<PAGE>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                   FORM 10-Q/A

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

                                       OR

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

                  For the transition period from _____ to _____





                        Commission File Number 333-60778

                                  DRESSER, INC.
             (Exact name of registrant as specified in its charter)

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


                        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)





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  X    No
     ---      ---

The number of shares outstanding of Class A and Class B Common Stock (par value
$.001 per share) as of May 9, 2002 was 10,488,222 and 1,159,486, respectively.

================================================================================



<PAGE>


                                EXPLANATORY NOTE


      Dresser, Inc. ("Dresser" or the "Company") amends its report on Form 10-Q
for the period ending March 31, 2002, filed with the Commission on May 15, 2002,
to revise the treatment of certain debt issuance costs and the extinguishment of
a liability as originally reported its condensed consolidated financial
statements for such period. The revisions do not affect cash provided by
operating activities during such period, or cash and cash equivalents as of
March 31, 2002.

     Debt issuance costs, which are reflected on the Company's condensed
consolidated balance sheets in long-term receivables and other assets, have been
reduced by $22.2 million. Of this reduction, as of March 31, 2002:

     o    $8.6 million has been reclassified as an increase to shareholder's
          deficit as the costs were associated with the issuance of stock rather
          than debt

     o    $12.9 million has been written off as a result of a substantial
          repayment of associated debt during the quarter ended March 31, 2002;
          and

     o    $0.7 million reflects an increase to amortization expense associated
          with debt issuance costs to correct for an understatement of the
          expense in the first quarter of 2002.

     Both the charge of $12.9 million and the correction of amortization expense
of $0.7 million have been reflected as an increase to interest expense on the
Company's condensed consolidated statements of operations for the quarter ended
March 31, 2002.

     In addition, during the quarter ended March 31, 2002 we extinguished a
liability of $9.3 million related to the Company's recapitalization in April
2001, and we accounted for this transaction as other income on the Company's
condensed consolidated statements of operations. We have revised these financial
statements to reflect the extinguishment of the liability as a decrease to
shareholder's deficit, and as a result of the reversal, other income was reduced
by $9.3 million.

     As a result of these adjustments, net income for the quarter ended March
31, 2002 was reduced from $17.2 million to a net loss of $0.4 million, and total
shareholders deficit was increased from $25.1 million to $42.0 million.



                                       2
<PAGE>

                                  DRESSER, INC.

                                      INDEX


<Table>
<Caption>
                                                                                                                  PAGE
                                                                                                                   NO.
                                                                                                                  ----

<S>             <C>                                                                                               <C>
                                                 PART I. FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS
                Condensed Consolidated Statements of Operations for the three months ended March 31, 2002 and
                2001 (unaudited) .............................................................................       3
                Condensed Consolidated Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001..       4
                Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and
                2001 (unaudited) .............................................................................       5
                Notes to Condensed Consolidated Financial Statements as of March 31, 2002 (unaudited) ........       6

ITEM 2.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........      20

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................      28


                                                  PART II. OTHER INFORMATION


ITEM 1.         LEGAL PROCEEDINGS.............................................................................      29

ITEM 2.         CHANGES IN SECURITIES AND USE OF PROCEEDS.....................................................      29

ITEM 6.         EXHIBITS AND REPORTS ON FORM 8-K:
                Exhibits......................................................................................      30
                Reports on Form 8-K...........................................................................      30

SIGNATURES      ..............................................................................................      31
</Table>



                                       3
<PAGE>


PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS


                                  DRESSER, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (IN MILLIONS)
                                   (UNAUDITED)

<Table>
<Caption>
                                                                           THREE MONTHS ENDED
                                                                                  MARCH 31,
                                                                       -----------------------------
                                                                           2002            2001
                                                                       -------------   -------------
                                                                         Restated

<S>                                                                      <C>            <C>
Revenues                                                                      $380.2         $361.4
Cost of revenues                                                               273.4          250.1
                                                                         -----------    -----------
     Gross profit                                                              106.8          111.3
Selling, engineering, administrative and general expenses                       74.1           73.9
                                                                         -----------    -----------
Operating income                                                                32.7           37.4
Interest expense                                                               (34.2)          (0.8)
Other income (deductions), net                                                   0.9           (1.6)
                                                                         -----------    -----------
(Loss) income before taxes                                                      (0.6)          35.0
Benefit (provision) for income taxes                                             0.2          (15.5)
                                                                         -----------    -----------
Net (loss) income                                                              $(0.4)         $19.5
                                                                         ===========    ===========
</Table>


      See accompanying notes to condensed consolidated financial statements



                                       4
<PAGE>

                                  DRESSER, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                     (IN MILLIONS, EXCEPT SHARE INFORMATION)
                                   (UNAUDITED)


<Table>
<Caption>
                                                                          MARCH 31,       DECEMBER 31,
                                                                             2002             2001
                                                                          ---------       ------------
                                                                          Restated

<S>                                                                       <C>             <C>
ASSETS
Current assets:
     Cash and equivalents                                                 $   97.0          $   97.2
     Receivables, net                                                        311.0             316.2
     Inventories, net                                                        324.6             328.3
     Other current assets                                                     13.9              10.4
                                                                          --------          --------
          Total current assets                                               746.5             752.1

Property, plant and equipment, net                                           229.6             235.9
Investments in unconsolidated subsidiaries                                     5.8               4.8
Long-term receivables and other assets                                        67.0              86.8
Deferred tax assets                                                           96.5              95.6
Goodwill, net                                                                407.2             408.7
Intangibles, net                                                               5.1               5.8
                                                                          --------          --------
           Total assets                                                   $1,557.7          $1,589.7
                                                                          ========          ========


LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
     Accounts and notes payable                                           $  206.0          $  245.3
     Contract advances                                                         9.2              10.5
     Accrued expenses                                                        126.2             137.2
                                                                          --------          --------
          Total current liabilities                                          341.4             393.0

Pension and other retiree benefits                                           207.9             214.3
Long-term debt                                                             1,014.6           1,000.0
Other liabilities                                                             35.8              26.0
Commitments and contingencies
                                                                          --------          --------
          Total liabilities                                                1,599.7           1,633.3
Shareholders' deficit:
Common stock, $0.001 par value; issued and outstanding:
Class A - 10,488,222, Class B - 909,486 in 2002 and 2001
     Shareholders' deficit, net                                              (10.7)            (11.0)
     Accumulated other comprehensive loss                                    (31.3)            (32.6)
                                                                          --------          --------
          Total shareholders' deficit                                        (42.0)            (43.6)
                                                                          --------          --------
          Total liabilities and shareholders' deficit                     $1,557.7          $1,589.7
                                                                          ========          ========
</Table>


      See accompanying notes to condensed consolidated financial statements



                                       5
<PAGE>

                                  DRESSER, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (IN MILLIONS)
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                      THREE MONTHS ENDED
                                                                                           MARCH 31,
                                                                                     2002             2001
                                                                                    -------          -------
                                                                                   Restated

<S>                                                                                 <C>              <C>
Cash flows from operating activities:
Net (loss) income                                                                   $  (0.4)         $  19.5
Adjustments to reconcile net (loss) income to cash flow provided by
  operating activities:
    Depreciation and amortization                                                      10.9             13.5
    Equity earnings of unconsolidated affiliates                                       (0.7)            (0.1)
    Loss on repayment of debt                                                          12.9               --
Other changes, net
    Receivables                                                                         5.2              1.1
    Inventories                                                                         3.7            (10.4)
    Accounts payable                                                                   (7.7)           (20.1)
    Other, net                                                                        (14.1)           106.8
                                                                                    -------          -------
         Net cash provided by operating activities                                      9.8            110.3
                                                                                    -------          -------

Cash flows from investing activities:

    Capital expenditures                                                               (4.8)            (6.2)
                                                                                    -------          -------
         Net cash used in investing activities                                         (4.8)            (6.2)
                                                                                    -------          -------

Cash flow from financing activities:
    Changes in intercompany activities                                                   --           (109.2)
    Proceeds from the issuance of long-term debt                                      256.3               --
    Repayment of long-term debt (including current portion)                          (254.0)              --
    Decrease in short-term notes payable                                               (2.1)            (4.3)
    Payment of deferred financing fees                                                 (6.5)              --
    Cash overdrafts                                                                      --             41.2
                                                                                    -------          -------
         Net cash used in financing activities                                         (6.3)           (72.3)
                                                                                    -------          -------

Effect of translation adjustments on cash                                               1.1             (1.3)
                                                                                    -------          -------

Net (decrease) increase in cash and equivalents                                        (0.2)            30.5

Cash and equivalents, beginning of period                                              97.2             19.7

                                                                                    -------          -------
Cash and equivalents, end of period                                                 $  97.0          $  50.2
                                                                                    =======          =======

Supplemental disclosure of cash flow information:
    Interest                                                                        $  13.9          $   1.6
    Income taxes                                                                    $   2.0          $    --
</Table>

      See accompanying notes to condensed consolidated financial statements



                                        6
<PAGE>


                                  DRESSER, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (IN MILLIONS)
                                   (UNAUDITED)


NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

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

     In January 2001, Halliburton Company ("Halliburton"), together with its
wholly owned subsidiary Dresser B.V. signed an Agreement and Plan of
Recapitalization (the "Agreement") with DEG Acquisitions, LLC, to effect the
sale of its businesses relating to, among other things, the design, manufacture
and marketing of flow control, measurement systems and power systems for
customers primarily in the energy industry. Halliburton originally acquired the
businesses as part of its acquisition of Dresser Industries, Inc. ("Dresser
Industries") in 1998. Dresser Industries' operations consisted of the Company's
businesses and certain other operating units retained by Halliburton following
the consummation of the recapitalization transactions. In order to accomplish
this transaction, Halliburton effected the reorganization of various legal
entities that comprised the Dresser Equipment Group ("DEG") business segment of
Halliburton.

