and our union shop employees resumed work on July 28, 2003. The strike adversely affected our operating results for 2003.



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If we lose members of our senior management, or if we are unable to attract and retain other qualified personnel,
our business, financial condition and results of operations 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
have experienced significant management turnover in the past. 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.



We rely on a limited number of third party suppliers and subcontractors for many
specific components and sub-assemblies. If our supplies are interrupted, we may not be able to expediently obtain substitute suppliers and subcontractors, which could have a material adverse effect on our business, financial condition and results of
operations.



We rely on a limited number of
non-affiliated suppliers and subcontractors for the supply of many specific components and sub-assemblies that are incorporated into our products. As our business has increased, we have recently experienced delays in the delivery of some components
and sub-assemblies. If these suppliers or manufacturers experience financial, operational, manufacturing capacity or quality assurance difficulties, or if there is any 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, any of which could have a material adverse effect on our business, financial condition and results of operations.



We are dependent on the availability and pricing of raw materials and components, and we cannot assure you that we will be able to obtain such raw materials and
components at current price levels or at all.



We
require substantial amounts of raw materials that we purchase from outside sources. Raw materials comprise a significant portion of our total costs. The availability and prices of raw materials may be subject to curtailment or change due to, among
other things, the supply of, and 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 have a material adverse effect on our operating results.



Steel and steel related products, for example, account for a significant portion of our raw materials. We have recently
experienced significant price increases and may experience short-term supply disruptions in our supply of steel and steel-related products in the future. Fluctuations in steel prices may result from relatively minimal changes in the supply of and
demand for steel, market uncertainties and other factors beyond our control.



In addition, contracts with certain of our suppliers are short-term contracts. We cannot assure you that these suppliers will continue to provide raw materials to us at attractive prices, or at all, or that we will be
able to obtain such raw materials in the future from these or other providers on the scale and within the time frames we require. Any failure to obtain such raw materials on a timely basis at an affordable cost, or any significant delays or
interruptions of raw materials, could have a material adverse effect on our business, financial condition and results of operations.



In addition, certain of our suppliers, in turn, rely on sole or limited sources of supply for components included in their products. Failure of our
suppliers to adjust to meet such increasing demand may prevent them from continuing to supply components in the quantities and the quality and at the times we require, or at all. Our inability to obtain sufficient quantities of sole or limited
source components or to develop alternative sources if required could result in delays and increased costs in the expansion of our operations or our inability to properly



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maintain our existing level of operations. Such occurrences would have a material adverse effect on our business, financial condition and results of
operations.



We rely in part on independent distributors to sell our
products and provide direct service and aftermarket support to our customers. Our arrangements with these distributors are not exclusive and may be canceled on short notice.



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 interests may not be aligned with other investors interests.



As of September 30, 2005, private equity funds managed by First Reserve and Odyssey, through DEG Acquisitions, LLC,
indirectly owned approximately 88% of our common stock. The funds therefore have the power to control the election of our directors, and their interests may not be aligned with our other investors interests. The directors elected by First
Reserve and Odyssey will have authority, subject to the terms of our debt agreements, to issue additional shares of common stock, implement repurchase programs and make other decisions about our common stock.



Our business strategy includes the evaluation of selective acquisition opportunities,
which may place significant demands on our resources. We may not be successful in identifying suitable acquisition opportunities, and, if we do identify such opportunities, we may not be able to obtain acceptable financing for the acquisition, reach
agreeable terms with acquisition candidates or successfully integrate acquired businesses.



An element of our business strategy is the acquisition and integration of complementary businesses. We will not be able to acquire other businesses if we
cannot identify suitable acquisition opportunities, obtain financing on acceptable terms or reach mutually agreeable terms with acquisition candidates. In addition, to the extent that consolidation becomes more prevalent in our industry, the prices
for suitable acquisition candidates may increase to unacceptable levels thereby limiting our ability to grow.



We have entered into, and may in the future enter into, joint venture transactions. These transactions present many of the same risks involved in
acquisitions and may also involve the risk that our joint venture partners have economic, business or legal interests that are inconsistent with ours.



Our growth through selective acquisitions may place significant demands on our management and our operational and financial resources. Acquisitions
involve numerous risks, including the diversion of our managements attention from other business concerns, the possibility that current operating and financial systems and controls may be inadequate to deal with our growth, the possibility of
increased leverage or equity dilution and the potential loss of key employees.



