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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

For the fiscal year ended December 31, 2003

For the transition period from                      to                     

Commission File Number 333-60778

DRESSER, INC.

(Exact name of registrant as specified in its charter)

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)

Securities registered pursuant to Section 12 (b) of the Act: NONE

Securities registered pursuant to Section 12 (g) of the Act: NONE

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  ¨

Indicate by Check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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

There is currently no established publicly traded market for the common equity of the Company held by non-affiliates.

The number of shares outstanding of common stock (par value $0.01 per share) as of March 30, 2004 was 1,000.

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DRESSER, INC.

Form 10-K Annual Report

Index

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PART I

General Business Development

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

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

In connection with the recapitalization in April 2001, Dresser paid Halliburton approximately $1,300 million to redeem our common equity and acquire the stock of certain of our foreign subsidiaries from Dresser B.V. The recapitalization transaction and related expenses were financed through the issuance of $300.0 million of senior subordinated notes, $720.0 million of borrowings under our credit facility and approximately $400.0 million of common equity contributed by DEG Acquisitions, LLC. Halliburton retained an approximate 5.1% voting interest as part of the recapitalization transaction.

On July 3, 2002, we modified our corporate structure by forming a Delaware holding company and two Bermuda holding companies between the existing shareholders and Dresser. We are now wholly-owned by Dresser Holdings, Inc., a Delaware corporation. Dresser Holdings, Ltd., a Bermuda corporation, is the sole shareholder of Dresser Holdings, Inc., and Dresser, Ltd., a Bermuda corporation, is the sole shareholder of Dresser Holdings, Ltd. On July 3, 2002, the shares of Dresser were cancelled and the holders thereof became shareholders of Dresser, Ltd. Dresser Holdings, Inc. and Dresser Holdings, Ltd. have no assets or liabilities, other than common stock holdings of Dresser and Dresser Holdings, Inc., respectively, conduct no operations outside of Dresser and have no transactions to date other than those incidental to their formation or insignificant equity transactions.

Overview

We design, manufacture and market equipment and services sold primarily to customers in the energy industry. Our three business segments are flow control, measurement systems and compression and power systems. We sell our products and services globally to customers including major oil companies, multinational engineering and construction companies and other industrial firms. 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 year ended December 31, 2003, we generated revenues of $1,657.0 million, operating income of $48.6 million, and incurred a net loss of $44.7 million.

We offer our customers products, many of which are highly engineered, and services used to produce, transport, process, store and distribute oil and natural gas and their by-products. Because many of our products are used in mission-critical applications, our customers often require us to meet internal, government and industry standards, an

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expensive process that can take years, in order to reduce the likelihood of costly system failures. Our products are often developed and engineered in cooperation with our customers for specific applications. Although price is an important element, the purchasing decisions for these customized products are also driven by product performance, technical specifications and the ability to deliver service and support. We are increasingly combining our products and services to develop integrated solutions to meet our customers’ needs.

We believe that our installed base of energy infrastructure equipment is one of the largest in the world in the markets we serve. This significant installed base provides us with a recurring demand for replacement parts and equipment upgrades and a substantial platform to expand our aftermarket service business. A significant portion of replacement equipment, parts and maintenance services in our businesses is awarded to the original equipment manufacturer. Aftermarket parts and services typically carry higher margins than our original equipment sales, and accounted for approximately 23% of our revenues in 2003.

Competitive Strengths

We believe the following competitive strengths position us to enhance our growth and profitability:

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Business Strategy

Products and Services

We have three business segments: flow control, measurement systems, and compression and power systems. Our businesses are organized around the products and services provided to the customers they serve. The flow control segment consists of valve, actuator, instruments, meters, regulators, and piping specialties product lines. We have aggregated these product lines into this segment as we believe these product lines are similar in nature, have similar economic characteristics, serve the same type or class of customer and have similar distribution and production processes. Measurement systems primarily reflects the results of our retail fueling product line. The compression and power systems segment reports the results of our natural gas engine and industrial blower product lines. Segment and geographic financial information appear in note 20 to our financial statements located elsewhere in this report.

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Flow Control

Our flow control segment manufactures control valves, on/off valves, pressure relief valves and actuators. We serve the oil and gas production, transportation, storage, refining, petrochemical and power generation sectors of the energy industry. We believe we produce one of the most complete valve product lines for the energy infrastructure industry, including both standard and customized product offerings. Our broad portfolio of products, combined with a global sales and service network, positions us as one of the preferred global flow control solutions providers. In addition, our technical expertise and product knowledge allow us to be one of a few global vendors who can meet the needs of our most demanding energy customers, including products specially-designed for deep-water and severe service applications. Our valve products compete at unit price levels ranging from approximately $200 to over $500,000.

In addition to valve products, our flow control segment also designs, manufactures and markets five other primary product lines: meters, instruments, pressure regulators, integrated flow systems and piping specialties. Demand for these products is driven primarily by natural gas consumption and infrastructure spending in the hydrocarbon and chemical process industries. Customer trends such as integration of information technology systems with “smart” equipment and increased outsourcing of metering and monitoring services are also expected to drive demand in this market.

Historically, demand for our flow control products has been driven by the dynamics of the energy industry and in particular by energy infrastructure spending. Demand for valve products has therefore been greatest in industrialized nations throughout North America and Europe. In the future, we expect that growth will primarily be driven by upgrading existing products, the development of new applications and increasing demand in developing regions such as Latin America, Asia and Africa. Demand for meters, instruments, integrated flow systems and piping specialties has historically been strongest in North America and Europe, with future growth expected in Latin America, Asia and the Middle East as industrialization continues.

On/off valves, which are sold under the Control Seal^™, Grove^®, Ledeen^™, Ring-O^®, TK^®, Tom Wheatley^™, Wheatley^® and Texsteam^™ brand names, are typically used in applications that either require flow to be completely on or off or have limited flow adjustment capabilities. Included in this category are: ball, gate, globe, check and butterfly valves. We have designed and patented hundreds of specialized on/off valve products. Among other new product development programs, we are designing subsea ball and check valves for deep-water oil and gas development, fire-proof valves, severe service valves, liquefied natural gas valves and more cost-effective rising-stem ball valves. Many of these valves are custom manufactured from specialty materials to handle the demanding environments in which they will be used and to meet our customers’ stringent specifications. Demand for our on/off valves is generally driven by development of oil and natural gas reserves as well as pipeline construction. In recent years the U. S. has seen a slowdown in both of these areas which has affected our business. Conversely, there has been strong development activity in international areas such as offshore Brazil, onshore and offshore West Africa, the Middle East, Asia, and Russia. We have been successful in winning many international tenders and have seen a corresponding shift in our business.

Control valves, which are sold under the Masoneilan^®, and Becker Precision Equipment^™ (BPE^™) brands, are used primarily in applications that require continuous and accurate control of flow rates. Control valves adjust flow passage size at the direction of remote signals emanating from an external control system. We are developing new “smart” technologies that transmit control and measurement data generated by our products to our customers’ service systems that remotely monitor the performance of their plant and equipment. These technologies can substantially lower operating costs for our customers. In addition, we are developing products that remotely transmit predictive maintenance information, thereby avoiding unexpected downtime. We believe providing smart capabilities to enhance our existing product lines will be an important driver of growth in our valve business over the next several years. We are currently marketing smart valve products with both analog and digital communication interfaces. We expect demand for digital products to grow significantly in the future as this relatively new communication interface matures.

