<PAGE>

                                  FORM 10-K 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


           [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                       SECURITIES EXCHANGE ACT OF 1934 
                  For the fiscal year ended October 31, 1997.

                         Commission file number 1-4003

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

             DELAWARE                          75-0813641
 (State or other jurisdiction of    (I.R.S. Employer Identification No.)
  incorporation or organization)                  

       POST OFFICE BOX 718
 2001 ROSS AVENUE, DALLAS, TEXAS            75221 (P.O. Box)
 (Address of principal executive                 75201
             offices)                          (Zip Code)

      (Registrant's telephone number, including area code) (214) 740-6000 

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: 

                                          NAME OF EACH EXCHANGE
       TITLE OF EACH CLASS                 ON WHICH REGISTERED

     Common Stock, Par Value             New York Stock Exchange, Inc.
       25 cents Per Share                Pacific Exchange, Inc.
      Baroid Corporation 8%              New York Stock Exchange, Inc.
     Guaranteed Senior Notes      
            due 2003
     Preferred Stock Purchase            New York Stock Exchange, Inc.
             Rights                      Pacific Exchange, Inc.


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, 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 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. / /

The aggregate market value of the voting stock (based on the closing price on 
the New York Stock Exchange as of January 7, 1998) held by non-affiliates of 
the registrant was approximately $6,887 million.

As of January 7, 1998, there were 175,524,280 shares of Dresser Industries, 
Inc. Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

Sections of Registrant's Notice of 1998 Annual Meeting of Shareholders and 
Proxy Statement (Part III).

<PAGE>
                                       
                                     PART I 

ITEM 1.   BUSINESS OF DRESSER

     Dresser Industries, Inc., together with its subsidiaries (hereinafter 
"Dresser" or "Registrant" or the "Company") is a supplier of highly 
engineered products, technical services and project management for 
hydrocarbon energy-related activities that are primarily utilized in oil and 
gas drilling, production and transmission; gas distribution; power 
generation; gas processing; petroleum refining and marketing; and 
petrochemical production.  Demand for Dresser's products and services is 
generally determined by global demand for energy and oil and gas by-products. 
Dresser was incorporated under the laws of Delaware in 1956 as a successor 
to a Pennsylvania corporation organized in 1938 by the consolidation of S. R. 
Dresser Manufacturing Company and Clark Bros. Company.  Both were carrying on 
businesses founded in 1880.  Dresser's executive offices are located at 2001 
Ross Avenue, Dallas, Texas 75201 (telephone number 214/740-6000).

     For the fiscal year ended October 31, 1997, consolidated revenues of 
Registrant amounted to $7,457.9 million.  A majority of such revenues was 
derived from the sale of products and services to energy-oriented industries, 
including oil and gas exploration, drilling and production, gas transmission 
and distribution; petroleum and chemical processing; production of 
electricity; and marketing of petroleum products.

     Registrant's operations are divided into three industry segments: 
Petroleum Products and Services; Engineering Services; and Energy Equipment.

     The Information by Industry Segment is included in Note N to 
Consolidated Financial Statements on page 52 and in Management's Discussion 
and Analysis beginning on page 15.  This information includes sales and 
service revenues, operating profit and identifiable assets attributable to 
each of Registrant's business segments for each of the past three fiscal 
years.  This information should be read in conjunction with the consolidated 
financial statements, notes and accountant's report appearing in Item 8 of 
this report.

     In fiscal 1996, Dresser formed a joint venture with Shaw Industries, 
Ltd. ("Shaw") by contributing its Bredero Price assets and Shaw contributing 
its Shaw Pipe Protection assets on a worldwide basis.  During the fourth 
quarter of 1997, Dresser extended its Bredero-Shaw joint venture.  In 
recognition of the long-term relationship of the Bredero-Shaw operations, the 
joint venture and related agreements were amended to eliminate Dresser's 
option to purchase Shaw's interest at the end of the second and fourth years.

     Effective July 31, 1997, Dresser sold certain assets of its SubSea 
operation relating to underwater construction, pipelay, pipebury, diving and 
related services in the Gulf of Mexico (including United States' and Mexican 
waters), Middle East, Southeast Asia, Australia, New Zealand and Singapore, 
excluding ROV and engineering services and related contracts in the Gulf of 
Mexico, and retained all of its operations in the North Sea.

PETROLEUM PRODUCTS AND SERVICES SEGMENT

     Dresser's Petroleum Products and Services segment supplies products, 
services and project management  for oil and gas exploration, drilling, 
production and transmission activities both onshore and offshore.  Its 
products and services include project management and integrated well 
services, drilling fluids 

                                       2
<PAGE>

systems,  drill bits,  measurement-while-drilling services, directional 
drilling services, completion and production tools, production valves and 
pumps, meters and measuring equipment, engineering, procurement, installation 
and construction contractor services for subsea and onshore projects, 
remotely operated vehicles, seabed equipment, flexible flowlines, riser 
systems and pipe coating.  Demand for these products and services is directly 
affected by energy prices and drilling activity.

     DRILLING FLUIDS

     Baroid Drilling Fluids provides oil and gas producers specially 
formulated fluids used in the drilling process to lubricate and cool the 
drill bit, seal porous well formations, remove rock cuttings and control 
downhole pressure.  It also provides completion fluids and wellsite services. 

     DRILLING SERVICES AND PRODUCTS

     Sperry-Sun Drilling Services supplies oil and gas producers with 
directional and measurement-while-drilling (MWD) services and directional 
drilling equipment including mud motors, downhole steering and surveying 
instruments and geological and drilling data monitoring.

     DRILL BITS

     Security DBS produces and markets to oil and gas producers a complete 
line of roller cone, polycrystalline diamond cutter (PDC) and natural diamond 
drill bits for use in drilling oil and gas wells and provides coring and hole 
enlargement services.  Security DBS also makes a variety of downhole oilfield 
drilling tools and certain types of blasthole and pilot bits for the mining 
market.

     COMPLETION AND PRODUCTION TOOLS

     Dresser Oil Tools consists of Axelson surface safety equipment, downhole 
rod pumps and sucker rods as well as a broad range of Guiberson/AVA's 
completion and production products, including sub-surface safety valves, 
gravel pack, downhole hydraulic pumps, tubing converged perforating 
equipment, production packers and swab cups.  These products are used in the 
production of oil and gas.

     Dresser Wheatley manufactures and sells a line of oil and gas production 
products, including Wheatley valves, Wheatley Gaso plunger and piston pumps, 
Omega well-servicing pumps, and Clif Mock meters, measurement and sampling 
equipment.

     PROJECT MANAGEMENT

     Dresser Kellogg Energy Services provides oil and gas producers with 
project management capabilities and the integrated services and products 
required to drill and complete wells more efficiently.  Its activities in 
this segment include well planning, project management and the procurement of 
wellsite drilling, completion and production services and equipment.

                                       3
<PAGE>

     PIPE COATING PRODUCTS AND SERVICES

     The Bredero-Shaw joint venture provides a broad range of speciality pipe 
coating, insulation and related services to protect pipelines above ground, 
below ground and offshore in major oil and gas producing areas of the world.

     UNDERWATER EQUIPMENT AND SERVICES

     SubSea International provides production companies and offshore rig 
operators with  underwater engineering services.  SubSea equipment is used 
to inspect, construct, maintain and repair offshore drilling rigs and 
platforms, underwater pipelines and other offshore oil and gas facilities.  
SubSea designs, manufactures and deploys remotely operated vehicles (ROVs), 
which are often used to perform these services.  Wellstream designs, 
manufactures and markets non-bonded flexible pipe for the oil and gas 
industry.  Wellstream products include flowlines, jumpers, service lines and 
static and dynamic risers for both subsea and topside applications.

ENGINEERING SERVICES SEGMENT

     The Engineering Services segment specializes in engineering, 
procurement, construction and project management for a comprehensive range of 
oil and gas facilities from offshore production through downstream processing.

     Formed in 1997, Dresser Kellogg Energy Services (DKES) provides a single 
Dresser interface for energy companies seeking integrated services and 
solutions for the total hydrocarbon recovery process.  DKES' operations in 
this segment include Granherne and Paragon Engineering Services.  Granherne 
supplies engineering consulting, project management and engineering design 
services for oil and gas production facilities, oil and gas terminals, gas 
plants, FPSOs, subsea architecture, platforms and refineries.  Paragon is 
involved in engineering, procurement, construction and project management for 
oil and gas projects including onshore and offshore production facilities, 
offshore platforms, subsea facilities, pipelines, compressor stations and gas 
plants.

     The M.W. Kellogg Company provides engineering, procurement, construction 
and related services primarily to the hydrocarbon process industries.  
Kellogg provides its own proprietary technologies and the advanced 
technologies of others to facilitate the environmentally acceptable 
conversion of raw hydrocarbon and other chemicals into value-added end 
products.  Kellogg's services include the development of processes, 
engineering design, construction and procurement for energy-related complexes 
in the U.S. and international regions.  Kellogg participates in projects 
involving liquefied natural gas (LNG) plants and receiving terminals, 
refining and petrochemical activities, ammonia/fertilizer facilities and the 
retrofitting of all kinds of energy-related complexes for environmental 
purposes.  Revenues for the Engineering Services segment were $1,927.9 
million, $1,621.9 million and $1,457.6 million for 1997, 1996 and 1995, 
respectively.

ENERGY EQUIPMENT SEGMENT

     Dresser's Energy Equipment segment designs, manufactures and markets 
highly engineered products and systems for oil and gas producers, 
transporters, processors, distributors and users throughout the world.  
Products and systems of this segment include compressors, turbines, 
generators, electric motors, pumps, engines and power systems, valves and 
controls, instruments, meters and pipe couplings, blowers and 

                                       4
<PAGE>

gasoline dispensing systems.  Demand for these products is directly affected 
by global economic activity, which influences demand for transportation 
fuels, petrochemicals, plastics, fertilizers, chemicals and by-products of 
oil and gas.

     COMPRESSION AND PUMPING 

     Dresser-Rand Company, a New York partnership in which Dresser has 51% 
interest, manufactures turbines, compressors, electric motors, generators and 
turbine-generator sets utilized in gas processing, refining and petrochemical 
activities. Dresser-Rand also is a producer of gas injection compression 
systems that enhance oil production and a manufacturer of powerful pipeline 
boosters for the transmission of natural gas.

     The Consolidated Statements of Earnings for 1997, 1996 and 1995 include 
$1,205.0 million, $1,177.8 million and $1,138.3 million, respectively, of 
Dresser-Rand's revenues.

     Ingersoll-Dresser Pump Company, a partnership in which Dresser has 49% 
interest, develops, manufactures and markets a broad range of pump products 
and services on a global basis through local facilities in more than 40 
countries. The company's pumps are used for critical and non-critical service 
in a wide variety of applications associated with power generation, chemical 
and petrochemical processing, oil and gas production, water distribution and 
water and waste water treatment.  The product line includes heavy-duty 
process, submersible, vertical turbine, standard end-suction, horizontal 
split-case, centrifugal and multi-stage pumps.

     Dresser's wholly owned Mono Pumps operations produce progressing cavity 
pumps for handling viscous fluids. These pumps have hydrocarbon 
energy-related applications and are also utilized by the waste water, mining, 
paper, food and chemical industries.

     MEASUREMENT

     Wayne manufactures and markets fully integrated vehicle fueling systems 
for the global retail petroleum industry.  Wayne's technology systems include 
gasoline pumps and dispensers, management control devices and point-of-sale 
credit and debit card machines.

     Dresser Instrument designs and manufactures mechanical and electronic 
instruments for pressure and temperature measurement and control.  These 
products are utilized by the oil, gas and power industries and a variety of 
customers in industrial, commercial, automotive and medical markets.

     DMD products include gas meters, pipe fittings, couplings and repair 
devices utilized by the gas and water utilities and other industrial markets.

     FLOW CONTROL

     Dresser Energy Valve designs, manufactures and markets valves (ball, 
gate, check, butterfly, plug and specialty valves such as rising stem, top 
entry, retractable seat ball valves or full port metal seated plug valves), 
actuators, chemical injection pumps, regulators and surge relievers of its 
Grove, TK, Tom Wheatley, Texsteam, Ledeen and Wheatley Gaso operations.  This 
comprehensive product range is primarily used in 

                                       5
<PAGE>

oil and gas exploration and transmission, onshore and offshore, in power 
generation, in water desalination and transmission and in segments of the oil 
and gas process industry.

     Dresser Valve and Controls includes Dresser's Masoneilan and Industrial 
Valve operations.  Masoneilan produces automated process control valves, 
instruments, level instruments and regulators.  Industrial Valve manufactures 
Consolidated, Dewrance and Hancock safety, safety relief and line valves.  
Both the Masoneilan and Industrial Valve operations primarily serve process 
and power markets.

     POWER SYSTEMS

     Waukesha Engine produces spark-ignited and gas fueled engines and power 
systems.  The division's products are used throughout the world in the 
gathering and storage of natural gas and as drivers for crude oil pumping and 
prime movers for electrical power generation and cogeneration.

     Roots offers a full line of low to medium pressure air and gas handling 
blowers along with vacuum pumps. These include rotary lobe and screw-type 
positive displacement products and several turbo machinery (centrifugal) 
lines. Roots products are used in natural gas processing plants, refineries, 
chemical plants, flue gas desulphurization facilities, vacuum swing 
absorption applications, waste water treatment plants and many other 
industrial applications.

BACKLOG

     The backlog of unfilled orders at October 31, 1997, 1996 and 1995 is 
included in Management's Discussion and Analysis on pages 23-24. 

     It is estimated that approximately 60% of the backlog existing at 
October 31, 1997 will be completed during fiscal 1998.  The dollar amount of 
the backlog is not necessarily indicative of future earnings of the Company.  
Although backlog represents only firm orders, there can be no assurance that 
cancellations or scope adjustments will not occur. 

SALES AND DISTRIBUTION

     Registrant's products and services are marketed through various 
channels. In the United States, sales are generally made through a group or 
division sales organization or through independent distributors.  Sales in 
Canada are usually effected through a division of Canadian subsidiaries.  
Sales in other countries are made directly by a United States division or 
subsidiary, through foreign subsidiaries or affiliates, and through 
distributor arrangements or with the assistance of independent sales agents.

COMPETITION AND ECONOMIC CONDITIONS 

     Dresser's products are sold in highly competitive markets, and its sales 
and earnings can be affected by changes in competitive prices, fluctuations 
in the level of activity in major markets, or general economic conditions.


                                       6
<PAGE>

FOREIGN OPERATIONS 

     Registrant maintains manufacturing, marketing or service facilities 
serving more than 50 foreign countries.  Global distribution of products and 
services is accomplished through more than 290 subsidiary and affiliated 
companies engaged in various production, manufacturing, service, and 
marketing functions, and through foreign representatives serving the 
principal market areas of the world.

     The Information by Geographic Area is included in Management's 
Discussion and Analysis on page 22.

     Registrant's foreign operations are subject to the usual risks which may 
affect such operations.  Such risks include unsettled political conditions in 
certain areas, exposure to possible expropriation or other governmental 
actions, operating in highly inflationary environments, and exchange control 
and currency problems.

RESEARCH, DEVELOPMENT AND PATENTS

     Registrant's divisions, subsidiaries and affiliates conduct research and 
development activities in  laboratories and test facilities within their 
particular fields for the purposes of improving existing products and 
developing new ones to meet the needs of their customers.  In addition, 
research and development programs are directed toward development of new 
products and services for diversification or expansion.  For the fiscal years 
ended October 31, 1997, 1996 and 1995, Registrant spent $120.0 million, 
$110.6 million and $96.5 million, respectively, for research and development 
activities.

     At December 1, 1997, Registrant and its subsidiaries and affiliates 
owned 1,851 patents and had pending 1,179 patent applications, covering 
various products and processes.  The Registrant was also licensed under 
patents owned by other third parties.  Registrant does not consider that any 
patent or group of patents relating to a particular product or process is of 
material importance when judged from the standpoint of Registrant's total 
business.

EMPLOYEES 

     As of October 31, 1997, Registrant had approximately 18,135 employees in 
the United States, of whom approximately 5,680 were members of 13 unions 
represented by 23 bargaining units.  As of the same date, Registrant had 
approximately 13,165 employees at foreign locations of whom approximately 
3,600 were members of unions.  During fiscal 1997, Registrant experienced no 
contract negotiation strikes in the United States.  Relations between 
Registrant and its employees are generally considered to be satisfactory.

                                       7
<PAGE>

EXECUTIVE OFFICERS OF REGISTRANT 

     The names and ages of all executive officers of Registrant, all 
positions and offices with Registrant presently held by each person named and 
their business experience during the last five years are stated below:

                                            Principal Occupation During
      Name, Age and Position                      Past Five Years
      ----------------------                ---------------------------

William E. Bradford             (63)  Chairman of the Board of Registrant since
Chairman of the Board, Chief          December 1996, President March 1992 -
Executive Officer and Director        December 1996, Chief Executive Officer
                                      since November 1995, Chief Operating
                                      Officer March 1992 - November 1995;
                                      President and Chief Executive Officer of
                                      Dresser-Rand Company February 1988 - March
                                      1992; Senior Vice President - Operations
                                      of Registrant March 1984 - March 1992.

Donald C. Vaughn                (61)  President and Chief Operating Officer of
President, Chief Operating            Registrant since December 1996, Executive
Officer and Director                  Vice President November 1995 - December
                                      1996, Senior Vice President - Operations
                                      January 1992 - November 1995; Chairman,
                                      President and Chief Executive Officer of
                                      M. W. Kellogg, Inc. June 1995 - June 1996;
                                      Chairman and Chief Executive Officer of
                                      The M. W. Kellogg Company September 1986
                                      - June 1996, President November 1983 -
                                      June 1995.