We also may encounter difficulties in integrating any businesses we may acquire, or have recently acquired, with our existing operations. The success of these transactions depends on our ability to:



| |  |  | successfully merge corporate cultures and operational and financial systems and controls;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | realize marketing and cost reduction synergies; and
| | - |  | ---------------------------------------------------



| |  |  | as necessary, retain key management members and technical personnel of acquired companies.
| | - |  | ------------------------------------------------------------------------------------------



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If we fail to integrate acquired businesses successfully, or to manage our growth, that failure could
have a material adverse effect on our business. Further, we may be unable to maintain or enhance the profitability of any acquired business, consolidate its operations to achieve cost savings or maintain or renew any of its contracts. In addition,
there may be liabilities that we fail, or are unable, to discover in the course of performing due diligence investigations on any company that we may acquire or have recently acquired. Also, there may be additional costs relating to acquisitions
including, but not limited to, possible purchase price adjustments. Any of our rights to indemnification from sellers to us, even if obtained, may not be enforceable, collectible or sufficient in amount, scope or duration to fully offset the
possible liabilities associated with the business or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business.



We are a highly leveraged company, and our substantial indebtedness could adversely affect our financial condition.



As of September 30, 2005, we had $1,061.3
million of outstanding long-term indebtedness, including the current portion, $26.9 million of short-term notes and a shareholders deficit of $394.9 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------



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



| |  |  | there may 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; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a substantial portion of our indebtedness has variable interest rates and increased interest rates could significantly increase our interest cost and reduce our liquidity.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Restrictive covenants in our senior secured credit
facility, the indenture governing our senior subordinated notes and our senior unsecured term loan facility may restrict our ability to pursue our business strategies.



While we are not prohibited from incurring additional debt, our senior secured credit facility, our senior unsecured term
loan facility and the indenture governing our senior subordinated notes limit, through financial coverage ratios and other covenants, our ability to incur debt or contingent obligations. In addition, these financing agreements limit our ability,
among other things, to:



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



| |  |  | repurchase or redeem our common 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.
| | - |  | ---------------------------------------------------------------------



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In addition, our senior secured credit facility requires us to maintain certain financial ratios. We may
not be able to maintain these ratios although we have in the past sought and obtained a number of amendments to our credit facility to allow us greater flexibility to maintain these ratios. Covenants in our senior secured 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, which may restrict our ability to pursue our business strategies.



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



The terms
of our senior secured credit facility, our senior unsecured term loan facility and the indenture governing our senior subordinated notes do not prohibit us from incurring additional indebtedness, including debt incurred for the purpose of making
acquisitions. If we elect to incur additional debt, which could be significant in amount, the credit, solvency and other risks described herein could intensify.



All borrowings under the senior secured credit facility and senior unsecured term loan facility are senior in right of payment to the senior
subordinated notes. As of September 30, 2005, the company had $35.4 million available for additional borrowing under the revolving portion of its senior secured credit facility, subject to certain conditions. The revolving credit portion of the
senior secured credit facility expires in April 2007 and we plan to refinance this portion prior to expiration. There can be no assurance that we will be successful in our efforts to refinance this portion of the senior secured credit facility.



To service our indebtedness, we 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 senior secured 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 or elect 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.



To service our indebtedness, we rely on cash generated by our foreign and non-wholly-owned subsidiaries.



The guarantors of our senior secured credit facility 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, 2005, of our
subsidiaries that are not guarantors were $544.6 million. As of September 30, 2005, subsidiaries that are not guarantors held 59% of our total assets and 57% of our cash and cash equivalents. Each of the subsidiary guarantors would be released from
its guarantee if we transfer 5% or more of its voting stock to a third party so that it is no longer wholly owned as defined in the governing agreement. The agreement does not restrict our ability to do so.



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Since 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 ability to pay the interest on and principal of our indebtedness when due, are dependent to a significant extent on interest payments, repayment of intercompany loan principal, 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,
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. The repayment of principal amounts of intercompany loans to foreign subsidiaries are not currently subject to taxation. Moreover, payments to us by the foreign and non-wholly owned subsidiaries may be dependent 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 our indebtedness, or to make any funds available whether by dividends, loans, distributions or other payments. Any right that we
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 our debt 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 that debt of that subsidiary.



We have substantial net operating losses (NOLs), which may not be available to us if an initial public offering causes us to experience an ownership change or if we
experience an ownership change in the future.