We have established a product development and marketing alliance with Yokogawa Electric Corporation, a leading Japanese process control systems provider, in order to offer our customers integrated valve and control system solutions. These integrated solutions and smart products typically command higher margins than our

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standard valve product offerings. In 2003, the Masoneilan^® control valve product line joined the Honeywell PKS^® (PKS is a registered trademark of Honeywell International, Inc.) (Process Knowledge Solutions)^® program. This marketing and technology development program is aimed at providing end users with fully integrated and interoperable control, diagnostic and maintenance solutions. Masoneilan is one of two control valve suppliers selected to participate in this program. Honeywell is a market leader in the supply of advanced control systems and instruments to the process control industry. There is a significant component of aftermarket sales associated with the control valve product line. For the past several years there has been a slowdown in aftermarket sales in the U.S. and to a lesser extent in Europe. In 2003, these aftermarket sales stabilized but did not show much, if any, rebound as industry activity began to pick up. However, international activity for new construction has been strong, and we have been successful in expanding our business in new markets such as power generation and floating production systems.

Pressure relief valves, including both safety and safety relief valve types, are used to protect process equipment from excessive pressure. We sell our pressure relief valves to the power generation, oil and gas, and refining and petrochemical industries under the Consolidated^® brand name. We are developing new products for use in growing applications, including enhanced pilot operated safety valves for use in offshore and liquefied natural gas applications. In the pressure relief product line, aftermarket sales have been weak in the U.S. and Europe, generally tracking trends in our served markets. However, we have experienced some growth in international sales.

Meters, pressure regulators and piping specialties, which are sold primarily to customers in the natural gas industry under the Roots^®, Mooney^® and Dresser^® brand names, are used for volume measurement and pressure regulation. These products are sold at unit prices ranging from approximately $400 to over $82,500. We sell complete, integrated natural gas control stations that can be used by a utility to regulate distribution of low-pressure natural gas from high-pressure transmission pipelines. These control stations typically combine a number of our products such as valves, meters, pressure sensors and regulators into a complete system solution. Historically, a utility would have performed the engineering and design necessary to build these stations to regulate gas pressure and flow, bid out the component parts and contracted for the assembly and installation. We can provide utilities with a total system solution at a lower overall cost. In 2003, weak demand in U.S. business was offset by growing international sales in Asia, Europe, and South America.

Instrument products consist primarily of pressure and temperature instrumentation manufactured for oil and gas, refining, chemical, industrial and commercial customers worldwide. These products are used by our customers to monitor pressure, temperature, pH levels, and flow rates of gases and liquids. Our key instrument brands and related products are Ashcroft^® pressure and temperature instruments, Heise^® precision testing and calibration devices and digital and analog transducers, Ebro^® portable electronic instruments and Ashcroft^® utility gauges, which are designed specifically for high reliability of service. Our instrument products range in price from $1 to over $5,500 per unit. This product line has significant exposure to industries outside of energy. In 2003, a weak manufacturing economy in the U.S. negatively affected product sales, partially offset by the introduction of new products.

Our flow control segment’s other products, sold under the Ledeen^™, Texsteam^™ and Nil-Cor^® brands, include: chemical injection pumps; high-alloy gate, globe, check and ball valves; compact and linear electric actuators; and composite ball, butterfly and check valves. Our actuator products, which are used to control valve movement, are often sold in packages for use with our other products, such as our subsea actuators used in conjunction with our subsea on/off valve technology.

Measurement Systems

Our measurement systems segment consists of retail fueling, where we are a leading supplier of fuel dispensers, pumps, peripherals, point-of-sale and site monitoring systems and software for the retail fueling industry. In March 2003, we acquired certain retail fuel dispenser and point of sale system assets of Tokheim North America and its MSI business unit. We have substantially integrated these assets into our Wayne business unit.

We have marketed our retail fuel systems for approximately 100 years under the Wayne^® brand. As an industry pioneer, we were the first to introduce self-service consoles and fuel blending dispensers to service stations. More recently, we introduced the first in-pump card readers and cash acceptors, the first use of microcomputers in fuel processing systems, the first in-pump radio frequency identification payment systems such as Speedpass^® (a

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registered trademark of ExxonMobil Oil Corporation) and the first dispenser mounted touch screen payment/communication systems. We also produce regulatory agency approved vapor recovery systems that reduce gasoline vapor emissions into the atmosphere during the fueling process. We continue to develop and market innovative technologies that allow our customers to reduce costs, increase throughput and improve profits at their locations.

Capital spending is the primary driver of demand in this segment. Demand for our systems and other products over recent years has been affected by a reduced level of capital spending by a significant number of our customers. We typically would expect our customers to upgrade, re-brand or replace their equipment prior to the end of its useful life, to introduce new customer convenience features, support new marketing initiatives, or to comply with government regulations. Over the last few years however many of our major oil customers have delayed upgrading or replacing their equipment. High volume retailers, such as Sam’s Club, Kroger and Safeway have entered the domestic retail fuel market, generating demand for new equipment, software and service. These retailers typically utilize twice as many fuel dispensers per location as traditional retail fueling stations and represent a fast growing segment of the U.S. market. We have a very strong market share of this important segment in the U.S. and a good position in Europe. Internationally, we have begun to see some increased market activity in Eastern Europe and Russia and have been successful in recent tenders for dispensers. In North America, we benefited from increased volumes and incremental margins from the acquisition of a competitor’s assets, purchased in a bankruptcy court auction in the second quarter of 2003. There was also a modest uplift in dispenser sales in the U.S. to the independent (“jobbers”) segment of the market.

Our core product line consists of four fuel dispenser lines: Ovation STAT, Global Century^™, VISTA^™ and Global Star^®. Our fuel dispenser designs support single and multiple hose configurations that can measure and dispense dedicated or blended fuel. Our fuel dispensing platforms can be expanded to include card processing terminals, cash acceptors, bar code scanners, radio frequency identification payment systems, keypads, printers and graphic displays to allow consumers to purchase and pay for fuel and other items at the pump. In addition, our dispensers are usually designed and graphically detailed in collaboration with our customers to meet their precise image standards. Our retail fuel dispensers range in price from approximately $2,800 to over $15,000 per unit.

We also design and market self-service control and point-of-sale systems for the retail fueling industry. These enterprise software solutions are designed to support our retail customers’ efforts to improve back office efficiency and record keeping, reduce labor hours and improve retail margins. For example, our Nucleus^® system, which is an open architecture, PC based point-of-sale system, is designed to support larger convenience store formats that feature a wide selection of in-store merchandise and services. As the hub of all store operations, the Nucleus^® system interfaces with a wide variety of peripherals and systems, enabling cashiers and managers to monitor and manage store operations efficiently. The Nucleus^® system also supports back office functions including inventory control, price book management, employee management and site administration. In addition, we were one of the first to introduce a fully integrated point-of-sale system that combined the functionality of a self-service control console, electronic cash acceptor and card processing system into a single countertop terminal called the Wayne Plus/3^™ terminal. Our software systems range in price from approximately $7,000 to over $16,000. In 2003, we began the rollout of several significant point-of-sale systems contracts to major oil companies such as ExxonMobil and ChevronTexaco in the U.S. and Europe.

In connection with our product development initiatives, we have entered into a number of important strategic alliances with technology partners to enhance and broaden our retail product offerings. For example, our alliance with Texas Instruments was important in our development of advanced pay-at-the-pump technologies, including Speedpass^®, which allows consumers to buy fuel with the wave of a radio frequency key fob.

In order to help our customers derive maximum value from their investment in our retail fuel solutions, we offer a comprehensive suite of services. These services include product rollout management, installation, user training and a 24/7 help desk. We also offer 24/7 onsite maintenance and repair, including one hour response to site emergencies, four hour response to critical problems and 24 hour response to all other concerns. Onsite services are provided by a mix of our own field support technicians and independent service organizations. All field support technicians and independent service organizations receive ongoing technical training and carry an extensive inventory of service parts and diagnostic equipment.