George H. Juetten               (50)  Senior Vice President of Registrant since
Senior Vice President and             July 1997, Chief Financial Officer since
Chief Financial Officer               December 1996, Vice President December
                                      1996 - July 1997, Vice President -
                                      Controller May 1993 - December 1996; Audit
                                      Partner, Price Waterhouse LLP, independent
                                      accountants, July 1980 - April 1993.

Michael J. Kammerer             (57)  Senior Vice President of Registrant and
Senior  Vice President                President of Engineered Equipment and
                                      Systems Group since July 1997, Vice
                                      President - Operations July 1996 - July
                                      1997, President Dresser Valve and Controls
                                      1988 - August 1996.

Robert J. Menerey               (53)  Senior Vice President of Registrant and
Senior Vice President                 President of Drilling and Production Group
                                      since July 1997, Vice President -
                                      Operations July 1996 - July 1997; Chairman
                                      of Baroid Drilling Fluids, Inc. August
                                      1996 - October 1997, President March 1991
                                      - October 1997.

                                       8
<PAGE>

                                            Principal Occupation During
      Name, Age and Position                      Past Five Years
      ----------------------                ---------------------------

Patrick M. Murray               (55)  Senior Vice President of Registrant and
Senior Vice President                 President of Strategic Initiatives and
                                      Acquisition/Divestiture Group since July
                                      1997, Vice President - Operations July
                                      1996 - July 1997; Chairman of Sperry-Sun
                                      Drilling Services, Inc. August 1996 -
                                      October 1997, President 1988 - August
                                      1996.

A. Jack Stanley                 (55)  Senior Vice President of Registrant and
Senior Vice President                 President of Engineering and Construction
                                      Group since July 1997, Vice President -
                                      Operations July 1996 - July 1997; Chairman
                                      and Chief Executive Officer of The M.W.
                                      Kellogg Company since June 1996, President
                                      June 1995 - June 1996, Chief Operating
                                      Officer June 1995 - June 1996, Executive
                                      Vice President March 1991 - June 1995.

G. Phillip Tevis                (55)  Senior Vice President of Registrant and
Senior Vice President                 President of Dresser Marketing Group since
                                      July 1997, Vice President - Operations
                                      July 1996 - July 1997, President Waukesha
                                      Engine  Division  June  1994  - July 1995;
                                      Senior   Vice  President,  Technology  and
                                      Venture  Operations  of  The  M.W. Kellogg
                                      Company 1992 - June 1994, Vice President -
                                      Sales of The M.W. Kellogg Company March
                                      1989 - 1992.

Clint E. Ables                  (58)  Vice President and General Counsel of
Vice President and General            Registrant since October 1993, Vice
Counsel                               President - Corporate Development November
                                      1992 - October 1993, Senior Counsel -
                                      Corporate Ventures July 1986 - November
                                      1992.

Paul M. Bryant                  (51)  Vice President - Human Resources of
Vice President - Human Resources      Registrant since May 1993; Vice President
                                      - Human Resources of Dresser-Rand Company
                                      January 1987 - May 1993.

Ardon B. Judd, Jr.              (61)  Vice President - Washington Counsel of
Vice President - Washington           Registrant since September 1986.
Counsel

Rebecca R. Morris               (52)  Vice President - Corporate Counsel of
Vice President - Corporate            Registrant since January 1994, Secretary
Counsel and Secretary                 since November 1990, Corporate Counsel
                                      June 1987 - January 1994.

David R. Smith                  (51)  Vice President - Tax of Registrant since
Vice President - Tax                  January 1994, Director of Tax October 1987
                                      - January 1994.

                                       9
<PAGE>

                                            Principal Occupation During
      Name, Age and Position                      Past Five Years
      ----------------------                ---------------------------

William R. Bradle               (47)  Treasurer of Registrant since October
Treasurer                             1997; Vice President and Treasurer of SC
                                      International Services, Arlington, Texas,
                                      April 1996 - October 1997; Assistant
                                      Treasurer - International of Alcon
                                      Laboratories, a subsidiary of Nestle S.A.,
                                      1984 - April 1996.

Kenneth J. Kotara               (44)  Controller of Registrant since December
Controller                            1996, Assistant Controller January 1994 -
                                      December 1996; Controller of Baroid
                                      Corporation March 1989 - January 1994.


OTHER OFFICERS

James L. Bryan                  (61)  Senior Vice President of Registrant since
Senior Vice President                 July  1996, Senior Vice President -
                                      Operations January 1994 - June 1996, Vice
                                      President - Operations May 1990 - January
                                      1994.

Ben R. Stuart                   (63)  Chairman of Dresser-Rand Company January
Senior Vice President -               1997 - September 1997, President and Chief
Operations                            Executive Officer March 1992 - December
                                      1996; Senior Vice President - Operations
                                      of Registrant since March 1992, Vice
                                      President - Operations August 1988 - March
                                      1992.

     All officers are elected annually by the Board of Directors at a meeting 
following the Annual Meeting of Shareholders.  The officers serve at the 
pleasure of the Board of Directors and can be removed at any time by the 
Board.

ITEM 2.   PROPERTIES

     Registrant, together with its subsidiaries and affiliates, has 
approximately 75 manufacturing plants, ranging in size from approximately 1,629
square feet to 978,000 square feet and totaling more than 11 million square 
feet, located in the United States, Canada and various other foreign 
countries.  The majority of the manufacturing sites are owned in fee.  In 
addition, sales offices, warehouses, service centers and stock points are 
maintained, almost all in leased space, in the United States, Canada and 
certain other foreign countries.  The properties are believed to be generally 
well maintained, adequate for the purposes for which they are used, and 
capable of supporting a higher level of market demand.

     During fiscal 1997 the Company had 21 grinding and/or other facilities 
for beneficiating mineral ores, containing approximately 3,400 acres in plant 
site property.

                                      10
<PAGE>

     The following are the locations of the principal facilities of Registrant
and its majority owned joint ventures for each industry segment as of October
31, 1997:

<TABLE>

                                                                            APPROXIMATE
                                                                            FLOOR AREA
   INDUSTRY SEGMENT AND LOCATION       PRODUCT AREA                        (SQUARE FEET)
   -----------------------------       ------------                        -------------
<S>                                    <C>                                 <C>
Petroleum Products and Services

     Nisku, Alberta, Canada            (Drilling Services & Products)          76,000
     Houston, Texas                    (Drilling Fluids, Services &           
                                          Products)                           596,000
     Dallas, Texas                     (Drill Bits)                           294,000
     Dallas, Texas                     (Completion & Production Tools)        278,500
     Longview, Texas                   (Completion & Production Tools)        235,000
     Colorado Springs, Colorado        (Completion & Production Tools)         97,000
     Tulsa, Oklahoma                   (Completion & Production Tools)         64,000
     Calgary, Alberta, Canada          (Completion & Production Tools)         60,000 (1)
     Aberdeen, Scotland                (Underwater Services)                  325,000
     Panama City, Florida              (Underwater Services)                  140,000 (1)

Engineering Services

     Houston, Texas                    (Engineering & Construction)           440,902 (1)
     Sudbury, England                  (Engineering & Construction)           163,860

Energy Equipment

     Manchester, England               (Compression & Pumping)                242,000
     Victoria, Australia               (Compression & Pumping)                145,000
     Painted Post, New York            (Compression & Pumping)                978,000
     Broken Arrow, Oklahoma            (Compression & Pumping)                129,000
     Olean, New York                   (Compression & Pumping)                909,000
     LeHavre, France                   (Compression & Pumping)                526,000
     Kongsberg, Norway                 (Compression & Pumping)                140,000 (1)
     Wellsville, New York              (Compression & Pumping)                404,000
     Minneapolis, Minnesota            (Compression & Pumping)                350,000
     Stratford, Connecticut            (Measurement)                          243,312
     Berea, Kentucky                   (Measurement)                           82,592
     Bradford, Pennsylvania            (Measurement)                          428,000
     Houston, Texas                    (Measurement)                          110,000 (1)
     Salisbury, Maryland               (Measurement)                          343,572 (1)
     Austin, Texas                     (Measurement)                          103,491
     Malmo, Sweden                     (Measurement)                          343,708 (1)
     Einbeck, Germany                  (Measurement)                          102,913 (1)
     Rio de Janeiro, Brazil            (Measurement)                          129,166
     Bonnyrigg, Scotland               (Measurement)                           64,200 (1)
     Skelmersdale, England             (Control Products)                     154,000 (1)
     Avon, Massachusetts               (Control Products)                      93,000
     Conde, France                     (Control Products)                     147,363
     Naples, Italy                     (Control Products)                      63,852
</TABLE>

                                      11
<PAGE>

<TABLE>
                                                                            APPROXIMATE
                                                                            FLOOR AREA
   INDUSTRY SEGMENT AND LOCATION       PRODUCT AREA                        (SQUARE FEET)
   -----------------------------       ------------                        -------------
<S>                                    <C>                                 <C>
     Alexandria, Louisiana             (Control Products)                     247,000
     Dunfermline, Scotland             (Control Products)                     170,801
     Houston, Texas                    (Control Products)                     156,000
     Stafford, Texas                   (Control Products)                     110,000
     Voghera, Italy                    (Control Products)                     417,610
     Connersville, Indiana             (Power Systems)                        376,790
     Huddersfield, England             (Power Systems)                        120,729
     Waukesha, Wisconsin               (Power Systems)                        774,739 (1)
     Appingedam, Netherlands           (Power Systems)                        136,935
</TABLE>

----------
(1) all or a portion of these facilities are leased.

     The Baroid Division has mineral rights to proven and prospective 
reserves of barite and bentonite.  Such rights included leaseholds and mining 
claims and property owned in fee.  The principal deposit of barite is located 
in Nevada, with deposits also located in Missouri and Georgia.  Reserves of 
bentonite are located in Wyoming, Montana and South Dakota.  Based on the 
number of tons of each of the above minerals consumed in fiscal 1997, the 
Company estimates its reserves, which it considers to be proven, to be 
sufficient for operations for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS. 

     The Company is involved in various legal proceedings none of which are 
deemed material for reporting purposes.  Information relating to various 
commitments and contingencies is described in Note J to the financial 
statements of this Annual Report.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 

     No matters were submitted to a vote of the Company's security holders 
during the quarter ended October 31, 1997.





                                      12
<PAGE>

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS. 

     Registrant is listed on the New York Stock Exchange and Pacific 
Exchange, Inc.  The stock symbol is DI.  The quarterly market prices for 
Registrant's Common Stock, traded principally on the New York Stock Exchange, 
were as follows for the two most recent fiscal years:

                     First       Second      Third      Fourth      Year
                    ------       ------      -----      ------     ------
1997 High           $36.25       33.875      42.00      46.125     46.125
1997 Low            $30.00       27.75       29.25      37.75      27.75 
1996 High           $26.00       32.875      32.00      33.875     33.875 
1996 Low            $20.75       25.25       26.125     26.875     20.75 

     Dividends on Registrant's Common Stock are declared by the Board of 
Directors and normally paid to shareholders as of the record date during the 
third week of March, June, September and December.

     The cash dividends paid per share of common stock for the 1997 and 1996 
fiscal years were:

                     First       Second      Third      Fourth      Year
                    ------       ------      -----      ------     ------
1997                $  .17          .17        .17         .19        .70 

1996                $  .17          .17        .17         .17        .68 


     As of January 7, 1998, there were approximately 18,500 shareholders of 
record of the Registrant's Common Stock.

     There were no equity securities of the Company sold by the Company 
during the fourth quarter which were not registered under the Securities Act 
of 1933, as amended.




                                      13
<PAGE>

ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in 
conjunction with the consolidated financial statements and notes thereto 
included in this report.

                                  1997     1996       1995     1994      1993
                               --------- --------- --------- --------- ---------
                                    (IN MILLIONS, EXCEPT PER SHARE DATA)

Revenues                       $7,457.9  $6,561.5  $5,628.7  $5,330.7  $5,202.3
Earnings from  continuing
  operations before
  accounting changes:
     Earnings                     318.0     257.5     213.1     361.8*    133.6
     Per share                      1.81      1.44      1.17      1.98*      .74
Earnings per share
  before special items              1.81      1.44      1.17      1.09      1.17
Total assets                    5,098.8   5,150.2   4,707.4   4,323.6   4,445.6
Long-term debt                    758.0     756.3     459.3     460.6     492.2
Cash dividends declared           123.0     122.1     124.3     116.5     100.2
Per share**                          .70       .68       .68       .66       .60

*  Includes $146.5 million or $.80 per share from sale of interest in Western
   Atlas International, Inc.
** Dresser historical dividends.






                                      14
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

GENERAL OPERATING ENVIRONMENT

Dresser is a global leader providing value-added solutions for the energy
industry.  The Company offers a comprehensive range of integrated and discrete
products and services as well as project management for oil and natural gas
activities throughout the world.

Dresser's market involvement is extensive and includes serving customers in the
upstream exploration, drilling, production and transmission sectors and
downstream processing, conversion and marketing sectors.  Company operations are
organized into three business segments for financial reporting purposes:
Petroleum Products and Services, Engineering Services and Energy Equipment.
Note N to the Consolidated Financial Statements contains descriptions of these
segments.

Among the factors directly affecting the business environment for Petroleum
Products and Services are the demand for oil and natural gas and the related
prices, drilling activity and exploration and production spending by upstream
producers.  The average posted price for West Texas Intermediate crude oil of
$20.33 was off 2.1% in 1997 from $20.77 a year earlier, while the average spot
price of natural gas was $2.44 per million BTUs versus $2.30 per million BTUs in
1996.

The global rig count was up 15.1% in fiscal 1997.  The rig count in North 
America was up 24.7% -- 20.0% in the U.S. and 38.9% in Canada.  The 
international rig count rose 2.7% primarily due to offshore activity, which 
was up 7.1%.  Most major producing regions had more rigs in use, both 
offshore and onshore.

The Engineering Services and Energy Equipment business climate is affected by
market forces that influence the production, transportation and processing of
oil and natural gas including oil and gas prices, global and regional economic
growth rates and the resulting demand for products created from hydrocarbons
(gasoline, jet fuel, ethylene, petrochemicals, fertilizers and power).  Capital
spending decisions, both upstream and downstream, reflect the impact of these
forces on integrated oil and gas companies around the world.

According to a published report from the International Monetary Fund (IMF) in 
December 1997, economic growth for calendar 1997 is expected to be 4.1% 
globally -- 3.0% in developed countries and 5.9% in developing nations.  The 
global economic growth rate for 1998 is projected to be 3.5%, somewhat lower 
than 1997 due to the effects of financial difficulties in several Asian 
countries. Approximately 4% of the Company's 1997 revenues and 11% of total 
backlog at October 31, 1997 was related to Southeast Asia.  While the Company 
continues to review the economic situation in Southeast Asia, it does not 
expect its revenues from the region to materially change over the short term. 
A majority of the reported backlog for that region is currently under 
construction and the Company does not expect any cancellations or delays. 
Despite the current economic situation in Southeast Asia, over the long term 
the Company believes steadily rising population and greater industrialization 
efforts will continue to facilitate strong global growth, particularly in 
developing nations, and increasing demand for oil and natural gas to feed 
growing needs for refined products, petrochemicals, fertilizers and power.

Hydrocarbon processing projects continue to benefit from escalating capital and
maintenance spending.  According to the outlook published by Hydrocarbon
Processing Magazine, spending is expected to increase to $76.7 billion in 1998.
That would be up 7.3% from the projected $71.5 billion in 1997.

In 1997, the number of total worldwide hydrocarbon processing construction
projects averaged well over 3,000, the highest level since 1982, and reflected
the building of new process facilities and expanding and retrofitting existing
ones to satisfy consumer and industrial demand.  Rising project activity outside
the U.S. more than offset a slight decline domestically.


                                      15

<PAGE>

CONSOLIDATED RESULTS OF OPERATIONS

1997 COMPARED TO 1996

Earnings per share of $1.81 and net earnings of $318.0 million for 1997 were 26%
and 23% higher than the $1.44 and $257.5 million, respectively, in 1996.
Revenues for 1997 increased 14% to $7.5 billion over $6.6 billion in 1996.
Operating profit increased 23% to $724.8 million over $589.5 million in 1996.

Each of the Company's industry segments had higher revenues and operating 
profits in 1997 than in 1996 with the Petroleum Products and Services segment 
having the largest increases.  At October 31, 1997, total backlog of $5.8 
billion was 17% higher than a year ago.  See Industry Segment Analysis for 
discussion by operation.

In 1997, the Company had certain nonrecurring items resulting from asset sales
and business restructurings intended to improve the future operating performance
of several units.  In the aggregate, these items had essentially no net impact
on the results for 1997.  Profit improvement initiatives at the Dresser-Rand and
Ingersoll-Dresser Pump joint ventures include the closure of a Dresser-Rand
European plant, personnel reductions in administration and sales support,
consolidation of repair and service operations and the discontinuance of certain
product lines.  The Company's share of the after-tax costs to implement these
initiatives totaled approximately $19 million.  Of this amount, $7.5 million
($.04 per share) was recorded in the fourth quarter of 1997, with an additional
$11.5 million ($.07 per share) expected to be incurred in fiscal 1998 to
complete the initiatives.  Also, the Company recorded an after-tax charge of
$14.0 million ($.08 per share) to write down certain assets whose carrying value
has been impaired and to provide for early retirement incentives.  The Company
sold certain assets of the SubSea operations at an after-tax loss of $6.3
million or $.03 per share.  The nonrecurring charges and loss on SubSea assets
were offset by a one-time after-tax gain of $27.1 million ($.15 per share)
resulting from the extension of the pipecoating joint venture with Shaw
Industries.

General corporate expenses of $80.8 million were down slightly from $83.6
million in 1996 primarily due to lower foreign exchange losses.

Interest expense rose to $68.6 million from $60.5 million in 1996 primarily due
to a full year's interest on $300.0 million of long-term debentures issued in
August 1996 at a higher interest rate than the previous short-term debt.

The effective income tax rate for 1997 was 35% compared to 34% in 1996.