As of
December 31, 2004 we had U.S. federal net operating loss carryforwards, or NOLs, of approximately $192.2 million, which are due to expire in the years 2020 through 2023. The Internal Revenue Code of 1986, as amended, or the Code, imposes significant
limitations on the utilization of NOLs in the event of an ownership change as defined under section 382 of the Code, which we refer to as the Section 382 Limitation. The Section 382 Limitation is an annual limitation on the amount of
pre-ownership NOLs that a corporation may use to offset its post-ownership change taxable income. The Section 382 Limitation is calculated by multiplying the value of a corporations stock immediately before an ownership change by the long-term
tax-exempt rate (as published by the Internal Revenue Service). Generally, an ownership change occurs with respect to a corporation if the aggregate increase in the percentage of stock ownership by value of that corporation by one or more 5% or
greater stockholders (including specified groups of shareholders who in the aggregate own at least 5% of that corporations stock) exceeds 50 percentage points over a three-year testing period. Our proposed initial public offering may result in
an ownership change. If that offering causes us to experience an ownership change, our ability to use our NOLs would be subject to the Section 382 Limitation. Moreover, even if our proposed initial public offering does not cause an ownership change,
it is possible that as a result of the issuance of common stock pursuant to that offering, combined with the future issuance of new shares of common stock or sales of common stock by our 5% or greater stockholders or transactions involving our 5% or
greater stockholders, we may experience an ownership change in the future, which would cause our NOLs to be subject to the Section 382 Limitation.



Material litigation or changes in legislation or regulations could result in increased costs and restrictions on our ability to conduct our business, which 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, either
individually or in the aggregate, have a material effect on our business, liquidity, or financial condition. However, any material litigation that may arise in the future, and for which we are not indemnified, may materially adversely impact our
business, liquidity or financial condition.



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



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legislation and regulations could increase our costs and make it more difficult to achieve our business plan, which could have an adverse effect on our
profitability.



We may be faced with unexpected product claims or
regulations, which could require the time and attention of management and require us to pay considerable fines and damages.



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, such as significant damage to property or serious personal injury, 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. Any such litigation or
claim may cause us to incur substantial costs, divert the attention of our management from our business and subject us to fines and damages, which could have a material adverse effect on our business, financial condition and results of operations.



Our historical financial information may not be comparable to future
periods and may not reflect our results of operations, financial position or cash flows for future periods.



The historical financial information included herein for periods prior to our April 2001 recapitalization transaction may not necessarily reflect our
results of operations, financial position and cash flows in the future or the results of operations, financial position and cash flows that would have occurred if we had been a separate, independent entity during the periods presented. The
historical financial information for those periods does not fully reflect the many significant changes that occurred in our capital structure, funding and operations as a result of the recapitalization, our credit facility, our senior subordinated
notes or the additional costs to incur in operating as an independent company. For example, funds required for working capital and other cash needs for those periods were obtained from Halliburton on an interest-free intercompany basis without any
debt service requirement.



The requirements of complying with the
Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002 may strain our resources and divert management attention from operating activities.



As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002,
including Section 404, which requires compliance with its provisions by December 31, 2007, under our current filing status. Should we issue public equity before July 1, 2006, and otherwise satisfy the definition of an accelerated
filer under applicable SEC rules, we would be required to comply with Section 404 by December 31, 2006. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and
current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures, corporate governance standards and internal controls over financial reporting.
Beginning with the year ending December 31, 2007, under our current filing status, pursuant to Section 404 of the Sarbanes-Oxley Act, our management will be required to deliver a report that assesses the effectiveness of our internal control
over financial reporting, and we will be required to deliver an attestation report of our auditors on our managements assessment of and operating effectiveness of internal controls. In order to maintain and improve the effectiveness of our
disclosure controls and procedures and internal control over financial reporting, and to ensure our ongoing compliance with public company reporting requirements, significant resources, management oversight and personnel will be devoted to legal,
financial and accounting activities. We cannot assure you that we will be able to complete the documentation and management assessment required by Section 404 of the Sarbanes-Oxley Act by our reporting deadline. In addition, any such efforts may
divert managements attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, we may need to hire additional accounting and
financial staff with appropriate public company experience and technical accounting knowledge, and we cannot assure you that we would be able to do so in a timely fashion.



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Additionally, we expect that upon completion of any initial public offering of our common stock, we may
find it more difficult or more expensive for us to obtain director and officer liability insurance. We may be forced to accept reduced policy limits or coverage, or to incur substantially higher costs to obtain the same or similar coverage. As a
result, it may be more difficult for us to attract and retain qualified people to serve on our Board of Directors or as executive officers.



Item 3. Quantitative and Qualitative Disclosures about Market Risk



In the normal course of business, we employ financial instruments to manage exposure to fluctuations 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 and borrowing 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.