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Compression and Power Systems

In our compression and power systems segment we are a leader in the design, manufacture and marketing of natural gas fueled engines. Our engines are used primarily for natural gas compression and distributed power generation. Most natural gas compression applications involve pressurizing gas for delivery from one point to another, typically from lower pressure wells to higher pressure gathering and pipeline systems. Compression is also used to re-inject natural gas into oil wells to help lift liquids to the surface and to inject gas into underground reservoirs. Distributed power generation is the use of onsite electric generators for primary, supplemental or back-up power in areas where existing power sources are unreliable or costly. Our product offering ranges from 85 to 4,500 horsepower (75 to 3,300 kilowatt) engines and power generation packages with a base wholesale price range of approximately $29,000 to over $1,200,000. We also manufacture positive displacement blowers and centrifugal compressors covering air and gas applications requiring inlet vacuum levels to 27" Hg and discharge pressures to 40 psig. Flow rates range varies from 2 CFM to 350,000 CFM. Our power systems and compression products are sold under the Waukesha^® and Roots^® brand names both directly to end users and through a network of independent distributors worldwide. We believe we have the largest installed base of natural gas fueled industrial engines in the world as a result of our long history and leading market position.

Long-term demand for our compression and power system products is primarily a function of worldwide energy consumption and infrastructure spending. Demand in this segment, particularly in gas compression applications, is cyclical and subject to periodic downturns, causing decreases in revenue and earnings in the past. In 2001, we experienced record levels of demand for gas compression related equipment followed by a significant decline in demand in 2002 and 2003. Over the long-term we view distributed power generation as an opportunity for future revenue growth in this segment. We believe favorable environmental characteristics of natural gas compared to other energy sources and the relatively wide dispersion of gas reserves throughout the world will increase its use in power generation. The need for “clean” power for high tech equipment, uncertainty about electrical utility deregulation and lack of infrastructure in underdeveloped nations are potential sources for growth in demand. Improved infrastructure for developing nations will also drive our blower business growth in the future, especially in waste water treatment and power generation applications.

We believe we have developed some of the most reliable and durable engines and blowers in our industry. These products provide our customers with low total cost of ownership through long intervals between overhauls, high equipment uptimes and predictable service schedules. We typically expect our VHP^® engine model to operate in excess of 40,000 hours at 98% rated uptime before requiring a major overhaul. Engine reliability is essential because they are frequently used in mission-critical applications or in remote locations where the cost of failure is extremely high. For example, two of our engines provide standby power for Chicago’s 911 Emergency Communications Center and seven of our top-of-the-line engines drive compressors at a remote gas storage facility in Aitken Creek, British Columbia.

The aftermarket in both the natural gas compression and distributed power generation markets is substantial. Our natural gas engines typically run continuously for years at a time, creating a regular need for maintenance services and replacements parts. Our customers typically spend many times the initial purchase price of one of our engines in service, upgrades and maintenance costs over its lifetime. As a result, our aftermarket parts and services revenues are an important part of our business, representing approximately 45% of our total natural gas engine related revenues in 2003. We currently maintain a significant market share for our aftermarket parts as our customers tend to be more focused on reliability than price when servicing our engines.

In addition to selling stand-alone engines, we provide our customers with a variety of services and equipment packages. For example, we offer complete power generation systems in which we integrate our engines with generators, switchgear and controls manufactured by other vendors in order to deliver a total solution to our customers. We also offer our customers technical training, subcontracted turnkey installation and field troubleshooting worldwide.

Competition

As one of a small group of major competitors in each of our business lines, we encounter intense competition in all areas of our business. Our businesses typically are characterized by fewer than ten manufacturers that together

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account for the majority of each market and a large number of smaller competitors who divide the remainder. The primary bases of competition include product performance, customer service, product lead times, global reach, brand reputation, breadth of product line, quality of aftermarket service and support and price. We believe the significant capital required to construct new manufacturing facilities, the production volumes required to maintain competitive unit costs; the need to secure a broad range of reliable raw material and intermediate material supplies, the significant technical knowledge required to develop high performance products, applications and processes, and the need to develop close, integrated relationships with customers serve as disincentives for new market entrants. Some of our existing competitors, however, have greater financial and other resources than us.

Sales and Marketing

We market our products and services worldwide through our established sales presence in over 100 countries and a manufacturing or support facility presence in over 22 countries. We believe our proximity to customers has historically been an important sales advantage.

Our sales force is comprised of over 400 direct sales and service representatives and an extensive global network of over 900 independent distributors and over 300 authorized service centers who sell our products and provide service and aftermarket support to our installed base. Due to the long operating history of our business, many of our distributor relationships are longstanding and exclusive to us. For example, our flow control business is supported by an independent global network of over 100 Green Tag^® and Masoneilan Authorized Repair Centers (MARC^®), the majority of which represent long-term relationships. We also offer training programs for some of our independent distributors, allowing them to reach increasingly higher levels of certification. Our most highly qualified independent distributors are often able to command higher aftermarket service margins as a result of their expertise and tend to be our most loyal distributors. Most of our distributor agreements are terminable at any time by either us or the distributor, subject to short notice periods.

We believe the performance driven nature of our products has fostered close working relationships with our customers. Our marketing strategy is to leverage our strong brand reputations and technical expertise to develop new products and achieve qualification and certification as an approved vendor. For example, our measurement systems segment has successfully targeted the domestic high volume retail market for gasoline through a systematic marketing and technology development effort, securing significant share of this market. We have worked to enhance our competitive position by aggressively pursuing alliance relationships with our key customers whereby we work directly with our customers’ design and engineering departments to develop products to meet specific infrastructure needs or other customer-specific requirements. The compression and power systems segment has strategically positioned itself with certain customers in the gas compression market by selling engines directly to them. These customers include four major gas compression packagers and seven medium size packagers. All four of the major packagers operate gas compressor lease fleets of their own or provide contract compression services.

Customers

We sell our products and services to more than 10,000 customers, including most of the world’s major oil companies, multinational engineering and construction companies and other Fortune 500 firms. Many of our customers purchase products and services from each of our three operating segments. Our customer base is geographically diverse, with 52.9% of our 2003 revenues in North America, 27.2% in Europe/Africa, 3.9% in Latin America, 9.6% in Asia and 6.4% in the Middle East. Our top ten customers in 2003, including ExxonMobil, ChevronTexaco, BP AMOCO, and Shell, accounted for 14.3% of our revenues. Our largest customer accounted for approximately 2.6% of our revenues in 2003.

Backlog

Backlog at the end of 2003 was $475.5 million, a 36.2% increase over a backlog of $349.1 million at the end of 2002. A significant amount of this increase is attributable to the effects of increases in foreign currency appreciation. We expect substantially all of our backlog at December 31, 2003 to be filled during 2004.

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Raw Materials

The main raw materials we use are commodity metals, forgings, castings, fasteners, and electronic circuitry. We seek to purchase raw materials globally to benefit from low cost sources. Substantially all our raw materials are purchased from outside sources and are readily available. However, the availability and prices of raw materials may be subject to curtailment or change due to, among other things, the supply of, and demand for, such raw materials, new laws or regulations, suppliers’ allocations to other purchasers, interruptions in production by raw materials or component parts suppliers, changes in exchange rates and worldwide price levels. For example, along with other consumers of steel and steel-related raw materials, we have recently experienced significant price increases and may experience short-term supply disruptions.