     In connection with the recapitalization in April 2001, Dresser made
payments to Halliburton Company of approximately $1,300 to redeem common equity
and purchase the stock of foreign subsidiaries. The recapitalization
transactions and related expenses were financed through the issuance of $300 of
senior subordinated debt (the "2001 notes"), $720 of borrowings under the credit
facility, and approximately $400 of common equity contributed by DEG Acquisition
LLC, an entity owned by First Reserve Corporation and Odyssey Investment
Partners Fund, LP.

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with Generally Accepted Accounting Principles
("GAAP") for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 2002, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002. For further information, refer to the consolidated financial
statements and footnotes thereto included in our Annual Report on Form 10-K, for
the year ended December 31, 2001.

     We have amended our condensed consolidated financial statements the period
ending March 31, 2002, to revise the treatment of certain debt issuance costs
and the extinguishment of a liability as originally reported our condensed
consolidated financial statements for such period. The revisions do not affect
cash provided by operating activities during such period, or cash and cash
equivalents as of March 31, 2002.

     Debt issuance costs, which are reflected our condensed consolidated balance
sheets in long-term receivables and other assets, have been reduced by $22.2. Of
this reduction, as of March 31, 2002:

     o    $8.6 was reclassified as an increase to shareholder's deficit as the
          costs were associated with the issuance of stock rather than debt

     o    $12.9 has been written off as a result of a substantial repayment of
          associated debt during the quarter ended March 31, 2002; and

     o    $0.7 million reflects an increase to amortization expense associated
          with debt issuance costs to correct for an understatement of the
          expense in the first quarter of 2002. .

     Both the charge of $12.9 and the correction of amortization expense of $0.7
have been reflected as an increase to interest expense is our condensed
consolidated statements of operations for the quarter ended March 31, 2002.



                                       7
<PAGE>

     In addition, during the quarter ended March 31, 2002 we extinguished a
liability of $9.3 related to the Company's recapitalization in April 2001, and
we accounted for this transaction as other income on the Company's condensed
consolidated statements of operations. We have revised these financial
statements to reflect the extinguishment of the liability as a decrease to
shareholder's deficit, and as a result of the reclassification, other income was
reduced by $9.3.

     As a result of these adjustments, net income for the quarter ended March
31, 2002 was reduced from $17.2 to a net loss of $0.4, and total shareholders
deficit was increased from $25.1 to $42.0.

     Certain prior year amounts have been reclassified to conform to the current
year presentation. These changes had no impact on previously reported net income
or shareholders' equity.

     The consolidated financial statements of the Company for periods presented
prior to March 31, 2001 have been prepared by management on a carve-out basis
and reflect the consolidated financial position, results of operations and cash
flows of Dresser in accordance with accounting principles generally accepted in
the United States. The consolidated financial statements exclude certain items,
which were not transferred as a result of the Agreement and any financial
effects from Halliburton's decision to discontinue this business segment. In
addition, certain amounts in the financial statements have been estimated,
allocated and pushed down from Halliburton in a consistent manner in order to
depict the financial position, results of operations and cash flows of Dresser
on a stand-alone basis. However, the financial position, results of operations
and cash flows may not be indicative of what would have been reported if Dresser
had been a stand-alone entity or had been operated in accordance with the
Agreement during the periods presented prior to March 31, 2001.

NOTE 2. BUSINESS SEGMENT INFORMATION

     We operate under three reportable segments: flow control, measurement
systems and power systems. The business segments are organized around the
products and services provided to the customers each serves. During the second
quarter of 2002, we made changes to our internal corporate structure with the
reorganization of certain of our operating units. As a result, starting in the
second quarter of 2002, the operating units that comprise each reportable
segment will change, although we will still report under three reportable
segments. This reorganization is not reflected in the discussion of segment
reporting for the quarter ended March 31, 2002 included in this report.

     Flow Control. The flow control segments designs, manufactures and markets
valves and actuators. These products are used to start, stop and monitor the
flow of liquids and gases and to protect process equipment from excessive
pressure. The flow control segment markets its products under well recognized
brand names, including Masoneilan(R), Grove(R), Consolidated(R) and Ledeen(TM).

     Measurement Systems. The measurement systems segment consists of two
primary product groups. The first, retail fueling, is a leading supplier of fuel
dispensers, pumps, peripherals and point-of-sale systems and software for the
retail fueling industry. The second, measurement, is a leading supplier of
natural gas meters, regulators, digital and analog pressure and temperature
gauges and transducers and specialty couplings and connectors. These systems and
other products are used to measure and monitor liquids and gases. Our
measurement systems group markets its products and services under well
recognized brand names including Wayne(R), Ashcroft(R), Mooney(TM), Roots(TM)
and Dresser(R).

     Power Systems. The power systems segment designs, manufactures and markets
natural gas fueled engines used primarily in natural gas compression and power
generation applications and rotary blowers and vacuum pumps. Our power systems
group markets its products under well-recognized brand names, including
Waukesha(R) and Roots(TM).

     The table below presents revenues and operating income by segment.


                                       8
<PAGE>


<Table>
<Caption>
                                                        THREE MONTHS ENDED
                                                             MARCH 31,
                                                      -----------------------
                                                        2002           2001
                                                     --------        --------

<S>                                                  <C>             <C>
Revenues:
    Flow Control                                     $  185.3        $  137.4
    Measurement Systems                                 121.6           136.5
    Power Systems                                        74.0            88.7
    Eliminations                                         (0.7)           (1.2)
                                                     --------        --------
Total                                                $  380.2        $  361.4
                                                     ========        ========


Operating income:
    Flow Control                                     $   21.7        $   16.7
    Measurement Systems                                   8.2             8.9
    Power Systems                                         6.1            13.7
    Corporate                                            (3.3)           (1.9)
                                                     --------        --------
Total                                                $   32.7        $   37.4
                                                     ========        ========
</Table>

NOTE 3. RECEIVABLES

     Accounts receivable are stated at their estimated net realizable value.
Included in receivables are notes receivable of $9.8 and $7.6 as of March 31,
2002 and December 31, 2001, respectively. Allowances for doubtful accounts of
$5.6 and $5.4 as of March 31, 2002 and December 31, 2001, respectively are
netted in the receivable balance.

NOTE 4. 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. Non-United States inventories are valued on a first-in, first-out (FIFO)
basis.

     Inventories on a LIFO method represented $81.0 and $91.0 of our inventories
as of March 31, 2002 and December 31, 2001, respectively. The excess of FIFO
over LIFO costs as of March 31, 2002 and December 31, 2001, were $69.8 and
$72.2, respectively. Inventories are summarized as follows:


                                       9
<PAGE>


<Table>
<Caption>
                                                                MARCH 31,     DECEMBER 31,
                                                                  2002            2001
                                                                ---------     ------------

<S>                                                             <C>             <C>
Finished products and parts                                     $  190.1        $  203.0
In-process products and parts                                      120.7           105.4
Raw materials and supplies                                          82.7            89.8
                                                                --------        --------
         Total inventory                                        $  393.5        $  398.2

Less:
   LIFO reserve and full absorption                                (66.1)          (67.9)
   Progress payments on contracts                                   (2.8)           (2.0)
                                                                --------        --------
         Inventories, net                                       $  324.6        $  328.3
                                                                ========        ========
</Table>

NOTE 5. ACCOUNTS AND NOTES PAYABLE

     Accounts and notes payable at March 31, 2002 and December 31, 2001,
consisted of the following:

<Table>
<Caption>
                                                               MARCH 31,     DECEMBER 31,
                                                                 2002            2001
                                                               ---------     ------------

<S>                                                             <C>             <C>
Short-term notes payable                                        $  37.2         $  39.3
Current portion of long-term debt                                   4.8            25.0
Accounts payable                                                  164.0           181.0
                                                                -------         -------
         Total                                                  $ 206.0         $ 245.3
                                                                =======         =======
</Table>

NOTE 6. DEBT

     In March 2002, we issued an additional $250 of 9 3/8% senior subordinated
notes due 2011 under the indenture that governs the 2001 notes. The notes were
issued at 102.5% and accrued interest from October 15, 2001. We recorded a $6.3
premium that will be amortized over the term of the notes, and be recorded as a
reduction to interest expense. The net proceeds were used to repay existing
indebtedness under the Tranche A term loans of the credit facility. This
repayment significantly reduced the principal balances of the Tranche A term
loans. As a result, we recorded a loss of $12.9, which represented a write-off
of an allocable portion of the unamortized debt issuance costs. This loss has
been reflected in interest expense in our condensed consolidated financial
statements.

     In March 2002, we also obtained an amendment to the credit facility. The
amendment revised certain financial covenants to provide us with greater
operating flexibility. The amendment also modified the amount that the Tranche B
term loan of the credit facility can be increased from $95 to $195.

     Fees paid in connection with the issuance of the notes and the amendment
were $5.5 and $1.0, respectively at the time of closing. The deferred financing
fees will be amortized to interest expense on a straight-line basis (which
approximates the effective interest method) over the terms of the respective
debt.