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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.



|                                      |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|------------------------------------- |  | ------------------ | -------- | --------- | ----------------- | - | ---------------- | ---- | --------- | - | ---- | - |  | ---- | ----- | - | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ----- |  | - | ----- | - |  | - | ----- |  | - | ----- | -
|                                      |  | September 30, 2005 |          |           | December 31, 2004 |  
|                                      |  | Carrying Amount    |          | FairValue |                   |   | Carrying  Amount |      | FairValue |  
|                                      |  | Remainder of 2005  |          |           | 2006              |   |                  | 2007 |           |   | 2008 |   |  | 2009 |       |   | Thereafter |   |       | Total |  |   |      
|                                      |  | (in millions)      |         
|Related forward contracts to sell USD |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Japanese Yen                          |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 0.8      |           |                   | $ |                 |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 0.8   |  | $ |      |   |  | $ | 0.4   |  | $ |      |  
|Avg. Contract Rate                    |  |                    | 106.6903 |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Euro                                  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 42.3     |           |                   | $ | 36.1             |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 78.4  |  | $ | (2.1  | ) |  | $ | 82.9  |  | $ | 4.2   |  
|Avg. Contract Rate                    |  |                    | 1.2763   |           |                   |   | 6.5514           |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Canadian Dollar                       |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  |         |           |                   | $ |                 |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ |      |  | $ |      |   |  | $ | 22.4  |  | $ |      |  
|Avg. Contract Rate                    |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|British Pound                         |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 0.3      |           |                   | $ |                 |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 0.3   |  | $ |      |   |  | $ |      |  | $ |      |  
|Avg. Contract Rate                    |  |                    | 0.5273   |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Related forward contracts to sell GBP |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Euro                                  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 1.9      |           |                   | $ |                 |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 1.9   |  | $ |      |   |  | $ | 0.3   |  | $ |      |  
|Avg. Contract Rate                    |  |                    | 0.8103   |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Related forward contracts to buy USD  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|South African Rand                    |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 0.3      |           |                   | $ |                 |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 0.3   |  | $ |      |   |  | $ | 1.5   |  | $ | (0.2  | )
|Avg. Contract Rate                    |  |                    | 6.7606   |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Euro                                  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 8.8      |           |                   | $ | 10.6             |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 19.4  |  | $ |      |   |  | $ | 7.9   |  | $ |      |  
|Avg. Contract Rate                    |  |                    | 1.2307   |           |                   |   | 1.3757           |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Japanese Yen                          |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 1.8      |           |                   | $ | 13.1             |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 14.9  |  | $ | (0.1  | ) |  | $ | 18.7  |  | $ |      |  
|Avg. Contract Rate                    |  |                    | 102.2850 |           |                   |   | 101.6900         |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|British Pound                         |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 1.4      |           |                   | $ | 3.8              |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 5.2   |  | $ |      |   |  | $ | 5.0   |  | $ |      |  
|Avg. Contract Rate                    |  |                    | 1.9081   |           |                   |   | 1.8751           |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |      |  |   |       |  
|Canadian Dollar                       |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 1.8      |           |                   | $ | 22.2             |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 24.0  |  | $ |      |   |  | $ | 43.7  |  | $ |      |  
|Avg. Contract Rate                    |  |                    | 1.2292   |           |                   |   | 1.2340           |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Related forward contracts to buy JPY  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Euro                                  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  |         |           |                   | $ |                 |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ |      |  | $ |      |   |  | $ | 1.1   |  | $ | (0.1  | )
|Avg. Contract Rate                    |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Related forward contracts to buy EUR  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|South African Rand                    |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 0.1      |           |                   | $ |                 |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 0.1   |  | $ |      |   |  | $ | 0.1   |  | $ |      |  
|Avg. Contract Rate                    |  |                    | 8.4042   |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Related forward contracts to buy GBP  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Euro                                  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 1.1      |           |                   | $ |                 |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 1.1   |  | $ |      |   |  | $ | 0.5   |  | $ |      |  
|Avg. Contract Rate                    |  |                    | 0.8169   |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Related forward contracts to buy SEK  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Euro                                  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 2.3      |           |                   | $ |                 |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 2.3   |  | $ |      |   |  | $ |      |  | $ |      |  
|Avg. Contract Rate                    |  |                    | 9.3200   |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Related forward contracts to buy AUD  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Euro                                  |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Contract Amount                       |  | $                  | 3.0      |           |                   | $ |                 |      |           | $ |     |   |  | $    |      |   |            | $ |      |       |  | $ |      |   |  | $ | 3.0   |  | $ | 0.1   |   |  | $ |      |  | $ |      |  
|Avg. Contract Rate                    |  |                    | 1.6554   |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Long-term debt                        |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|U.S. Dollar Functional Currency       |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Fixed Rate                            |  | $                  | 0.7      |           |                   | $ | 0.8              |      |           | $ | 0.7  |   |  | $    | 0.7   |   |            | $ | 0.7   |       |  | $ | 550.9 |   |  | $ | 554.5 |  | $ | 581.0 |   |  | $ | 556.5 |  | $ | 604.5 |  
|Average Interest Rate                 |  |                    | 9.31     | %         |                   |   | 9.32             | %    |           |   | 9.34 | % |  |      | 9.35  | % |            |   | 9.36  | %     |  |   | 9.37  | % |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Variable Rate                         |  | $                  |         |           |                   | $ |                 |      |           | $ |     |   |  | $    | 191.0 |   |            | $ | 189.0 |       |  | $ | 125.0 |   |  | $ | 505.0 |  | $ | 510.4 |   |  | $ | 505.0 |  | $ | 513.4 |  
|Average Interest Rate                 |  |                    |         |           |                   |   |                 |      |           |   |     |   |  |      | 7.36  | % |            |   | 7.88  | %     |  |   | 8.17  | % |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Euro Functional Currency              |  |                    |          |           |                   |   |                  |      |           |   |      |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Fixed Rate                            |  |                    |         |           |                   | $ | 1.1              |      |           | $ | 0.7  |   |  | $    | 0.5   |   |            | $ |      |       |  | $ |      |   |  | $ | 2.3   |  | $ | 2.3   |   |  | $ | 3.5   |  | $ | 3.4   |  
|Average Interest Rate                 |  | $                  | 4.45     | %         |                   |   | 4.44             | %    |           |   | 4.41 | % |  |      | 4.41  | % |            |   |       |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  