Manufacturing

Our manufacturing processes generally consist of fabrication, machining, component assembly and testing. Many of our products are designed, manufactured and produced to order and are often built in compliance with specific customer requirements. We continue to actively rationalize our manufacturing footprint, which entails combining, closing or relocating some of our facilities. See “Item 7. Management’s Discussion of Financial Condition and Results of Operations—Restructuring and Other Exit Activities.”

To improve productivity, we are implementing a variety of manufacturing strategies including cellular manufacturing, just-in-time process engineering and the outsourcing of the fabrication of subassemblies, components, or in some cases, the complete product. Our manufacturing operations are conducted in 48 locations around the world. We typically own the plants and equipment at our facilities and the underlying real property but intend to increasingly utilize leased facilities as we relocate or consolidate manufacturing operations. We believe that we have sufficient production capacity to meet demand over the next several years.

We strive to produce the highest quality products and are committed to continuous quality and efficiency improvement of our products and processes. To help achieve our quality goals, we carefully control our manufacturing processes and materials and have satisfied the standards for ISO-9001 certification at most of our manufacturing facilities. The International Organization for Standardization awards ISO-9001 certification on a facility-by-facility basis to manufacturers who adhere to strict quality standards. Companies must maintain these standards and supply supporting documentation to retain their ISO certification, and certified facilities are audited regularly.

Research and Development

We invest in research and development each year in order to maintain our product leadership positions. We have developed many of the technological and product breakthroughs in our markets and produce some of the most advanced products available in many of our businesses. We believe we have significant opportunities for growth by developing new products and services that offer our customers greater performance and significant cost savings by adding intelligence and remote communications capabilities. These opportunities include developing “smart” valves, new instruments and meters, new retail fuel point-of-sale payment technologies and additional natural gas fueled engine models operating at greater efficiencies. Potential end users for these technologies include most of our existing customer base as well as customers of our competitors.

We are also actively engaged in research and development programs designed to advance the design of products to meet specific functional and economic requirements and manufacturing methods. In particular, we have begun efforts to redesign many of our products to use common components. These engineering efforts span many of our businesses. We have also placed special emphasis on ensuring that newly developed products are compatible with, and build upon, our existing manufacturing and marketing capabilities.

Each of our business segments maintains its own research and development staff. Our research and development expense was $21.9 million, $21.2 million and $26.7 million for the years ended December 31, 2003, 2002, and 2001, respectively. Although we believe current expenditures are adequate to sustain existing product

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lines, we intend to increase overall research and development spending over the next several years to develop new product technologies.

Intellectual Property

We rely on a combination of patents, trademark, copyright and trade secret protection, employee and third-party nondisclosure agreements and license arrangement to protect our intellectual property. We sell most of our products under a number of registered trademarks, which we believe are widely recognized in the industry. In addition, many of our products and technologies are protected by patents. No single patent, trademark or trade name is material to our business as a whole or to any one of our business segments. We anticipate we will apply for additional patents in the future as we develop new products and processes.

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

With respect to proprietary know-how, we rely on trade secret protection and confidentiality agreements. Monitoring the unauthorized use of our technology is difficult, and the steps we have taken may not prevent unauthorized use of our technology. The disclosure or misappropriation of our intellectual property could harm our ability to protect our rights and our competitive position.

Employees

We had approximately 8,300 employees worldwide as of December 31, 2003. Of our employees, approximately 52% are located in the U.S. and 48% are outside the U.S. Approximately 33% of our employees in the United States (17% of our global workforce) are covered by collective bargaining agreements.

We have long-term labor agreements with United Automobile, Aerospace and Agricultural Implement Workers of America, Local Union 470 in Massachusetts, United Automobile, Aerospace and Agricultural Implement Workers of America Union Local 1118 in Indiana, International Association of Machinists & Aerospace Workers, AFL-CIO, District 10 in Wisconsin, United Steelworkers of America AFL-CIO, Local 8040 in Texas, International Brotherhood of Teamsters, Chauffeurs, Warehousemen, Local 145 in Connecticut, International Association of Machinists & Aerospace Workers, AFL-CIO, Local 1644 in Pennsylvania, Paper, Allied-International Chemical & Energy Workers International Union, and the AFL-CIO, CLC, Local 5-0399 in Kentucky. In addition, we have two labor agreements with Office & Professional Employees International Union on behalf of Local 465 and Local Lodge 2518 International Association of Machinists and Aerospace Workers in Louisiana. Of these agreements, one expires in May 2004, three expire in 2005, two expire in 2006 and two expire in 2008. Two of our contracts, United Steelworkers of America AFL-CIO, Local 8040 in Houston, Texas and Paper, Allied- International Chemical & Energy Works International Union, AFL-CIO, CLC, Local 5-0399 in Kentucky, have been extended through the date of the respective plant closures.

In May 2003, our labor agreement with the International Association of Machinists and Aerospace Workers, District 10 at our Waukesha, Wisconsin manufacturing plant expired and we failed to reach agreement on a new labor contract at that time. The bargaining unit voted in favor of a strike on May 2, 2003. On July 23, 2003, we announced the signing of a new three-year labor agreement and that our union shop employees were to resume work on July 28, 2003. This strike had a material impact on our results of operations in the second and third quarters of 2003 which were somewhat mitigated in the fourth quarter through a reduction in backlog. Additionally, one of our other bargaining agreements expired in November 2003. On November 7, 2003, members of that bargaining unit voted in favor of a strike that commenced on that date. On November 9, 2003, a new labor agreement was signed, and employees returned to work on November 10, 2003.

See “—Certain Risk Factors—Our business could suffer if we are unsuccessful in negotiating new collective bargaining agreements.”

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Environmental Matters

Our businesses and some of our products are subject to regulation under various and changing federal, state, local and foreign laws and regulations relating to the environment and to employee safety and health. These environmental laws and regulations govern the generation, storage, transportation, handling, disposal and emission of various 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 our businesses, and these permits are subject to renewal, modification and, in certain circumstances, revocation. We believe we are substantially in compliance with these laws and permitting requirements. Our businesses also are subject to regulation under substantial, various and changing federal, state, local and foreign laws and regulations that allow regulatory authorities and private parties to compel (or seek reimbursement for) cleanup of environmental contamination at sites now or formerly owned or operated by our businesses and at facilities where our waste is or has been disposed. Going forward, we expect to incur ongoing capital and operating costs for investigation and remediation and to maintain compliance with currently applicable environmental laws and regulations; however, we do not expect those costs, in the aggregate, to be material.

We are responsible for evaluating and addressing the environmental impact of sites where we operate our businesses or have maintained operations. As a result, we spend 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.

Available Information

Our Internet address is www.dresser.com. We file annual, quarterly and current reports and other information with the Securities and Exchange Commission (the “SEC”), and we make available free of charge our SEC filings through our Internet website as soon as reasonably practicable after we electronically file these materials with the SEC. You may access these SEC filings via the hyperlink that we provide on our website.

Certain Risk Factors

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

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

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

PwC noted a material weakness with respect to our On/Off valve operations located in Houston, Texas, including general, inventory and contract accounting. They also cited a reportable condition with respect to the operation of our finance organization, including our consolidation process, and inconsistency in the application of company policy among business units and segments.

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We have taken and continue to take steps to correct these internal control deficiencies. For more information regarding the steps we have taken or are in the process of taking, see “Item 9A. Controls and Procedures.” The efficacy of the steps we have taken to date and the steps we are still in the process of taking to improve the reliability of our interim financial statements is subject to continued management review supported by confirmation and testing by our internal auditors and external auditors.