     The principal balance of our Euro Tranche A term loan was significantly
reduced with the use of proceeds from the note offering. As a result, an
interest rate swap, which was designated as a hedge on the Euro Tranche A,
became ineffective and no longer eligible to receive accounting treatment as a
hedge. As a result, changes in the fair



                                       10
<PAGE>

market value of the interest rate swap will be recorded through earnings rather
than accumulated other comprehensive income. The unrealized loss was
reclassified from accumulated other comprehensive income and we recorded a
charge to earnings of $0.6, which is reflected in interest expense in our
condensed consolidated statement of operations.

NOTE 7. COMPREHENSIVE INCOME

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

<Table>
<Caption>
                                                             THREE MONTHS ENDED
                                                                  MARCH 31,
                                                             ------------------
                                                              2002         2001
                                                             -----        ------
                                                           Restated

<S>                                                          <C>           <C>
Net (loss) income                                            $ (0.4)       $  19.5
Other comprehensive income
    Foreign currency translation adjustment                     1.8           (4.5)
    Unrealized loss on derivative instruments                  (0.5)          (2.1)
                                                             ------        -------
Comprehensive income                                         $  0.9        $  12.9
                                                             ======        =======
</Table>

NOTE 8. COMMITMENTS AND CONTINGENCIES

HALLIBURTON INDEMNIFICATIONS

     In accordance with the Agreement, Halliburton has agreed to indemnify the
Company for certain items. The indemnification items generally include any
product liability claim or product warranty claim arising out of any products
relating to any discontinued product or service line of the Company. In
addition, Halliburton has generally agreed to indemnify the Company for any
product liability claim made prior to closing the Agreement, any environmental
liability claim against the Company, any loss, liability, damage or expense from
any legal proceeding initiated prior to closing of the Agreement, any loss,
liability, damage or expense relating to worker's compensation, general
liability, and automobile liability arising out of events or occurrences prior
to the closing as to which the Company notifies Halliburton prior to the third
anniversary of the closing date. The maximum aggregate amount of losses
indemnifiable by Halliburton pursuant to the recapitalization agreement is
$950.0. Based on these indemnity rights, only liabilities related to exposures
not specifically covered above have been included in the consolidated financial
statements.

ENVIRONMENTAL

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

      These environmental laws also impose liability for personal injury or
property damage related to releases of hazardous substances. Permits are
required for operation of the Company's businesses, and these permits are
subject to renewal, modification and, in certain circumstances, revocation. The
Company believes it is substantially in compliance with these laws and
permitting requirements. The Company's businesses also are subject to regulation
under substantial, various and changing federal, state, local and foreign laws
and regulations which allow regulatory authorities and private parties to compel
(or seek reimbursement for) cleanup of environmental contamination at sites now
or formerly owned or operated by the Company's businesses and at facilities
where their waste is or has been disposed. Going forward, the Company expects to
incur ongoing capital and operating costs for investigation



                                       11
<PAGE>

and remediation and to maintain compliance with currently applicable
environmental laws and regulations; however, the Company does not expect those
costs, in the aggregate, to be material.

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

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

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

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

NOTE 9. RECENT ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 141 "Business Combinations" and SFAS No. 142 "Goodwill
and Other Intangibles".

     SFAS No. 141 supercedes Accounting Principles Board Opinion ("APB") No. 16,
"Business Combinations," and eliminates the pooling of interest method of
accounting for business combinations and modifies the application of the
purchase accounting method. SFAS No. 141 requires business combinations
initiated after June 30, 2001, to be accounted for using the purchase accounting
method. SFAS No. 141 also further clarifies the criteria for recognition of
intangible assets separately from goodwill. Our adoption of this standard did
not have any effect on our consolidated financial statements.

     SFAS No. 142 supercedes APB No. 17, "Intangible Assets," and eliminates the
requirement to amortize goodwill and indefinite lived assets, addresses the
amortization of intangible assets with defined lives and requires impairment
testing of intangible assets. Accordingly, as of January 1, 2002, we no longer
amortize goodwill and will perform a transitional impairment test of our
existing goodwill by June 30, 2002 and annual impairments thereafter. We are
still evaluating the impact that the transitional impairment test will have on
our financial position and results of operations. There have been no changes to
the carrying value of our goodwill since December 31, 2001 other than changes
resulting from foreign currency translation. If goodwill amortization was
excluded in the three months ended March 31, 2001, our net income would have
increased by approximately $2.1 to $21.6.

     In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 will be effective for financial statements
issued



                                       12
<PAGE>

for fiscal years beginning after June 15, 2002. An entity shall recognize the
cumulative effect of adoption of SFAS No. 143 as a change in accounting
principle. We are currently evaluating the impact this statement will have on
our financial position and results of operations.

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment and Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 144 primarily addresses significant issues
relating to the implementation of SFAS No. 121 and develops a single accounting
model for long-lived assets to be disposed of, whether previously held and used
or newly acquired. The provisions of SFAS No. 144 were effective for fiscal
years beginning after December 15, 2001. We adopted this statement on January 1,
2002. There was no impact to our operating results or financial position as a
result of adopting this standard.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendments of FASB No. 13 and Technical Corrections." SFAS No.
145 rescinds SFAS No. 4 "Reporting Gains and Losses from Extinguishment of
Debt," which required all gains and losses from the extinguishment of debt to be
classified as an extraordinary item. SFAS No. 64, "Extinguishment of Debts Made
to Satisfy Sinking Fund Requirements," amended SFAS No. 4 and is no longer
necessary as SFAS No. 4 has been rescinded. SFAS No. 44 "Accounting for
Intangible Assets of Motor Carriers" established accounting requirements for the
effects of the transition to the provisions of the Motor Carrier Act of 1980. As
the transition is complete, SFAS No. 44 is no longer necessary. This statement
also amends SFAS No. 13, "Accounting for Leases" and requires that certain lease
modifications that have the economic effects similar to the sale-leaseback
transaction be accounted for in the same manner as a sale-leaseback transaction.
This statement also makes technical corrections to existing pronouncements. The
statement is effective for fiscal years beginning after May 15, 2002. During
March 2002, we substantially repaid the principal balances of our Tranche A term
loans, and as a result, we recorded a loss of $12.9, which represented the
write-off of unamortized debt issuance costs. These costs have been reflected as
interest expense in our condensed consolidated statements of operations, and
have not been classified as an extraordinary item.

NOTE 10. SUPPLEMENTAL GUARANTOR INFORMATION

     In connection with our senior subordinated notes due 2011 (the "Notes"),
certain of our subsidiaries ("Subsidiary Guarantors") guaranteed, jointly and
severally, our obligation to pay principal and interest on the Notes on a full
and unconditional basis. The guarantors of the Notes will include only our
wholly-owned domestic subsidiaries. The following supplemental consolidating
condensed financial information presents the balance sheet as of March 31, 2002
and the statements of operations and cash flows for the three months ended March
31, 2002 and 2001, respectively. In the consolidating condensed 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.



                                       13
<PAGE>

                                  DRESSER, INC.
                      CONDENSED CONSOLIDATING BALANCE SHEET
                                 MARCH 31, 2002
                                  (IN MILLIONS)
                                   (UNAUDITED)
                                   (restated)

<Table>
<Caption>
                                                                              SUBSIDIARY  NON-GUARANTOR                    TOTAL
                                                                   PARENT     GUARANTORS   SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED
                                                                  --------    ----------  -------------  ------------  ------------
<S>                                                               <C>           <C>          <C>          <C>            <C>
ASSETS
Current Assets:
   Cash and equivalents                                           $   55.7      $     --     $   41.3     $      --      $   97.0
   Receivables, net                                                  143.8            --        167.2            --         311.0
   Inventories, net                                                  166.4            --        158.2            --         324.6
   Other current assets                                                4.8            --          9.1            --          13.9
                                                                  --------      --------     --------     ---------      --------
Total current assets                                                 370.7            --        375.8            --         746.5

Property, plant and equipment, net                                   156.7            --         72.9            --         229.6
Investments in consolidated subsidiaries                             575.0         565.7           --      (1,140.7)           --
Investment in unconsolidated subsidiaries                              0.2            --          5.6            --           5.8
Long-term receivables and other assets                                50.4            --         16.6            --          67.0
Deferred tax assets                                                   95.6            --          0.9            --          96.5
Goodwill, net                                                        114.1           9.3        283.8            --         407.2
Intangibles, net                                                       2.4            --          2.7            --           5.1

                                                                  --------      --------     --------     ---------      --------
Total assets                                                      $1,365.1      $  575.0     $  758.3     $(1,140.7)     $1,557.7
                                                                  ========      ========     ========     =========      ========


LIABILITIES AND SHAREHOLDERS' (DEFICIT)  EQUITY

Current liabilities:
   Accounts and notes payable                                     $   75.5      $     --     $  130.5     $      --      $  206.0
   Contract advances                                                   4.8            --          4.4            --           9.2
   Accrued expenses                                                   77.9            --         48.3            --         126.2
                                                                  --------      --------     --------     ---------      --------
Total current liabilities                                            158.2            --        183.2            --         341.4

Pension and other retiree benefits                                   224.5            --        (16.6)           --         207.9
Long-term debt                                                     1,007.2            --          7.4            --       1,014.6
Other liabilities                                                     17.2            --         18.6            --          35.8
Commitments and contingencies
                                                                  --------      --------     --------     ---------      --------
Total liabilities                                                  1,407.1            --        192.6            --       1,599.7