1996 COMPARED TO 1995

Earnings per share and net earnings of $1.44 and $257.5 million for 1996 were up
23% and 21%, respectively, from $1.17 and $213.1 million in 1995 before an
accounting change.  The earnings improvement reflects the substantial growth
seen in the global market for oil and gas and their by-products.

The Company recorded a charge of $16.0 million (net of tax of $9.0 million) or
$.09 per share in the first quarter of 1995, for the cumulative effect of
changing its accounting for postemployment benefits as required by Statement of
Financial Accounting Standards No. 112, EMPLOYER'S ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS. (See Note A to Consolidated Financial Statements.)

Revenues for 1996 were $6.6 billion, an increase of 17% over the $5.6 billion in
1995.  Segment operating profit was $589.5 million in 1996 compared to $473.1
million in 1995 for a 25% increase.


                                      16

<PAGE>

CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)

1996 COMPARED TO 1995 (continued)

All three industry segments had higher revenues and operating profit.  Within
the segments, all operations had higher revenues with virtually all operations
showing earnings improvement.  See the Industry Segment Analysis for discussion
of results by operation.

General corporate expenses of $83.6 million were $8.4 million higher than in
1995.  The higher level of expenses in 1996 was primarily due to (i) foreign
exchange losses on devaluations of the Venezuelan currency in December 1995 and
April 1996 and (ii) costs of hedging foreign exchange exposure related to an
Italian subsidiary.  Higher benefit-related expenses in 1996 also contributed to
the increase.

Interest expense increased to $60.5 million in 1996 from $47.4 million in 1995
due to an increase in total borrowings and to the higher interest rate on new
long-term debt versus the previously issued commercial paper.  Interest income
decreased to $12.7 million in 1996 from $21.6 million in 1995 due to a lower
level of short-term investment of excess funds.

The effective income tax rate for 1996 was 34% compared to 32% for 1995.  The
increased rate reflects a lower level of utilization of foreign net operating
losses.

INDUSTRY SEGMENT ANALYSIS

See details of financial information by Industry Segment and Geographic Area on
pages 21 through 23.

PETROLEUM PRODUCTS AND SERVICES

Revenues of $2.67 billion in 1997 were 24% higher than 1996, and operating
profit of $330.6 million was up 43% over the prior year.

Baroid Drilling Fluids had a very strong year with revenues and earnings up 24%
and 45%, respectively, over 1996.  The strong performance was driven by market
share gains, price increases and improvement in quality of wells awarded.
Sperry-Sun revenues were 24% higher than 1996 while earnings were up 7%.
Earnings did not increase in line with revenues due to a sales mix shift to
lower margin directional drilling services and increased costs to support higher
activity levels, training and new product development initiatives.  Security DBS
revenues were up 25% and earnings improved 65% over 1996 fueled by increased
volume and margins on fixed cutter bits and increased volume of roller cone
bits.  Sales to customers outside the U.S. were 68% of total sales, up from 62%
in 1996.  For total drilling and production operations, the ratio of operating
profit to sales grew to 13.9% in fiscal 1997 compared to 12.9% last year.

Bredero-Shaw revenues were up 34% and earnings were up 82% over last year due to
higher activity levels in the Far East, Middle East and U.S.  SubSea earnings
were twice the 1996 level.  The North Sea produced good results attributed
mainly to the Schiehallion project and higher utilization of ROVs partially
offset by low utilization of shallow water equipment in the Gulf prior to the
sale of the equipment.  Wellstream revenues were up 84%, and earnings were
almost eight times 1996.  The growth in Wellstream's flexible pipe business
reflected offshore development in the North Sea and Brazil.  Wellstream's new
plant in the United Kingdom began commercial operation in December 1997.

Revenues of $2.16 billion in 1996 were 32% higher than 1995, and operating
profit of $231.3 million was up 43% over 1995.


                                      17

<PAGE>

INDUSTRY SEGMENT ANALYSIS (CONTINUED)

PETROLEUM PRODUCTS AND SERVICES (CONTINUED)

Particularly strong gains were experienced by Baroid Drilling Fluids, Sperry-Sun
Drilling Services and Security DBS in 1996.  Baroid's revenues increased 28%
over 1995 as it capitalized on the growth of higher quality wells being drilled,
particularly offshore deep water wells.  Market share gains in the Gulf of
Mexico, Latin America and West Africa also contributed to the growth over 1995.
Sperry-Sun revenues were 20% higher than 1995 with key growth areas including
the Gulf of Mexico, the North Sea and Latin America.  Increases in capital
spending for measurement-while-drilling tools and a continuation of high
utilization rates were seen during the year.  Security DBS revenues and
operating profit increased in 1996 over 1995 as the result of increased sales of
higher margin fixed cutter bits, combined with cost improvements obtained from
manufacturing efficiencies in its U.S. plants.  For total drilling and
production operations, the ratio of operating profit to sales was 12.9% compared
to 11.3% last year.  Sales to customers outside the U.S. accounted for 62% of
total sales, slightly higher than 1995, with strong growth in Latin America,
Europe and Africa.

The Bredero-Shaw pipecoating operations saw substantial increases during 1996,
primarily from a large contract in the Norwegian sector of the North Sea awarded
in the latter part of 1995.  Activity also increased in U.S. markets as the
result of an acquisition made in 1995.  Although SubSea revenues grew 18% in
1996 compared to 1995, earnings declined as the result of poor lay barge
utilization and day rates in the Gulf of Mexico and soft market conditions in
the Middle East.

ENGINEERING SERVICES

M.W. Kellogg 1997 revenues of $1.93 billion and earnings of $111.1 million were
up 19% and 13%, respectively, over 1996.  Current year earnings improvements
were driven by LNG activities and oil recovery work in Africa and fertilizer
activities in Latin America, together with the substantial completion of several
other large projects.  Bid and proposal activity levels in 1997 were
substantially higher than in 1996.  Backlog of $3.7 billion at October 31, 1997
was 28% above the year-ago level of $2.9 billion.

M.W. Kellogg 1996 revenues of $1.62 billion were 11% higher than 1995, and
operating profit of $98.1 million was 24% higher.  These gains resulted from
higher activity on projects in the U.K., Uzbekistan, Africa and the U.S.  The
successful completion of significant milestones on several large contracts also
contributed to the higher profit levels.  A number of significant projects
commenced during the year for LNG, fertilizer and petrochemical production.


                                      18

<PAGE>

INDUSTRY SEGMENT ANALYSIS (CONTINUED)

ENERGY EQUIPMENT

COMPRESSION AND PUMPING

Compression and Pumping revenues in 1997 were $1.31 billion, up 3% from $1.27
billion in 1996.  Operating profit of $108.8 million was up 7% from $101.7
million last year.

Dresser-Rand's 1997 revenues and earnings were slightly higher than last year.
Earnings were negatively impacted during 1997 by performance problems related to
certain contracts and lower margin shipments earlier in the year.

Earnings from the 49%-owned Ingersoll-Dresser Pump (IDP) joint venture were
$29.4 million in 1997 and $22.1 million in 1996 as profit improvement
initiatives implemented in fiscal years 1996 and 1997 continue to show good
results, especially in the Engineered Products Group.

Compression and Pumping 1996 revenues of $1.27 billion were 4% higher than 1995.
Operating profit of $101.7 million was 23% higher than in 1995.

Dresser-Rand's 1996 earnings of $71.5 million were up 14% from 1995 on
approximately 3% higher sales.  The increase in earnings reflects higher
complete machine, aftermarket and contract compression sales and reduced sales
of lower margin purchased equipment.  Lower manufacturing overhead and selling,
general and administrative expenses also aided the earnings improvement.

Earnings from the IDP joint venture were $22.1 million in 1996 and $13.2 million
in 1995.  The improvement in 1996 over 1995 was driven by margin improvements
and continuing improvements to the cost structure since the formation of the
joint venture.

MEASUREMENT

In 1997, earnings of $68.8 million were 24% higher than 1996 on revenues of
$663.8 million that were up 4%.  The earnings improvement was led by the Wayne
Division which had a 41% earnings increase that was driven by successes with new
computer technology products.  Instrument Division had a slight increase in
revenues and essentially the same earnings as last year, with a good performance
by its transducer product line.  DMD saw increases in revenues and earnings as a
result of volume improvements in most of its operations.

Revenues of $637.0 million in 1996 were $18.3 million or 3% higher than in 1995;
however, 1996 operating profit of $55.7 million was $15.7 million or 22% lower
than in 1995.  The operating profit decrease occurred in the Wayne (fuel
dispensing) Division due to pricing pressures in the U.S. and increased software
development costs.  The improvement in the Instrument Division primarily
reflected the contribution of an acquisition in early 1996.


                                      19

<PAGE>

INDUSTRY SEGMENT ANALYSIS (CONTINUED)

ENERGY EQUIPMENT (CONTINUED)

FLOW CONTROL

Earnings in 1997 of $66.7 million were up 3% from 1996 even though revenues of
$597.1 million were down slightly.  The Energy Valve operations had a 29%
increase in earnings on a 3% increase in revenues due to improved margins and
better product mix.  The Valve and Controls operations had lower revenues and
earnings primarily from poor project business margins.

In 1996, revenues of $611.1 million and operating profit of $64.6 million were
up from 1995 by $152.7 million or 33% and $22.8 million or 55%, respectively.
The increases were primarily attributable to the inclusion in the Energy Valve
Division of a full year's results for Grove S.p.A., which was acquired in June
1995, as well as the beneficial impact of higher activity in its U.S.
operations.  The Valve and Controls Division showed improvement with volume
growth associated with increased activity in the refining, chemical and power
sectors as well as the ongoing benefits associated with the restructuring of its
European operations.

POWER SYSTEMS

Revenues of $318.6 million in 1997 were 4% higher than last year while earnings
of $38.8 million were essentially flat.  Waukesha Engine Division's results were
impacted by lower original equipment shipments that were offset by higher
service parts activity.  Roots revenues were down slightly due to lower volume
that was partially offset by improved product mix.

Revenues of $306.0 million in 1996 showed a $29.1 million or 11% increase over
1995 while 1996 operating profit of $38.1 million increased $2.2 million or 6%
over 1995.  Both the Waukesha and Roots divisions had volume increases.  Roots
contributed most of the operating profit improvement.  Price discounting and
early-year softness in gas compression markets pressured Waukesha's operating
profit in the first half of the year.  A pick up in U.S. and international
activity contributed to a modest recovery in the second half of fiscal 1996.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

During 1997, the Company used approximately $69.6 million more cash than the
operations generated.  Major uses included $303.0 million for capital
expenditures and $123.0 million for dividends.  Furthermore, during 1997, the
Company purchased 1.4 million shares of Company stock at a purchase price of
$41.9 million (compared to 8.2 million shares at a purchase price of $228.1
million in 1996).  In addition, $208.5 million of cash was used to finance
working capital increases in accounts receivable and inventories, primarily in
the Petroleum Products and Services segment, as well as a decrease in accrued
expenses.  Decreases in contract advances in the current year, primarily at M.
W. Kellogg, resulted in a use of cash of $115.7 million.  The Company also
decreased its net borrowings by $36.2 million.  Shareholders' equity increased
$150.0 million as earnings more than offset dividends and stock repurchases.

The Company's liquidity and overall financial condition are strong.  Total debt
was $806.1 million as of October 31, 1997, compared with $842.3 million at
October 31, 1996.  Total debt was 32% of total book capitalization as of October
31, 1997, compared with 35% as of October 31, 1996.  Net debt to net book
capitalization was 27% at October 31, 1997, compared with 28% at October 31,
1996.


                                      20

<PAGE>

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION (CONTINUED)

Management believes that the cash on hand of $162.8 million and $643.8 million
of existing unused lines of credit, combined with cash that will be provided by
future operations, will be adequate to finance known requirements.  The
Company's long-term debt is rated A1 by Standard and Poors, Aa3 by Moody's and
A+ by Duff and Phelps.  Management believes that the Company's strong financial
condition and favorable credit ratings will allow the Company to borrow
additional funds should the need arise.  Capital expenditures for fiscal year
1998 are not expected to be materially different than the Company's historical
level of expenditures, which have averaged approximately $310 million per year
for the last three years.

LEGAL AND ENVIRONMENTAL MATTERS

The Company is currently involved in a number of lawsuits.  See Note J to
Consolidated Financial Statements for information on these lawsuits and
evaluation of the Company's exposure.  The Company has been identified as a
potentially responsible party in a number of Superfund sites.  Note J to
Consolidated Financial Statements includes a review and evaluation of the
claims.

FORWARD-LOOKING INFORMATION

In accordance with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that the statements in this
Form 10-K and elsewhere, which are forward-looking and which provide other than
historical information, involve risks and uncertainties that may impact the
Company's results of operations.  These forward-looking statements include,
among others, statements concerning the Company's general business strategies,
financing decisions, corporate structure, backlog, operating trends, industry
trends, cost reduction strategies and their results, expectations for funding
capital expenditures and operations in future periods.  The Company also
continues to face many risks and uncertainties including: litigation,
environmental laws, operations in high risk countries, technological and
structural changes in the industries served by the Company, changes in the price
of oil and natural gas, changes in capital spending by customers in the
hydrocarbon industry for exploration, development, production, processing and
refining and pipeline delivery networks.  The risks and uncertainties inherent
in these forward-looking statements could cause actual results to differ
materially from those expressed in or implied by these statements.

YEAR 2000 ISSUE

The Company is reviewing its computer programs and systems worldwide and has
developed a task force at each of the Company's business units to ensure that
the programs and systems will function properly and be Year 2000 compliant.  In
this process, the Company expects to replace some existing systems and upgrade
others.  The Company presently believes that, with modifications to existing
software and converting to new software, the Year 2000 problem will not pose
significant operational problems for the Company's computer systems.  The
estimated cost of these efforts are not expected to be material to the Company's
financial position or any year's results of operations.


                                      21

<PAGE>

GEOGRAPHIC AREA AND INDUSTRY SEGMENT FINANCIAL INFORMATION -
COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS

The following financial information by Geographic Area and Industry Segment for
the years ended October 31, 1997, 1996 and 1995 is an integral part of Note N to
Consolidated Financial Statements.

Total revenues include sales and services to unaffiliated customers.
Intersegment and intergeographic area sales and services are accounted for at
prices which approximate arm's length market prices.  The intersegment and
intergeographic area revenues are eliminated.  Revenues also include royalties
and share of earnings or losses of unconsolidated affiliates.

Operating profit consists of total revenues less total operating expenses and
includes the Company's share of earnings or losses from unconsolidated
affiliates.  General corporate expenses, amortization of acquisition
intangibles, interest income and expense, and other income and expenses not
identifiable with a segment have been excluded in determining operating profit.
Identifiable assets are those assets that are identified with particular
segments.  Corporate assets are principally cash and cash equivalents and
deferred income tax benefits.

     GEOGRAPHIC AREA FINANCIAL INFORMATION-
     COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS
     (IN MILLIONS OF DOLLARS)

<TABLE>
                                                                         Mid East/
                                United               Latin               Far East
                                States     Canada   America    Europe    & Africa    Eliminations   Total    
                                ------     ------   -------    ------    ---------   ------------   -----    
<S>                             <C>        <C>      <C>        <C>       <C>         <C>            <C>      
1997
Revenues by point of
  origin                        4,061.3     280.3     514.7    1,831.8    1,224.8       (455.0)     7,457.9
Revenues by point of                                                                                       
  destination                   2,499.0     344.4   1,051.8    1,503.0    2,059.7            -      7,457.9
U.S. exports                          -      64.7     528.3       98.8      442.0            -      1,133.8
Operating profit                  260.0      67.6      84.5      151.3      161.4            -        724.8
Identifiable assets             2,211.2     123.1     326.1    1,068.2      178.5        (64.7)     3,842.4

1996
Revenues by point of
  origin                        3,736.3     221.9     482.4    1,854.5      655.4       (389.0)     6,561.5
Revenues by point of                                                                                       
  destination                   2,407.8     268.0     829.9    1,658.0    1,397.8            -      6,561.5
U.S. exports                          -      82.1     350.0      193.6      546.9            -      1,172.6
Operating profit                  216.0      44.9      71.5      141.4      115.7            -        589.5
Identifiable assets             2,151.4     114.8     223.4    1,065.2      329.8       (125.8)     3,758.8

1995
Revenues by point of
  origin                        3,288.0     192.9     560.4    1,558.8      558.5       (529.9)     5,628.7   
Revenues by point of
  destination                   2,058.8     215.3     811.9    1,342.1    1,200.6            -      5,628.7   
U.S. exports                          -      63.2     333.5       98.8      472.6            -        968.1   
Operating profit                  173.7      37.8      74.1       70.0      117.5            -        473.1   
Identifiable assets             1,906.4      90.0     246.6      996.7      303.5       (231.0)     3,312.2   
</TABLE>


                                       22

<PAGE>

INDUSTRY SEGMENT FINANCIAL INFORMATION-
COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS
(IN MILLIONS OF DOLLARS)

<TABLE>
                                               Petroleum Products
                                                   and Services      Engineering Services
                                               ------------------    --------------------
                                                                          M. W. Kellogg
                                                                           Operations
                                                                          -------------
<S>                                                   <C>                   <C>
1997
Revenues                                              2,673.3               1,927.9
                                                      -------               -------
Operating profit                                        330.6                 111.1
Amortization of acquisition intangibles                 (10.8)                (10.7)
General corporate expenses                                  -                     -
Interest expense, net                                       -                     -
Nonrecurring items                                       (9.7)                    -
                                                      -------               -------
  Earnings before taxes                                 310.1                 100.4
                                                      -------               -------
Identifiable assets                                   1,711.0                 265.7
Acquisition intangibles                                 295.9                 210.7
Corporate assets                                            -                     -
                                                      -------               -------
  Total assets                                        2,006.9                 476.4
                                                      -------               -------
Capital expenditures                                    210.2                   9.2
Depreciation & amortization                             123.9                  22.6
Backlog (unaudited)                                     485.6               3,702.5