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Item 4. Controls and Procedures



We are committed to maintaining disclosure controls and procedures 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, Chief Financial Officer and the Board of Directors, as appropriate, to allow for timely decisions
regarding required disclosure. As required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this report. 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 and
implementing controls and procedures based on the application of managements judgment.



Internal Control over Financial Reporting



As disclosed in the Companys 2004 Form 10-K, management and our independent registered public accounting firm have identified material weaknesses regarding elements of our internal control over financial
reporting. The Public Company Accounting Oversight Boards Auditing Standard No. 2 defines a material weakness as a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of these material weaknesses, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2005,
the end of the period covered by this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time period specified in the SECs rules and forms.



To address the material weaknesses, we performed additional analyses and other post-closing procedures to ensure that the consolidated financial statements were prepared in accordance with United States generally
accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial position, results of operations and cash flows for the periods presented.



The six material weaknesses that were identified and the steps
we have taken and continue to take to remediate the material weaknesses, are:



| |  |  | An ineffective control environment in our finance organization, including inadequate accounting policies, procedures, training, experience, communication and oversight.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our independent registered
public accounting firm first identified this as a reportable condition to management in connection with the preparation of our Annual Report on Form 10-K for the fiscal year ending December 31, 2002. Corporate accounting does not have enough insight
into operations to adequately identify issues, and our field personnel do not possess the necessary accounting expertise to accurately record transactions in instances involving non-routine entries or complex accounting or recognize the need to
request assistance from corporate accounting. There is also inadequate understanding among our business unit accounting staff with respect to the proper application of United States generally accepted accounting principles and our accounting
policies. Other contributing factors include the complexity of our consolidation process, particularly with respect to multiple legal entities and operational units; inadequate and disparate computer systems; and numerous accounting centers. Also
contributing to the condition is a lack of precision at certain operations in the application of our accounting policies, including the reconciliation of accounts to the general ledger, and inconsistent



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application of these policies with respect to inventory costing, bad debts, sales allowances, inventory reserves, property, warranty and various expense
accruals.



We recently discontinued our
previously announced plans to develop an enterprise resource planning (ERP) system after a pilot installation at our U.S. retail fueling operation indicated we would not realize the intended benefits in a timely manner and the cost to complete the
implementation at our other locations would be significantly higher than originally expected. We are currently undertaking a project which will commence the implementation of a company-wide general ledger system along with selected enhancements or
replacements of other financial applications. We will consider the expansion or revision of the organizational reporting alignment to promote consistency, while enhancing internal control.



To remediate these deficiencies, we have taken steps to
increase the consistency and transparency of our consolidation and financial reporting processes. We are installing a new consolidation systems package which will provide more robust tools for data collection, consolidations, and translations and
will enhance the reporting process on a company-wide basis. We expect to complete the installation of this consolidation system by mid-2006.