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

The businesses of most of our customers, particularly oil, gas and chemical companies, are, to varying degrees, cyclical and have historically experienced periodic downturns. Profitability in those industries is highly sensitive to supply and demand cycles and volatile product prices, and our customers in those industries historically have tended to delay large capital projects, including expensive maintenance and upgrades, during industry downturns. For example, due to the recent downturn in the energy industry and overall industrial economy, many of our key customers have reduced their capital spending, which has resulted in reduced demand for our products. These industry downturns have been characterized by diminished product demand, excess manufacturing capacity and subsequent accelerated erosion of average selling prices. In addition, certain of our customers may experience reduced access to capital during economic downturns. Therefore, any significant downturn in our customers’ markets or in general economic conditions could result in a reduction in demand for our products and services and could harm our business. In addition, because we only compete in some segments of the energy infrastructure industry, a downturn in the specific segments we serve may affect us more severely than our competitors who compete in the industry as a whole. See “Item 7. Management’s Discussion of Financial Condition and Results of Operations—Market Forces; Outlook.”

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

For the year ended December 31, 2003, our largest customer represented approximately 2.6% of total revenues, and our top ten customers collectively represented approximately 14.3% of total revenues. The loss of any of these customers, or class of customers, or decreases in these customers’ capital expenditures, could decrease our cash flow, market share and profits. As a result of industry consolidation, especially among natural gas compression and major oil companies, our largest customers have become larger and, as a result, account for a larger percentage of our sales. We could lose a large customer as a result of a merger or consolidation. Major oil companies and national oil companies have moved toward creating alliances and preferred supplier relationships with suppliers. In addition, these customers are increasingly pursuing arrangements with suppliers that can meet a larger portion of their needs on a more global basis. Typically, a customer can terminate these arrangements at any time. The loss of a customer, or the award of a contract to a competitor, could significantly reduce our cash flow, market share and profits.

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

Since we manufacture and sell our products worldwide, our business is subject to risks associated with doing business internationally. Our sales outside North America as a percentage of our total sales were 47.1% for the year ended December 31, 2003. Accordingly, our future results could be harmed by a variety of factors, including:

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

Fluctuations in the value of the U.S. dollar may adversely affect our results of operations. Because our financial results are reported in dollars, if we generate sales or earnings in other currencies, the translation of those results into dollars can result in a significant increase or decrease in the amount of those sales or earnings. In addition, our debt service requirements are primarily in U.S. dollars even though a significant percentage of our cash flow is generated in euros or other foreign currencies. Significant changes in the value of the euro relative to the U.S. dollar could have a material adverse effect on our financial condition and our ability to meet interest and principal payments on U.S. dollar denominated debt, including the notes and borrowings under the credit facility. In 2003, foreign currency appreciation significantly increased our revenues and backlog. Likewise, any future foreign currency depreciation would decrease our revenues and backlog.

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

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

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

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

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

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

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

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

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

We face intense competition.

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

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

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

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

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

We have experienced, and expect to continue to experience, both operating and capital costs to comply with environmental laws and regulations, including potentially substantial costs for remediation and investigation of some of our properties (many of which are sites of long-standing manufacturing operations). In addition, although we believe our operations are substantially in compliance and that we will be indemnified by Halliburton for certain contamination and compliance costs (subject to certain exceptions and limitations), new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination, the imposition of new clean-up requirements, new claims for property damage or personal injury arising from environmental matters, or the refusal and/or inability of Halliburton to meet its indemnification obligations could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition or results of operations. See “Item 3. Legal Proceedings.”

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

As of December 31, 2003, we had approximately 8,300 employees. Approximately 33% of our U.S. workforce (17% of our global workforce) is represented by labor unions. Currently, of our ten material collective bargaining agreements, one will expire in May 2004, three will expire in 2005, two will expire in 2006 and two will expire in 2008. Two of our labor contracts will expire at the time the respective plants are closed. Although we believe that our relations with our employees are generally good, we cannot assure you that we will be successful in negotiating new collective bargaining agreements, that such negotiations will not result in significant increases in the cost of labor or that a breakdown in such negotiations will not result in the disruption of our operations.

In May 2003, one of our collective bargaining agreements expired. The bargaining unit responded by voting in favor of a strike that commenced on May 2, 2003. In July 2003, we announced the signing of a new three-year labor agreement, and our union shop employees resumed work on July 28, 2003. The effect of the strike negatively impacted our results of operations for the second and third quarters of 2003. One of our other bargaining agreements expired in November 2003. On November 7, 2003, members of that bargaining unit voted in favor of a strike that commenced on that date. On November 9, 2003, a new labor agreement was signed, and employees returned to work on November 10, 2003. The impact to our operations as a result of this strike was not significant.

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

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

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

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

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demand for, such raw materials, new laws or regulations, suppliers’ allocations to other purchasers, interruptions in production by raw materials or component parts suppliers, changes in exchange rates and worldwide price levels. Any change in the supply of, or price for, these raw materials and components could materially affect our operating results. For example, along with other consumers of steel and steel related products, we have recently experienced significant price increases and may experience short-term supply disruptions.

We rely on independent distributors.

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

We are controlled by First Reserve and Odyssey, whose interests may not be aligned with other investors’ interests.

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

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

Our historical financial information may not be comparable to future periods.

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

We may be faced with unexpected product claims or regulations.

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

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Our substantial indebtedness could adversely affect our financial condition.

We are a highly leveraged company. As of December 31, 2003, we had $944.1 million of outstanding long-term indebtedness, including the current portion, $2.9 million of short-term notes and a shareholders’ deficit of $312.6 million. This level of indebtedness could have important consequences, including the following:

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

The terms of our credit facility, the indenture governing our subordinated notes and our new $125 million senior unsecured term loan facility do not prohibit us from incurring significant additional indebtedness in the future, including indebtedness for acquisitions. As of December 31, 2003, we had $62.4 million available for additional borrowing under the revolving credit facility, subject to certain conditions. All borrowings under the credit facility are senior to the notes.

Your right to receive payments on the notes will be junior to the borrowings under our credit facility, our senior unsecured term loan facility and possibly all future borrowings.

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

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

In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to us or the subsidiary guarantors, holders of the notes will participate with trade creditors and all other holders of our senior subordinated indebtedness and the subsidiary guarantors in the assets remaining after we and the subsidiary guarantors have paid all of the senior indebtedness. However, because the indenture requires that amounts otherwise payable to holders of the notes in a bankruptcy or similar proceeding be paid to holders of senior indebtedness instead, holders of the notes may receive less, ratably, than holders of trade payables in any such proceeding. In any of these cases, we and

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the subsidiary guarantors may not have sufficient funds to pay all of our creditors and holders of notes may receive less, ratably, than the holders of senior indebtedness.

As of December 31, 2003, the notes and the subsidiary guarantees would have been subordinated to $381.6 million of long-term indebtedness, including the current portion, and approximately $62.4 million would have been available for borrowing as additional senior indebtedness under the credit facility, subject to certain conditions. We will be permitted to borrow substantial additional indebtedness, including senior indebtedness, in the future under the terms of the indenture.

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

The credit facility, the indenture and the senior unsecured term loan facility limit our ability, among other things, to:

In addition, the credit facility requires us to maintain certain financial ratios. We may not be able to maintain these ratios. We have in the past sought and obtained a number of amendments to the credit facility to allow us greater flexibility to maintain these ratios. Covenants in the credit facility may also impair our ability to finance future operations or capital needs or to enter into acquisitions or joint ventures or engage in other favorable business activities. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

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

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

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

We cannot assure you, however, that our business will generate sufficient cash flows from operations, or that currently anticipated cost savings and operating improvements will be realized on schedule or that future borrowings will be available to us under the credit facility in an amount sufficient to enable us to pay or refinance our indebtedness or to fund our other liquidity needs. Future borrowings under our credit facility are conditioned on our

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continuing compliance with our financial covenants. If we consummate an acquisition, our debt service requirements could increase. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

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

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

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

Certain subsidiaries are not included as subsidiary guarantors.