Shareholders' (deficit) equity:
Shareholders' (deficit) equity, net                                  (46.7)        575.0        643.0      (1,182.0)        (10.7)
Accumulated other comprehensive loss                                   4.7            --        (77.3)         41.3         (31.3)
                                                                  --------      --------     --------     ---------      --------
Total shareholders' (deficit) equity                                 (42.0)        575.0        565.7      (1,140.7)        (42.0)
                                                                  --------      --------     --------     ---------      --------
Total liabilities and shareholders' (deficit) equity              $1,365.1      $  575.0     $  758.3     $(1,140.7)     $1,557.7
                                                                  ========      ========     ========     =========      ========
</Table>



                                       14
<PAGE>


                                  DRESSER, INC.
                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                DECEMBER 31, 2001
                                  (IN MILLIONS)


<Table>
<Caption>
                                                                        SUBSIDIARY  NON-GUARANTOR                    TOTAL
                                                             PARENT     GUARANTORS   SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED
                                                            --------    ----------  -------------  ------------  ------------
                                                          (unaudited)   (unaudited)  (unaudited)    (unaudited)

<S>                                                         <C>         <C>         <C>            <C>           <C>
ASSETS
Current Assets:
   Cash and equivalents                                     $   30.9      $     --     $   66.3      $     --      $   97.2
   Receivables, net                                            143.5            --        172.7            --         316.2
   Inventories, net                                            171.3            --        157.0            --         328.3
   Other current assets                                          2.9            --          7.5            --          10.4
                                                            --------      --------     --------      --------      --------
Total current assets                                           348.6            --        403.5            --         752.1

Property, plant and equipment, net                             159.8            --         76.1            --         235.9
Investments in consolidated subsidiaries                       437.8         428.5           --        (866.3)           --
Investment in unconsolidated subsidiaries                        0.4            --          4.4            --           4.8
Long-term receivables and other assets                          67.5            --         19.3            --          86.8
Deferred tax assets                                             95.6            --           --            --          95.6
Goodwill, net                                                  114.2           9.3        285.2            --         408.7
Intangibles, net                                                 2.6            --          3.2            --           5.8

                                                            --------      --------     --------      --------      --------
Total assets                                                $1,226.5      $  437.8     $  791.7      $ (866.3)     $1,589.7
                                                            ========      ========     ========      ========      ========

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

Current liabilities:
   Accounts and notes payable                               $   74.9      $     --     $  170.4      $     --      $  245.3
   Contract advances                                             4.4            --          6.1            --          10.5
   Accrued expenses                                             44.2            --         93.0            --         137.2
                                                            --------      --------     --------      --------      --------
Total current liabilities                                      123.5            --        269.5            --         393.0

Pension and other retiree benefits                             214.3            --           --            --         214.3
Long-term debt                                                 913.6            --         86.4            --       1,000.0
Other liabilities                                               18.7            --          7.3            --          26.0
Commitments and contingencies
                                                            --------      --------     --------      --------      --------
Total liabilities                                            1,270.1            --        363.2            --       1,633.3

Shareholders' (deficit) equity:
Shareholders' (deficit) equity, net                            (47.9)        437.8        506.7        (907.6)        (11.0)
Accumulated other comprehensive income (loss)                    4.3            --        (78.2)         41.3         (32.6)
                                                            --------      --------     --------      --------      --------
Total shareholders' (deficit) equity                           (43.6)        437.8        428.5        (866.3)        (43.6)
                                                            --------      --------     --------      --------      --------
Total liabilities and shareholders' (deficit) equity        $1,226.5      $  437.8     $  791.7      $ (866.3)     $1,589.7
                                                            ========      ========     ========      ========      ========
</Table>



                                       15
<PAGE>


                                  DRESSER, INC.
                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2002
                                  (IN MILLIONS)
                                   (UNAUDITED)
                                   (restated)

<Table>
<Caption>
                                                                        SUBSIDIARY  NON-GUARANTOR                    TOTAL
                                                             PARENT     GUARANTORS   SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED
                                                            --------    ----------  -------------  ------------  ------------

<S>                                                         <C>         <C>         <C>            <C>           <C>
Revenues                                                    $ 244.2       $    --      $ 163.6        $ (27.6)      $ 380.2
Cost of revenues                                              180.3            --        120.6          (27.5)        273.4
                                                            -------       -------      -------        -------       -------
     Gross profit                                              63.9            --         43.0           (0.1)        106.8
Selling, engineering, administrative and general
expenses                                                       46.4            --         27.8           (0.1)         74.1
                                                            -------       -------      -------        -------       -------
Operating income                                               17.5            --         15.2             --          32.7
Equity income of consolidated subsidiaries                      7.9           7.9           --          (15.8)           --
Interest expense                                              (31.4)           --         (2.8)            --         (34.2)
Other income (deductions), net                                  0.3            --          0.6             --           0.9
                                                            -------       -------      -------        -------       -------
Income before taxes                                            (5.7)          7.9         13.0          (15.8)         (0.6)
Benefit (provision) for income taxes                            5.3            --         (5.1)            --           0.2
                                                            -------       -------      -------        -------       -------
Net income (loss)                                           $  (0.4)      $   7.9      $   7.9        $ (15.8)      $  (0.4)
                                                            =======       =======      =======        =======       =======
</Table>



                                       16
<PAGE>


                                  DRESSER, INC.
                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2001
                                  (IN MILLIONS)
                                   (UNAUDITED)

<Table>
<Caption>
                                                                        SUBSIDIARY  NON-GUARANTOR                    TOTAL
                                                             PARENT     GUARANTORS   SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED
                                                            --------    ----------  -------------  ------------  ------------

<S>                                                         <C>         <C>         <C>            <C>           <C>
Revenues                                                    $ 253.9            --      $ 136.0       $ (28.5)       $ 361.4
Cost of revenues                                              182.8            --         94.6         (27.3)         250.1
                                                            -------       -------      -------       -------        -------
     Gross profit                                              71.1            --         41.4          (1.2)         111.3
Selling, engineering, administrative and general
  expenses                                                     50.6            --         24.5          (1.2)          73.9
                                                            -------       -------      -------       -------        -------
Operating income                                               20.5            --         16.9            --           37.4
Equity income of consolidated subsidiaries                      8.0           8.0           --         (16.0)            --
Interest expense                                                 --            --         (0.8)           --           (0.8)
Other income (deductions), net                                 (1.8)           --          0.2            --           (1.6)
                                                            -------       -------      -------       -------        -------
Income before taxes                                            26.7           8.0         16.3         (16.0)          35.0
Provision for income taxes                                     (7.2)           --         (8.3)           --          (15.5)
                                                            -------       -------      -------       -------        -------
Net income (loss)                                           $  19.5       $   8.0      $   8.0       $ (16.0)       $  19.5
                                                            =======       =======      =======       =======        =======
</Table>




                                       17
<PAGE>

                                  DRESSER, INC.
                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2002
                                  (IN MILLIONS)
                                   (UNAUDITED)
                                   (RESTATED)

<Table>
<Caption>
                                                                        SUBSIDIARY  NON-GUARANTOR                    TOTAL
                                                             PARENT     GUARANTORS   SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED
                                                            --------    ----------  -------------  ------------  ------------
<S>                                                         <C>         <C>         <C>            <C>           <C>
Cash flows from operating activities:
Net loss (income)                                           $  (0.4)     $   7.9       $   7.9       $ (15.8)      $  (0.4)
Adjustments to reconcile net income
  cash flow provided by operating activities:
     Depreciation and amortization                              7.2           --           3.7            --          10.9
     Loss on repayment of debt                                 12.9           --            --            --          12.9
     Equity earnings of consolidated affiliates                (7.9)        (7.9)           --          15.8            --
     Equity earnings of unconsolidated
     affiliates                                                  --           --          (0.7)           --          (0.7)
     Changes in working capital                                (7.3)          --          (5.6)           --         (12.9)
                                                            -------      -------       -------       -------       -------
Net cash (used in) provided by operating                        4.5           --           5.3            --           9.8
activities

Cash flows from investing activities:
     Capital expenditures                                      (3.8)          --          (1.0)           --          (4.8)
                                                            -------      -------       -------       -------       -------
Net cash used in investing activities                          (3.8)          --          (1.0)           --          (4.8)

Cash flows from financing activities:
     Changes  in intercompany activity                        (67.6)          --          67.6            --            --
     Proceeds from the issuance of long term debt             256.3           --            --            --         256.3
     Repayment of debt (including current portion)           (158.3)          --         (95.7)           --        (254.0)
     Decrease in short-term notes payable                        --           --          (2.1)           --          (2.1)
     Payment of deferred financing fees                        (6.3)          --          (0.2)           --          (6.5)
                                                            -------      -------       -------       -------       -------
Net cash provided by (used in) financing                       24.1           --         (30.4)           --          (6.3)
activities

Effect of translation adjustments on cash                        --           --           1.1            --           1.1
Net increase (decrease) in cash and equivalents                24.8           --         (25.0)           --          (0.2)
Cash and equivalents, beginning of period                      30.9           --          66.3            --          97.2

                                                            -------      -------       -------       -------       -------
Cash and equivalents, end of period                         $  55.7      $    --       $  41.3       $    --       $  97.0
                                                            =======      =======       =======       =======       =======
</Table>