We have directed numerous senior managers whom we hired in the last two years, each with the requisite training and experience, to assist
in improving the quality of our controls and procedures by developing additional risk-based policies and procedures. These individuals include a new Vice President of Finance who is responsible for streamlining the financial organization, reducing
the number of accounting centers and increasing the accounting staffs expertise, education and professionalism, a Director of Accounting, and a new Director of Internal Audit, who reports directly to our Chief Executive Officer and Audit
Committee and is actively working with management to enhance the effectiveness of our internal audit function. Within the last two years, we have also appointed new controllers at seven of our eight principal operating units, and we have increased
the competency of our corporate accounting staff.



We have hired a team of ten dedicated individuals with appropriate qualifications to coordinate, supervise and oversee the company-wide initiative to ensure compliance with Section 404 of the Sarbanes-Oxley Act of 2002, with which we will
be required to comply by December 31, 2007 under our current filing status. Should we issue public equity before July 1, 2006, and otherwise satisfy the definition of an accelerated filer under applicable SEC rules, we will be
required to be in compliance with Section 404 by December 31, 2006. We have also hired highly skilled personnel and other expert consultants at both the corporate and business unit levels. We have commenced projects to update policies and procedures
and to enhance overall company-level controls. All significant locations are being evaluated as to their financial reporting controls. Finally, in 2004 we launched a virtual learning center designed to provide employees with educational
opportunities on a variety of functional topics including finance, information technology, and regulations impacting our business, human resources and general management.



In August 2005, we conducted a high level meeting to, among other things, discuss the weaknesses identified
above and develop strategies for addressing them. The meeting included the senior representatives from the Accounting and Finance teams from each operation worldwide.



In summary, we have instituted, and continue to improve, numerous processes and procedures in order to
remediate this weakness. We have enhanced training, review processes, communications, systems and quality of personnel over the last two years to address the overall indicators of this complex and embedded problem. We have also retained outside
consultants to help with this effort. We expect to have this weakness fully remediated by year-end 2006.



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| |  |  | Insufficient monitoring and accounting for transactions that are non-routine, or subject to new or complex accounting.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



Management first identified this material weakness using
indicators detailed in our Quarterly Report on Form 10-Q for the second quarter of 2004 as well as the information used in the preparation of our Annual Report on Form 10-K for the year ended December 31, 2004. This material weakness affected
several of our operating units. We determined that this material weakness resulted from insufficient review processes at both the business unit and corporate levels and that an appropriate review at all levels did not exist. Moreover, personnel at
our various business units were failing to report new agreements or transactions to our accounting department, which resulted in inaccurate accounting.



To remediate this material weakness, we have significantly increased the number and skills of management and staff personnel in our
accounting and finance departments to increase our depth of experience in accounting, SEC reporting matters and internal audit, and have recently implemented processes to identify and review all significant or non-routine issues. In addition,
qualified personnel with requisite training and experience have been assigned to each significant location to assist the reporting units in their implementation of internal control over financial reporting and in the identification and remediation
of control gaps for Sarbanes-Oxley compliance. We implemented processes commencing in late 2004 to ensure detailed accounting review is performed at all levels of the organization with appropriate corporate oversight and we are continuing our
efforts to strengthen those processes. We are currently assessing the effectiveness of our remediation efforts and expect to complete that assessment by mid-2006.



| |  |  | Accounting adjustmentswere incorrectly categorized as changes in estimates instead of errors pursuant to Accounting Principles Board Opinion No. 20 (APB 20).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



This material weakness was
identified in connection with the preparation of the our financial statements for the fiscal year ended December 31, 2004. This material weakness resulted from insufficient training among our accounting staff regarding the application of APB 20 and
caused errors in the reporting by our operating units.



To remediate this material weakness, we have reviewed and revised a number of our disclosure and accounting policies and procedures. In addition, management has developed a plan for worldwide training of our accounting staff, which includes
SFAS No. 154, Accounting Changes and Error Correctionsa replacement of APB No. 20 and SFAS No. 3. We have completed our remediation efforts relating to this weakness as of December 31, 2005. We are currently assessing the
effectiveness of our remediation efforts and expect to complete that assessment by mid-2006.



| |  |  | Inadequate monitoring by accounting management of our foreign business units, which incorrectly translated foreign currency under methods that were not consistent with Statement
of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This material weakness was identified in each of our operating units and in our corporate accounting group due to a failure to develop a
process to apply SFAS No. 52 correctly. This condition included the failure to translate foreign currencies at appropriate period-end rates and to use the correct classifications of inter-company notes to record foreign exchange effects correctly.
This material weakness was identified while preparing our financial statements for the year ended December 31, 2004.