The guarantors of the notes include our wholly-owned domestic subsidiaries. However, the financial statements include both our wholly-owned and non-wholly-owned domestic subsidiaries and our foreign subsidiaries. The aggregate revenues for the year ended December 31, 2003 of our subsidiaries that are not guarantors were $758.1 million. As of December 31, 2003, those subsidiaries held 51.4% of our total assets. Each of the subsidiary guarantors would be released from its guarantee of the notes if we transfer 5% or more of its voting stock to a third party so that it is no longer “wholly-owned.” The indenture does not restrict our ability to do so.

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

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

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

Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims with respect to a guarantee could be subordinated to all other debts of that subsidiary guarantor under certain circumstances. While the relevant laws may vary from state to state, under such laws, the issuance of a guarantee will be a fraudulent conveyance if (1) any of our subsidiaries issued subsidiary guarantees with the intent of hindering, delaying or defrauding creditors or (2) any of the subsidiary guarantors received less than

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reasonably equivalent value or fair consideration in return for issuing their respective guarantees, and, in the case of (2) only, one of the following is also true:

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

Generally, an entity will be considered insolvent if:

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

Our corporate headquarters are located in Addison, Texas where we lease a 27,000 square foot property. The following are the locations of our principal facilities, the facility types and their approximate square footage for our industry segments:

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

In accordance with the recapitalization agreement, Halliburton agreed to indemnify us for certain items. Those indemnified items include any product liability claim or product warranty claim arising out of any products relating to any discontinued product or service line of Dresser. In addition, Halliburton has agreed to indemnify us for

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

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

As Halliburton has publicly disclosed, it has been subject to numerous lawsuits involving asbestos claims associated with, among other things, the operating units of Dresser Industries that were retained by Halliburton or disposed of by Dresser Industries or Halliburton prior to the recapitalization transaction. These lawsuits have resulted in significant expense for Halliburton. In December 2003, certain affiliates of Halliburton filed a petition for relief under the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Western District of Pennsylvania. In connection with the petition, the bankruptcy judge issued an order enjoining asbestos claims against the debtors and Halliburton, as well as asbestos claims against us, pending confirmation of a definitive plan of reorganization for the Halliburton affiliates subject to the bankruptcy petition. It is too early to tell whether this plan will be confirmed, or if so, when it will be confirmed.

Our right to indemnification under the recapitalization agreement with Halliburton as it relates to asbestos claims based on events occurring prior to the closing of the recapitalization has also been enjoined pending confirmation of the definitive plan of reorganization referred to above. However, this indemnification right is unnecessary as long as we are also protected by the injunction, as we are. We expect that our indemnity rights against Halliburton relating to asbestos claims based on events occurring prior to the closing of the recapitalization would terminate if the proposed plan of reorganization were confirmed; however, such rights would no longer be necessary because the proposed plan would require asbestos plaintiffs with claims against us or Halliburton to look for relief exclusively to a trust to be established in the bankruptcy. If the proposed plan of reorganization described above is not confirmed, or if the injunction of asbestos claims against us is otherwise terminated and asbestos claimants are again permitted to proceed against us, we would immediately seek to terminate the injunction of our exercise of indemnification rights against Halliburton. Although we believe that in such a circumstance we would be able to terminate the injunction of our exercise of indemnification rights against Halliburton, we cannot assure you that we would succeed in doing so.

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

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There were no matters submitted to a vote of security holders during the fourth quarter of 2003. A consent by the sole shareholder of Dresser, Inc. in lieu of an annual meeting was executed in the fourth quarter of 2003 by Dresser Holdings, Inc. The following directors were re-elected:

Paul D. Barnett, Bernard J. Duroc-Danner, Ben A. Guill, Steven G. Lamb, William E. Macaulay, Muzzafar Mirza, Patrick M. Murray, Gary L. Rosenthal, Thomas J. Sikorski.

PART II

Market Information

There is no established public market for our common stock.

Holders

As of December 31, 2003, there was only one holder of record of our common stock, Dresser Holdings, Inc.

Dividends

We did not declare or pay any dividends on our common stock since its issuance. Our current credit facility, our senior unsecured term loan facility, and the indenture governing our senior subordinated notes limit our ability to declare or pay dividends.

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In 2003, interest expense includes $6.6 million of amortization of deferred financing fees, including $1.1 million of accelerated amortization expense arising from optional prepayments of indebtedness under our credit agreement. In 2002, interest expense includes $20.3 million of amortization of deferred financing fees, which includes $15.4 million of accelerated amortization expense arising from optional prepayments of indebtedness under our credit agreement. In 2001, interest expense includes $6.9 million of amortization of deferred financing fees. There was no amortization expense for deferred financing fees prior to 2001. Cash paid for interest was $82.5 million, $77.6 million and $48.3 million in 2003, 2002 and 2001, respectively. Cash paid for interest in 2001 was principally related to the period following the recapitalization transaction. Cash paid for taxes was $16.8 million, $21.9 million and $16.2 million in 2003, 2002 and 2001, respectively.

Certain statements in this report constitute “forward-looking statements” as that term is defined under §21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the 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,

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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 “Item 1. Business—Certain Risk Factors.”

Restatement of our Financial Statements

Our independent auditors for 1998 through 2001, Arthur Andersen LLP, (“Andersen”), have ceased operations. We engaged new independent auditors, PricewaterhouseCoopers LLP (“PwC”), in June 2002 to audit our 2002 financial statements and, upon discovery in 2003 of errors affecting our 2001 financial statements, also engaged PwC to perform a new audit of our 2001 financial statements.

Although our financial statements for the years 1998 through 2001 have been restated, our then independent auditors have ceased operations, and we were unable to give effect to the corrections without rendering fiscal years 1998 through 2000 unaudited. Accordingly, the Company’s financial statements at December 31, 2000 and all earlier periods are unaudited. For more information regarding our prior restatements, including a summary of the adjustments made, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

Overview

We design, manufacture and market highly engineered equipment and services sold primarily to customers in the energy industry. Our primary business segments are flow control, measurement systems and compression and power systems. We sell our products and services to customers including major oil companies, multinational engineering and construction companies and other industrial firms. Our total revenues by geographic region in 2003 consisted of North America 52.9%, Europe/Africa 27.2%, Latin America 3.9%, Asia 9.6% and the Middle East 6.4%. 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 year ended December 31, 2003, we generated revenues of $1,657.0 million, operating income of $48.6 million, and incurred a net loss of $44.7 million.

Market Forces; Outlook

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

There are several key indicators that drive our business. 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 and customers’ access to capital. Activity levels can vary substantially in different geographic regions throughout the world. For example, U.S. markets have been relatively weak while international markets have been relatively strong. The level of oil and gas prices affects all of these activities and is a significant factor in determining our primary customers’ level of cash flow. Our business is subject to cyclicality and periodic downturns, which have caused revenue and earnings to decline in the past.

Flow Control—Demand for our on/off valves is generally driven by development of oil and natural gas reserves as well as pipeline construction. In recent years, the U.S. has seen a slowdown in both of these areas which has affected our business. Conversely, there has been strong development activity in international areas such as offshore Brazil, onshore and offshore West Africa, the Middle East, Asia, and Russia. We have been successful in winning many international tenders and have seen a corresponding shift in our business.