1996
Revenues                                              2,160.5               1,621.9
                                                      -------               -------
Operating profit                                        231.3                  98.1
Amortization of acquisition intangibles                 (11.9)                (10.2)
General corporate expenses                                  -                     -
Interest expense, net                                       -                     -
                                                      -------               -------
  Earnings before taxes                                 219.4                  87.9
                                                      -------               -------
Identifiable assets                                   1,664.6                 229.6
Acquisition intangibles                                 338.9                 216.5
Corporate assets                                            -                     -
                                                      -------               -------
  Total assets                                        2,003.5                 446.1
                                                      -------               -------
Capital expenditures                                    175.6                  35.1
Depreciation & amortization                             107.0                  20.5
Backlog (unaudited)                                     572.2               2,897.2

1995
Revenues                                              1,635.6               1,457.6
                                                      -------               -------
Operating profit                                        162.0                  79.3
Amortization of acquisition intangibles                 (12.5)                (10.2)
General corporate expenses                                  -                     -
Interest expense, net                                       -                     -
                                                      -------               -------
  Earnings before taxes                                 149.5                  69.1
                                                      -------               -------
Identifiable assets                                   1,364.2                 212.8
Acquisition intangibles                                 345.9                 210.5
Corporate assets                                            -                     -
                                                      -------               -------
  Total assets                                        1,710.1                 423.3
                                                      -------               -------
Capital expenditures                                    157.3                   7.1
Depreciation & amortization                              90.4                  17.6
Backlog (unaudited)                                     527.8               1,400.0
</TABLE>


                                             23

<PAGE>

<TABLE>
                         Energy Equipment
-----------------------------------------------------------------------
Compression                                                                  Corporate
    and                             Flow           Power                        and
  Pumping        Measurement       Control        Systems        Total      Eliminations        Total
-----------      -----------       -------        -------       -------     ------------       -------
<S>              <C>               <C>            <C>           <C>         <C>                <C>
  1,314.9           663.8           597.1          318.6        2,894.4         (37.7)         7,457.9
  -------           -----           -----          -----        -------        ------          -------
    108.8            68.8            66.7           38.8          283.1             -            724.8
     (1.8)           (1.6)           (6.1)           (.2)          (9.7)            -            (31.2)
        -               -               -              -              -         (80.8)           (80.8)
        -               -               -              -              -         (58.4)           (58.4)
    (18.0)              -               -           (6.4)         (24.4)         26.5             (7.6)
  -------           -----           -----          -----        -------        ------          -------
     89.0            67.2            60.6           32.2          249.0        (112.7)           546.8
  -------           -----           -----          -----        -------        ------          -------
  1,039.3           266.0           401.2          169.5        1,876.0         (10.3)         3,842.4
     60.4            23.7           218.2              -          302.3             -            808.9
        -               -               -              -              -         447.5            447.5
  -------           -----           -----          -----        -------        ------          -------
  1,099.7           289.7           619.4          169.5        2,178.3         437.2          5,098.8
  -------           -----           -----          -----        -------        ------          -------
     37.6            14.0            12.5           18.3           82.4           1.2            303.0
     50.5            14.9            25.3           11.4          102.1           6.2            254.8
  1,202.2           122.0           233.9           76.4        1,634.5          (2.9)         5,819.7


  1,273.5           637.0           611.1          306.0        2,827.6         (48.5)         6,561.5
  -------           -----           -----          -----        -------        ------          -------
    101.7            55.7            64.6           38.1          260.1             -            589.5
     (1.6)           (1.5)           (5.9)           (.2)          (9.2)            -            (31.3)
        -               -               -              -              -         (83.6)           (83.6)
        -               -               -              -              -         (47.8)           (47.8)
  -------           -----           -----          -----        -------        ------          -------
    100.1            54.2            58.7           37.9          250.9        (131.4)           426.8
  -------           -----           -----          -----        -------        ------          -------
  1,024.9           257.4           424.4          162.4        1,869.1          (4.5)         3,758.8
     63.2            25.0           225.9            6.6          320.7             -            876.1
        -               -               -              -              -         515.3            515.3
  -------           -----           -----          -----        -------        ------          -------
  1,088.1           282.4           650.3          169.0        2,189.8         510.8          5,150.2
  -------           -----           -----          -----        -------        ------          -------
     75.2            14.4            16.1           17.8          123.5           1.2            335.4
     44.6            14.8            25.8           10.7           95.9           6.4            229.8
  1,130.3           112.5           199.0           75.1        1,516.9          (6.6)         4,979.7


  1,220.4           618.7           458.4          276.9        2,574.4         (38.9)         5,628.7
  -------           -----           -----          -----        -------        ------          -------
     82.7            71.4            41.8           35.9          231.8             -            473.1
     (1.9)           (1.3)           (3.8)           (.2)          (7.2)            -            (29.9)
        -               -               -              -              -         (75.2)           (75.2)
        -               -               -              -              -         (25.8)           (25.8)
  -------           -----           -----          -----        -------        ------          -------
     80.8            70.1            38.0           35.7          224.6        (101.0)           342.2
  -------           -----           -----          -----        -------        ------          -------
    954.7           248.0           409.6          160.6        1,772.9         (37.7)         3,312.2
     65.4            19.1           204.4            6.8          295.7             -            852.1
        -               -               -              -              -         543.1            543.1
  -------           -----           -----          -----        -------        ------          -------
  1,020.1           267.1           614.0          167.4        2,068.6         505.4          4,707.4
  -------           -----           -----          -----        -------        ------          -------
     85.4            15.3            11.3           10.0          122.0           1.8            288.2
     44.7            13.9            20.2           10.3           89.1           9.5            206.6
  1,076.4           115.9           234.0           91.2        1,517.5          (9.1)         3,436.2
</TABLE>



                                             24

<PAGE>

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company hedges exposures to potential foreign exchange gains and losses
arising on future changes in currency exchange rates.  None of these hedging
activities are considered material.  Information relating to financial
instruments is included in Note M to the financial statements of this Annual
Report.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Management
Report of Independent Accountants - Price Waterhouse LLP
Consolidated Statements of Earnings - Years Ended October 31, 1997, 1996 
and 1995
Consolidated Balance Sheets - October 31, 1997 and 1996
Consolidated Statements of Shareholders' Equity - Years Ended October 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows - Years Ended October 31, 1997, 1996 
and 1995
Note A - Basis of Presentation, Summary of Significant Accounting Policies and
Accounting Change
Note B - Joint Ventures, Acquisitions and Asset Sale
Note C - Unconsolidated Affiliated Companies
Note D - Cash Flow Data
Note E - Income Taxes
Note F - Short-Term Debt
Note G - Long-Term Debt
Note H - Employee Incentive Plans
Note I - Capital Shares
Note J - Commitments and Contingencies
Note K - Postretirement Benefits
Note L - Supplementary Information, Special Charges and Credits
Note M - Financial Instruments
Note N - Information by Industry Segment and Geographic Area (Information is
         included in Item 7. of this report.)
Note O - Baroid Financial Information
Note P - Quarterly Financial Data (Unaudited)







                                             25
<PAGE>

REPORT OF MANAGEMENT


The consolidated financial statements of Dresser Industries, Inc. and
subsidiaries have been prepared by management and have been audited by
independent accountants.  The management of the Company is responsible for the
financial information and representations contained in the financial statements
and other sections of this report.  Management believes that the financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate under the circumstances to reflect, in all material
respects, the substance of events and transactions that should be included.  In
preparing the consolidated financial statements, it is necessary that management
make informed estimates and judgments based on currently available information
of the effects of certain events and transactions.

In meeting its responsibility for the reliability of the consolidated financial
statements, management depends on the Company's internal control structure.
This internal control structure is designed to provide reasonable assurance that
assets are safeguarded and transactions are executed in accordance with
management's authorization and are properly recorded.  In designing control
procedures, management recognizes that errors or irregularities may occur.
Also, estimates and judgments are required to assess and balance the relative
cost and expected benefits of the controls.  Management believes that the
Company's internal control structure provides reasonable assurance that errors
or irregularities that could be material to the consolidated financial
statements are prevented or would be detected within a timely period by
employees in the normal course of performing their assigned functions.

The Board of Directors fulfills its oversight role for the accompanying
consolidated financial statements through its Audit and Finance Committee, which
is composed solely of directors who are not officers or employees of the
Company.  The Committee meets with management, the independent accountants and
the internal auditors to review the work of each and to monitor the discharge by
each of its responsibilities.  The Committee also meets with the independent
accountants and internal auditors, without management present, to discuss
internal control structure, auditing and financial reporting matters.






G. H. Juetten, Senior Vice President and               K. J. Kotara, Controller
    Chief Financial Officer


                                      26

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
  Shareholders of Dresser Industries, Inc.

In our opinion, the consolidated financial statements and financial statement
schedule listed in the index appearing under Item 14(a)(1) and (2) and 14(d)
on page F-2 present fairly, in all material respects, the financial position of
Dresser Industries, Inc. and its subsidiaries at October 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended October 31, 1997, in conformity with generally accepted
accounting principles.  These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits.  We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for the opinion expressed above.

As discussed in Note A to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 112, EMPLOYERS'
ACCOUNTING FOR POSTEMPLOYMENT BENEFITS, effective as of November 1, 1994.





PRICE WATERHOUSE LLP

Dallas, Texas
November 26, 1997


                                      27

<PAGE>

                    DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
                                                      YEARS ENDED OCTOBER 31,
                                                ----------------------------------- 
IN MILLIONS, EXCEPT PER SHARE DATA                1997          1996        1995
                                                ---------    ---------   ---------
<C>                                             <C>          <C>         <C>
Sales                                           $ 4,245.6    $ 3,867.9   $ 3,428.6
Service revenues                                  3,173.5      2,665.3     2,184.0
Share of earnings of unconsolidated affiliates       38.8         28.3        16.1
                                                ---------    ---------   ---------
  Total revenues                                  7,457.9      6,561.5     5,628.7
                                                ---------    ---------   ---------

Cost of sales                                     2,948.3      2,754.7     2,431.6
Cost of services                                  2,813.5      2,333.4     1,926.3
                                                ---------    ---------   ---------
  Total costs of sales and services               5,761.8      5,088.1     4,357.9
                                                ---------    ---------   ---------

  Gross earnings                                  1,696.1      1,473.4     1,270.8

Selling, engineering, administrative
 and general expenses                            (1,087.9)      (988.1)     (909.1)
Special charges and credits                          (7.6)           -           -

Other income (deductions)
  Interest expense                                  (68.6)       (60.5)      (47.4)
  Interest earned                                    10.2         12.7        21.6
  Other, net                                          4.6        (10.7)        6.3
                                                ---------    ---------   ---------

  Earnings before income taxes and
    other items below                               546.8        426.8       342.2

Income taxes                                       (191.4)      (145.1)     (109.3)
Minority interest                                   (37.4)       (24.2)      (19.8)
                                                ---------    ---------   ---------

  Earnings before accounting change                 318.0        257.5       213.1
Cumulative effect of accounting change                  -            -       (16.0)
                                                ---------    ---------   ---------

  Net earnings                                  $   318.0    $   257.5   $   197.1
                                                ---------    ---------   ---------
                                                ---------    ---------   ---------

Earnings per common share
  Earnings before accounting change             $    1.81    $    1.44   $    1.17
  Cumulative effect of accounting change                -            -        (.09)
                                                ---------    ---------   ---------
  Net earnings                                  $    1.81    $    1.44   $    1.08
                                                ---------    ---------   ---------
                                                ---------    ---------   ---------
Average common shares outstanding                   175.7        179.3       182.8
</TABLE>


                SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       28

<PAGE>

                    DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                                          OCTOBER 31,
                                                     -------------------- 
IN MILLIONS                                            1997        1996
ASSETS                                               --------    --------

Current Assets
  Cash and cash equivalents                          $  162.8    $  232.4

  Notes and accounts receivable                       1,202.0     1,173.8
  Less allowance for doubtful receivables                20.2        21.7
                                                     --------    -------- 
                                                      1,181.8     1,152.1 

Inventories
  Finished products and work in process                 783.2       699.4 
  Raw materials and supplies                            189.1       214.2
                                                     --------    -------- 
                                                        972.3       913.6

  Deferred income taxes                                  96.0        83.8
  Prepaid expenses                                       58.7        87.6
                                                     --------    -------- 
      Total Current Assets                            2,471.6     2,469.5
                                                     --------    -------- 

Investments in and receivables from unconsolidated
  affiliates                                            320.3       182.5
Goodwill less accumulated amortization of $151.4 
  in 1997 and $141.7 in 1996                            803.7       870.6
Deferred income taxes                                   181.7       184.0
Other assets                                            217.8       181.2


Property, Plant and Equipment, at cost
  Land and land improvements                             73.3        98.4
  Buildings                                             431.9       473.5
  Machinery and equipment                             2,152.8     2,264.8
                                                     --------    -------- 
                                                      2,658.0     2,836.7
  Less accumulated depreciation                       1,554.3     1,574.3 
                                                     --------    -------- 
      Total Properties, net                           1,103.7     1,262.4
                                                     --------    -------- 
      Total Assets                                   $5,098.8    $5,150.2
                                                     --------    -------- 
                                                     --------    -------- 

        SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                      29

<PAGE>

                     DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                                             OCTOBER 31,
                                                         ---------------------
IN MILLIONS                                                1997         1996
LIABILITIES AND SHAREHOLDERS' EQUITY                     --------     --------

Current Liabilities
  Short-term debt and current portion of long-term debt $   48.1     $   86.0
  Accounts payable                                         566.0        570.6
  Contract advances                                        334.6        459.8
  Accrued compensation and benefits                        253.8        250.4
  Accrued warranty costs                                    56.6         51.4
  Income taxes                                             122.1        111.3
  Other accrued liabilities                                306.2        332.3
                                                        --------     --------
      Total Current Liabilities                          1,687.4      1,861.8
                                                        --------     --------
Long-Term Debt                                             758.0        756.3
Employee Retirement Benefit Obligations                    622.3        676.3
Deferred Compensation, Insurance Reserves and
  Other Liabilities                                        155.2        118.0
Minority Interest                                          143.7        155.6

Commitments and Contingencies

Shareholders' Equity
  Preferred shares, 10 million authorized                      -            -
  Common shares, $0.25 par value
    Authorized: 400 million
    Issued: 184.9 million                                   46.2         46.2
  Capital in excess of par value                           452.8        454.8
  Retained earnings                                      1,615.8      1,420.8
  Cumulative translation adjustment                       (112.2)       (81.5)
  Pension liability adjustment                              (3.9)        (6.9)
                                                        --------     --------
                                                         1,998.7      1,833.4
  Less treasury shares, at cost                            266.5        251.2
                                                        --------     --------
    Total Shareholders' Equity, net                      1,732.2      1,582.2
                                                        --------     --------
  Total Liabilities and Shareholders' Equity            $5,098.8     $5,150.2
                                                        --------     --------
                                                        --------     --------

         SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                      30
<PAGE>
                                       
                DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                 YEARS ENDED OCTOBER 31,
                                            ---------------------------------
IN MILLIONS, EXCEPT PER SHARE DATA            1997         1996        1995
                                            --------     --------    --------
COMMON SHARES, PAR VALUE
 Beginning of year                          $   46.2     $   46.1    $   46.0
 Shares issued pursuant to stock
  warrant agreement                                -           .1           -
 Shares issued under benefit and
  dividend reinvestment plans                      -            -          .1
                                            --------     --------    --------
 End of year                                $   46.2     $   46.2    $   46.1
                                            --------     --------    --------
                                            --------     --------    --------
CAPITAL IN EXCESS OF PAR VALUE
 Beginning of year                          $  454.8     $  451.6    $  448.6
 Shares issued pursuant to stock
  warrant agreement                                -          7.8           -
 Shares issued under benefit and
  dividend reinvestment plans                   (2.0)        (4.6)        3.0
                                            --------     --------    --------
 End of year                                $  452.8     $  454.8    $  451.6
                                            --------     --------    --------
                                            --------     --------    --------
RETAINED EARNINGS
 Beginning of year                          $1,420.8     $1,285.4    $1,212.6
 Net earnings                                  318.0        257.5       197.1
 Dividends on common shares                   (123.0)      (122.1)     (124.3)
                                            --------     --------    --------
 End of year                                $1,615.8     $1,420.8    $1,285.4
                                            --------     --------    --------
                                            --------     --------    --------
CUMULATIVE TRANSLATION ADJUSTMENTS
 Beginning of year                          $  (81.5)    $  (76.7)   $  (63.1)
 Translation rate changes                      (30.7)        (4.8)      (13.6)
                                            --------     --------    --------
 End of year                                $ (112.2)    $  (81.5)   $  (76.7)
                                            --------     --------    --------
                                            --------     --------    --------
PENSION LIABILITY ADJUSTMENT
 Beginning of year                          $   (6.9)    $   (7.0)   $   (7.6)
 Current year adjustment                         3.0           .1          .6
                                            --------     --------    --------
 End of year                                $   (3.9)    $   (6.9)   $   (7.0)
                                            --------     --------    --------
                                            --------     --------    --------
TREASURY SHARES, AT COST
 Beginning of year                          $ (251.2)    $  (42.6)   $   (4.2)
 Shares purchased                              (41.9)      (228.1)      (46.8)
 Shares issued under benefit and
  dividend reinvestment plans                   26.6         19.5         8.4
                                            --------     --------    --------
 End of year                                $ (266.5)    $ (251.2)   $  (42.6)
                                            --------     --------    --------
                                            --------     --------    --------
TOTAL SHAREHOLDERS' EQUITY, END OF YEAR     $1,732.2     $1,582.2    $1,656.8
                                            --------     --------    --------
                                            --------     --------    --------