                                       18
<PAGE>

                                  DRESSER, INC.
                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2001
                                  (IN MILLIONS)
                                   (UNAUDITED)


<Table>
<Caption>
                                                                        SUBSIDIARY  NON-GUARANTOR                    TOTAL
                                                             PARENT     GUARANTORS   SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED
                                                            --------    ----------  -------------  ------------  ------------

<S>                                                         <C>         <C>         <C>            <C>           <C>

Cash flows from operating activities:
Net income                                                  $   19.5     $    8.0    $    8.0        $  (16.0)     $   19.5
Adjustments to reconcile net income
  cash flow provided by operating activities:
     Depreciation and amortization                               7.7           --         5.8              --          13.5
     Equity earnings of consolidated affiliates                 (8.0)        (8.0)         --            16.0            --
     Equity earnings of unconsolidated
     affiliates                                                   --           --        (0.1)             --          (0.1)
     Changes in working capital                                 98.9           --       (21.5)             --          77.4
                                                            --------     --------    --------        --------      --------
Net cash provided by (used in) operating activities            118.1           --        (7.8)             --         110.3

Cash flows from investing activities:
     Capital expenditures                                       (4.1)          --        (2.1)             --          (6.2)
                                                            --------     --------    --------        --------      --------
Net cash used in investing activities                           (4.1)          --        (2.1)             --          (6.2)

Cash flows from financing activities:
     Changes equity in intercompany activity                  (125.9)          --        16.7              --        (109.2)
     Decrease in short-term notes payable                         --           --        (4.3)             --          (4.3)
     Cash overdrafts                                            13.3           --        27.9              --          41.2
                                                            --------     --------    --------        --------      --------
Net cash (used in) provided by financing
activities:                                                   (112.6)          --        40.3              --         (72.3)

Effect of translation adjustments on cash                         --           --        (1.3)             --          (1.3)
Net increase in cash and equivalents                             1.4           --        29.1              --          30.5
Cash and equivalents, beginning of period                        5.5           --        14.2              --          19.7

                                                            --------     --------    --------        --------      --------
Cash and equivalents, end of period                         $    6.9     $     --    $   43.3        $     --      $   50.2
                                                            ========     ========    ========        ========      ========
</Table>



                                       19
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

     Certain statements in this Form 10-Q constitute "forward-looking
statements" as that term is defined under Section 21E of the Securities and
Exchange Act of 1934, as amended, and the Private Securities Litigation Reform
Act of 1995. The words "believe," "expect," "anticipate," "intend," "estimate"
and other expressions, which are predictions of or indicate future events and
trends and which do not relate to historical matters identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements. Although forward-looking statements reflect
management's good faith beliefs, reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors, which may cause our actual results, performance
or achievements to differ materially from anticipated future results,
performance or achievements expressed or implied by such forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise. These forward-looking statements are subject to numerous risks and
uncertainties, including, but not limited to, the impact of general economic
conditions in the regions in which we do business; general industry conditions,
including competition and product, raw material and energy prices; changes in
exchange rates and currency values; capital expenditure requirements; access to
capital markets and the risks and uncertainties described in Part
I--Business--Certain Risk Factors in our 2001 Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES

     Our discussion and analysis of our financial condition and results of
operations are based on our condensed consolidated financial statements, which
have been prepared in accordance with GAAP. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, and expenses and related disclosures
of contingent liabilities. In our Annual Report on Form 10-K for the year ended
December 31, 2001, we identified and disclosed critical accounting policies,
which included revenue recognition, inventory obsolescence, product warranties
and income taxes. We reviewed our policies and have determined that those
critical policies remain and have not changed since December 31, 2001.

OVERVIEW

     We design, manufacture and market highly engineered equipment and services
sold primarily to customers in the energy industry. Our primary business
segments are flow control, measurement systems and power systems. We sell our
products and services to customers, which include major oil companies,
multinational engineering and construction companies and other industrial firms.
Our total revenues by geographic region for the three months ended March 31,
2002, consisted of North America (56.6%), Europe/Africa (23.3%), Latin America
(6.1%), Asia (9.8%) and the Middle East (4.2%). We have pursued a strategy of
customer, geographic and product diversity to mitigate the impact of an economic
downturn on our business in any one part of the world or in any single business
segment.

     For the three months ended March 31, 2002, we generated revenue of $380.2
million, operating income of $32.7 million and earnings before interest, taxes,
depreciation, and amortization ("EBITDA") of $43.6 million.

MARKET FORCES

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

     Long-term demand for energy infrastructure equipment and services is driven
by increases in worldwide energy consumption, which is a function of worldwide
population growth and the levels of energy consumption per capita. In the short
term, demand for our products is affected by overall worldwide economic
conditions and by fluctuations in the level of activity and capital spending by
major, national and independent oil and gas companies, gas distribution
companies, pipeline companies, power generation companies and petrochemical
processing plants. 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 customer's cash flow and their outlook for future
natural gas prices effects their capital spending which drives demand for our
products. Our customers have publicly indicated they intend to



                                       20
<PAGE>

reduce their capital spending in 2002, and these reductions will negatively
impact our business. In the latter part of 2001, energy demand and oil and
natural gas prices declined significantly. Excess capacity in the natural gas
compression industry resulted in substantial revenue declines in our power
systems segment in the first quarter of 2002 as compared to the first quarter of
2001. We also saw weakness in the retail fueling and instrument business of our
measurement systems due to the reduced capital spending on retail fuel equipment
and softness in the industrial economy in the first quarter of 2002.

STAND-ALONE COMPANY

     The quarterly condensed consolidated financial statements for periods
presented prior to March 31, 2001 have been derived from the consolidated
financial statements of the DEG business unit of Halliburton. The preparation of
this information was based on certain assumptions and estimates including
allocations of costs from Halliburton, which we believe are reasonable. These
quarterly condensed consolidated financial statements may not, however,
necessarily reflect the results of operations, financial positions and cash
flows that would have occurred if our company had been a separate, stand-alone
entity during the periods presented prior to March 31, 2001.

EFFECTS OF CURRENCY FLUCTUATIONS AND INFLATION

     We conduct operations in over 100 countries around the world. Therefore,
our results of operations are subject to both currency transaction risk and
currency translation risk. We incur currency transaction risk whenever we or one
of our subsidiaries enter into either a purchase or sales transaction using a
currency other than the functional currency of the transacting entity. With
respect to currency translation risk, our financial condition and results of
operations are measured and recorded in the relevant local currency and then
translated into U.S. dollars for inclusion in our historical consolidated
financial statements. Exchange rates between these currencies and U.S. dollars
in recent years have fluctuated significantly and may do so in the future. The
majority of our revenues and costs are denominated in U.S. dollars, with
Euro-related and other currencies also being significant. Historically, we have
engaged in hedging strategies from time to time to reduce the effect of currency
fluctuations on specific transactions. We have not, however, sought to hedge
currency translation risk. We expect to continue these hedging policies going
forward. Significant depreciation in the value of the Euro relative to the U.S.
dollar could have a material adverse effect on our financial condition and our
ability to meet interest and principal payments on U.S. dollar denominated debt,
including the notes and borrowings under our credit facility, if not offset by
pricing in those markets.

REVENUES

     Our revenues are primarily generated through the sale of new equipment,
replacement parts and services. Revenues are recognized as products are shipped
and services are rendered. Revenues have historically been driven by volume,
rather than price, and are sensitive to foreign currency fluctuations.

COST OF REVENUES

      Cost of revenues is comprised of the cost of raw materials, plant and
related work force costs and freight and warehousing expense.

GROSS MARGIN

     Certain of our products tend to carry higher gross margins than others, and
therefore product mix can impact our overall gross margins. For example, our
custom engineered valve products typically carry a significantly higher gross
margin than our retail fuel dispensing products. As a result, an increase in
custom engineered valve sales will result in a disproportionately higher
increase in our gross profit. In addition, sales of aftermarket parts and
services typically carry a significantly higher gross margin than original
product sales.



                                       21
<PAGE>

SELLING, ENGINEERING, ADMINISTRATIVE AND GENERAL EXPENSES

     Selling expenses consist of costs associated with marketing and sales.
Administrative and general expenses are primarily management, accounting,
treasury and legal costs. Engineering expenses are costs attributable to
research and development and engineering. Selling, general and administrative
expenses also include costs associated with health, safety and environmental
administration and retiree medical and pension benefits. Research and
development expenses are costs associated with product or customer initiatives
or with projects that seek improvements in manufacturing processes. Research and
development expenses are expensed as incurred.

DEPRECIATION AND AMORTIZATION

     Property, plant and equipment are reported at cost less accumulated
depreciation, which is generally provided using the straight-line method over
the estimated useful lives of the assets. Expenditures for improvements that
extend the life of the asset are generally capitalized. Intangible assets
primarily consist of goodwill and patents. In January 2002, we adopted SFAS No.
142 and stopped amortizing goodwill. For the three months ended March 31, 2001
we recorded approximately $2.1 million of amortization expense related to
goodwill. Depreciation and amortization for the three months ended March 31,
2002 and 2001 was $10.9 million and $13.5 million, respectively, with the
decrease primarily related to the absence of amortization of goodwill.

INCOME TAXES

     Prior to March 31, 2001, our operations had been included in the tax
returns submitted by various Halliburton operating companies. The tax amounts
reflected in our historical results have been allocated based on the amounts
expected to be paid to or received from the various Halliburton operating
companies filing tax returns in which our operations were included. In
connection with the recapitalization transactions, a Section 338(h)(10) election
was made to allow the recapitalization of our domestic businesses to be treated
as an acquisition of assets for tax purposes. Accordingly, for tax purposes our
U.S. assets were stepped up to their fair market value and we will be able to
depreciate those assets using a higher basis than the historical amount. We
expect that these tax assets will result in a substantial decrease in our cash
taxes, and therefore increase our cash available for debt service or investment
in our business over the next few years.

INTEREST EXPENSE

     As part of Halliburton, no third party debt was allocated to us except for
operational accounts payable. As a result, we did not have any significant
interest expense. As part of the recapitalization transactions, we incurred a
significant amount of debt. Accordingly, we incurred significant interest
expense beginning in the second quarter of 2001 and will continue to incur
significant interest expense going forward.

BOOKINGS AND BACKLOG

     Bookings include orders placed during the period whether or not filled.
Backlog as of any date represents the value of orders left unfilled as of that
date.

BUSINESS SEGMENT INFORMATION

     We operate under three reportable segments: flow control, measurement
systems and power systems. The business segments are organized around the
products and services provided to the customers each serves. During the second
quarter of 2002, we made changes to our internal corporate structure with the
reorganization of certain of our operating units. As a result, starting in the
second quarter of 2002, the operating units that comprise each reportable
segment will change, although we will still report under three reportable
segments. This reorganization is not reflected in the discussion of segment
reporting for the quarter ended March 31, 2002 included in this report.



                                       22
<PAGE>

RESULTS OF OPERATIONS

     The following table presents selected financial information regarding each
of our segments for the three months ended March 31, 2002 and 2001,
respectively.

<Table>
<Caption>
                                                             THREE MONTHS ENDED        PERIOD TO PERIOD
                                                                  MARCH 31,                 CHANGE
                                                            --------------------      -------------------
                                                                                      2002 TO         %
                                                              2002         2001        2001        CHANGE
                                                            -------      -------      -------      ------
                                                                            (in millions)

<S>                                                         <C>          <C>          <C>          <C>
Revenues:
    Flow Control                                            $ 185.3      $ 137.4      $  47.9         34.9%
    Measurement Systems                                       121.6        136.5        (14.9)       (10.9)%
    Power Systems                                              74.0         88.7        (14.7)       (16.6)%
    Eliminations                                               (0.7)        (1.2)         0.5        (41.7)%
                                                            -------      -------      -------       ------
Total                                                       $ 380.2      $ 361.4      $  18.8          5.2%
                                                            =======      =======      =======       ======

Operating income:
    Flow Control                                            $  21.7      $  16.7      $   5.0         29.9%
    Measurement Systems                                         8.2          8.9         (0.7)        (7.9)%
    Power Systems                                               6.1         13.7         (7.6)       (55.5)%
    Corporate                                                  (3.3)        (1.9)        (1.4)        73.7%
                                                            -------      -------      -------       ------
Total                                                       $  32.7      $  37.4      $  (4.7)       (12.6)%
                                                            =======      =======      =======       ======

Bookings:
    Flow Control                                            $ 190.0      $ 162.2      $  27.8         17.1%
    Measurement Systems                                       125.5        143.2        (17.7)       (12.4)%
    Power Systems                                              69.2         86.8        (17.6)       (20.3)%
    Corporate                                                    --           --           --           --
                                                            -------      -------      -------       ------
Total                                                       $ 384.7      $ 392.2      $  (7.5)        (1.9)%
                                                            =======      =======      =======       ======

Backlog:
    Flow Control                                            $ 308.7      $ 221.1      $  87.6         39.6%
    Measurement Systems                                        79.8         77.2          2.6          3.4%
    Power Systems                                              47.9         90.3        (42.4)       (47.0)%
    Corporate                                                  (3.1)        (5.3)         2.2        (41.5)%
                                                            -------      -------      -------       ------
Total                                                       $ 433.3      $ 383.3      $  50.0         13.0%
                                                            =======      =======      =======       ======

Depreciation and amortization:
    Flow Control                                            $   4.0      $   5.0      $  (1.0)       (20.0)%
    Measurement Systems                                         3.6          5.0         (1.4)       (28.0)%
    Power Systems                                               3.3          3.3           --           --
    Corporate                                                    --          0.2         (0.2)      (100.0)%
                                                            -------      -------      -------       ------
Total                                                       $  10.9      $  13.5      $  (2.6)       (19.3)%
                                                            =======      =======      =======       ======

Capital expenditures:
    Flow Control                                            $   1.7      $   1.0      $   0.7         70.0%
    Measurement Systems                                         1.5          3.7         (2.2)       (59.5)%
    Power Systems                                               1.6          1.5          0.1          6.7%
    Corporate                                                    --           --           --           --
                                                            -------      -------      -------       ------
Total                                                       $   4.8      $   6.2      $  (1.4)       (22.6)%
                                                            =======      =======      =======       ======
</Table>



                                       23
<PAGE>

THREE MONTHS ENDED MARCH 31, 2002 AS COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2001

CONSOLIDATED

     Revenues. Revenues increased by $18.8 million, or 5.2 %, to $380.2 million
in 2002 from $361.4 million in 2001. The increase in revenues was attributable
to increases in our flow control segment, which offset decreases in both our
measurement and power system segments. Our flow control segment benefited from
the acquisitions of Entech and Elliot Valve made in the second and third quarter
of 2001. Our measurement and power systems segments were negatively impacted by
weakness in the general industrial economy, low capital spending on retail fuel
equipment, and significant declines in demand for natural gas engines used for
gas compression, as compared to the first quarter of 2001.

     Cost of revenues. Cost of revenues as a percentage of revenues increased to
71.9% in 2002 from 69.2% in 2001. Higher manufacturing costs and an unfavorable
product mix affected our flow control segment. In addition, our power system
segment was negatively impacted by reduced manufacturing volume and resulting
inefficiencies and lower manufacturing absorption as compared to the first
quarter of 2001.

     Gross Profit. Gross profit decreased by $4.5 million, or 4.0% to $106.8
million in 2002 from $111.3 million in 2001. As a percentage of revenues, gross
profit also decreased from 30.8% in 2001 to 28.1% in 2002, primarily as a result
of the factors discussed above.

     Selling, Engineering, Administrative and General Expenses. Selling,
engineering, administrative and general expenses increased by $0.2 million to
$74.1 million in 2002 from $73.9 million in 2001. Selling, engineering,
administrative and general expenses decreased as a percentage of revenues, to
19.5% of revenues in 2002 from 20.4% of revenues in 2001. Increases in selling,
engineering, administrative and general expenses primarily related to higher
volume and acquisitions were generally offset by the suspension of goodwill
amortization in 2002. In addition, selling, engineering, administrative and
general expenses in 2001 included $4.0 million of expenses related to the
closure of a manufacturing facility.

     Operating Income. Operating income decreased by $4.7 million or 12.6%, to
$32.7 million in 2002 from $37.4 million in 2001. The decline was primarily a
result from declines in our power systems segment.

     Bookings and Backlog. Bookings during the 2002 period of $384.7 million
were 1.9% below bookings during the same period in 2001. Increased bookings in
our flow control segment were offset by declines in our measurement and power
systems segments. Backlog at March 31, 2002 period was $433.3 million compared
to $383.3 million at March 31, 2001, a 13.0% increase. The increase in backlog
was primarily attributable to increased backlog in our flow control segment.

SEGMENT ANALYSIS

     Flow Control. Revenues increased by $47.9 million, or 34.9%, to $185.3
million in 2002 from $137.4 million in 2001. Increases in our flow control
segment in part were attributable to the acquisitions of Entech and Elliot Valve
made in the second and third quarter of 2001. Revenues attributable to these
acquisitions were approximately $19.8 million with the remainder of the increase
attributable to increased volume in our on/off valve and our control valve
product lines.

     Operating income increased by $5.0 million, or 29.9%, to $21.7 million in
2002 from $16.7 million in 2001. Increases in operating income were due in part
to the acquisitions, as discussed above, which contributed approximately $1.4
million to the increase, with the remaining increase resulting from increased
volume.

     Bookings during the 2002 period of $190.0 million were 17.1% above bookings
during the 2001 period. Backlog at March 31, 2002 was $308.7 million, or 39.6%
above backlog at March 31, 2001. This increase in both



                                       24
<PAGE>

bookings and backlog were driven by contributions from acquisitions, which
accounted for $17.8 million and $31.2 million, respectively, as well as
increased orders in our on/off valve product lines.

     Capital expenditures increased by $0.7 million to $1.7 million in 2002 from
$1.0 million in 2001. The increase is primarily a result of capital expenditures
made by Entech and Elliot Valve; two companies which were acquired, in the
second and third quarter of 2001. Depreciation and amortization decreased by
$1.0 million to $4.0 million in 2002 from $5.0 million in 2001. The decrease is
primarily a result of the suspension of amortization of goodwill in 2002, with
the implementation of SFAS No. 142, as compared to $1.6 million of amortization
expense recorded in 2001. This was offset in part with increased depreciation
expense associated with increased capital expenditures.

     Measurement Systems. Revenues decreased by $14.9 million, or 10.9%, to
$121.6 million in 2002 from $136.5 million in 2001. The decrease in revenues was
in large part to the continued weakness in the U.S. general industrial economy
and low capital spending on retail fuel equipment.

     Operating income decreased by $0.7 million to $8.2 million in 2002, or
7.9%, compared to the prior year. In 2001, we recorded a $4.0 million in
expenses related to the closure and relocation of a retail fuel dispenser
facility. Excluding these expenses, operating income would have decreased by
$4.7 million resulting from the impact of lower sales volume.

     Bookings during the 2002 period of $125.5 million were 12.4% below bookings
during the 2001 period. Backlog at the end of the 2002 period was $79.8 million,
or 3.4% above backlog at the end of the 2001.

     Capital expenditures decreased by $2.2 million to $1.5 million in 2002 from
$3.7 million in 2001. Depreciation and amortization decreased by $1.4 million to
$5.0 million in 2002 from $3.6 million in 2001. The decrease is in part a result
of the suspension of amortization of goodwill in 2002, with the implementation
of SFAS No. 142, as compared to $0.5 million of amortization expense recorded in
2001.

     Power Systems. Revenues decreased by $14.7 million, or 16.6%, to $74.0
million in 2002 from $88.7 million in 2001. In the latter part of 2001 energy
demand and natural gas prices declined significantly. In the first quarter of
2002, we experienced decreases in sales of original equipment in our gas
compression industry of approximately $7.8 million and aftermarket part sales
also declined by approximately $4.4 million. During the first quarter of 2001,
revenues were positively affected by increased prices for natural gas, which
drove higher levels of customer spending. Demand for new engines and aftermarket
parts used in distributed power applications experienced growth. Revenues were
particularly strong in the first quarter of 2001 for aftermarket parts and
upgrade kits as customers in the gas compression industry experienced increased
utilization in their engines.

     Operating income decreased by $7.6 million, or 55.5%, to $6.1 million in
2002 from $13.7 million in 2001. Our operating income was primarily impacted by
declines in orders for engines used in gas compression as well as aftermarket
sales, as discussed above.

     Capital expenditures increased by $0.1 million to $1.6 million in 2002 from
$1.5 million in 2001. Depreciation and amortization remained constant at $3.3
million. The implementation of SFAS No. 142 did not impact amortization expense
for this segment, as no amortization of goodwill was recorded in this segment in
2001.

     Bookings during the 2002 period of $69.2 million were 20.3% below bookings
during the 2001 period, and continued to experience a downward trend throughout
the quarter. Backlog at the end of the 2002 period was $47.9 million, or 47.0%
below backlog at the end of the 2001 period. Declines in both bookings and
backlogs were due to a significant decrease in demand due to the lower prices of
natural gas as compared to the first quarter of 2001.

LIQUIDITY AND CAPITAL RESOURCES

     Historically, our primary source of cash has been from operations. Prior to
the recapitalization transaction, we participated in Halliburton's centralized
treasury management system whereby all of our cash receipts were remitted to
Halliburton and Halliburton funded all of our cash disbursements. Our primary
cash disbursements were for



                                       25
<PAGE>

capital expenditures and working capital. Following the consummation of the
recapitalization transactions, this practice ceased and we have established our
own cash management system.

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

     Cash and cash equivalents were $97.0 million and $50.2 million for the
three months ended March 31, 2002 and 2001 respectively. A significant portion
of our cash and cash equivalent balances is utilized in our international
operations and may not be immediately available to service debt in the United
States.

     Net cash flow provided by operating activities was $9.8 million and $110.3
million for the three months ended March 31, 2002 and 2001, respectively. For
the three months ended March 31, 2001, we were still a part of Halliburton's
central cash disbursement system. These advances from Halliburton were reflected
as cash flows from operations.

     Net cash flow used in investing activities was $4.8 million and $6.2
million for the three months ended March 31, 2002 and 2001, respectively. The
cash flow used in investing activities resulted from capital expenditures for
both the three months ended March 31, 2002 and 2001, respectively.

     Net cash flow used in financing activities was $6.3 million for the three
months ended March 31, 2002, resulting primarily from the issuance of the
additional senior subordinated notes, offset by the repayment of debt with the
use of the proceeds from the notes and the payment of deferred financing fees.
Net cash flow used in financing activities was $72.3 million for the three
months ended March 31, 2001 resulting primarily from the net distributions made
to Halliburton.

     In March 2002, we issued an additional $250 million of 9 3/8% senior
subordinated notes due 2011 under the indenture that governs the 2001 notes. The
notes were issued at 102.5% and accrued interest from October 15, 2001. We
recorded a $6.3 million premium that will be amortized over the term of the
notes, and be recorded as a reduction to interest expense. The net proceeds were
used to repay existing indebtedness under the Tranche A term loans of the credit
facility. Fees paid in connection with the issuance were approximately $5.5
million. This repayment significantly reduced the principal balances of the
Tranche A term loans. As a result, we recorded a loss of $12.9 million, which
represented a write-off of an allocable portion of the unamortized debt issuance
costs. This loss has been reflected in interest expense in our condensed
consolidated financial statements.

     In March 2002, we also obtained an amendment to our credit facility. The
amendment revised certain financial covenants to provide us with greater
operating flexibility. The amendment also modified the amount that Tranche B
term loan of the credit facility can be increased from $95 million to $195
million. Fees paid in connection with the amendment were approximately $1.0
million.

     As of March 31, 2002, we had $556.3 of senior subordinated notes (including
a $6.3 million premium), $6.4 million under the Tranche A term loans and $451.6
million Tranche B term loan under the credit facility, and $5.1 million of other
long term debt. In addition, we have a $100.0 million revolving credit facility,
subject to certain conditions, of which $70.1 million was available and $29.9
million was reserved for letters of credit as of March 31, 2002.



                                       26
<PAGE>

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

<Table>
<Caption>
                                                                                                    2007 AND
                                                    2002      2003      2004      2005      2006    THEREAFTER     TOTAL
                                                    ----      ----      ----      ----      ----    ----------     -----
                                                                              (IN MILLIONS)

<S>                                               <C>       <C>       <C>       <C>       <C>         <C>        <C>
CONTRACTUAL CASH OBLIGATIONS
Long-Term Debt(1)                                 $   4.5   $   6.4   $   6.6   $   7.0   $   7.1     $  981.5   $  1,013.1
Capital Lease Obligations                             1.2       1.0       0.8       0.6       0.7          0.5          4.8
Operating Leases                                     10.3      11.2       9.7       7.5       4.4         10.8         53.9
                                                  -------   -------   -------   -------   -------     --------   ----------
Total Contractual Cash Obligations                $  16.0   $  18.6   $  17.1   $  15.1   $  12.2     $  992.8   $  1,071.8
                                                  =======   =======   =======   =======   =======     ========   ==========
</Table>

<Table>
<Caption>
                                                                                                    2007 AND
                                                    2002      2003      2004      2005      2006    THEREAFTER     TOTAL
                                                    ----      ----      ----      ----      ----    ----------     -----
                                                                              (IN MILLIONS)

<S>                                               <C>       <C>       <C>       <C>       <C>         <C>        <C>
COMMITMENTS
Letters of Credit                                 $  27.9   $  1.8    $  0.2     $  --    $  --       $  --       $  29.9
                                                  -------   ------    ------     -----    -----       -----       -------
Total Commitments                                 $  27.9   $  1.8    $  0.2     $  --    $  --       $  --       $  29.9
                                                  =======   ======    ======     =====    =====       =====       =======
</Table>

(1) Excludes a $6.3 premium which will be amortized over the term of the notes

     Our ability to make payments on and to refinance our indebtedness,
including the notes, 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 flow from operations, available
cash and available borrowings under the new 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 flow from
operations, that currently anticipated cost savings, working capital reductions
and operating improvements will be realized on schedule or that future
borrowings will be available to us under the revolving credit portion of our new
credit facility in an amount sufficient to enable us to pay our indebtedness,
including the notes, or to fund our other liquidity needs. If we consummate an
acquisition, our debt service requirements could increase. We may need to
refinance all or a portion of our indebtedness, including the notes on or before
maturity. We cannot assure you that we will be able to refinance any of our
indebtedness, including the credit facility and the notes, on commercially
reasonable terms or at all.

RECENT ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 141 "Business Combinations" and SFAS No. 142 "Goodwill
and Other Intangibles".

     SFAS No. 141 supercedes Accounting Principles Board Opinion ("APB") No. 16,
"Business Combinations," and eliminates the pooling of interest method of
accounting for business combinations and modifies the application of the
purchase accounting method. SFAS No. 141 requires business combinations
initiated after June 30, 2001, to be accounted for using the purchase accounting
method. SFAS No. 141 also further clarifies the criteria for recognition of
intangible assets separately from goodwill. Our adoption of this standard did
not have any effect on our consolidated financial statements.

     SFAS No. 142 supercedes APB No. 17, "Intangible Assets," and eliminates the
requirement to amortize goodwill and indefinite lived assets, addresses the
amortization of intangible assets with defined lives and requires impairment
testing of intangible assets. Accordingly, as of January 1, 2002, we no longer
amortize goodwill and will perform a transitional impairment test of our
existing goodwill by June 30, 2002 and annual impairments thereafter. We are
still evaluating the impact that the transitional impairment test will have on
our financial position and results of operations. There have been no changes to
the carrying value of our goodwill since December 31, 2001 other than changes
resulting from foreign currency translation. If goodwill amortization was
excluded in the first quarter of 2001, our first quarter net income would have
increased by approximately $2.1 million to $21.6 million.



                                       27
<PAGE>

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

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment and Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 144 primarily addresses significant issues
relating to the implementation of SFAS No. 121 and develops a single accounting
model for long-lived assets to be disposed of, whether previously held and used
or newly acquired. The provisions of SFAS No. 144 were effective for fiscal
years beginning after December 15, 2001. We adopted this statement on January 1,
2002. There was no impact to our operating results and financial position as a
result of adopting this standard.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendments of FASB No. 13 and Technical Corrections." SFAS No.
145 rescinds SFAS No. 4 "Reporting Gains and Losses from Extinguishment of
Debt," which required all gains and losses from the extinguishment of debt to be
classified as an extraordinary item. SFAS No. 64, "Extinguishment of Debts Made
to Satisfy Sinking Fund Requirements," amended SFAS No. 4 and is no longer
necessary as SFAS No. 4 has been rescinded. SFAS No. 44 "Accounting for
Intangible Assets of Motor Carriers" established accounting requirements for the
effects of the transition to the provisions of the Motor Carrier Act of 1980. As
the transition is complete, SFAS No. 44 is no longer necessary. This statement
also amends SFAS No. 13, "Accounting for Leases" and requires that certain lease
modifications that have the economic effects similar to the sale-leaseback
transaction be accounted for in the same manner as a sale-leaseback transaction.
This statement also makes technical corrections to existing pronouncements. The
statement is effective for fiscal years beginning after May 15, 2002. During
March 2002, we substantially repaid the principal balances of our Tranche A term
loans, and as a result, we recorded a loss of $12.9 million, which represented
the write-off of unamortized debt issuance costs. These costs have been
reflected as interest expense in our condensed consolidated statements of
operations, and have not been classified as an extraordinary item.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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



                                       28
<PAGE>

rate in the yield curve. For interest rates swaps, the table presents notional
amounts and weighted average interest rates by contractual maturity dates.
Notional amounts are used to calculate the contractual cash flows to be
exchanged under the contract.

<Table>
<Caption>
                                                  2002       2003       2004      2005       2006  THEREAFTER  TOTAL     FAIR VALUE
                                                                                 (IN MILLIONS)

<S>                                             <C>        <C>        <C>       <C>       <C>       <C>        <C>        <C>
RELATED FORWARD CONTRACTS TO SELL USD
British Pound
     Notional Amount                            $   3.4    $    --    $    --   $    --   $    --   $    --    $   3.4    $  (0.1)
     Avg. Contract Rate                            1.45         --         --        --        --        --
Euro
     Notional Amount                            $   7.8    $    --    $    --   $    --   $    --   $    --    $   7.8    $  (0.3)
     Avg. Contract Rate                            0.91         --         --        --        --        --
RELATED FORWARD CONTRACTS TO BUY EUR
United States Dollar
     Notional Amount                            $  80.0    $    --    $    --   $    --   $    --   $    --    $  80.0    $  (0.5)
     Avg. Contract Rate                            0.89         --         --        --        --        --
British Pound
     Notional Amount                            $   3.3    $    --    $    --   $    --   $    --   $    --    $   3.3    $    --
     Avg. Contract Rate                            0.63         --         --        --        --        --
Canadian Dollar
     Notional Amount                            $   0.1    $    --    $    --   $    --   $    --   $    --    $   0.1    $    --
     Avg. Contract Rate                             1.4         --         --        --        --        --
RELATED FORWARD CONTRACTS TO SELL ZAR
United States Dollar
     Notional Amount                            $   0.6    $    --    $    --   $    --   $    --   $    --    $   0.6    $    --
     Avg. Contract Rate                           11.90         --         --        --        --        --
Euro
     Notional Amount                            $   0.4    $    --    $    --   $    --   $    --   $    --    $   0.4    $    --
     Avg. Contract Rate                           10.38         --         --        --        --        --
LONG-TERM DEBT
U.S. Dollar Functional Currency
     Fixed Rate                                 $    --    $    --    $    --   $    --   $    --   $ 556.3    $ 556.3    $ 567.9
     Average Interest Rate                         9.38%      9.38%                          9.38%     9.38%      9.38%      9.38%
     Variable Rate                              $   3.4    $   5.1    $   5.3   $   5.7   $   5.6   $ 430.5    $ 455.6    $ 455.6
     Average Interest Rate                         7.00%      8.84%                          9.42%     9.63%     10.27%      9.62%
Euro Functional Currency
     Variable Rate                              $   0.1    $   0.5    $   0.6   $   0.7   $   0.9   $   0.5    $   3.3    $   3.3
     Average Interest Rate                         6.08%      7.95%                          8.56%     8.77%      9.23%      8.53%
     Fixed Rate                                 $   1.0    $   0.8    $   0.7   $   0.6   $   0.6   $   0.5    $   4.2    $   4.1
     Average Interest Rate                         4.23%      4.29%                          4.33%     4.38%      4.26%      4.36%
INTEREST RATE SWAPS
     Pay Fixed/Receive Variable                 $   5.2    $ 204.1    $    --   $    --   $    --   $    --    $ 209.3    $  (3.0)
     Average Pay Rate                              4.48%      4.48%        --        --        --        --
     Average Receive                               3.57%      4.49%        --        --        --        --
</Table>


                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDING

     The Company is involved in various legal proceedings, none of which are
deemed material for reporting purposes. Information relating to various
commitments and contingencies are described in Note 8 of the financial
statements in this Form 10-Q.

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

     On March 25, 2002, we issued $250 million of 9 3/8% of senior subordinated
notes, due April 10, 2011 under Rule 144A and Regulation S under the Securities
Act. The proceeds of the notes were used to repay existing indebtedness under
our credit facility. In April 2002, we filed a registration statement on Form
S-4 with the Securities and Exchange Commission ("SEC") relating to an exchange
offer of these notes, which are due April 15, 2011. The exchange offer gives
holders of these notes the opportunity to exchange these old notes for new notes
that are registered under the Securities Act of 1933. The new notes will be
identical in all material respects to the old notes except that the new notes
will be registered. On May 13, 2002, we announced the offer to exchange up to



                                       29
<PAGE>

$250 million of our registered Series B 9 3/8% senior subordinated notes due
2011 for our outstanding unregistered Series A 9 3/8% senior subordinated notes
due 2011. The exchange offer will expire at 5:00 p.m. eastern standard time on
June 26, 2002, unless we, in our sole discretion, decide to extend the offer.

                           PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a.)  Exhibits

 EXHIBIT
 NUMBER                                DESCRIPTION OF EXHIBIT

   *3.1           Certificate of Incorporation of Modern Acquisition, Inc. filed
                  on March 28, 2002

   *3.2           Bylaws of Modern Acquisition, Inc.

   *4.1           Registration Rights Agreement dated March 20, 2002 among
                  Dresser, Inc,, the Guarantors and Morgan Stanley & Co.
                  Incorporated, Credit Suisse First Boston Corporation.

   *4.2           Amendment No. 1 to the Credit Agreement dated March 13, 2002
                  among Dresser, Inc. as U.S. Borrower and D.I. Luxembourg
                  S.A.R.L. as the Euro Borrower and the Lenders named therein

   *4.3           Third Supplemental Indenture dated as of April 24, 2002, among
                  Modern Acquisition, Inc., Dresser, Inc. the other Guarantors
                  named in the Indentured dated as of April 10, 2001 and State
                  Street Bank and Trust Company, as trustee, relating to the 9
                  3/8% Senior Subordinated Notes due 2011

   *10.1          Executive Employment agreement dated January 29, 2001 between
                  Dresser and Stuart M. Brightman

   *10.2          Executive Employment agreement dated February 1, 2002 between
                  Dresser and J. Scott Matthews

   *10.3          Executive Employment agreement dated January 29, 2001 between
                  Dresser and Dale B. Mikus

   *10.4          Executive Employment agreement dated January 29, 2001 between
                  Dresser and Frank P. Pittman

   *10.5          Executive Employment agreement dated January 29, 2001 between
                  Dresser and James F. Riegler

   *10.6          Executive Employment agreement dated February 18, 2002 between
                  Dresser and Charles S. Wolley

* Filed previously as an exhibit to our Registration Statement on Form S-4,
  dated April 25, 2002 (file No. 333-86924) and incorporated by reference
  herein.

b.)  Reports on Form 8-K

     Current Report on Form 8-K of Dresser dated February 28, 2002 reporting
under Item 9. Regulation FD regarding the announcement its earnings for the
quarter and year ended December 31, 2001.

     Current Report on Form 8-K of Dresser dated March 19, 2002 reporting under
Item 9. Regulation FD regarding the announcement of a senior subordinated note
offering.



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<PAGE>

                                   SIGNATURES

     AS REQUIRED BY THE SECURITIES AND EXCHANGE ACT OF 1934, THE REGISTRANT HAS
AUTHORIZED THIS REPORT TO BE SIGNED ON BEHALF OF THE REGISTRANT BY THE
UNDERSIGNED AUTHORIZED INDIVIDUALS.

                                         DRESSER, INC.



Date:  August 14, 2002                   By:  /s/ Patrick M. Murray
                                            -----------------------------------
                                                      Patrick M. Murray
                                             President, Chief Executive Officer




                                              /s/ James A. Nattier
                                            -----------------------------------
                                                        James A. Nattier
                                                    Executive Vice President
                                                    Chief Financial Officer




                                              /s/ Dale B. Mikus
                                            -----------------------------------
                                                        Dale B. Mikus
                                                 Vice President - Finance and
                                                   Chief Accounting Officer



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