To remediate this weakness, management has instituted requirements for appropriate levels of precision to be applied at all levels within
the accounting department as it relates to foreign currency translation. Specifically, our corporate treasury department is responsible for establishing appropriate month-end rates and communicating this information company-wide. In addition, we are
installing a new consolidation systems package, which will provide more robust tools for data collection,



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consolidations, and translations and will enhance the reporting process on a company-wide basis. This new system will systematically translate all foreign
operations to the United States dollar correctly, using the appropriate rates. We have also implemented a comprehensive review between corporate accounting and treasury personnel for all changes to inter-company notes. We have completed our
remediation efforts relating to this weakness as of December 31, 2005. We are currently assessing the effectiveness of our remediation efforts and expect to complete that assessment by mid-2006.



| |  |  | Incorrect assessment of the composition of charges allocable to inventory at our Houston On/Off valve operation.
| | - |  | ----------------------------------------------------------------------------------------------------------------



Our independent registered public accounting firm first
identified this material weakness during its 2003 audit field work of our Houston on/off valve operation where errors occurred in the determination of the book value of inventory. Although we implemented certain changes based on the 2003 weakness,
the accounting personnel at the Houston operation failed to understand the costs associated with the production of inventory and how the costs should be allocated to the ending inventory on hand. These deficiencies resulted from a lack of
understanding of the true makeup of the cost pools and of the actual production activity that generated the costs in the pools. As a result of these deficiencies, significant adjustments were made to the fiscal quarters in 2004 and, as part of the
significant fourth quarter 2003 adjustment, amounts were restated back to 2000 and earlier.



To ensure inventory balances were properly stated, we established enhanced corporate oversight of the accounting at our Houston on/off
valve operation. This continued corporate oversight required additional analysis to verify that adjustments were adequate to correctly state inventory values in the future. We sold the Houston on/off valve operation in November 2005.



| |  |  | Incorrect revenue recognition practices relating to manufacture and sale contracts at our Houston on/off valve operation.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



Our independent registered public accounting firm identified
this material weakness during its audit field work of the Houston on/off valve operation for the period ending December 31, 2003. This material weakness reflected a lack of understanding of current revenue recognition rules relating to
contracts that may have multiple deliverables and the impact of single or multiple units of accounting treatment, particularly the application of Staff Accounting Bulletin Nos. 101 and 104, Revenue Recognition and EITF Issue
No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, to the revenue recognition process. This material weakness also resulted from a lack of understanding by the relevant accounting personnel of the specific
contract language and the business processes that existed to perform the units obligations under these contracts; unfamiliarity with the authoritative literature; and a lack of proper oversight in the creation of these contracts. Management
utilized external support to perform additional review work to ensure that the proper accounting treatment had been applied.



To remediate this material weakness, the corporate accounting department implemented quarterly reviews of all contracts and their
administration across all business units. We also implemented training of our business unit personnel designed to ensure that the level of analysis is adequate to correctly understand the contractual obligations of the unit. In addition, management
has directed that future contracts be structured in a manner designed to avoid these types of revenue recognition issues. We have also appointed new controllers for both of our on/off product line and North American operations. We sold the Houston
on/off valve operation in November 2005.



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Although we have implemented and continue to implement remediation efforts, a material weakness indicates
that there is more than a remote likelihood that a material misstatement of our financial statements will not be prevented or detected in a future period. In addition, we cannot assure you that we will not in the future identify further material
weaknesses or significant deficiencies in our internal control over financial reporting that we have not discovered to date. We are taking steps to improve our internal control over financial reporting to comply with Section 404 of the
Sarbanes-Oxley Act of 2002 with which we are required to comply by December 31, 2007. Should we issue public equity before July 1, 2006, and otherwise satisfy the definition of an accelerated filer under applicable SEC rules, we
will be required to be in compliance with Section 404 by December 31, 2006. The efforts we have taken and continue to take are subject to continued management review supported by confirmation and testing by management and by our internal auditors,
as well as audit committee oversight. As a result, additional changes are expected to be made to our internal control over financial reporting. Other than the foregoing initiatives since the date of the evaluation supervised by our management, there
have been no material changes in our disclosure controls and procedures, or our internal control over financial reporting, that have materially affected, or are reasonably likely to materially affect, our disclosure controls and procedures or our
internal control over financial reporting.



Export Controls and Economic
Sanctions Under Applicable U.S. Commerce and Treasury Department Regulations



In April 2004, we received allegations that the Dubai branch of one of our U.S. subsidiaries may have engaged in transactions involving the sale of control valves and related parts to Iraq without required
authorization. Upon initial investigation, we found transactions by the branch relating to Iraq, Iran and Sudan that appeared to have been undertaken without the required prior U.S. governmental authorizations. A short time after the Dubai branch
investigation commenced, we expanded the investigation to include other Dresser affiliates that since January 1999 may have engaged in transactions relating to U.S.-sanctioned countries (including those countries already mentioned, Libya (prior to
April 2004), Cuba and Syria (since mid-May 2004)) to determine whether there were any other violations of U.S. laws related to export controls and economic sanctions. The investigation was completed and voluntary disclosures to the U.S. Commerce and
Treasury departments were made in late April 2005. The investigation identified a significant number of sales by certain of our foreign affiliates to sanctioned countries (in addition to the sales by the Dubai branch) that appear to have been
performed without required U.S. government authorization.



In
response to the foregoing, we have undertaken and are continuing to implement a comprehensive remedial program that is designed to prevent the risk of further unlawful transactions by our foreign subsidiaries and branches, and unlawful facilitations
by U.S. persons of otherwise legal transactions by our foreign subsidiaries, involving sanctioned countries. While our foreign subsidiaries may lawfully conduct business with sanctioned countries (other than Cuba), pursuant to a recently adopted
company-wide policy they will no longer be permitted to accept new business (other than such business as they are contractually obligated to undertake in compliance with U.S. laws) intended to or for Iran or Sudan. We have also adopted a requirement
that the U.S. export/import compliance and/or legal department conduct a review of all proposed transactions by our foreign subsidiaries relating to sanctioned countries to determine whether such sales are consistent with the new policy and in
compliance with applicable U.S. laws. In addition, we have issued further guidance and provided additional training to our employees concerning the application of U.S. foreign trade controls, and we have reorganized our management team that oversees
compliance with these controls. Primary responsibility for overseeing such compliance resides with a newly created corporate officer position titled Executive Vice President, Ethics and Compliance, which reports directly to the Chief Executive
Officer and the Audit Committee. We have also established the position of Corporate Export/Import Compliance Director, reporting directly to the new Executive Vice President. At each business unit, there are separate compliance and export/import
compliance functions, which have dual reporting relationships to the business unit management and the corporate compliance organization. We have also taken appropriate disciplinary action against personnel who failed to meet their obligations under
company-wide policy or otherwise engaged in wrongful conduct.



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While our investigation has been completed, and voluntary disclosure reports have been submitted to the
U.S. Commerce and Treasury departments, it remains unclear as to what extent the various activities reported to these government agencies violate U.S. export control and economic sanctions regulations and what penalties the government agencies may
seek to impose for conduct that is found to be unlawful. Accordingly, we are unable to determine at this time the extent of violations or the nature or size of the penalties to which we may be subject as a result of any unauthorized dealings with
U.S.-sanctioned countries. If we are found to be in violation of the applicable U.S. Commerce and Treasury department regulations restricting dealings with Iran, Sudan and Cuba (and in the past, Iraq and Libya), we could be subject to civil or
criminal penalties, including fines and/or suspension of the privilege to engage in export trading or to have our foreign affiliates receive U.S.-origin goods, software or technology.



We believe that a loss in connection with this matter is probable and currently estimate our minimum probable liability to
be approximately $0.8 million, which we recorded as a reserve in the fourth quarter of 2004. Given that the resolution of these issues is inherently uncertain at this time, we are not able to reasonably estimate the maximum amount or a meaningful
range of probable or reasonably likely liability that could result from an adverse resolution of this matter or any related private causes of action that may arise. Since the U.S. Commerce and Treasury departments could impose aggregate penalties in
excess of the reserve, and these amounts could be substantial, we cannot currently predict whether the ultimate resolution of this matter will have a material adverse effect on our business, including our ability to do business outside the United
States, or on our financial condition. In addition, our expenses related to the investigation and remedial actions have been and may continue to be substantial.



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PART II. OTHER INFORMATION



Item 6. Exhibits



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



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

---

|* | Filed herewith
|- | --------------



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SIGNATURES



Pursuant to the
requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |     |  |                                                                    
|---------------------- |  | --- |  | -------------------------------------------------------------------
|                       |  |     |  | DRESSER, INC.                                                      
|                       |  |    
|Date: February 9, 2006 |  | By: |  | /S/    PATRICK M.
MURRAY                                           
|                       |  |     |  | Patrick M. Murray Chief Executive Officer and Chairman of the Board
|                       |  |    
|                       |  |     |  | /S/    Robert D. Woltil                                            
|                       |  |     |  | Robert D. Woltil Senior Vice President and Chief Financial Officer 
|                       |  |    
|                       |  |     |  | /S/    THOMAS J.
KANUK                                             
|                       |  |     |  | Thomas J. Kanuk Corporate Controller and Chief Accounting Officer  



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