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      31
<PAGE>

                 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                 YEARS ENDED OCTOBER 31,
                                            ---------------------------------
IN MILLIONS                                   1997         1996        1995
                                            --------     --------    --------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net earnings                               $ 318.0      $ 257.5     $ 197.1
                                            -------      -------     -------
Adjustments to reconcile net earnings to cash
 flow provided by operating activities:
  Depreciation and amortization               254.8        229.8       206.6
  Cumulative effect of accounting change          -            -        16.0
  Earnings from unconsolidated affiliates     (38.8)       (28.3)      (16.1)
  Dividends and advances from
   unconsolidated affiliates                   18.9         37.0        23.0
  Minority interest provision                  37.4         24.2        19.8
  Changes in contract advances               (115.7)       131.3        56.3
  Changes in working capital                 (208.5)      (239.5)      (83.6)
  Other, net                                   18.8          0.2         8.1
                                            -------      -------     -------
    Total adjustments                         (33.1)       154.7       230.1
                                            -------      -------     -------
  Net cash provided by operating activities   284.9        412.2       427.2
                                            -------      -------     -------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                        (303.0)      (335.4)     (288.2)
 Business acquisitions                         (3.6)       (32.2)     (325.7)
 Cash of acquired businesses                     -           3.3         8.6
 Proceeds from Sub Sea assets sale            102.0            -
 Other (primarily proceeds from 
    disposal of assets)                        18.0         14.6        35.6
                                            -------      -------     -------
  Net cash used by investing activities      (186.6)      (349.7)     (569.7)
                                            -------      -------     -------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Issuance of long-term debt                       -        295.5           -
 Purchase of common shares for Treasury       (41.9)      (228.1)      (46.8)
 Dividends paid                              (123.0)      (122.1)     (124.3)
 Increase (decrease) in short-term debt       (31.2)       (45.6)       58.2
 Increase (decrease) in long-term debt          1.7         (3.0)      (16.8)
 Sale/issuance of common shares                22.2         20.7         7.3
                                            -------      -------     -------
  Net cash used by financing activities      (172.2)       (82.6)     (122.4)
                                            -------      -------     -------

EFFECT OF TRANSLATION ADJUSTMENTS ON CASH       4.3          3.8        (1.4)
                                            -------      -------     -------

NET DECREASE IN CASH AND CASH EQUIVALENTS     (69.6)       (16.3)     (266.3)

CASH AND CASH EQUIVALENTS:
 Beginning of year                            232.4        248.7       515.0
                                            -------      -------     -------
 End of year                                $ 162.8      $ 232.4     $ 248.7
                                            -------      -------     -------
                                            -------      -------     -------

            SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                      32
<PAGE>

                DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND ACCOUNTING CHANGE

CONSOLIDATION

All majority-owned subsidiaries are consolidated and all material
intercompany accounts and transactions are eliminated.  Investments in 20% to
50% owned partnerships and affiliates are accounted for on the equity method
and investments in less than 20% owned affiliates are accounted for on the
cost method.

REVENUE RECOGNITION

Revenues and earnings from long-term engineering and construction contracts
are recognized on the percentage-of-completion method, measured generally on
the cost incurred basis.  Estimated contract costs include allowances for
completion risks, process and schedule guarantees and warranties that
generally are not finally determinable until the latter stages of a contract.
Estimated contract earnings are reviewed and revised periodically as the
work progresses. Estimated losses are charged against earnings in the period
in which such losses are identified.  Revenues from sale of products and
services other than from long-term construction contracts are recorded when
the products are shipped or the services performed.

LONG-TERM CONTRACTS

Consistent with industry practice, service revenues and cost of services
include the value of materials, equipment and labor contracts furnished by
customers and for which the Company is responsible for the ultimate
acceptability of performance of the project based on such material, equipment
and labor.  The value of such items was $155.8 million, $239.6 million and
$138.3 million for the years ended October 31, 1997, 1996 and 1995,
respectively.

Amounts billed in excess of revenues recognized or costs incurred are
included in current liabilities under contract advances.

INVENTORIES

Inventories are valued at the lower of cost or market.  The cost of most
inventories is determined using either the first-in, first-out (FIFO) method
or the average cost method.  The cost of certain U.S. inventories is
determined using the last-in, first-out (LIFO) method.

Inventories on the LIFO method were $146.2 million and $118.4 million at
October 31, 1997 and 1996, respectively.  Under the average cost method,
inventories would have increased by $97.4 million and $99.0 million at
October 31, 1997 and 1996, respectively.

Inventories are stated net of progress payments received on contracts of
$121.2 million and $118.5 million at October 31, 1997 and 1996, respectively.

                                      33
<PAGE>

                DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND ACCOUNTING CHANGE (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT

Fixed assets are stated at cost.  Depreciation is computed principally by the
straight-line method over the estimated useful lives of 10 to 40 years for
buildings and 3 to 20 years for machinery and equipment.  Certain assets with
service lives of more than 10 years are depreciated on accelerated methods.
Accelerated depreciation methods are also used for tax purposes, wherever
permitted.  Maintenance and repairs are expensed as incurred.  Major
improvements are capitalized.

GOODWILL

The difference between purchase price and the fair values of net assets at
date of acquisition of businesses acquired is amortized on a straight-line
basis over the estimated periods benefited, not exceeding 40 years.

Goodwill that is identified with impaired assets, if any, will be evaluated
using undiscounted future cash flows as the basis for determining if
impairment exists under the provisions of Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121").  To the extent impairment
is indicated to exist, an impairment loss will be recognized under SFAS 121
based on fair value. Otherwise, in the event facts and circumstances indicate
the carrying amount of goodwill associated with an acquisition is impaired,
the carrying amount will be reduced to an amount representing the estimated
undiscounted future cash flows before interest to be generated by the
operation.

TRANSLATION OF FOREIGN CURRENCIES

Financial statements of foreign subsidiaries are translated into U.S. dollars
based on the functional currency of each business unit.  For units whose
local currency is the functional currency, asset and liability accounts are
translated at rates in effect at the balance sheet date, and revenue and
expense accounts are translated at rates approximating the actual rates on
the dates of the transactions.  Translation adjustments are included as a
separate component of shareholders' equity.  For units which have the U.S.
dollar as the functional currency, inventories, cost of sales, property,
plant and equipment and related depreciation are translated at historical
rates.  Other asset and liability accounts are translated at rates in effect
at the balance sheet date, and revenues and expenses (excluding cost of sales
and depreciation) are translated at rates approximating the actual rates on
the dates of the transactions. Translation adjustments are reflected in the
statement of earnings.

ACCOUNTING CHANGE

Effective November 1, 1994, the Company changed its accounting for
postemployment benefits as required by Statement of Financial Accounting
Standards No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS (SFAS
112). Postemployment benefits include salary continuation, disability, and
health care for former or inactive employees who are not retired.  Medical
benefits for employees on long-term disability are the most significant of
the benefits. SFAS 112 requires accrual of the cost of these benefits
currently.  The Company had previously accrued the liability for salary
continuation but had expensed the other benefits as paid.  The Consolidated
Statement of Earnings for 1995 includes a charge of $16.0 million (net of tax
of $9.0 million) or $0.09 per share for the cumulative effect of the
accounting change.

                                      34
<PAGE>

                DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ACCOUNTING CHANGE (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates, but management does not
believe such differences will materially affect the Company's financial
position, results of operations or cash flows.

NEW ACCOUNTING PRONOUNCEMENT

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, ACCOUNTING FOR STOCK BASED COMPENSATION (SFAS 123).  The Company has
elected not to adopt the accounting recognition provisions of SFAS No. 123
and, as permitted, will continue to use the accounting method established by
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, (APB 25) to account for its stock-based compensation programs.
The Company has adopted SFAS No. 123 by making the required pro forma
disclosures of net earnings and net earnings per share as if the fair value
method of accounting under SFAS No. 123 has been applied. (See Note H -
Employee Incentive Plans.)

FUTURE REPORTING REQUIREMENTS

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE (SFAS 128), Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS
130), and Statement of Financial Accounting Standards No. 131, DISCLOSURE
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS 131).  The
Company must adopt the provisions of SFAS 128 beginning in fiscal year 1998
and the provisions of SFAS 130 and SFAS 131 in fiscal year 1999.

SFAS 128 establishes standards for computing and presenting earnings per
share by simplifying the existing standards found in APB Opinion No. 15,
EARNINGS PER SHARE.  SFAS 128 replaces the presentation of primary earnings
per share with a presentation of basic earnings per share.  The Company does
not expect the adoption of SFAS 128 to have a material effect on the
computation and presentation of earnings per share from the method currently
followed by the Company.

SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements.  The Company expects to comply with the standards of SFAS 130 in
the Consolidated Statements of Shareholders' Equity, when adopted.

SFAS 131 requires segment information to be reported on a basis consistent
with that used internally for evaluating segment performance and deciding how
to allocate resources to segments.  The Company is evaluating the impact of
adopting SFAS 131 on the way it currently reports segment information.

                                      35
<PAGE>

                DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - JOINT VENTURES, ACQUISITIONS AND ASSET SALE

JOINT VENTURES

Effective February 29, 1996, the Company entered into an agreement to form a
joint venture with Shaw Industries Ltd. (Shaw) by contributing its Bredero
Price assets and Shaw contributing its Shaw Pipe Protection assets on a
worldwide basis.  During the fourth quarter of 1997, the Company and Shaw
agreed to a long-term extension of their strategic pipe coating alliance,
Bredero-Shaw.  In connection with the new agreement, Shaw agreed to pay the
Company $50 million over a four-year period.  This transaction resulted in a
fourth quarter pretax gain of $41.7 million which is reported in the
Statement of Earnings in the caption "Special Charges and Credits".  For
balance sheet purposes, as of October 31, 1997 the Company deconsolidated
Bredero-Shaw and accounted for its 50% interest in the joint venture as an
equity investment.  The Company will include its share of equity earnings in
the results of operations beginning November 1, 1998 under the equity method.

ACQUISITIONS

The Company acquired several small businesses during 1997 and 1996 for $3.6
million and $32.2 million, respectively.  These businesses did not have a
significant effect on revenues or earnings.

During fiscal 1995, the Company acquired Subtec Asia Ltd., a Sharjah, United
Arab Emirates company, which provides underwater technology services
primarily to the offshore oil and gas industry, for $37.6 million in cash
including repayment of debt.   On May 2, 1995, the Company acquired North Sea
Assets P.L.C., the remotely operated vehicle business of NSA/HMB Group, for
approximately $30.4 million in cash.  On May 1, 1995, the Company acquired
the assets of Wellstream Company L.P., which was engaged in the  production
of high pressure flexible pipe and riser systems, for $62.4 million in cash,
including repayment of debt.  Also, the Company acquired the assets of
Energy Coatings Company on May 5, 1995, and Pipeline Coating, Inc. on July 1,
1995, for a total of approximately $13.6 million in cash.  These last two
companies perform pipe coating services.

Effective May 31, 1995, the Company acquired all the outstanding shares of
Grove S.p.A. (Grove), an Italian corporation, for $162.7 million in cash,
including repayment of debt.  Grove is a multinational company engaged in the
production of oilfield valves and regulators.

The above acquisitions were accounted for as purchases, and their results of
operations are included in the Consolidated Statements of Earnings from the
acquisition dates.  The purchase prices exceeded the value of the net assets
acquired by $244.1 million.  The excess is included in goodwill in the
Consolidated Balance Sheets and is being amortized on a straight-line basis
over 40 years.  The pro forma effect of these acquisitions is not material.

ASSET SALE

In June 1997, the Company sold certain assets of its SubSea operations to
Global Industries, Ltd. for $102.0 million cash.  The Company recognized a
loss of $6.3 million (net of tax of $3.4 million) on the sale.

                                      36
<PAGE>

                DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C - UNCONSOLIDATED AFFILIATED COMPANIES

The Company has several investments in less than majority owned affiliates
and the nature and extent of these investments change over time.  A summary
of the impact of these investments on the consolidated financial statements
follows (in millions):

                                                   1997       1996      1995
                                                  ------     ------    -----
Share of earnings of  unconsolidated affiliates
  Ingersoll-Dresser Pump Company                  $ 29.4     $ 22.1    $13.2
  Bufete Industriale, S.A. de C.V.                     -          -     (5.2)
  Other affiliates                                   9.4        6.2      8.1
                                                  ------     ------    -----
                                                  $ 38.8     $ 28.3    $16.1
                                                  ------     ------    -----
                                                  ------     ------    -----
Dividends received                                $  7.3     $  8.2    $ 7.4
                                                  ------     ------    -----
                                                  ------     ------    -----
Advances received                                 $ 11.6     $ 28.8    $15.6
                                                  ------     ------    -----
                                                  ------     ------    -----


                                                     OCTOBER 31,
                                                  -----------------
                                                   1997       1996
                                                  ------     ------
Investments in and receivables from
  unconsolidated affiliates
    Ingersoll-Dresser Pump Company                $133.2     $132.5
    Bredero-Shaw                                   139.0          -
    Other affiliates                                48.1       50.0
                                                  ------     ------
                                                  $320.3     $182.5
                                                  ------     ------
                                                  ------     ------


The Company's share of earnings for Ingersoll-Dresser Pump Company is before
income taxes and includes adjustments made by the Company for differences in
the timing of adoption of an accounting change and for expenses retained by
the Company.

In the fourth quarter of 1995, The M. W. Kellogg Company (a wholly-owned
subsidiary) sold a portion of its interest in its Mexican affiliate, Bufete
Industriale, S.A. de C.V., and recognized a gain of $7.5 million.  As a
result of the sale, Kellogg's ownership interest fell below 20%.  Thereafter,
Kellogg accounted for its investment on the cost method rather than the
equity method used before the sale.  Separately, Kellogg entered into a
derivative transaction with the purchasers of the Bufete shares.  The
derivative agreement is based on the $20.4 million price of the shares sold.
On the settlement date of October 30, 1998, the Company will receive or make
a cash payment equal to the increase or decrease, respectively, in the value
of the shares sold.  The estimated effect of the agreement will be accrued
during the term of the agreement.  As of October 31, 1997, the carrying value
of the derivative was not significant and the fair value approximated the
carrying value.  The counterparties to the derivative are high quality
institutions, and the Company believes that they are not significant credit
risks.  Kellogg has the right of first refusal should the purchasers want to
sell the shares.






                                      37
<PAGE>

                DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE D - CASH FLOW DATA

Cash and cash equivalents include cash on hand and investments with
maturities of three months or less at time of original purchase. 
Supplemental information about cash payments is as follows (in millions):

                                               1997      1996       1995
                                             -------    -------    ------
     Cash payments for income taxes          $ 142.2    $ 155.6    $ 82.6
                                             -------    -------    ------
                                             -------    -------    ------
     Cash payments for interest on debt      $  70.9    $  51.2    $ 46.1
                                             -------    -------    ------
                                             -------    -------    ------


Working capital changes on the Consolidated Statements of Cash Flows were as
follows (in millions):

                                               1997      1996       1995
                                             -------    -------    ------
 (Increase) in receivables                   $(107.9)   $(145.3)   $(71.2)
 (Increase) in inventories                    (103.0)    (101.5)    (89.2)
 (Increase) decrease in deferred taxes and
   prepaid expenses                              1.2        5.4     (33.3)
 Increase (decrease) in accrued
   liabilities and accounts payable            (13.1)      19.2      95.0
 Increase (decrease) in income taxes payable    14.3      (17.3)     15.1
                                             -------    -------    ------
                                             $(208.5)   $(239.5)   $(83.6)
                                             -------    -------    ------
                                             -------    -------    ------





                                      38
<PAGE>

                DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - INCOME TAXES

The domestic and foreign components of earnings before income taxes consist of
the following (in millions):

                                           1997       1996       1995
                                          ------     ------     ------
  Domestic                                $241.6     $267.0     $177.8
  Foreign                                  305.2      159.8      164.4
                                          ------     ------     ------
   Total earnings before income taxes     $546.8     $426.8     $342.2
                                          ------     ------     ------
                                          ------     ------     ------

The components of the provision for income taxes are as follows (in millions):

                                           1997       1996       1995
                                          ------     ------     ------
  Current
    U.S. Federal                          $ 80.7     $ 84.3     $ 52.1
    State                                    8.3        7.1        3.7
    Foreign                                109.2       43.3       48.3
                                          ------     ------     ------
                                           198.2      134.7      104.1
                                          ------     ------     ------
  Deferred
    U.S. Federal                            (6.7)      (3.0)      (5.7)
    Foreign                                  (.1)      13.4       10.9
                                          ------     ------     ------
                                            (6.8)      10.4        5.2
                                          ------     ------     ------
      Total income tax provision          $191.4     $145.1     $109.3
                                          ------     ------     ------
                                          ------     ------     ------

The Company has not provided U.S. federal income and foreign withholding
taxes on $805 million of non-U.S. subsidiaries' undistributed earnings as of
October 31, 1997, because such earnings are intended to be reinvested
indefinitely to finance foreign operations and expansion.  If these earnings
were distributed, foreign tax credits should become available under current
law to reduce or eliminate the resulting U.S. income tax liability.  When the
Company identifies exceptions to the general reinvestment policy, additional
taxes are provided.

The following is a reconciliation of income taxes at the U.S. Federal income
tax rate of 35% to the effective provision for income taxes reflected in the
Consolidated Statements of Earnings (in millions):

                                                    1997       1996       1995
                                                   ------     ------     ------
Provision for income taxes at statutory rates      $191.4     $149.4     $119.8
Net tax benefits of foreign dividends
 and foreign tax credit carry forwards                (.8)     (10.1)      (5.3)
Foreign losses not benefited                          3.9        9.6        5.6
Foreign taxes less than U.S. rate on
 foreign earnings                                    (6.5)      (7.4)      (6.9)
Non-deductible goodwill amortization                 11.1        8.3        7.1
Book/tax basis differential of acquired property        -       (5.4)         -
Change in valuation allowance attributable to:
  Foreign net operating losses                       (5.5)      (3.5)      (6.3)
  Utilization of capital losses                         -          -       (2.8)
State and local income taxes, net of
 U.S. Federal income tax benefit                      5.4        4.1        2.4
Other                                                (7.6)        .1       (4.3)
                                                   ------     ------     ------
 Provision for income taxes                        $191.4     $145.1     $109.3
                                                   ------     ------     ------
                                                   ------     ------     ------

                                      39
<PAGE>

                DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - INCOME TAXES (CONTINUED)

Income tax expense is based on pretax financial accounting income.  Deferred
tax assets and liabilities are recognized for the expected tax consequences
of temporary differences between the tax bases of assets and liabilities and
their reported amounts.

The deferred income tax provisions (credits) relate to the following (in
millions):

                                                      1997     1996     1995
                                                     ------   ------   ------
 Postretirement benefits                             $  7.7   $  4.1   $  4.6
 Increase (decrease) in valuation allowance on
   temporary differences                              (11.5)     4.6     (9.1)
 Other items including warranty, insurance and
   similar accruals                                    (3.0)     1.7      9.7
                                                     ------   ------   ------
     Total deferred taxes                            $ (6.8)  $ 10.4   $  5.2
                                                     ------   ------   ------
                                                     ------   ------   ------

The components of the net deferred tax asset as of October 31, were as
follows (in millions):

                                                               1997     1996
                                                              ------   ------
 Deferred tax asset:
  Postretirement and postemployment benefits                  $193.6   $201.3
  Long-term contracts                                           18.9     18.2
  Warranty reserves                                              8.4      9.7
  Inventory                                                     23.0     21.6
  Insurance reserves                                            33.1     33.7
  Deferred compensation                                         24.0     19.4
  Net operating loss carryforwards                              10.9     24.6
  Other items                                                   20.1     27.0
  Valuation allowance                                           (5.9)   (17.4)
                                                              ------   ------
     Total deferred tax asset                                  326.1    338.1
                                                              ------   ------
 Deferred tax liability:
  Depreciation and amortization                                (48.4)   (64.6)
  Other items                                                      -     (5.7)
                                                              ------   ------
     Total deferred tax liability                              (48.4)   (70.3)
                                                              ------   ------
 Net deferred tax asset                                       $277.7   $267.8
                                                              ------   ------
                                                              ------   ------

At October 31, 1997, the Company had foreign operating loss carryforwards of
approximately $20 million that had not been benefited.  The tax benefit of
these losses is recorded as a deferred tax asset and offset with a
corresponding valuation allowance.  These losses are available to reduce the
future tax liabilities of their respective foreign entities.  Approximately
$10 million of these losses will carry forward indefinitely while the
remaining losses expire at various dates from 1998 to 2007.

The net change of $11.5 million in 1997 in the valuation allowance for
deferred tax assets relates to decreases in the valuation allowance for
foreign losses.

                                      40
<PAGE>

                  DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                       
NOTE F - SHORT-TERM DEBT

Short-term debt at October 31, 1997, consists of $47.8 million of foreign 
bank loans including amounts drawn against overdraft facilities.  The foreign 
bank loans are primarily in foreign currencies and are at negotiated interest 
rates.

As of October 31, 1997, the Company had $280.0 million unused and available 
short-term committed U.S. bank lines of credit.  Such lines provide for 
borrowings at negotiated interest rates for a high quality industrial 
company. The lines of credit may be terminated at the option of the banks or 
the Company.

As of October 31, 1997, loan arrangements had been established with banks 
outside the United States under which the Company's foreign subsidiaries may 
borrow on an overdraft and short-term note basis.  At October 31, 1997, the 
amount unused and available under these arrangements aggregated $363.8 
million.

NOTE G - LONG-TERM DEBT

Long-term debt is summarized as follows (in millions):

                                                       OCTOBER 31,
                                                  --------------------
                                                   1997          1996
                                                  ------        ------
   
    Notes, 6.25%, due 2000                       $ 300.0       $ 300.0
    Debentures, 7.60%, due 2096                    300.0         300.0
    Senior notes, 8%, due 2003                     149.5         149.3
    Other loan agreements                            8.8           8.6
                                                 -------       -------
                                                   758.3         757.9
    Less portion due within one year                  .3           1.6
                                                 -------       -------
                                                 $ 758.0       $ 756.3
                                                 -------       -------
                                                 -------       -------

NOTE H - EMPLOYEE INCENTIVE PLANS

STOCK COMPENSATION PLAN

Dresser's 1992 Stock Compensation Plan includes a Stock Option Program, a 
Restricted Incentive Stock Program and a Performance Stock Unit Program.

The Stock Option Program provides for the granting of options to officers and 
key employees for purchase of the Company's common shares.  The Plan is 
administered by the Executive Compensation Committee of the Board of 
Directors, whose members are not eligible for grants under the Plan.  No 
option can be for a term of more than ten years from date of grant.  The 
option price is recommended by the committee, but cannot be less than 100% of 
the average of the high and low prices of the shares on the New York Stock 
Exchange on the day the options are granted.  The option price for 550,391 
shares granted from 1993 through 1995 and still outstanding include prices 
that increase on the annual anniversary dates of grants.

                                       41
<PAGE>

                  DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE H - EMPLOYEE INCENTIVE PLANS (CONTINUED)

STOCK COMPENSATION PLAN (CONTINUED)

Changes in outstanding options under the Stock Option Program during the 
three years ended October 31, 1997 and options exercisable at October 31, 
1997 are as follows:

  Outstanding at October 31, 1994                            3,052,952
    Granted at $19.313 to $23.00                               474,737
    Exercised at $3.57 to $23.04                              (414,082)
    Canceled or expired                                        (29,470)
                                                            -----------
  Outstanding at October 31, 1995                            3,084,137
    Granted at $21.75 to $28.375                               768,423
    Exercised at $3.57 to $23.88                              (730,458)
                                                            -----------
  Outstanding at October 31, 1996                            3,122,102
    Granted at $30.6875 to $45.4063                          1,049,799
    Exercised at $3.57 to $28.437                           (1,020,154)
    Canceled or expired                                        (70,260)
                                                            -----------
  Outstanding at October 31, 1997                            3,081,487
                                                            -----------
                                                            -----------
  Exercisable at October 31, 1997 at $3.57 to $35.875        2,061,245
                                                            -----------
                                                            -----------

At October 31, 1997 a total of 6.3 million Dresser common shares were 
reserved for granting of future options under the 1992 plan.

The Company applies APB 25 in accounting for its Stock Option Program 
described above.  The option price under the Stock Option Program equals or 
exceeds the fair market value of the common shares on the date of grant and, 
accordingly, no compensation cost has been recognized under the provisions of 
APB 25 for stock options.  Under SFAS 123, compensation cost is measured at 
the grant date based on the value of the award and is recognized over the 
service (or vesting) period.  Had compensation cost for the Company's Stock 
Option Program been determined under SFAS 123, based on the fair market value 
at the grant dates, the Company's pro forma net earnings and net earnings per 
share would have been reflected as follows:

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                                   1997           1996
                                                 -------        -------

Net earnings             As reported             $ 318.0        $ 257.5
                         Pro forma               $ 312.7        $ 254.7

Net earnings per share   As reported             $  1.81        $  1.44
                         Pro forma               $  1.78        $  1.42

The fair value of each option grant is estimated on the date of grant using 
the Black-Scholes option pricing model with the following weighted-average 
assumption used for those options granted in 1997 and 1996, respectively: 
dividend yield of 2.72%, expected volatility of 22.8% and 23.1%, risk-free 
interest rates of 6.38% and 5.84%, and expected lives of 6.5 years.

                                       42
<PAGE>

                  DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I - CAPITAL SHARES

Changes in issued common shares during the three years ended October 31, 1997 
are as follows (in thousands):

 Shares at October 31, 1994                               184,048
   Issued under benefit and dividend reinvestment plans       418
                                                          -------
 Shares at October 31, 1995                               184,466
   Issued pursuant to stock warrant agreement                 400
                                                          -------
 Shares at October 31, 1996                               184,866
                                                          -------
 Shares at October 31, 1997                               184,866
                                                          -------
                                                          -------

Changes in common shares held in treasury during the three years ended 
October 31, 1997 are as follows (in thousands):

 Treasury shares at October 31, 1994                          196
   Shares purchased                                         2,327
   Issued under benefit and dividend reinvestment plans      (413)
                                                           -------
 Treasury shares at October 31, 1995                        2,110
   Shares purchased                                         8,163
   Issued under benefit and dividend reinvestment plans    (1,026)
                                                           -------
 Treasury shares at October 31, 1996                        9,247
   Shares purchased                                         1,399
   Issued under benefit and dividend reinvestment plans    (1,363)
                                                           -------
 Treasury shares at October 31, 1997                        9,283
                                                           -------
                                                           -------

PREFERRED STOCK PURCHASE RIGHTS PLAN

The Company has a plan under which it issues one Preferred Stock Purchase 
Right for each outstanding share of the Company's Common Stock.  The Rights 
expire in 2000 unless they are redeemed earlier.

The Rights will generally not be exercisable until after 10 days (or such 
later time as the Board of Directors may determine) from the earlier of a 
public announcement that a person or group has, without Board approval, 
acquired beneficial ownership of 15% or more of the Company's Common Stock or 
the commencement of, or public announcement of an intent to commence, a 
tender or exchange offer which, if successful, would result in the offeror 
acquiring 30% or more of the Company's Common Stock.  Once exercisable, each 
Right would entitle its holder to purchase 1/100 of a share of the Company's 
Series A Junior Preferred Stock at an exercise price of $90, subject to 
adjustment in certain circumstances.

If the Company is acquired in a merger or other business combination not 
previously approved by the Company's Continuing Directors, each Right then 
exercisable would entitle its holder to purchase, at the exercise price, that 
number of shares of the surviving company's common stock which has a market 
value equal to twice the Right's exercise price.  In addition, if any person 
or group (with certain exceptions) were to acquire beneficial ownership of 
15% or more of the Company's Common Stock (unless pursuant to a transaction 
approved by the Company's Continuing Directors), each Right would entitle all 
rightholders, other than the 15% stockholder or group, to purchase that 
number of Series A Junior Preferred Stock having a market value equal to 
twice the Right's price.

The Rights may be redeemed by the Company for $0.01 per Right until the tenth 
day after a person or group has obtained beneficial ownership of 15% or more 
of the Company's Common Stock (or such later date as the Continuing Directors 
may determine).

The Rights are not considered to be common stock equivalents because there is 
no indication that any event will occur which would cause them to become 
exercisable. 

                                       43
<PAGE>

                  DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - COMMITMENTS AND CONTINGENCIES

GENERAL LITIGATION

On August 28, 1997, the Eleventh Circuit Federal Court of Appeals issued its 
decision in favor of the Company by reversing the trial court's decision in a 
lawsuit brought by parties who purchased a construction equipment dealership 
from a third party in 1988.  The Court held that the trial court judge should 
have granted the Company's motion for summary judgment and reversed the 
plaintiff's awarded judgment of $6.5 million for compensatory damages and 
$4.0 million for punitive damages.

The purchasers of the Company's former hand tool division sued the Company 
for fraud in connection with the October 1983 transaction.  In May 1994, the 
jury returned a verdict awarding the plaintiffs $4.0 million in compensatory 
damages and $50.0 million in punitive damages.  On October 13, 1994, the 
Court ordered a reduction of damages from $54.0 million to $12.0 million.  On 
October 15, 1996, the Court of Appeals issued its decision reversing the 
trial court's decision as to compensatory and punitive damages and remanding 
the case for a new trial on damages.  On remand, the trial court ordered that 
the new trial contemplated by the appellate decision be limited to 
compensatory damages only, despite the express statement that punitive 
damages were also reversed, and decided that the court would review the 
original punitive damages verdict after the retrial on compensatory damages.  
Dresser disagrees with this interpretation of the appellate decision and 
believes that the trial court erred as a matter of law. Nevertheless, Dresser 
is preparing to defend itself vigorously at the new trial on compensatory 
damages which is set for April 20, 1998, and throughout the post-trial review 
process.

Based on a review of the current facts and circumstances, management has 
provided for what is believed to be a reasonable estimate of the exposure to 
loss associated with these matters.  While acknowledging the uncertainties of 
litigation, management believes that these matters will be resolved without a 
material effect on the Company's financial position or results of operations.

ASBESTOSIS LITIGATION

The Company has approximately 66,000 pending claims, reflecting approximately 
22,000 new claims opened in fiscal 1997 and 25,000 claims closed in fiscal 
1997, in which it is alleged that third parties sustained injuries and 
damages resulting from the inhalation of asbestos fibers in products 
manufactured by the Company.

Of the pending claims, approximately 10,000 allege injury as a result of 
exposure to asbestos contained in refractory products.  The Company has 
entered into an agreement with its insurance carriers on these claims that 
currently covers 71% of its fees, expenses and indemnity payments.  A lawsuit 
has been filed against certain of the Company's excess carriers, which, if 
successful, would raise the amount to 82%.  During the fiscal year, there 
were approximately 1,200 new claims filed or identified and approximately 
6,500 claims were tried, settled or summarily disposed for a gross cost of 
$14.4 million ($4.2 million after insurance recoveries), including legal 
fees, expenses and indemnity payments.  Since 1976, the Company has tried, 
settled or summarily disposed of approximately 24,000 claims for a gross cost 
of $53.5 million ($15.5 million after insurance recoveries), including legal 
fees, expenses and indemnity payments.  Management has no reason to believe 
the carriers will not be able to meet their share of the obligations under 
the agreement.  The Company has provided for the estimated exposure, based 
upon past experience, of the open claims.  Refractory product claims 
subsequent to July 31, 1992, are the responsibility of Harbison-Walker 
Refractories Company (formerly INDRESCO Inc.) pursuant to an agreement 
entered into at the time of the spin-off of INDRESCO by the Company.

Of the 56,000 non-refractory claims, substantially all are covered, in whole 
or in part, by various agreements with insurance carriers.  Because these 
agreements for claims are governed by exposure dates and payment types, the 
covered amount varies by individual claim.  During the fiscal year, there 
were approximately 20,500 new claims filed, and approximately 18,400 claims 
were tried, settled or summarily disposed for a gross cost of $5.5 million 
($4.2 million after insurance recoveries from signed agreements), including 
legal fees, expenses and indemnity 

                                       44
<PAGE>

                  DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - COMMITMENTS AND CONTINGENCIES (CONTINUED)

ASBESTOSIS LITIGATION (CONTINUED)

payments.  Since 1976, the Company has tried, settled or summarily disposed 
of approximately 63,800 claims for a gross cost of $20.8 million ($12.6 
million after insurance recoveries from signed agreements), including legal 
fees, expenses and indemnity payments.  A lawsuit has been filed against a 
group of insurance carriers seeking to recover indemnity costs for a portion 
of these claims, and the Company is in negotiation with those carriers.  The 
Company expects to recover additional amounts from those carriers which will 
further reduce the amounts incurred.  There is no guarantee that the amount 
covered by insurance under any future agreements will be similar to prior 
agreements.

Included in the 66,000 pending claims at October 31, 1997, are approximately 
24,400 settlements that are still carried as pending until all releases are 
signed.  Resolution of these claims will reduce the number of pending claims 
at October 31, 1997, by approximately 16% for refractory product claims and 
41% for non-refractory product claims.

Management recognizes the uncertainties of litigation and the possibility 
that a series of adverse rulings could materially impact operating results.  
However, based upon the Company's historical experience with similar claims, 
the time elapsed since the Company discontinued sale of products containing 
asbestos, and management's understanding of the facts and circumstances which 
gave rise to such claims, management believes that the pending asbestos 
claims will be resolved without material effect on the Company's financial 
position or results of operations. 

                                       45
<PAGE>

                  DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE J - COMMITMENTS AND CONTINGENCIES (CONTINUED)

QUANTUM CHEMICAL LITIGATION

In October 1992 Quantum Chemical Corporation ("Quantum") brought suit against 
the Company's wholly-owned subsidiary, The M. W. Kellogg Company ("Kellogg"), 
alleging that Kellogg negligently failed to provide an adequate design for an 
ethylene facility which Kellogg designed and constructed for Quantum and 
fraudulently misrepresented the state of development of its Millisecond 
Furnace technology to be used in the facility.  Quantum sought $200 million 
in actual damages and twice that amount in punitive damages.  Kellogg 
answered denying the claim and filed a counterclaim against Quantum alleging 
libel, slander, breach of contract and fraud.  The case was tried during 
1995.  On November 30, 1995, the jury returned a verdict finding that there 
was no fraud on the part of Kellogg, that Quantum's claim was barred by the 
statute of limitations, that Quantum is liable for $4.3 million in breach of 
contract damages, that Quantum is liable for $4.1 million in damages for 
theft of trade secrets, and that Quantum is liable for $3.0 million of 
Kellogg's legal fees.  Quantum appealed the judgment.  The parties have 
argued the case before the State Intermediate Court of Appeals and were 
awaiting the Court's decision.  While the case was being reviewed by the 
State Intermediate Court of Appeals, the parties involved agreed to a 
settlement.

ENVIRONMENTAL MATTERS

The Company has been preliminarily identified as a potentially responsible 
party in 100 Superfund sites.  Primary responsibility for nine of these sites 
was assumed by Global Industrial Technologies Inc. and there is joint 
responsibility at three sites.  The Company has entered into settlements at 
36 sites at a total cost of less than $2 million.  Upon evaluation of the 
information concerning the sites, the Company determined that it is not a 
responsible party and had no liability at 26 sites.  Based on the Company's 
historical experience with similar claims and management's understanding of 
the facts and circumstances, management determined that the resolution of 
liability at the 29 remaining sites will be reached without material effect 
on the Company's financial position or results of operations.

OTHER LITIGATION

The Company is involved in certain other legal actions and claims arising in 
the ordinary course of business.  Management recognizes the uncertainties of 
litigation and the possibility that one or more adverse rulings could 
materially impact operating results.  However, based upon the nature of and  
management's understanding of the facts and circumstances which gave rise to 
such actions and claims, management believes that such litigation and claims 
will be resolved without material effect on the Company's financial position 
or results of operations.

OTHER COMMITMENTS

Total rental and lease expense charged to earnings was $124.3 million in 
1997, $107.0 million in 1996 and $103.4 million in 1995.  At October 31, 
1997, the aggregate minimum annual obligations under noncancelable leases 
were: $75.6 million for 1998; $49.1 million for 1999; $36.3 million for 2000; 
$27.7 million for 2001; $22.5 million for 2002 and $57.1 million for all 
subsequent years. The lease obligations related primarily to general and 
sales office space and warehouses.


                                       46
<PAGE>

                    DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - POSTRETIREMENT BENEFITS

HEALTH CARE AND LIFE INSURANCE BENEFITS

The Company has health care and life insurance plans for eligible retired U.S.
union and non-union employees.  Although certain plans are contributory, the
Company generally absorbs the majority of the costs.  The Company funds the
benefit plans as claims and premiums are paid.

During 1997, the Company adopted amendments to eliminate certain postretirement
medical benefit programs.  These amendments resulted in a curtailment gain of
$11.2 million, including $8.4 million at Dresser-Rand Company.

The net periodic postretirement benefit expense and the actual benefits paid
were as follows (in millions):

                                                   1997      1996      1995
                                                  ------    ------    ------

  Service cost for benefits earned                $  3.9    $  4.2    $  4.2
  Interest cost on accumulated postretirement
    benefit obligation                              27.8      29.3      29.7
  Net amortization of unrecognized gain,
    including curtailment gain                     (28.8)    (19.2)    (18.5)
                                                  ------    ------    ------
  Net periodic postretirement benefit expense     $  2.9    $ 14.3    $ 15.4
                                                  ------    ------    ------
                                                  ------    ------    ------
  Actual benefits paid                            $ 24.9    $ 24.6    $ 25.3
                                                  ------    ------    ------
                                                  ------    ------    ------

The liability of the plans at October 31 was as follows (in millions):

                                                             1997      1996
                                                            ------    ------
     Actuarial present value of accumulated
      postretirement benefit obligation:
        Retirees                                            $243.5    $253.3
        Fully eligible active plan participants               53.6      53.8
        Other active plan participants                        53.5      65.8
                                                            ------    ------
         Total accumulated postretirement benefit
          obligation                                         350.6     372.9
       Unamortized gains from plan amendments                155.5     158.8
       Unrecognized net gain                                  91.3      92.0
                                                            ------    ------
     Accrued postretirement benefit liability               $597.4    $623.7
                                                            ------    ------
                                                            ------    ------

Accrued compensation and benefits on the Consolidated Balance Sheets include the
current portion of the accrued liability of $20.0 million.

Assumptions used to calculate the accumulated postretirement benefit obligation
as of October 31 were as follows:

     Discount rate - 8.0% for 1997 and 1996, and 8.25% for 1995

     Health care trend rate (weighted based on participant count) -
          9.0% for 1997 and 10.0% for 1996 and 1995, declining to 5.5% in 2002
          and level thereafter

A one percentage-point increase in the assumed health care cost trend rate for
each year would increase the net postretirement benefit expense for 1997 by
approximately $3.1 million and would increase the accumulated postretirement
benefit obligation as of October 31, 1997, by approximately $26.2 million.

                                      47
<PAGE>

                    DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - POSTRETIREMENT BENEFITS (CONTINUED)

PENSION PLANS AND RETIREMENT SAVINGS PLANS

The Company has numerous defined benefit pension plans covering certain
employees in the United States.  The benefits under the U.S. plans are based
primarily on years of service and employees' qualifying compensation during the
final years of employment for salaried employees and are based primarily on
years of service for hourly employees.  The U.S. plans are funded in accordance
with the requirements of applicable laws and regulations.  The U.S. plan assets
are invested in cash, short-term investments, equities, fixed-income instruments
and real estate at October 31, 1997.

The Company has additional defined benefit pension plans for employees outside
the United States.  The benefits under these plans are based primarily on years
of service and compensation levels.  The Company funds these plans in amounts
sufficient to meet the minimum funding requirements under governmental
regulations, plus such additional amounts as the Company may deem appropriate.

The Company has defined contribution 401(k) plans for most of its U.S. salaried
employees and certain U.S. union hourly employees.  Under these plans, eligible
employees may contribute amounts through payroll deductions.  The employee
contributions and employer contributions are invested in funds available under
the plans.

Expense for all defined contribution plans was $46.5 million, $41.8 million and
$24.4 million in 1997, 1996 and 1995, respectively. The 1997 expense increase
versus 1996 resulted from the investment earnings on the non-qualified plans,
additional participants and increase in salaries.  The 1996 expense increase
versus 1995 resulted from a full year's cost of the new retirement savings plan
compared with five months in 1995.

Expense for all defined benefit plans and cash contributions to the plans were
as follows (in millions):

                                                      1997      1996      1995
                                                     ------    ------    ------

     Service cost for benefits earned                $ 17.4    $ 15.5    $ 17.4
     Interest cost on projected benefit obligation     46.7      43.6      41.0
     Return on plan assets                            (59.5)    (48.8)    (44.6)
     Net amortization and deferral                      2.8      (3.7)     (1.2)
                                                     ------    ------    ------
     Net pension expense                             $  7.4    $  6.6    $ 12.6
                                                     ------    ------    ------
                                                     ------    ------    ------
     Cash contributions                              $ 25.1    $ 18.8    $ 23.5
                                                     ------    ------    ------
                                                     ------    ------    ------


                                      48

<PAGE>

                    DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - POSTRETIREMENT BENEFITS (CONTINUED)

PENSION PLANS AND RETIREMENT SAVINGS PLANS (CONTINUED)

The funded status of the defined benefit plans on the measurement dates of
October 31 was as follows (in millions):

  Plans with Assets Exceeding Benefits
                                                          1997          1996
                                                        --------      --------
     Actuarial present value of benefit obligations:
       Vested benefit obligation                         $ 469.9       $ 251.6
                                                         -------       -------
                                                         -------       -------
       Accumulated benefit obligation                    $ 482.8       $ 256.0
                                                         -------       -------
                                                         -------       -------
       Projected benefit obligation                      $ 513.4       $ 277.8
     Plan assets at fair value                             664.5         384.3
                                                         -------       -------
     Plan assets over projected benefit obligation         151.1         106.5
     Unrecognized net (gain)/loss                          (41.4)          1.3
     Prior service cost not yet recognized in net
       periodic pension expense                            (20.5)        (24.1)
     Unrecognized transition net asset                      (9.7)        (16.2)
                                                         -------       -------
     Prepaid pension costs                               $  79.5       $  67.5
                                                         -------       -------
                                                         -------       -------
  Plans with Benefits Exceeding Assets
                                                           1997         1996
                                                         -------       -------
     Actuarial present value of benefit obligations:
       Vested benefit obligation                         $  83.0       $ 246.1
                                                         -------       -------
                                                         -------       -------
       Accumulated benefit obligation                    $  90.0       $ 260.9
                                                         -------       -------
                                                         -------       -------
       Projected benefit obligation                      $  95.2       $ 297.2
     Plan assets at fair value                              50.7         217.6
                                                         -------       -------
     Projected benefit obligation over plan assets         (44.5)        (79.6)
     Unrecognized net (gain)/loss                           (2.1)          1.4
     Prior service cost not yet recognized in net
       periodic pension expense                              5.3          24.3
     Unrecognized transition obligation                      2.8           7.8
     Adjustment required to recognize additional
       minimum liability                                   (11.1)        (32.5)
                                                         -------       -------
     Pension liability                                   $ (49.6)      $ (78.6)
                                                         -------       -------
                                                         -------       -------

On the Consolidated Balance Sheets, "Other assets" include prepaid pension costs
and "Accrued compensation and benefits" include the current portion of the
pension liabilities.

The Company recognized an additional minimum pension liability for underfunded
defined benefit plans.  The additional minimum liability is equal to the excess
of the accumulated benefit obligation over plan assets and accrued liabilities.
A corresponding amount is recognized as either an intangible asset or a
reduction of shareholders' equity.  As of October 31, 1997 and 1996, the Company
had recorded additional minimum liabilities of $11.1 million and $32.5 million,
intangible assets of $5.0 million and $20.9 million, and adjustments to
shareholders' equity, (net of income taxes and minority interest) of $3.9
million and $6.9 million, respectively.

                                      49
<PAGE>

                    DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - POSTRETIREMENT BENEFITS (CONTINUED)

PENSION PLANS AND RETIREMENT SAVINGS PLANS (CONTINUED)

The actuarial assumptions used in determining funded status of the plans were as
follows:

                                                        1997          1996
                                                   ------------   ------------
U. S. Plans
  Discount rate                                             8.0%           8.0%
  Expected long-term rate of return on assets       8.5% to 9.0%   8.5% to 9.0%
  Rate of increase in compensation levels           4.0% to 5.5%   4.0% to 5.5%
Foreign Plans
  Discount rate                                    7.0% to 12.5%  7.0% to 12.5%
  Expected long-term rate of return on assets      7.0% to 13.5%  7.0% to 13.5%
  Rate of increase in compensation levels          4.0% to 11.0%  4.0% to 11.0%


NOTE L - SUPPLEMENTARY INFORMATION, SPECIAL CHARGES AND CREDITS

Depreciation of property, plant and equipment charged to earnings amounted to
$219.0 million in 1997, $193.4 million in 1996 and $174.4 million in 1995.

Amortization of intangibles was $35.8 million in 1997, $36.4 million in 1996 and
$32.2 million in 1995 and is included in selling, engineering, administrative
and general expenses.

Research and development costs charged to earnings were $120.0 million in 1997,
$110.6 million in 1996, and $96.5 million in 1995.

The components of other income (deductions), net on the Consolidated Statements
of Earnings are as follows (in millions):

                                            1997         1996           1995
                                          ------       --------        -------
  Foreign exchange gain (loss)            $   .2       $  (15.2)       $  (1.2)
  Gains on sales of assets                   4.4            4.5            7.5
                                          ------       --------        -------
                                          $  4.6       $  (10.7)       $   6.3
                                          ------       --------        -------
                                          ------       --------        -------

Special charges and credits consist of the following (in millions):

                                                                        1997
                                                                       -------
Gain on extension of Bredero-Shaw joint venture
  agreement (See Note B)                                               $  41.7
Write-down of assets with impaired values
  and early retirement incentives                                        (21.6)
Restructuring charges applicable to Dresser-Rand &
  Ingersoll-Dresser Pump joint ventures                                  (18.0)
Loss on sale of certain SubSea assets (See Note B)                       (9.7)
                                                                       -------
                                                                       $  (7.6)
                                                                       -------
                                                                       -------

                                      50
<PAGE>

                    DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE L - SUPPLEMENTARY INFORMATION, SPECIAL CHARGES AND CREDITS (CONTINUED)

Prior to October 31, 1997, the Company, along with its joint venture partner
Ingersoll-Rand Company, approved profit improvement initiatives at Dresser-Rand
Company and Ingersoll-Dresser Pump Company.  Profit improvement initiatives at
the Dresser-Rand and Ingersoll-Dresser Pump joint ventures will include the
closure of a Dresser-Rand European plant, personnel reductions in administrative
and sales support, consolidation of repair and service operations and the
discontinuance of certain product lines.  The Company's share of the total
pretax costs to implement these initiatives is $48.2 million.  Of this amount,
$18.0 million (or $7.5 million after tax and minority interest) was recorded in
the fourth quarter of fiscal 1997.  The remaining $30.2 million (or $12.0
million after tax and minority interest) will be recorded in fiscal 1998 upon
notification of employee terminations.

During 1997, the Company recorded a pretax charge of $21.6 million to write-down
certain assets whose carrying value has been impaired and to provide for early
retirement incentives.

NOTE M - FINANCIAL INSTRUMENTS

The Company does not hold or issue financial instruments for purposes of
trading.  The carrying amounts of cash and short-term investments, accounts
receivable, accounts payable and short-term debt approximate fair value because
of the short maturity of these instruments.  The carrying amounts of long-term
debt, including the current portion, were lower than fair value by $22.5 million
at October 31, 1997, and $1.6 million at October 31, 1996.  Fair values of the
debt were determined by reference to market interest rates.

The Company has cash and cash equivalents, receivables and payables denominated
in currencies other than functional currencies.  These financial assets and
liabilities create exposure to potential foreign exchange gains and losses
arising on future changes in currency exchange rates.  The Company hedges such
risks by entering into forward exchange contracts.  A forward exchange contract
is an agreement to exchange different currencies at a specified future date and
forward rate.  The Company does not enter into forward contracts to engage in
speculation, nor does the Company hedge investments in foreign entities.  The
Company had $365.4 million and $282.9 million, notional amounts, of forward
exchange contracts outstanding at October 31, 1997 and 1996, respectively.  The
notional amounts are used to express the volume of these transactions and do not
represent exposure to loss.  At October 31, 1997, 93% of these contracts were
in, or related to, European currencies.  The carrying value of the contracts was
not significant.  The fair value of the contracts, based on year-end quoted
rates for purchasing contracts with similar terms and maturity dates,
approximated carrying value and was also not significant.

See Note C for information about a derivative financial instrument that the
Company entered into with the purchasers of part of the Company's investment in
an unconsolidated affiliate.

The Company's financial instruments do not represent significant credit risks at
October 31, 1997, because they are either with high quality financial
institutions or widely dispersed across many customers and financial
institutions.

                                      51
<PAGE>

                    DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA

Descriptions of the Company's industry segments are as follows:

     PETROLEUM PRODUCTS AND SERVICES

     This segment provides services and project management for oil and gas
     exploration, drilling, completion, production and transmission activities.
     Principal products and services include integrated well services and
     project management, drilling fluids systems, drill bits,
     measurement-while-drilling services, directional drilling services,
     completion and production tools, production valves and pumps, meters and
     measuring equipment. The segment is also an EPIC contractor (engineering,
     procurement, installation and construction) for subsea and onshore
     projects, and it supplies ROVs (remotely operated vehicles), seabed
     equipment, flexible flowlines, riser systems and pipe coating, pipe
     laying and pipe burying services.

     ENGINEERING SERVICES

     This segment consists of The M. W. Kellogg Company, which provides
     engineering, construction and related services primarily for the
     hydrocarbon processing industries.  M. W. Kellogg has its own
     proprietary technologies and utilizes the advanced technologies of
     others to facilitate the environmentally acceptable conversion of raw
     hydrocarbons and their chemicals into value-added end products.  The
     Company participates in projects involving liquefied natural gas (LNG)
     plants and receiving terminals, refining and petrochemical activities and
     ammonia/fertilizer facilities.  This includes grassroots activity as well
     as the modernizing and retrofitting of energy-related complexes for
     efficiency and environmental control purposes.

     ENERGY EQUIPMENT

     This segment designs, manufactures and markets engineered products for oil
     and gas producers, transporters and processors, petroleum marketers and the
     power industry.  Compression and Pumping Operations include the
     Dresser-Rand joint venture, which produces compressors, turbines,
     generators and electric motors, as well as the Ingersoll-Dresser Pump
     unconsolidated joint venture and the Mono Pumps unit.  Measurement
     Operations supply gasoline dispensing systems, instruments, meters and
     piping specialties.  Flow Control Operations manufacture a broad range of
     valves (including control, safety, safety relief, ball, check, gate/plug,
     butterfly and industrial valves) as well as fluid-powered, linear and
     electric actuators.  Power Systems Operations produce engines, generators
     and blowers.

The Financial Information by Industry Segment and Geographic Area for the years
ended October 31, 1997, 1996 and 1995 is included on pages 22 through 24 of
Management's Discussion and Analysis included elsewhere in this report and is an
integral part of this Note to Consolidated Financial Statements.


                                      52
<PAGE>

                    DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE O - BAROID FINANCIAL INFORMATION

Baroid has ceased filing periodic reports with the Securities and Exchange
Commission.  Baroid's 8% Senior Notes remain outstanding (See Note G), and the
Notes are fully guaranteed by Dresser.  As long as the Notes remain outstanding,
summarized financial information of Baroid is required to be presented as
follows (in millions):
                                        OCTOBER 31,
                                 ----------------------- 
     BAROID CORPORATION             1997          1996
                                 --------       -------- 

     Current assets              $  919.9       $  796.2
     Noncurrent assets              447.4          578.9
                                 --------       -------- 
       Total                     $1,367.3       $1,375.1
                                 --------       -------- 
                                 --------       -------- 

     Current liabilities            441.8       $  377.7
     Noncurrent liabilities         300.9          429.2
     Shareholders' equity           624.6          568.2
                                 --------       -------- 
       Total                     $1,367.3       $1,375.1
                                 --------       -------- 
                                 --------       -------- 

                                        YEARS ENDED OCTOBER 31,
                                 ----------------------------------- 
                                    1997          1996        1995
                                 --------       --------    -------- 

     Revenues                    $1,943.9       $1,606.8    $1,323.3 
                                 --------       --------    -------- 
                                 --------       --------    -------- 
     Gross earnings              $  538.2       $  443.7    $  358.8
                                 --------       --------    -------- 
                                 --------       --------    -------- 
     Earnings from operations    $  232.8       $  185.2    $  133.1
     Other income (deductions)      (14.4)         (21.0)      (18.5)
                                 --------       --------    -------- 
     Earnings before taxes
       and minority interests       218.4          164.2       114.6
     Income taxes                   (76.4)         (55.8)      (37.8)
     Minority interest               (1.6)           (.4)         .4
                                 --------       --------    -------- 
     Net earnings                $  140.4       $  108.0    $   77.2
                                 --------       --------    -------- 
                                 --------       --------    -------- 

NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                    QUARTERS ENDED
                                     -------------------------------------------
IN MILLIONS, EXCEPT PER SHARE DATA   JANUARY 31   APRIL 30   JULY 31  OCTOBER 31
                                     -----------  --------  --------  ----------
     1997
       Net revenues                   $1,704.5    $1,771.3  $1,872.3   $2,109.8
                                      --------    --------  --------   --------
                                      --------    --------  --------   --------
       Gross earnings                    361.8       406.7     437.2      490.4
                                      --------    --------  --------   --------
                                      --------    --------  --------   --------
         Net earnings                     52.1        74.8      81.5      109.6
                                      --------    --------  --------   --------
                                      --------    --------  --------   --------
       Earnings per common share      $    .30    $    .42  $    .47   $    .62
                                      --------    --------  --------   --------
                                      --------    --------  --------   --------
     1996
       Net revenues                   $1,462.9    $1,629.6  $1,638.0   $1,831.0
                                      --------    --------  --------   --------
                                      --------    --------  --------   --------
       Gross earnings                    320.4       349.8     369.6      433.6
                                      --------    --------  --------   --------
                                      --------    --------  --------   --------
         Net earnings                     46.6        57.2      68.3       85.4
                                      --------    --------  --------   --------
                                      --------    --------  --------   --------
       Earnings per common share      $    .26    $    .31  $    .38   $    .49
                                      --------    --------  --------   --------
                                      --------    --------  --------   --------

                                      53

<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

     None. 

                                    PART III 

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT. 

     Certain information required by this Item is incorporated by reference to
Dresser's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "Dresser Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION. 

     The information required by this Item is incorporated by reference to the
Dresser Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information required by this Item is incorporated by reference to the
Dresser Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by this Item is incorporated by reference to the
Dresser Proxy Statement.

                                    PART IV 

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. 

     (a)  List of Financial Statements, Financial Statement Schedules and
          Exhibits.

          (1) and (2) - Response to this portion of Item 14 is submitted as a
          separate section of this report.

          (3)  Response to this portion of Item 14 is submitted as a separate
          section of this report. 

     (b)  Reports on Form 8-K. 

          None.

     (c)  Exhibits - Response to this portion of Item 14 is submitted as a
          separate section to this report.  Management contracts or compensatory
          plans or arrangements in which Directors or executive officers
          participate are included in Exhibits 10.1 - 10.27.

     (d)  Financial Statement Schedules - The response to this portion of Item
          14 is submitted as a separate section of this report.


                                      54

<PAGE>

                                  UNDERTAKINGS 

     For the purpose of complying with the rules governing registration 
statements on Form S-8 under the Securities Act of 1933 (as amended effective 
July 31, 1990), the undersigned Registrant hereby undertakes as follows, 
which undertaking shall be incorporated by reference into Registrant's 
registration statements on Form S-8 Nos. 2-76847 (filed April 5, 1982), 
2-81536 (filed January 28, 1983), 33-26099 (filed December 21, 1988), 
33-30821 (filed August 28, 1989), 33-48165 (filed May 27, 1992), 33-52067 
(filed January 28, 1994), 33-52989 (filed April 6, 1994), 333-39931 (filed 
November 12, 1997), 333-39945 (filed November 12, 1997) and 333-40829 (filed 
November 21, 1997) and to the Post-Effective Amendments on Form S-8 to 
Registration Statement on Form S-4 Nos. 33-50563 (filed January 28, 1994) and 
33-54099 (filed August 31, 1994):

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the provisions of the Company's Restated Certificate of
Incorporation, as amended, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.  In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue. 


                                      55

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on January 27, 1998.

                                        DRESSER INDUSTRIES, INC.

                                        By:  /s/  Kenneth J. Kotara
                                           -----------------------------
                                                  Kenneth J. Kotara
                                                  Controller

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on January 27, 1998.

           SIGNATURE                              TITLE
           ---------                              -----

*WILLIAM E. BRADFORD                    Chairman of the Board, Chief
-----------------------------------     Executive Officer and Director
(William E. Bradford, Director)         (Principal Executive Officer)

*GEORGE H. JUETTEN                      Senior Vice President and Chief
-----------------------------------     Financial Officer (Principal
(George H. Juetten)                     Financial Officer)

/s/ KENNETH J. KOTARA                   Controller
-----------------------------------     (Principal Accounting Officer)
(Kenneth J. Kotara)

*SAMUEL B. CASEY, JR.                   *J. LANDIS MARTIN
-----------------------------------     -----------------------------------
(Samuel B. Casey, Jr., Director)        (J. Landis Martin, Director)

*LAWRENCE S. EAGLEBURGER                *LIONEL H. OLMER
-----------------------------------     -----------------------------------
(Lawrence S. Eagleburger, Director)     (Lionel H. Olmer, Director)

*SYLVIA A. EARLE, PH.D.                 *JAY A. PRECOURT
-----------------------------------     -----------------------------------
(Sylvia A. Earle, Ph.D., Director)      (Jay A. Precourt, Director)

*RAWLES FULGHAM                         *DONALD C. VAUGHN
-----------------------------------     -----------------------------------
(Rawles Fulgham, Director)              (Donald C. Vaughn, Director)

*JOHN A. GAVIN                          *RICHARD W. VIESER
-----------------------------------     -----------------------------------
(John A. Gavin, Director)               (Richard W. Vieser, Director)

*RAY L. HUNT
-----------------------------------
(Ray L. Hunt, Director)

*By: /s/  ALICE A. HINDS
    -------------------------------
          Alice A. Hinds
          (Attorney-In-Fact)


<PAGE>
                                       
                                   FORM 10-K
                      ITEM 14(a)(1) AND (2) AND ITEM 14(d)
             FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
                          YEAR ENDED OCTOBER 31, 1997
                            DRESSER INDUSTRIES, INC.
                                 DALLAS, TEXAS









                                      F-1
<PAGE>

       LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

The following consolidated financial statements and report of independent 
accountants are included in Item 8:

                                                                        Page
                                                                       Number
                                                                       ------
  Report of Independent Accountants                                      27

  Consolidated Statements of Earnings--
    Years ended October 31, 1997, 1996, and 1995                         28

  Consolidated Balance Sheets--
    October 31, 1997 and 1996                                            29

  Consolidated Statements of Shareholders' Equity--
    Years ended October 31, 1997, 1996 and 1995                          31

  Consolidated Statements of Cash Flows--
    Years ended October 31, 1997, 1996, and 1995                         32

  Notes to Consolidated Financial Statements                             33

The following consolidated financial statement schedule of Dresser 
Industries, Inc. is included herein:

  Schedule II--Valuation and Qualifying Accounts
     
All other schedules for which provision is made in the applicable accounting 
regulation of the Securities and Exchange Commission are not required under 
the related instructions or are inapplicable, and therefore have been omitted.

Separate financial statements are not presented for any of the unconsolidated 
affiliates because none constitutes a significant subsidiary.




                                      F-2
<PAGE>

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                   DRESSER INDUSTRIES, INC. AND SUBSIDIARIES

                             (MILLIONS OF DOLLARS)

<TABLE>
                                                                           COL. C
                                                                    -----------------------
             COL. A                                     COL. B            ADDITIONS            COL. D        COL. E
             ------                                   ----------    -----------------------   ----------   ----------
                                                      Balance at    Charged to   Charged to                Balance at
                                                       Beginning    Costs and      Other                     End of
         Descriptions                                  of Period     Expenses     Accounts    Deductions     Period
         ------------                                 ----------    ----------   ----------   ----------   ----------
<S>                                                   <C>           <C>          <C>          <C>          <C>
ALLOWANCE DEDUCTED FROM ASSETS 
  TO WHICH THEY APPLY

Year ended October 31, 1997
 For doubtful receivables classified as current assets   $21.7         $5.0         $  -        $ 6.5(A)     $20.2
                                                         -----         ----         ----        -----        -----
                                                         -----         ----         ----        -----        -----
 For deferred tax asset valuation 
   allowance classified as noncurrent assets             $17.4         $  -         $  -        $11.5(B)     $ 5.9
                                                         -----         ----         ----        -----        -----
                                                         -----         ----         ----        -----        -----

Year ended October 31, 1996
 For doubtful receivables classified as current assets   $24.6         $3.2         $  -        $ 6.1(A)     $21.7 
                                                         -----         ----         ----        -----        -----
                                                         -----         ----         ----        -----        -----
 For deferred tax asset valuation 
   allowance classified as noncurrent assets             $15.0         $  -         $2.4        $   -        $17.4 
                                                         -----         ----         ----        -----        -----
                                                         -----         ----         ----        -----        -----

Year ended October 31, 1995
 For doubtful receivables classified as current assets   $30.4         $3.7         $ .7        $10.2(A)     $24.6 
                                                         -----         ----         ----        -----        -----
                                                         -----         ----         ----        -----        -----
 For deferred tax asset valuation 
   allowance classified as noncurrent assets             $21.9         $  -         $  -        $ 6.9        $15.0 
                                                         -----         ----         ----        -----        -----
                                                         -----         ----         ----        -----        -----
</TABLE>

Notes:
(A) Receivable write-offs and reclassifications, net of recoveries.
(B) Primarily utilization of foreign net operating loss carry forwards.

                                      F-3
<PAGE>
                                       
                              INDEX TO EXHIBITS

EXHIBIT                         DESCRIPTION
-------                         -----------
  3.1     Restated Certificate of Incorporation of Registrant and amendments
          thereto.  (Incorporated by reference to Exhibit 3(I) to Registrant's
          Form 10-Q/A for the quarter ended April 30, 1996).

  *3.2    By-Laws, as amended, of Registrant.

   4.1    Rights Agreement dated August 16, 1990, between Registrant and Bank
          of New York as successors to Harris Trust Company of New York as 
          Rights Agent.  (Incorporated by reference to Exhibit 1 to Registration
          Statement on Form 8-A filed on August 30, 1990, as amended by 
          Amendment No.1 on Form 8 filed on October 3, 1990).

   4.2    Form of Indenture, between Dresser Industries, Inc. and NationsBank of
          Texas, N.A., as Trustee, for unsecured debentures, notes and other
          evidences of indebtedness.  (Incorporated by reference to Exhibit 4.1
          to Registrant's Registration Statement on Form S-3, Registration No.
          33-59562).

   4.3    Form of Indenture, between Baroid Corporation and Texas Commerce Bank
          National Association, as Trustee, for 8% Senior Notes due 2003. 
          (Incorporated by reference to Exhibit 4.01 to the Registration
          Statement on Form S-3, Registration No. 33-60174).

   4.4    Form of Supplemental Indenture, between Dresser Industries, Inc.,
          Baroid Corporation and Texas Commerce Bank N.A. as Trustee, for 8%
          Guaranteed Senior Notes due 2003.  (Incorporated by reference to
          Exhibit 4.3 to Registration Statement on Form S-4 filed by Baroid
          Corporation, Registration No. 33-53077).

   4.5    Form of Indenture, between Dresser Industries, Inc. and Texas Commerce
          Bank National Association, Trustee, for 7.60% Debentures due 2096. 
          (Incorporated by reference to Exhibit 4 to the Registration Statement
          on Form S-3 as amended, Registration No. 333-01303).

   4.6    Form of Supplemental Indenture, between Dresser Industries, Inc. and
          Texas Commerce Bank National Association, Trustee, for 7.60%
          Debentures due 2096.  (Incorporated by reference to Exhibit 4.1 to the
          Registrant's Form 8-K filed on August 9, 1996).

  10.1    Dresser Industries, Inc. Deferred Compensation Plan.  (Incorporated by
          reference to Exhibit A to Registrant's Proxy Statement dated February
          11, 1966, filed pursuant to Regulation 14A, File No. 1-4003).

  10.2    Dresser Industries, Inc. Short-Term Deferred Compensation Plan. 
          (Incorporated by reference to  Exhibit 10(b) to Registrant's Form 
          10-Q/A for the year ended October 31, 1992).

-------
* Filed Herewith

<PAGE>
                                       
                          INDEX TO EXHIBITS (CON'T.)

EXHIBIT                         DESCRIPTION
-------                         -----------
  10.3    Dresser Industries, Inc. Retirement Income Plan under ERISA, as
          amended effective May 1, 1984, and Amendments No. 1, 2 and 3 thereto. 
          (Incorporated by reference to Exhibit 10(d) to Registrant's Form 10-K
          for the year ended October 31, 1986).

  10.4    Dresser Industries, Inc. Consolidated Salaried Retirement Plan, as
          amended by restatement effective May 1, 1994.  (Incorporated by
          reference to  Exhibit 10.4 to Registrant's Form 10-K for the year
          ended October 31, 1994).

  10.5    Amendments No. 1 and 2 to the Dresser Industries, Inc. Consolidated
          Salaried Retirement Plan, as amended and restated effective May 1,
          1994.  (Incorporated by reference to Exhibit 10.5 to Registrant's Form
          10-K for the year ended October 31, 1995).

  10.6    Dresser Industries, Inc. 1982 Stock Option Plan.  (Incorporated by
          reference to Exhibit A to Registrant's Proxy Statement dated February
          12, 1982, filed pursuant to Regulation 14A, File No. 1-4003).

  10.7    ERISA Excess Benefit Plan for Dresser Industries, Inc. as amended and
          restated effective June 1, 1995.  (Incorporated by reference to
          Exhibit 10.7 to Registrant's Form 10-K for the year ended October 31,
          1995).

  10.8    ERISA Compensation Limit Benefit Plan for Dresser Industries, Inc., as
          amended and restated effective June 1, 1995.  (Incorporated by
          reference to Exhibit 10.8 to Registrant's Form 10-K for the year ended
          October 31, 1995).

 *10.9    Supplemental Executive Retirement Plan of Dresser Industries, Inc., as
          amended and restated effective January 1, 1998.

  10.10   Dresser Industries, Inc. Deferred Compensation Plan for 
          Non-employee Directors, as restated and amended effective November 
          1, 1997.  (Incorporated by reference to Exhibit 4.5 to Registration 
          Statement on Form S-8, Registration No. 333-40829.

  10.11   Dresser Industries, Inc. 1989 Restricted Incentive Stock Plan. 
          (Incorporated by reference to Exhibit A to Registrant's Proxy
          Statement dated February 10, 1989, filed pursuant to Regulation 14A,
          File No. 1-4003).

  10.12   The M. W. Kellogg Company Retirement Plan, as amended and restated
          effective January 1, 1989.  (Incorporated by reference to Exhibit
          10.15 to Registrant's Form 10-K for the year ended October 31, 1995).

  10.13   Long Term Performance Plan for Selected Employees of The M. W. Kellogg
          Company.  (Incorporated by reference to Exhibit 10(r) to Registrant's
          Form 10-K for the year ended October 31, 1991).

--------
* Filed Herewith

<PAGE>

                          INDEX TO EXHIBITS (CON'T.)

EXHIBIT                         DESCRIPTION
-------                         -----------
  10.14   Dresser Industries, Inc. 1992 Stock Compensation Plan.  (Incorporated
          by reference to Exhibit A to Registrant's Proxy Statement dated
          February 7, 1992, filed pursuant to Regulation 14A, File No. 1-4003).

  10.15   Amendments No.1 and 2 to Dresser Industries, Inc. 1992 Stock
          Compensation Plan.  (Incorporated by reference to Exhibit A to
          Registrant's Proxy Statement dated February 6, 1995, filed pursuant to
          Regulation 14A, File No. 1-4003).

  10.16   Dresser-Rand Company Pension Plan.  (Incorporated by reference to 
          Exhibit 10(y) to Registrant's Form 10-K for the year ended October 31,
          1992).

  10.17   Dresser Industries, Inc. Deferred Savings Plan.  (Incorporated by
          reference to  Exhibit 10(z) to Registrant's Form 10-K for the year
          ended October 31, 1992).

  10.18   Dresser Industries, Inc. 1995 Executive Incentive Compensation Plan. 
          (Incorporated by reference to Exhibit B to Registrant's Proxy
          Statement dated February 6, 1995, filed pursuant to Regulation 14A,
          File No. 1-4003).

  10.19   Dresser Industries, Inc. Retirement Savings Plan - A as adopted
          effective June 1, 1995.  (Incorporated by reference to Exhibit 10.24
          to Registrant's Form 10-K for the year ended October 31, 1995).

  10.20   Agreement with  John Gavin for the period February 1, 1997 - January
          31, 1998.  (Incorporated by reference to Registrant's Form 10-Q for
          the period ended January 31, 1997).

  10.21   Special 1997 Restricted Incentive Stock Grant.  (Incorporated by
          reference to Registrant's Form 10-K for the year ended October 31,
          1996).

 *10.22   Form of Executive Life Insurance Agreement (individual as
          beneficiary).

 *10.23   Form of Executive Life Insurance Agreement (trust as beneficiary).

  10.24   Dresser Industries, Inc. Restricted Stock Grant Plan for 1997. 
          (Incorporated by reference to Registrant's Form 10-Q for the period
          ended July 31, 1997).

 *10.25   Amendment No. 3 to the Dresser Industries, Inc. 1992 Stock
          Compensation Plan.

-------
* Filed Herewith

<PAGE>

                          INDEX TO EXHIBITS (CON'T.)

EXHIBIT                         DESCRIPTION
-------                         -----------
  10.26   Dresser Industries, Inc. Long-Term Incentive and Retention Plan
          (Incorporated by reference to Exhibit A to Registrant's Definitive
          Proxy Statement to be filed with the Securities and Exchange
          Commission pursuant to Regulation 14A within 120 days after the end of
          the fiscal year covered by this report).

  10.27   The Dresser Industries, Inc. 1998 Executive Incentive Compensation 
          Plan (Incorporated by reference to Exhibit B to Registrant's 
          Definitive Proxy Statement to be filed with the Securities and 
          Exchange Commission pursuant to Regulation 14A within 120 days 
          after the end of the fiscal year covered by this report).

 *21      Subsidiaries of Registrant at October 31, 1997.

 *23      Consent of Price Waterhouse LLP.

 *24      Powers of Attorney.

 *27      Financial Data Schedule.


-------
* Filed Herewith