In 2002, our revenues were positively impacted by revenues from a large international offshore project, Barracuda-Caratinga, and acquisitions completed during 2001 and 2002. The earnings associated with this favorable volume were negatively impacted by the margin deterioration associated with overdue backlog,

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throughput issues encountered at one of our plants in Italy and the lack of maintenance and repair operations (“MRO”) business in North America. Our instrument, metering and specialty piping product lines suffered from the effects of continued declines in market activity in North America and Europe.

In 2003, sales for our on/off valve product line were essentially unchanged compared to 2002. The effects of a weak natural gas transmission market in the United States and the non-recurrence of the Barracuda-Caratinga revenues (which accounted for approximately 2.8% of our total revenue and 4.4% of the revenues in this segment in 2002 and which was substantially completed in 2002), were offset by an increase in other international project activity and significant increases from the effects of foreign currency appreciation. We have seen and continue to believe that the market environment in 2004 will be relatively weak in the United States, but relatively strong internationally.

There is a significant component of aftermarket sales associated with the control valve product line. For the past several years there has been a slowdown in aftermarket sales in the U.S. and, to a lesser extent, in Europe. In 2003 these aftermarket sales stabilized but did not show much, if any, rebound as industry activity began to pick up. However, international activity for new construction has been strong, and we have been successful in expanding our business in certain new markets such as power generation and floating production systems.

In the pressure relief product line in 2003, aftermarket sales have been weak in the U.S. and Europe, partially offset by growth in international sales. In the metering and piping specialties product line in 2003, relatively weak demand in U.S. business was offset by growing international sales in Asia, Europe and South America. The instrument product line has significant exposure to industries outside of energy. In 2003 a weak manufacturing economy in the U.S. negatively affected product sales, partially offset by the introduction of new products.

During 2003, we began consolidating certain of our Houston-area manufacturing and distribution facilities into one new facility in Houston, Texas. The consolidation is anticipated to be completed in 2004. We also consolidated our Shelton, Connecticut manufacturing facility into our Stratford, Connecticut facility in 2003, and we are closing our Berea, Kentucky manufacturing facility and transferring the manufacturing operations to Brazil. This consolidation is expected to be completed in early 2004. These consolidations should create better manufacturing efficiencies, leverage supply chain activities, reduce overhead expenses and significantly improve overall operational capabilities.

Measurement Systems—During 2002, an overall decline in the United States fuel dispenser market negatively impacted our business. The market suffered from depressed global demand for retail fuel equipment for the third consecutive year. In particular, major oil company spending was delayed, reduced, or deferred.

In 2003, we experienced further significant spending reductions by major oil companies, although high volume retailers in the United States and the United Kingdom remained relatively strong. Internationally, we have begun to see some increased market activity in Eastern Europe and Russia and have been successful in recent tenders for dispensers. In North America we benefited from increased volumes and incremental margins from the acquisition of certain assets of Tokheim North American and its MSI business unit, purchased in a bankruptcy court auction in the second quarter of 2003. We have substantially integrated these assets into our Wayne business unit. We also began the rollout of several point-of-sale systems contracts to major oil company customers, such as ExxonMobil and ChevronTexaco. There was also a modest uplift in dispenser sales in the U.S. to the independent (“jobbers”) segment of the market.

In 2003, we continued to restructure our manufacturing operations and seek opportunities for consolidation of global fuel dispenser and point-of-sale systems manufacturers through business combinations. By virtue of the restructurings in our manufacturing operations, we believe that we significantly improved our position in North America and Europe.

Compression and Power Systems—During 2002, decreased demand for natural gas negatively impacted sales of engines and parts into natural gas compression applications. Parts sales were further impacted by lower utilization of existing gas compression equipment. In 2003, gas compression-related engine sales remained consistent with 2002 levels, although parts sales benefited from the resumption of maintenance on equipment our customers deferred in 2002. Demand for gas compression related engine sales were also impacted by relatively high inventory

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levels at our gas compression packager customers. We expect that this factor will continue to impact our business with these customers in 2004. Our rotary blower business benefited from some improvement in market conditions particularly internationally and in water and wastewater application in 2003. Competition based upon price and engine efficiency remains intense on sales of engines into power generation applications. As a result of market conditions, reducing costs at our manufacturing facilities has been a major focus in 2002 and 2003.

We believe that in order to maintain our competitiveness, we need to continue to focus on increasing operational efficiency and cash flow. This focus includes our on-going initiatives to increase manufacturing efficiencies, consolidate raw material sources, increase global procurement and improve working capital efficiency. We believe these initiatives offer us opportunities to improve our profitability and cash flow. The continuation of re-engineering, plant consolidations and the implementation of a new enterprise resource planning (ERP) system are important in achieving these improvements. We have incurred and may continue to incur significant charges to implement these initiatives. See “—Restructuring and Other Exit Activities” for a detail of these charges.

Restructuring and Other Exit Activities

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

We incurred $21.3 million of restructuring charges for the year ended December 31, 2003. Restructuring charges of $5.3 million and $16.0 million have been reflected in cost of revenues and selling, engineering, general and administrative expenses, respectively, in our statements of operations. The restructuring charges consist of $21.4 million related to initiatives taken during the year ended December 31, 2003 and a reduction of $0.1 million as a result of changes in estimates related to the initiatives undertaken in 2002.

In 2003, we incurred costs as a result of a decision to (1) consolidate a valve operation in Germany (EDG) into an existing facility in Italy, (2) consolidate an instrument operation in Shelton, Connecticut into an existing facility in Stratford, Connecticut, (3)consolidate an instrument operation in Berea, Kentucky with existing operations in Brazil into a new facility in Sao Caetano, Brazil, (4) consolidate a retail fueling dispenser manufacturing operation in Germany into an existing facility in Sweden, (5) consolidate two Canadian retail fueling dispenser plant operations, (6) consolidate certain flow control operations in Houston, Texas into a new facility, (7) outsource the manufacturing of certain blowers, (8) consolidate a control valve operation in Burlington, Canada into existing facilities and (9) continue a reduction in our workforce. The costs incurred that are associated with these actions are as follows:

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The following table details the restructuring charges by segment.

In connection with these activities in 2003, we incurred certain restructuring charges related to termination benefits. We anticipate a workforce reduction of approximately 900 employees, of which approximately 450 had been terminated through December 31, 2003. We expect that the remainder of the employees will be terminated in 2004. In 2004, we expect to incur approximately $6.6 million in additional restructuring charges as a result of these 2003 initiatives.

During 2002, we decided to: (1) consolidate manufacturing of our standard design rotary blower products at our Houston, Texas manufacturing plant and downsize our Connersville, Indiana facility; (2) cease manufacturing fuel dispensers at a Canadian manufacturing facility and consolidate North American fuel dispenser manufacturing in our Austin, Texas facility; (3) discontinue several small product lines; and (4) initiate a company wide reduction in our workforce. In 2002, we incurred $6.0 million in expenses related to these activities. During 2003, we revised these costs by $0.1 million. In connection with these 2002 activities, we incurred certain restructuring charges related to termination benefits for approximately 295 employees. Accrued liabilities at December 31, 2003 related to the 2002 restructuring initiatives are as follows:

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Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including our allowance for uncollectible accounts, inventory valuation and obsolescence, long-lived tangible and intangible assets, income taxes, reserve for warranty obligations, pensions and other post-retirement benefits, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

Reserve for Uncollectible Accounts Receivable

We make ongoing estimates relating to the collectibility of our accounts receivable and maintain a reserve for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the reserve, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. We generally experience higher levels of write-offs in connection with cyclical downturns in the energy industry. Since we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event we determined that a smaller or larger reserve was appropriate, we would record a credit or a charge to selling and administrative expense in the period in which we made such a determination. At December 31, 2003 and 2002, our reserve for uncollectible accounts receivable was $15.1 million and $8.9 million, respectively. As of December 31, 2003, approximately $31.3 million or 10.8% of our accounts receivable were outstanding in excess of 90 days.

Inventory obsolescence and valuation

Inventories are stated at the lower of cost or market. A portion of the United States inventory cost is determined using the last-in, first-out (LIFO) method. All other United States and non-United States inventories are valued on a first-in, first-out (FIFO) or weighted average cost basis. Reserves for excess and obsolete inventories are based on an assessment of slow-moving and obsolete inventories, determined by historical usage and estimated future demand. Cyclical changes in demand, technological innovation and the impact of restructuring are among the factors affecting increases or decreases in our level of write-offs. Excess and obsolete inventory reserves were approximately $45.8 million and $44.5 million at December 31, 2003 and 2002, respectively.

We also make ongoing estimates relating to the market value of inventories, based upon our assumptions about future demand and market conditions. If we estimate that the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record a reserve equal to the difference between the cost of the inventory and the estimated market value. This reserve is recorded as a charge to cost of revenues. If changes in market conditions result in reductions in the estimated market value of our inventory below our previous estimate, we would increase our reserve in the period in which we made such a determination and record a charge to cost of revenues. However, once inventory is written down to net realizable value, that measure becomes the revised inventory cost and upward estimate revisions are not recognized.

Impairment of Long-Lived Assets and Goodwill

We account for long-lived assets and goodwill in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, and SFAS No. 142, “Goodwill and Other Intangible Assets.”

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SFAS No. 144 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For long-lived assets to be held and used, we evaluate for impairment when indicators of impairment are present. If indicators are present, we then must determine whether the sum of the estimated undiscounted future cash flows attributable to the long-lived asset in question is less than the carrying amount. If the carrying amount exceeds our estimate of future undiscounted cash flows, we then calculate the impairment as the excess of the carrying value of the asset over our estimate of its fair market value. We estimate future undiscounted cash flows using assumptions about our expected future operating performance. Changes in the expected operating performance of the Company’s product lines, restructuring activities, and changes in market demand for different product lines are among the factors affecting fair market value. Our estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, technological changes, economic conditions, or changes to our business operations. For the years ended 2003, and 2002 we recorded $5.3 million and $1.6 million, respectively impairment charges related to the carrying value of our assets.

Assets held for sale are measured at the lower of carrying value or fair value less costs to sell. Should certain assets meet the criteria as assets held for sale, potential impairment could result if the fair value of the assets less costs to sell result in a value that is lower than the carrying value of the assets.

A long-lived asset’s value is also dependent upon its estimated useful life. A change in the useful life of a long-lived asset could result in higher or lower depreciation and amortization expense. If the asset’s actual life is different than its estimated life, the asset could be over-valued or under-valued.

With the adoption of SFAS No. 142, goodwill is no longer amortized. Goodwill is assessed for impairment at least annually and when events or circumstances indicate that the carrying value of the asset may not be recoverable. We performed our initial test of impairment in the second quarter of 2002, and our annual tests of impairment of goodwill were performed in the fourth quarters of 2002 and 2003. In performing its impairment analysis under SFAS 142, the Company completes a two step process to determine the amount of the impairment. The first step involves comparison of the fair value of the reporting unit to the carrying value to determine if any impairment exists. The second step involves comparison of the implied fair value of the goodwill to the carrying value of the goodwill. The implied fair value of the goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In calculating an impairment charge, the fair value of the impaired reporting units underlying the segments are estimated using discounted cash flow methodology or recent comparable transactions. A reporting unit is an operating segment or one level below an operating segment referred to as a component. The Flow Control segment has five reporting units: On/Off Valves, Control Valves, Pressure Relief, DMD, and Instruments; Measurement Systems has one reporting unit: Wayne, and Compression and Power Systems has two reporting units: Waukesha and Roots. There is also a reporting unit for the corporate segment.

In making our assessment, we rely on a number of factors, including operating results, business plans, economic projections, and anticipated future cash flows. There are inherent uncertainties related to these factors and judgment in applying these factors to our goodwill impairment test. At December 31, 2003, we had $315.2 million of goodwill on our balance sheet.

Future restructuring activities, unexpected significant declines in operating results of the reporting units, and protracted economic weakness may result in our having to perform interim impairment tests and could result in charges for goodwill and other asset impairment charges in the future.

Product Warranties

We provide for the estimated cost of product warranties at the time revenue is recognized and revise these estimates as necessary. While we engage in product quality programs and processes, including actively monitoring and evaluating the quality from our suppliers, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required.

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The following shows the activity of our warranty accrual for the years ended December 31, 2003 and December 31, 2002.

Income Taxes

We determine income taxes based on the recognition of deferred income tax liabilities and assets for the expected future tax consequences of recognition of events that have been included in the financial statements or tax returns. Deferred income tax liabilities and assets are determined based on differences between financial statement and tax basis of liabilities and assets using enacted tax rates in effect for the period in which the differences are expected to reverse. We recognize deferred tax assets only if it is more likely than not that the assets will be realized in future years. A full valuation allowance was established in 2001 for domestic deferred tax assets for which realization is not likely due primarily to the effect on domestic earnings of the interest associated with our long-term debt. In assessing the valuation allowance, we considered past operating results and the impact of increased interest expense on our future earnings. As a result, we have a full valuation allowance against our domestic deferred tax assets as of December 31, 2003 and 2002.

Other Contingencies

In the ordinary course of business, we are involved in legal proceedings involving contractual and employment relationships, product liability claims, trademark rights, environmental and a variety of other matters. We record contingent liabilities resulting from claims against us when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Estimating probable losses requires analysis of multiple factors, in some cases including judgments about the potential actions of third party claimants and courts and indemnification provisions. Therefore, actual losses in future periods are inherently uncertain. Currently, we do not believe that any of our pending legal proceedings or claims or environmental matters will have a material impact on our financial position or results of operations. However, if actual or estimated probable future losses exceed our recorded liability for such claims, we would record additional charges as additional selling, engineering, administrative and general expenses during the period in which the actual loss or change in estimate has occurred.

Pension and Other Post-Retirement Benefits

Pension expense is determined in accordance with the provisions of SFAS No. 87, “Employers’ Accounting for Pensions” and SFAS No. 88 “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”. Postretirement benefit expense is determined in accordance with the provision of SFAS No. 106 “Employers’ Accounting for Postretirement Benefits Other Than Pensions”. Our employee pension and other post-retirement benefit costs and obligations are dependent on our assumptions used by actuaries in calculating such amounts. These assumptions include discount rates, health care cost trends rates, inflation, salary growth, and long-term return on plan assets, retirement rates, mortality rates and other factors. These assumptions and their volatility are among the factors that drive the changes in our pension and postretirement expense amounts and obligations. Actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense and recorded obligation in such future periods. While we believe that the assumptions used are appropriate, significant differences in actual experience or significant changes in assumptions would affect our pension and other post-retirement benefits costs and obligations. The current year assumption changes will result in significant increase in our pension expense, which we expect will be offset by decreases in expense based on changes to plan benefits and the closing of facilities.

The Company estimates the long-term rate of return on plan assets will be 8.75% for domestic and 3.5% to 8.0% for foreign plans based on the weighted average annual return for each investment type over the past 10 years.

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In addition, assumed healthcare cost trend rates have a significant effect on amounts reported for the healthcare plans. A one-percent change in assumed healthcare cost trend rates would have the following effect: