<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, 1995.

                          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                         75221 (P.O. Box)
  2001 ROSS AVENUE, DALLAS, TEXAS                         75201
(Address of principal executive 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 25 CENTS Per Share   New York Stock Exchange, Inc.
                                             Pacific Stock Exchange Incorporated
Baroid Corporation 8% Guaranteed Senior      New York Stock Exchange, Inc.
          Notes due 2003
Preferred Stock Purchase Rights              New York Stock Exchange, Inc.
                                             Pacific Stock Exchange Incorporated

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.    Yes      No  X
                  ---     ---

The aggregate market value of the voting stock (based on the closing price on
the New York Stock Exchange as of January 4, 1996) held by non-affiliates of the
registrant was approximately $4,384 million.

As of January 4, 1996, there were 181,595,187 shares of Dresser Industries, Inc.
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Sections of Registrant's Notice of 1996 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, 1995, consolidated revenues of
Registrant amounted to $ 5,628.7 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.

          Effective May 31, 1995, Registrant acquired through a wholly owned
subsidiary, Grove S.p.A. and subsidiaries from Banca Commerciale Italiana,
Euroknights 2000, Ltd., Investitori Associati S.A. and Unione Fiduciaria.
Grove manufactures and distributes a wide variety of oilfield valves and
regulators for the worldwide energy and petroleum markets.  Grove operations
are included in the Energy Equipment segment.

          Effective May 1, 1995, Registrant acquired the assets of Wellstream
Company, L.P. which is engaged in the production of high pressure flexible
pipe and riser systems.  On May 2, 1995, Registrant acquired the stock of
North Sea Assets P.L.C., the remotely operated vehicle business of NSA/HMB
Group.  On May 5, 1995, Registrant acquired the assets of Energy Coatings
Company which provides pipe coating services.  On July 1, 1995, Registrant
acquired the assets of Pipeline Coating, Inc. which also performs pipe
coating services.  All of these operations are included in the Petroleum
Products and Services segment.

          The Information by Industry Segment is included in Note N to
Consolidated Financial Statements on page 59 and in Management's Discussion
and Analysis on pages 24-28.  This information includes sales and service
revenues, operating profit or loss 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.

PETROLEUM PRODUCTS AND SERVICES SEGMENT (FORMERLY OILFIELD SERVICES)

          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 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, laying and burying services.  Demand for these products and services is
directly affected by energy prices and drilling activity.

DRILLING AND PRODUCTION OPERATIONS

          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.  Total
revenues for Drilling Fluids were $532.0 in 1995, $554.0 in 1994 and $777.8
million in 1993.  Revenues include  $147.0 million in 1994, and $401.2 million
in 1993 for M-I Drilling Fluids Company which was sold effective February 28,
1994.


                                        2

<PAGE>

          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 Division 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 Drilling and Production Services was formed to provide oil and
gas producers with project management capabilities and the integrated services
and products required to drill and complete wells more efficiently.  It's
activities include well planning, project management and the procurement of
wellsite drilling, completion and production services and equipment.

KELLOGG OIL & GAS SERVICES

Kellogg Oil & Gas Services was formed in 1995 to provide subsea field design and
development, underwater engineering, repair and construction services, including
remotely operated vehicles, diving services and pipe laying and pipe coating
services as well as to act as an engineering, procurement, installation and
construction contractor  for all aspects of subsea and onshore oil and gas
projects.  It offers products and services through the following operations.

          PIPE COATING PRODUCTS AND SERVICES

          Bredero Price 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

          Sub Sea International provides production companies and offshore rig
operators with diving and underwater engineering services.  Sub Sea equipment is
used to inspect, construct, maintain and repair offshore


                                        3

<PAGE>

drilling rigs and platforms, underwater pipelines and other offshore oil and gas
facilities.  Sub Sea 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.  Products include flowlines, jumpers, service lines, and static and
dynamic risers for both subsea and topside applications.

ENERGY EQUIPMENT SEGMENT (FORMERLY HYDROCARBON PROCESSING INDUSTRY)

          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 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 manufacturer of powerful pipeline boosters for
the transmission of natural gas.

          The Consolidated Statements of Earnings for 1995, 1994 and 1993
include $1,138.3 million, $1,234.5 million and $1,118.1 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 Pump 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 SYSTEMS

          Dresser's Wayne Division 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's Instrument Division 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.


                                        4

<PAGE>

          FLOW CONTROL

          Energy Valve Division 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 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.

          The Valve and Controls Division 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

          Dresser's Waukesha Engine Division produces spark-ignited, gas and
diesel 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.

          Dresser's Roots Division 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.

ENGINEERING SERVICES SEGMENT

          The M.W. Kellogg Company, provides engineering, construction and
related services primarily to the hydrocarbon process industries.  M.W. 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 M.W. Kellogg
Company were $1,457.6 million, $1,265.2  million and $1,215.3 million for 1995,
1994 and 1993, respectively.

BACKLOG

          The backlog of unfilled orders at October 31, 1995, 1994 and 1993 is
included in Management's Discussion and Analysis on page 23.

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


                                        5

<PAGE>

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.

FOREIGN OPERATIONS

          Registrant maintains manufacturing, marketing or service facilities
serving more than 80 foreign countries.  Global distribution of products and
services is accomplished through more than 449 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 Note N to
Consolidated Financial Statements on page 59 and in Management's Discussion
and Analysis on pages 28-29.

          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, 1995, 1994 and 1993, Registrant spent $96.5 million, $102.5 million and
$98.5 million, respectively, for research and development activities.

          At December 1, 1995, Registrant and its subsidiaries and affiliates
owned 1,871 patents and had pending 958 patent applications, covering various
products and processes.  They also were licensed under patents owned by others.
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, 1995, Registrant had approximately 18,800 employees
in the United States (an increase of approximately 7% from October 31, 1994), of
whom approximately 5,900 were members of 12 unions represented by 22 bargaining
units.  As of the same date, Registrant had approximately 12,700 employees at
foreign locations of whom approximately 2,700 were members of unions.  During
fiscal 1995, Registrant experienced no contract negotiation strikes in the
United States.  Relations between Registrant and its employees are generally
considered to be satisfactory.


                                        6

<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
     ----------------------                     ---------------------------

John J. Murphy                     (64)      Chairman of the Board since August
Chairman of the Board and Director           1983; Chief Executive Officer of
                                             Registrant, August 1983 - November
                                             1995; President of Registrant,
                                             August 1982 - March 1992.

B. D. St. John                     (64)      Vice Chairman of Registrant since
Vice Chairman and Director                   March 1992; Executive Vice
                                             President - Administration of
                                             Registrant, November 1982 - March
                                             1992.

William E. Bradford                (61)      President since March 1992; Chief
President, Chief Executive Officer           Executive Officer of Registrant
  and Director                               since November, 1995; Chief
                                             Operating Officer of Registrant,
                                             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                   (59)      Executive Vice President of
Executive Vice President                     Registrant since November 1995;
                                             Senior Vice President - Operations
                                             of Registrant, January 1992 to
                                             November 1995; Chairman, President
                                             and Chief Executive Officer of M.
                                             W. Kellogg, Inc. since June 1995;
                                             Chairman of the Board, Chief
                                             Executive Officer of The M.W.
                                             Kellogg Company since March 1983;
                                             President of The M. W. Kellogg
                                             Company, March 1983 to June 1995.

James L. Bryan                     (59)      Senior Vice President - Operations
Senior Vice President - Operations           since January 1994; Vice
                                             President - Operations of
                                             Registrant, May 1990 - January
                                             1994.

Clint E. Ables                     (56)      Vice President and General Counsel
Vice President and General Counsel           of Registrant since October 1993;
                                             Vice President - Corporate
                                             Development of Registrant, November
                                             1992 - October 1993; Senior
                                             Counsel - Corporate Ventures of
                                             Registrant, July 1986 - November
                                             1992.

Paul M. Bryant                     (49)      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.


                                        7

<PAGE>

                                                PRINCIPAL OCCUPATION DURING
     NAME, AGE AND POSITION                          PAST FIVE YEARS
     ----------------------                     ---------------------------

George A. Helland                  (58)      Vice President of Registrant since
Vice President                               March 1993; Deputy Assistant
                                             Secretary for Export Assistance,
                                             United States Department of Energy,
                                             September 1990 - January 1993;
                                             Principal, Innova Partners, Inc.,
                                             January 1988 - September 1990.

Ardon B. Judd, Jr.                 (59)      Vice President - Washington Counsel
Vice President -  Washington                 of Registrant since September 1986.
  Counsel

George H. Juetten                  (48)      Vice President - Controller of
Vice President -  Controller                 Registrant since May 1993; Audit
                                             Partner, Price Waterhouse LLP,
                                             independent public accountants,
                                             July 1980 - May 1993.

Rebecca R. Morris                  (50)      Vice President - Corporate Counsel
Vice President - Corporate  Counsel          of Registrant since January 1994;
  and Secretary                              Secretary of Registrant since
                                             November 1990; Corporate Counsel of
                                             Registrant June 1987 - January
                                             1994.

David R. Smith                     (49)      Vice President - Tax of Registrant
Vice President - Tax                         since January 1994; Director of Tax
                                             of Registrant, October 1987 -
                                             January 1994.


Paul W. Willey                     (58)      Treasurer of Registrant since May
Treasurer                                    1984.



OFFICER EMPLOYED BY JOINT VENTURE COMPANY

                                                PRINCIPAL OCCUPATION DURING
     NAME, AGE AND POSITION                          PAST FIVE YEARS
     ----------------------                     ---------------------------

Ben R. Stuart                      (61)      President and Chief Executive
Senior Vice President - Operations           Officer of Dresser-Rand Company
                                             since March 1992; Senior Vice
                                             President - Operations of
                                             Registrant since March 1992; Vice
                                             President - Operations of
                                             Registrant, 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 more
than 65 manufacturing plants, ranging in size from approximately 3,000 square
feet to in excess of 1,500,000 square feet and totaling more than 16


                                        8

<PAGE>

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 1995 Baroid Drilling Fluids, Inc. had 21 grinding and/or
other facilities for beneficiating mineral ores, containing approximately 3,400
acres in plant site property.

          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, 1995:

<TABLE>
<CAPTION>

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

     Aberdeen, Scotland                           (Underwater Services)                   118,000
     Belle Chasse, Louisiana                      (Underwater Services)                    86,000
     Dallas, Texas                                (Drill Bits)                            294,000
     Dallas, Texas                                (Completion & Production Tools)         278,500
     Houston, Texas                               (Completion & Production Tools)          45,000   (1)
     Longview, Texas                              (Completion & Production Tools)         235,000
     Colorado Springs, Colorado                   (Completion & Production Tools)          97,000
     Tulsa, Oklahoma                              (Completion & Production Tools)          64,000
     Kuantan, Malaysia                            (Pipe Coatings)                         882,669   (1)
     Zhanjiang, China                             (Pipe Coatings)                         116,251   (1)
     Layyah, Sharjah, U.A.E.                      (Pipe Coatings)                       1,233,070   (1)
     Warri, Nigeria                               (Pipe Coatings)                       1,568,173   (1)
     Harvoy, Louisiana                            (Pipe Coatings)                          96,750   (1)
     Pearland, Texas                              (Pipe Coatings)                         157,262   (1)
     Fontane, California                          (Pipe Coatings)                          65,000
     Fort Collins, Colorado                       (Pipe Coatings)                          67,173
     Morrisville, Pennsylvania                    (Pipe Coatings)                          83,748

Energy Equipment

     Manchester, England                          (Mono Pumps)                            242,000
     Victoria, Australia                          (Mono Pumps)                            145,000
     Connersville, Indiana                        (Power Systems)                         376.790
     Huddersfield, England                        (Power Systems)                         159,561
     Waukesha, Wisconsin                          (Power Systems)                         764,457
     Appingedam, Netherlands                      (Power Systems)                         136,935
     Painted Post, New York                       (Compressors)                           982,000
     Broken Arrow, Oklahoma                       (Compressors)                           129,000
     Wythenshawe, England                         (Compressors)                           306,000

                                        9


<PAGE>

Energy Equipment (cont.)

     Olean, New York                              (Compressors)                           896,000
     LeHavre, France                              (Compressors)                           538,000
     Kongsberg, Norway                            (Compressors)                           140,000   (1)
     Wellsville, New York                         (Steam Turbines)                        404,000
     Minneapolis, Minnesota                       (Motors and Generators)                 350,000
     Skelmersdale, England                        (Control Products)                      177,000   (1)
     Avon, Massachusetts                          (Control Products)                      121,000
     Canton, Massachusetts                        (Control Products)                       40,590
     Montebello, California                       (Control Products)                       82,856
     Alliance, Ohio                               (Control Products)                       62,000   (1)
     Bradford, Pennsylvania                       (Control Products)                      450,000
     Jacarei, Brazil                              (Control Products)                       80,699
     Conde, France                                (Control Products)                      187,244
     Barcelona, Spain                             (Control Products)                       56,400
     Burlington, Ontario, Canada                  (Control Products)                       53,000
     Naples, Italy                                (Control Products)                       87,791
     Alexandria, Louisiana                        (Control Products)                      308,640
     Dumfermline, Scotland (Pitreavie)            (Control Products)                      170,801
     Dumfermline, Scotland (Halbeath)             (Control Products)                       95,806
     Houston, Texas                               (Control Products)                      156,000
     Stafford, Texas                              (Control Products)                      110,000
     Voghera, Italy                               (Control Products)                    1,245,300
     Stratford, Connecticut                       (Measurement Systems)                   335,000
     Berea, Kentucky                              (Measurement Systems)                   105,000
     Salisbury, Maryland                          (Measurement Systems)                   341,166   (1)
     Austin, Texas                                (Measurement Systems)                   103,491
     Malmo, Sweden                                (Measurement Systems)                   233,533
     Einbeck, Germany                             (Measurement Systems)                    80,505
     Rio de Janeiro, Brazil                       (Measurement Systems)                   129,166
     Bonnyrigg, Scotland                          (Measurement Systems)                    63,000
     Markham, Ontario, Canada                     (Measurement Systems)                    55,631   (1)

Engineering Services

     Houston, Texas                               (Engineering & Construction)            390,394   (1)
     Wembley, England                             (Engineering & Construction)             92,524   (1)
</TABLE>

----------

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


                                       10

<PAGE>

          Baroid Drilling Fluids, Inc. has mineral rights to proven and
prospective reserves of barite and bentonite.  Such rights included leaseholds
and mining claims and property owned in fee either directly by Baroid Drilling
Fluids, Inc. or by its wholly owned subsidiary Bentonite Corporation.  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 1995, Baroid Drilling Fluids, Inc. estimates its reserves,
which it considers to be proven, to be sufficient for operation for a period of
10 years or more.

ITEM 3.   LEGAL PROCEEDINGS.

          The Company is involved in various legal proceedings.  Information
called for by this Item is included in Note J to Consolidated Financial
Statements on pages 50-52.

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, 1995.


                                       11

<PAGE>

                                     PART II

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

          Registrant is listed on the New York and Pacific Stock Exchanges.  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:

<TABLE>
<CAPTION>

                        FIRST    SECOND    THIRD   FOURTH    YEAR
                        -------------------------------------------
<S>                  <C>         <C>       <C>     <C>       <C>
1995 High. . . . .   $  21.875   22.125    24.00   25.125    25.125
1995 Low . . . . .   $  18.50    19.375    21.625  19.125    18.50
1994 High. . . . .   $  22.75    24.875    23.875  22.25     24.875
1994 Low . . . . .   $  18.625   20.50     20.375  19.00     18.625

</TABLE>

         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 1995 and
1994 fiscal years were:

<TABLE>
<CAPTION>

                        FIRST   SECOND     THIRD   FOURTH    YEAR
                        -----------------------------------------
<S>                  <C>        <C>        <C>     <C>       <C>
1995 . . . . . . .   $  .17      .17       .17     .17       .68
1994 . . . . . . .   $  .15      .17       .17     .17       .66
</TABLE>

          As of January 4, 1996, there were approximately 21,240
shareholders of record of the Registrant's Common Stock.


                                       12
<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.

                           1995        1994       1993       1992       1991
                         --------    --------   --------   ---------   --------
                                   (IN MILLIONS, EXCEPT PER SHARE DATA)

Revenues                 $5,628.7    $5,330.7   $5,202.3   $4,723.3    $4,860.0

Earnings from continuing
 operations before
 extraordinary items and
 accounting changes:
   Earnings                 213.1       361.8*     133.6       97.7       143.5
   Per share                 1.17        1.98*       .74        .55         .81
Earning per share
 before special items        1.17        1.09       1.17        .83         .95
Total assets              4,707.4     4,323.6    4,445.6    3,901.9     3,784.9
Long-term debt              459.3       460.6      492.2      148.5       259.6
Cash dividends
 declared                   124.3       116.5      100.2       96.3        96.8
Per share**                   .68         .66        .60        .60         .60


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

                                       13

<PAGE>

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

MERGERS

On January 21, 1994, Dresser merged with Baroid Corporation (Baroid).  On
August 5, 1994, Dresser merged with Wheatley TXT Corp. (Wheatley).  The
"Company" as used in this discussion refers to Dresser and its subsidiaries
including Baroid and Wheatley.  The mergers have been accounted for as
poolings of interests. Financial data, statistical data, financial statements
and discussion of financial information included in this report have been
restated to reflect the financial position and results of operations as if
the mergers had occurred as of the beginning of the first year presented.

RESULTS OF OPERATIONS

Results of operations for the three years ended October 31, 1995 are
summarized as follows (in millions except per share amounts):

                                           1995         1994        1993
                                          -------     --------     -------
Earnings before special items             $ 213.1     $  197.8     $ 211.4
Special items                                   -         17.5       (77.8)
                                          -------     --------     -------
Earnings from operations                    213.1        215.3       133.6
Gain on sale of interest
 in Western Atlas                               -        146.5           -
                                          -------     --------     -------
Earnings before accounting change           213.1        361.8       133.6
Accounting change for
 postemployment benefits                    (16.0)           -           -
                                          -------     --------     -------
     Net earnings                         $ 197.1     $  361.8     $ 133.6
                                          -------     --------     -------
                                          -------     --------     -------
Earnings per share
   Earnings before special items          $  1.17       $ 1.09      $ 1.17
   Special items                                -          .09        (.43)
                                          -------     --------     -------
   Earnings from operations                  1.17         1.18         .74
   Gain on sale of interest in
    Western Atlas                               -          .80           -
                                          -------     --------     -------
   Earnings before accounting change         1.17         1.98         .74
   Accounting change for postemployment
    benefits                                 (.09)           -           -
                                          -------     --------     -------
     Net earnings                         $  1.08       $ 1.98      $  .74
                                          -------     --------     -------
                                          -------     --------     -------

ACCOUNTING CHANGE

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, EMPLOYERS' ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS.  See Note A to Consolidated Financial Statements for
more information.

                                       14

<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

SPECIAL ITEMS

During 1994 and 1993, the Company entered into a number of unusual or
nonrecurring transactions, including mergers, divestitures and restructuring
of existing operations.  The impact of these transactions is described below.
The discussions of results of operations will focus on earnings excluding
these transactions.

NET OF TAX (IN MILLIONS)                                  1994        1993
                                                         -------     -------

Parker & Parsley litigation - insurance
  recovery/settlement                                    $ 11.6      $ (41.6)
Merger expenses - Wheatley/Baroid                          (7.9)       (30.6)
Restructuring and other special charges                   (10.0)        (5.6)
Earnings of M-I Drilling Fluids                             6.3            -
Tax benefits from sale of affiliate                        17.5            -
                                                         -------     -------
   Total                                                 $ 17.5      $ (77.8)
                                                         -------     -------
                                                         -------     -------


PER SHARE                                                 1994        1993
                                                         -------     -------
Parker & Parsley litigation - insurance
  recovery/settlement                                    $  .06      $  (.23)
Merger expenses - Wheatley/Baroid                          (.04)        (.17)
Restructuring and other special charges                    (.05)        (.03)
Earnings of M-I Drilling Fluids                             .03            -
Tax benefits from sale of affiliate                         .09            -
                                                         -------     -------
   Total                                                 $  .09      $  (.43)
                                                         -------     -------
                                                         -------     -------


The Company sold its 29.5% interest in Western Atlas International in January
1994 and recognized a pre-tax gain of $275.7 million.  (See Note B to
Consolidated Financial Statements.)

The Company recorded pre-tax charges of $65.0 million in 1993 for settlement
of the Parker & Parsley litigation.  In April 1994, the Company recognized an
$18.4 million pre-tax gain from the settlement of a coverage dispute with
certain insurance carriers regarding the Parker & Parsley litigation.  (See
Note L to Consolidated Financial Statements.)

The Company recorded pre-tax expenses of $10.7 million in August 1994 related
to the Wheatley merger and $31.0 million in October 1993 related to the
Baroid merger.  (See Notes A and L to Consolidated Financial Statements.)

The Company recorded pre-tax expenses of $15.7 million in 1994 and  $9.1
million in 1993 for restructuring costs and other special items.  (See Note L
to Consolidated Financial Statements.)

The Company sold its investment in M-I Drilling Fluids Company effective
February 28, 1994.  (See Note B to Consolidated Financial Statements.)

The Company sold its interest in IRI International, Inc., an unconsolidated
affiliate, in September 1994 and was able to recognize $17.5 million of tax
benefits applicable to previously unrecognized losses.  (See Note B to
Consolidated Financial Statements.)


                                       15

<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

GENERAL OPERATING ENVIRONMENT

Dresser is a fully integrated manufacturer and supplier of products and
services to customers in the oil and gas industry.  The Company produces a
broad range of highly engineered products for hydrocarbon exploration,
drilling, production, transmission and processing activities.  Dresser also
provides engineering, procurement and project management services for all
aspects of the energy business.  Operations are organized into three
segments: Petroleum Products and Services, Engineering Services and Energy
Equipment.  Descriptions of the segments are contained in Note N to
Consolidated Financial Statements.

The business environment for Petroleum Products and Services is directly
effected by prices for oil and natural gas, drilling activity and exploration
and production spending by oil and natural gas producers.  In 1995, the
average posted price of West Texas Intermediate crude oil rose approximately
6 percent to $17.50 per barrel while the average spot price of natural gas
declined 15 percent to $1.50 per million BTUs.

Overall, the rig count declined 2.7 percent in fiscal 1995.  The rig count in
North America was down 5.7 percent reflecting a decline in wells drilled for
natural gas, while the rig count in international markets increased 1.5
percent reflecting higher activity levels in major producing regions like
South America, Africa and the North Sea.

The business environment for Engineering Services and Energy Equipment is
affected by numerous factors, including global and regional economic growth
rates, the prices of oil and natural gas, the supply and demand for products
created from hydrocarbons including gasoline, jet fuel, ethylene,
petrochemicals, chemicals, fertilizers and power.  These factors determine
the capital spending budgets, both upstream and downstream, of integrated oil
and gas companies around the world.

According to published sources, economic growth is expected to continue at an
average of 6 percent or better for developing countries and 2 percent or
better for developed countries.  Developing country growth expectations are
due largely to steadily increasing population and greater industrialization
that also will generate sharply rising per capita energy demand.
Increasingly, consumption of oil and natural gas is expected to be driven by
rising demand for refined products, petrochemicals, fertilizers and power.

Capital and maintenance spending for downstream hydrocarbon processing
projects is expected to increase to $67.0 billion in 1996, up from a
projected $62.6 billion in 1995.  Recent project award activity has increased
for ethylene and fertilizer projects.  Global project activity in 1995 hit
its highest level (2,942 projects) since 1991. Internationally, project
activity is currently at its highest level since 1982.

CONSOLIDATED RESULTS

1995 COMPARED TO 1994

Net earnings in 1995 before the accounting change were $213.1 million ($1.17
per share) compared to $197.8 million ($1.09 per share) in 1994 excluding the
effect of the special items discussed above.  This represents a 7% earnings
per share increase.


                                       16

<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

CONSOLIDATED RESULTS (CONTINUED)

1995 COMPARED TO 1994 (continued)

Revenues of $5.6 billion were up $298.0 million or 6% over 1994.  The
Petroleum Products and Services Segment revenues increased $85.1 million or
5%.  The Engineering Services Segment revenues increased $192.4 million or
15%.  The Energy Equipment Segment revenues increased $50.2 million or 2%.

Segment operating profit of $473.1 million increased $12.9 million or 3% from
1994.  The Petroleum Products and Services Segment and the Energy Equipment
Segment were up while the Engineering Services Segment was down versus 1994.

See the Industry Segment Analysis for discussion of changes in revenues and
operating profit.

General corporate expenses of $75.2 million were $6.1 million higher than in
1994.  The increase was primarily due to 1994 gains on sales of interests in
M-I Drilling Fluids Company and IRI International, Inc.  Net interest expense
increased $7.6 million to $25.8 million primarily because of lower interest
income due to a lower level of short-term investments.

The effective income tax rate for 1995 was 32% compared to an overall rate of
36% in 1994.  In 1994, a lower tax basis on the investment in Western Atlas
International, Inc., compared to the book basis, resulted in a tax charge of
$129.3 million or 47% on the book gain on sale.  The additional taxes on the
gain on sale of Western Atlas were somewhat offset by the $17.5 million of
special tax benefits recognized upon sale of investment in IRI International,
Inc.  Excluding these two transactions, the effective rate for 1994 was 33%.

Minority interest provision was $19.8 million, down $13.1 million from 1994.
The decrease was primarily attributable to the 49% share in lower earnings of
Dresser-Rand.

1994 COMPARED TO 1993

Revenues were $5.3 billion in 1994 compared to $5.2 billion in 1993.
Petroleum Products and Services revenues were lower primarily due to the
inclusion of both M-I Drilling Fluids and Baroid Drilling Fluids in 1993,
while 1994 included M-I Drilling Fluids for only four months.  That decrease
was more than offset by higher revenues by the other two segments.  Revenues
include the Company's share of earnings of unconsolidated affiliates, which
was down $53 million in 1994 mostly attributable to $39 million in 1993 for
Western Atlas.

Excluding the special items described earlier, net earnings decreased $14
million to $198 million.  Segment operating profit for 1994 was $40 million
lower compared to 1993.  However, 1993 included the results of Western Atlas
($39 million), the impact of a full year of M-I Drilling Fluids earnings ($16
million) and the favorable impact of a LIFO inventory adjustment ($21
million) at Ingersoll-Dresser Pump (IDP).  Accordingly, comparable 1994
segment operating profit increased $36 million, reflecting high levels of
drilling activity in North America and strong levels of demand for certain of
the Company's Energy Equipment products.  See the Industry Segment Analysis
for a discussion of the results of each segment.


                                       17

<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

CONSOLIDATED RESULTS (CONTINUED)

1994 COMPARED TO 1993 (continued)

General Corporate Expenses declined $19 million to $69 million, reflecting
lower self-insurance costs and lower ongoing expenses associated with
previously divested businesses.  Net interest expense declined $10 million
primarily due to the investment of the proceeds from the sale of Western
Atlas and M-I Drilling Fluids.  Other items impacting comparability of 1994
to 1993 include a non-recurring gain of $12.8 million in 1993 resulting from
a change in the Company's Retiree Medical Benefit Plan and an increase in
goodwill amortization of $5.6 million in 1994 associated with the Bredero
Price, TK Valve and Axelson acquisitions.

The overall effective income tax rate was 36% in both 1994 and 1993.
Excluding the impact of the Western Atlas and IRI International, Inc.
transactions described earlier and the impact of the other special items in
both years, the effective rate was 33% for 1994 and 1993.

Minority interest expense was $11 million lower in 1994 primarily due to the
sale of M-I Drilling Fluids Company, which had a 36% minority owner.

INDUSTRY SEGMENT ANALYSIS

See details of financial information by Industry Segment and Geographic Area
on pages 24 through 29.

PETROLEUM PRODUCTS AND SERVICES

DRILLING AND PRODUCTION OPERATIONS

Revenues of $1.28 billion in 1995 were $99.6 million or 8 percent higher than
1994 levels.  Excluding the revenues of M-I Drilling Fluids, which was sold
in February 1994, revenues increased $246.6 million or 24%.  Operating profit
of $143.9 million was $46.8 million higher than 1994.  Excluding the impact
of M-I Drilling Fluids, operating profit increased $56.7 million or 65% over
1994.  The operating margin improved to 11.3 percent of sales from 8.2
percent in 1994, or 8.4 percent excluding M-I.  All geographic sectors
improved in 1995, in particular Latin America and the North Sea where
drilling activity was greater than in the prior fiscal year.

Although each operating division improved, the majority of the gains in sales
and operating profit were attributable to Baroid Drilling Fluids and
Sperry-Sun Drilling Services.  Baroid revenues increased 31 percent due to
higher activity in major producing regions including the North Sea, Latin
America and the Gulf of Mexico.  In addition, new market penetration of
products developed within the last five years, including PETROFREE and DRIL-N
drilling systems, contributed to the performance.  Sperry-Sun's revenues
improved 29 percent reflecting increasing demand, coupled with higher system
capacity and utilization rates, for measurement-while-drilling and
directional drilling services in most major markets.  In addition, new
products including Slim Phase 4, Lateral Tie Back System (LTBS) and
Underbalanced Drilling contributed to the improvement.

                                       18

<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

INDUSTRY SEGMENT ANALYSIS (CONTINUED)

PETROLEUM PRODUCTS AND SERVICES (CONTINUED)

DRILLING AND PRODUCTION OPERATIONS (CONTINUED)

Revenues for Security DBS rose 4 percent, reflecting an increase in
international sales of roller-cone drill bits.  Operating profit improved
significantly reflecting successful restructuring and manufacturing
cycle-time reductions.  Dresser Oil Tools benefited from strong sales in
Canada and international markets as well as cost savings from the
consolidation of manufacturing and sales and distribution operations.  New
product introductions also contributed to the improvement.  Despite a weak
Canadian market, the Dresser Wheatley Division benefited from the marketing
of additional Dresser products.

Revenues of $1.18 billion in 1994 were down $122.5 million compared to 1993.
Excluding the revenues of M-I Drilling Fluids, revenues increased $131.7
million or 15%.  The increase in 1994 revenues was due to the acquisition of
Axelson in December 1993 and an 11% increase in North American drilling
activity in 1994 versus 1993.  Revenues from North American markets increased
27% in 1994, reflecting strength in the Gulf of Mexico and Canada.

Operating profit of $97.1 million in 1994 was $6.9 million higher than 1993.
Excluding the impact of M-I Drilling Fluids, 1994 operating profit was up
$22.2 million or 34% over 1993.  The strong performance in North American
drilling markets led to substantial increases in operating profit for
Sperry-Sun and Baroid Drilling Fluids.  The acquisition of Axelson as well as
a $9 million reduction in overhead costs resulting from the Baroid merger
also contributed to the increase.  These improvements more than offset the
decline in operating profit from international markets and lower earnings
attributable to costs associated with the combination of Guiberson AVA with
Axelson and Security with DBS.

KELLOGG OIL AND GAS SERVICES

Revenues and operating profit declined $14.5 million and $36.2 million,
respectively, in 1995 compared to 1994.  A cyclical downturn in the Bredero
Price pipecoating business in the North Sea and the Far East resulted in
significantly lower revenues and operating profit in 1995.  However, Bredero
Price's backlog of $403.1 million at October 31, 1995 is up substantially
from the $77.9 million level at October 31, 1994 primarily due to a $300
million project in the North Sea which will be performed over the next four
years. Bredero Price has also entered key markets in the Western Hemisphere,
particularly the United States and Latin America.  Prior to 1995, Bredero
Price had no activity in these markets.  The combination of higher backlogs
plus new positions in previously unserved markets are expected to result in
significantly improved performance for Bredero Price over the next three to
five years.

The Sub Sea underwater engineering operations had higher revenues and
operating profits in 1995 as the result of improvements in both the North Sea
and Gulf of Mexico, combined with the impact of three business acquisitions
made during 1995.  These acquisitions, which include North Sea Assets, Subtec
International and Wellstream (a manufacturer of flexible pipe and riser
systems), are expected to generate revenues of approximately $100 million
during 1996.

                                       19

<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

INDUSTRY SEGMENT ANALYSIS (CONTINUED)

PETROLEUM PRODUCTS AND SERVICES (CONTINUED)

KELLOGG OIL AND GAS SERVICES (CONTINUED)

Revenues of $371.1 million in 1994 were 19% higher than 1993 levels, with
1994 operating profit up 6% over 1993.  The increase in revenues resulted
from the inclusion of Bredero Price for a full year in 1994 versus nine
months in 1993 and higher Sub Sea project activity in the Pacific region.
The increase in operating profit was negatively impacted by (i) a Bredero
Price high margin equipment sale in 1993 that did not recur in 1994 and (ii)
Sub Sea's increased engineering and operational staff expenses in both the
United States and the North Sea combined with higher than anticipated job
costs on a project in Australia.

ENGINEERING SERVICES

M. W. Kellogg revenues of $1.46 billion in 1995 rose 15 percent from $1.27
billion in 1994.  Major improvement in activity occurred in North America,
Latin America and Europe.  These gains were partially offset by lower
activity in the Far East reflecting the wind-down of projects in Malaysia,
Africa and the Middle East.  Petrochemicals and gas processing activity
accounted for much of the pick up in activity in the United States and Europe.

M. W. Kellogg operating profit in 1995 declined 7 percent due principally to
lower equity income of $9.7 million from M.W. Kellogg's investment in Bufete
Industriale, S.A. de C.V., a major Mexican engineering and construction firm.
Operating profit for 1995 also included a gain of $7.5 million from the sale
of one-third of its investment in Bufete, and the 1994 results included a
gain of $11.0 million associated with an initial public offering of Bufete.
Excluding the impact of Bufete, operating profit in 1995 increased 10 percent.

Revenues of $1.27 billion in 1994 were 4% higher than in 1993, but operating
profit was down 21% compared to 1993 excluding Bufete.  The decrease in
operating profit was primarily the result of achieving significant milestones
on several large contracts in 1993 that were substantially completed that
year.

Although backlog of $1.40 billion at October 31, 1995 was down 14% from the
year-ago level, Kellogg's backlog at December 31, 1995 had increased to
approximately $1.8 billion, reflecting major project bookings that occurred
after fiscal year-end.

ENERGY EQUIPMENT

COMPRESSION AND PUMPING

Revenues and operating profit from Compression and Pumping operations both
fell approximately 6 percent in 1995 compared to 1994.  Dresser-Rand revenues
declined $96.2 million or 8% to $1.14 billion as a cyclical downturn in the
compression industry resulted in lower volumes of complete units and repair
parts during the first half of the year and from the impact of a major
multi-year gas compression project in Venezuela that was completed early in
fiscal 1995.  In 1995, 60% of Dresser-

                                       20

<PAGE>


RESULTS OF OPERATIONS (CONTINUED)

INDUSTRY SEGMENT ANALYSIS (CONTINUED)

ENERGY EQUIPMENT (CONTINUED)

COMPRESSION AND PUMPING (CONTINUED)

Rand's revenues were from markets outside of North America.  An increase in
revenues in the United States and the Far East were more than offset by
declines attributable to the factors noted above.

Dresser-Rand operating profit of $62.8 million was down $8.6 million from
1994. All markets were affected by margin pressure on complete-unit sales,
especially the Far East.  Cost reduction programs and the benefits associated
with higher levels of production during the year partially offset the decline
in margin.

Dresser-Rand set a record for booking new orders during 1995 at $1.3 billion.
Bookings exceeded the prior year in virtually all product groups.  Major
orders for pipeline compressors, oil and gas production, ethylene,
petrochemicals and refining bolstered backlogs of turbo products, compression
service packages and steam turbine units.  Overall, backlog of $883.8 million
at October 31, 1995 reflected a 34% increase over 1994.

Dresser-Rand revenues of $1.2 billion in 1994 increased 10% from a year
earlier due primarily to a 20% increase in revenues from markets outside
North America, particularly in the Eastern Hemisphere.  This primarily
reflected the shipment of prior-year backlog of centrifugal products and
compression services. Operating profit continued strong at $71.9 million but
was down from $87.6 million in 1993 due to restructuring and early retirement
costs as well as margin pressure on complete-unit sales.

Dresser-Rand revenues from outside of North American markets were 61% in 1994
compared to 56% in 1993.  Operating profit from North America was essentially
unchanged, with strong results from the field gas market offsetting a decline
in the centrifugal products market.  Internationally, significant
improvements in operating profit in Venezuela and the North Sea only
partially offset declines in continental Europe and the Middle East resulting
from margin pressure on complete-unit sales.

Earnings from the 49% owned Ingersoll-Dresser Pump (IDP) joint venture were
$13.2 million in 1995, $8.8 million in 1994 and $17.1 million in 1993.  The
improvement in 1995 compared to 1994 was primarily related to a continuing
decline of costs associated with the formation of the joint venture.  The
1993 results included $21.0 million of earnings from the release of LIFO
inventory reserves related to inventory contributed to IDP by the Company and
sold by IDP to third parties.

MEASUREMENT

Measurement operation revenues of $618.7 million in 1995 were $52.2 million
or 9% higher than 1994 levels.  However, operating profit was essentially
unchanged at $71.4 million compared to $72.0 million in 1994.  Although the
Wayne (fuel dispensing) Division enjoyed improved sales in Europe and South
America, margins were negatively impacted by cost and pricing pressures in the

                                       21

<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

INDUSTRY SEGMENT ANALYSIS (CONTINUED)

MEASUREMENT (CONTINUED)

U.S. market, resulting in lower overall operating profit in 1995.  The
Instrument Division reported a 13% revenue increase and a slight improvement
in operating profit.  Earnings from higher activity in South America and new
product introductions were offset by a decline in Europe and the effect of
increased spending in the marketing and research and development areas.

Sales and operating profit in 1994 improved 12% and 41%, respectively, over
1993.  The Wayne Division contributed the majority of the improvement in 1994
with very strong performances in the U.S. and Scandinavia.   The Instrument
Division also saw improved results in 1994 from higher sales volumes and the
impact of a small acquisition in Germany in early fiscal 1994.

FLOW CONTROL


Flow Control 1995 revenues of $458.4 million were $53.4 million or 13% higher
than 1994.  Operating profit of $41.8 million was $12.5 million or 43% higher
than 1994.  The acquisition of Grove S.p.A. in June 1995 was the major reason
for the year-to-year increase in revenues and operating profit. The Valve and
Controls Division performed ahead of 1994 as a result of increased project
related orders in 1995 and the cost savings realized from the 1994
restructuring in Europe.

Revenues and operating profit declined 3% and 39%, respectively, in 1994
compared to 1993.  The Valve and Controls Division accounted for the majority
of this decrease, as the lingering impact of an economic recession in Europe
ultimately resulted in a significant downsizing of its European operations.

POWER SYSTEMS

Power Systems operations operating profit improved 5% in 1995 on a 12%
revenue increase.  Waukesha Division revenues of $205.3 million increased
$24.4 million or 14%, with a slight improvement in operating profit.  The
sales improvement was primarily in the lower margin power generation market,
and higher new product development costs also impacted operating profit in
1995.  The Roots Division saw operating profit improve $1.8 million on
essentially flat sales of $82.6 million.  The earnings improvement was
primarily the result of a major reengineering effort to improve its
manufacturing cost structure during the year.

Revenues and operating profit improved 5% and 17%, respectively, in 1994 as
compared to 1993.  These improvements primarily came from the Waukesha
Division where significant volume increases were realized in the higher
margin gas compression market.  North American markets accounted for 69% of
Power Systems revenues in 1995 and 74% in 1994 and 1993.


                                       22

<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

BACKLOG OF UNFILLED ORDERS


                                                          October 31,
                                                ------------------------------
                                                   1995       1994      1993
                                                ---------  --------  ---------
                                                         (IN MILLIONS)

CONSOLIDATED BACKLOG
  Petroleum Products and Services
    Drilling and Production Operations           $   19.7   $  15.2    $  11.6
    Kellogg Oil and Gas Services                    508.1     142.9      157.8
                                                ---------  --------  ---------
                                                    527.8     158.1      169.4
                                                ---------  --------  ---------
Engineering Services
   M. W. Kellogg Operations                       1,400.0   1,626.1    2,478.1
                                                ---------  --------  ---------
Energy Equipment
   Compression and Pumping                          889.4     667.8      877.9
   Measurement                                      115.9     103.1       93.8
   Flow Control                                     234.0     114.4      107.5
   Power Systems                                     91.2      81.3       74.1
                                                ---------  --------  ---------
                                                  1,330.5     966.6    1,153.3
                                                ---------  --------  ---------

Eliminations                                         (9.1)     (2.1)      (3.2)
                                                ---------  --------  ---------
  Total consolidated                             $3,249.2  $2,748.7   $3,797.6
                                                ---------  --------  ---------
                                                ---------  --------  ---------

SHARE OF BACKLOG OF
  Ingersoll-Dresser Pump Company (49%)           $  187.0  $  188.3   $  178.9
                                                ---------  --------  ---------
                                                ---------  --------  ---------

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

The Company's liquidity and overall financial condition remained strong at
October 31, 1995.  Cash and cash equivalents totaled $248.7 million.  As
shown on the Statement of Cash Flows, Operations provided $434.5 million of
cash while Investing Activities and Financing Activities used $569.7 million
and $129.7 million, respectively.  The result was a $266.3 million net
decrease in cash and cash equivalents.  Cash provided by Operations exceeded
capital expenditures and dividends by $22.0 million.  Management does not
expect capital expenditures, which were $288.2 million in 1995, to change
significantly in 1996.  Net cash provided by Operations in 1995 was $80.4
million higher than in 1994 primarily because less cash was required to
finance working capital.  Cash used by Investing Activities included $325.7
million for business acquisitions which was essentially responsible for the
overall net decrease in cash and cash equivalents.

Shareholders' equity increased $24.5 million as earnings more than offset
charges for dividends, stock repurchases and translation adjustments.  The
Company's ratio of total debt to total debt and shareholders' equity was
26/74 at October 31, 1995 compared to 23/77 at October 31, 1994.

Management believes that the cash on hand of $248.7 million and $231.8
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 A by Standard and Poors, A1


                                       23

<PAGE>

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION (CONTINUED)

by Moody's and A+ by Duff and Phelps.  The three agencies give their highest
ratings to the Company's commercial paper.  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.

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.

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

The following financial information by Industry Segment and Geographic Area
for the years ended October 31, 1995, 1994 and 1993 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.

INDUSTRY SEGMENT FINANCIAL INFORMATION

(IN MILLIONS)                                    1995         1994       1993
                                               ---------   ---------   --------
REVENUES
  Petroleum Products and Services
    Drilling and Production Operations          $1,279.0    $1,179.4   $1,301.9
    Kellogg Oil and Gas Services                   356.6       371.1      312.2
    Western Atlas Equity Earnings                      -           -       39.2
                                               ---------   ---------   --------
                                                 1,635.6     1,550.5    1,653.3
                                               ---------   ---------   --------
    Engineering Services
    M. W. Kellogg Operations                     1,457.6     1,265.2    1,215.3
                                               ---------   ---------   --------

                                       24

<PAGE>

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

INDUSTRY SEGMENT FINANCIAL INFORMATION (CONTINUED)

(IN MILLIONS)                                    1995         1994       1993
                                               ---------   ---------   --------
  Energy Equipment
     Compression and Pumping                     1,220.4     1,304.5    1,187.3
     Measurement                                   618.7       566.5      505.8
     Flow Control                                  458.4       405.0      417.3
     Power Systems                                 276.9       248.2      236.1
                                               ---------   ---------   --------
                                                 2,574.4     2,524.2    2,346.5
                                               ---------   ---------   --------
  Eliminations                                     (38.9)       (9.2)     (12.8)
                                               ---------   ---------   --------
    Total revenues                              $5,628.7    $5,330.7   $5,202.3
                                               ---------   ---------   --------
                                               ---------   ---------   --------
  Share of revenues of
    Ingersoll-Dresser Pump (49%)                $  389.5    $  368.6   $  372.9
                                               ---------   ---------   --------
                                               ---------   ---------   --------

OPERATING PROFIT AND EARNINGS BEFORE TAXES

   Petroleum Products and Services
      Drilling and Production Operations         $ 143.9    $   97.1   $   90.2
      Kellogg Oil and Gas Services                  18.1        54.3       51.4
      Western Atlas Equity Earnings                    -           -       39.2
                                               ---------   ---------   --------
                                                   162.0       151.4      180.8
                                               ---------   ---------   --------
   Engineering Services
      M. W. Kellogg Operations                      79.3        74.5       85.7
      Gain on Mexican affiliate's
       public offering                                 -        11.0          -
                                               ---------   ---------   --------
                                                    79.3        85.5       85.7
                                               ---------   ---------   --------
   Energy Equipment
      Compression and Pumping                       82.7        87.9      105.6
      Measurement                                   71.4        72.0       50.9
      Flow Control                                  41.8        29.3       47.8
      Power Systems                                 35.9        34.1       29.2
                                               ---------   ---------   --------
                                                   231.8       223.3      233.5
                                               ---------   ---------   --------

  Total operating profit                           473.1       460.2      500.0

Amortization of acquisition intangibles            (29.9)      (27.4)     (21.8)
General corporate expenses                         (75.2)      (69.1)     (88.3)
Special charges                                        -        (1.8)     (98.2)
Gain on sale of interest in Western Atlas              -       275.7          -
Retiree benefit curtailment gain                       -           -       12.8
Interest expense, net                              (25.8)      (18.2)     (27.8)
                                               ---------   ---------   --------
   Earnings before taxes                        $  342.2    $  619.4   $  276.7
                                               ---------   ---------   --------
                                               ---------   ---------   --------

                                       25

<PAGE>

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

INDUSTRY SEGMENT FINANCIAL INFORMATION (CONTINUED)

(IN MILLIONS)                                    1995         1994      1993
                                               ---------   ---------  --------
AMORTIZATION OF ACQUISITION
 INTANGIBLES BY SEGMENT
   Petroleum Products and Services
      Drilling and Production Operations          $  8.1      $  7.1     $ 3.6
      Kellogg Oil and Gas Services                   4.4         3.2       3.0
                                               ---------   ---------  --------
                                                    12.5        10.3       6.6
                                               ---------   ---------  --------
   Engineering Services
     M. W. Kellogg Operations                       10.2        10.3       9.7
                                               ---------   ---------  --------
   Energy Equipment
      Compression and Pumping                        1.9         3.1       3.0
      Measurement                                    1.3         1.3       1.1
      Flow Control                                   3.8         2.2       1.3
      Power Systems                                   .2          .2        .1
                                               ---------   ---------  --------
                                                     7.2         6.8       5.5
                                               ---------   ---------  --------
     Total amortization of
      acquisition intangibles                    $  29.9     $  27.4   $  21.8
                                               ---------   ---------  --------
                                               ---------   ---------  --------

IDENTIFIABLE ASSETS
  Petroleum Products and Services
      Drilling and Production Operations        $  923.2    $  843.0  $  939.6
      Kellogg Oil and Gas  Services                441.0       283.3     278.1
      Western Atlas investment                         -           -     278.2
                                               ---------   ---------  --------
                                                 1,364.2     1,126.3   1,495.9
                                               ---------   ---------  --------
   Engineering Services
      M. W. Kellogg Operations                     212.8       204.8     273.8
                                               ---------   ---------  --------

   Energy Equipment
      Compression and Pumping                      954.7       924.5     939.0
      Measurement                                  248.0       227.0     190.6
      Flow Control                                 409.6       296.1     284.4
      Power Systems                                160.6       153.6     113.2
                                               ---------   ---------  --------
                                                 1,772.9     1,601.2   1,527.2
                                               ---------   ---------  --------
   Eliminations                                    (37.7)      (44.2)    (21.9)
                                               ---------   ---------  --------
        Total identifiable assets                3,312.2     2,888.1   3,275.0

Acquisition intangible assets                      852.1       668.4     626.7
Corporate assets                                   543.1       767.1     543.9
                                               ---------   ---------  --------
       Total assets                             $4,707.4    $4,323.6  $4,445.6
                                               ---------   ---------  --------
                                               ---------   ---------  --------


                                       26

<PAGE>

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

INDUSTRY SEGMENT FINANCIAL INFORMATION (CONTINUED)

(IN MILLIONS)                                    1995         1994      1993
                                               ---------   ---------  --------
ACQUISITION INTANGIBLE ASSETS BY SEGMENT
   Petroleum Products and Services
      Drilling and Production Operations           147.7       155.7     106.0
      Kellogg Oil and Gas Services                 198.2       120.2     119.2
                                               ---------   ---------  --------
                                                   345.9       275.9     225.2
                                               ---------   ---------  --------
   Engineering Services
      M. W. Kellogg Operations                     210.5       217.3     223.6
                                               ---------   ---------  --------

   Energy Equipment
      Compression and Pumping                       65.4        58.5      61.6
      Measurement                                   19.1        20.9      17.9
      Flow Control                                 204.4        88.8      91.2
      Power Systems                                  6.8         7.0       7.2
                                               ---------   ---------  --------
                                                   295.7       175.2     177.9
                                               ---------   ---------  --------
         Total acquisition intangibles          $  852.1    $  668.4  $  626.7
                                               ---------   ---------  --------
                                               ---------   ---------  --------
CAPITAL EXPENDITURES
    Petroleum Products and Services
      Drilling and Production Operations        $  101.7    $   73.9  $   41.9
      Kellogg Oil and Gas Services                  55.6        32.3      39.2
                                               ---------   ---------  --------
                                                   157.3       106.2      81.1
   Engineering Services
     M. W. Kellogg Operations                        7.1         2.1       2.8
                                               ---------   ---------  --------

   Energy Equipment
      Compression and Pumping                       85.4        43.4      59.6
      Measurement                                   15.3        12.8      12.3
      Flow Control                                  11.3         9.4       9.1
      Power Systems                                 10.0        10.9      11.1
                                               ---------   ---------  --------
                                                   122.0        76.5      92.1
                                               ---------   ---------  --------
   Corporate                                         1.8         2.3      17.0
                                               ---------   ---------  --------
       Total capital expenditures               $  288.2     $ 187.1   $ 193.0
                                               ---------   ---------  --------
                                               ---------   ---------  --------
DEPRECIATION AND AMORTIZATION
   Petroleum Products and Services
     Drilling and Production Operations             64.3        62.8      61.3
     Kellogg Oil and Gas Services                   26.1        18.1      13.5
                                               ---------   ---------  --------
                                                    90.4        80.9      74.8
                                               ---------   ---------  --------
   Engineering Services
     M. W. Kellogg Operations                       17.6        18.8      20.8
                                               ---------   ---------  --------


                                       27

<PAGE>

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

INDUSTRY SEGMENT FINANCIAL INFORMATION (CONTINUED)

                                                 1995        1994       1993
                                               ---------   ---------  --------
  Energy Equipment
     Compression and Pumping                        44.7        69.9      69.2
     Measurement                                    13.9        12.9      12.0
     Flow Control                                   20.2        14.8      13.1
     Power Systems                                  10.3         9.7       8.7
                                               ---------   ---------  --------
                                                    89.1       107.3     103.0
                                               ---------   ---------  --------
  Corporate                                          9.5         9.3      13.2
                                               ---------   ---------  --------
     Total depreciation and amortization         $ 206.6     $ 216.3    $211.8
                                               ---------   ---------  --------
                                               ---------   ---------  --------

GEOGRAPHIC AREA FINANCIAL INFORMATION

The financial information by Geographic Area is as follows (in millions):

                                                 1995         1994      1993
                                               ---------   ---------  --------
REVENUES BY POINT OF ORIGIN
  United States                                 $3,288.0    $3,061.8  $2,917.8
  Canada                                           192.9       242.5     180.5
  Latin America                                    560.4       409.8     252.1
  Europe                                         1,558.8     1,399.7   1,316.4
  Mid East, Far East and Africa                    558.5       753.4     895.3
  Eliminations                                    (529.9)     (536.5)   (359.8)
                                               ---------   ---------  --------
    Total revenues                              $5,628.7    $5,330.7  $5,202.3
                                               ---------   ---------  --------
                                               ---------   ---------  --------
REVENUES BY POINT OF DESTINATION
  United States                                 $2,058.8    $1,801.4  $2,044.0
  Canada                                           215.3       261.9     210.4
  Latin America                                    811.9       722.3     439.7
  Europe                                         1,342.1     1,069.2   1,075.1
  Mid East, Far East and Africa                  1,200.6     1,475.9   1,433.1
                                               ---------   ---------  --------
    Total revenues                              $5,628.7    $5,330.7  $5,202.3
                                               ---------   ---------  --------
                                               ---------   ---------  --------
UNITED STATES EXPORT SALES
  Canada                                        $   63.2     $  52.5  $   41.4
  Latin America                                    333.5       291.1     184.4
  Europe                                            98.8        82.5      51.0
  Mid East, Far East and Africa                    472.6       512.6     388.6
                                               ---------   ---------  --------
    Total United States export sales            $  968.1     $ 938.7   $ 665.4
                                               ---------   ---------  --------
                                               ---------   ---------  --------
OPERATING PROFIT
  United States                                 $  173.7    $  170.8  $  152.9
  Canada                                            37.8        31.2      26.2
  Latin America                                     74.1        53.4      32.6
  Europe                                            70.0        58.0     103.1
  Mid East, Far East and Africa                    117.5       146.8     185.2
                                               ---------   ---------  --------
    Total operating profit                      $  473.1    $  460.2  $  500.0
                                               ---------   ---------  --------
                                               ---------   ---------  --------

                                       28

<PAGE>

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



GEOGRAPHIC AREA FINANCIAL INFORMATION (CONTINUED)


                                                 1995         1994      1993
                                               ---------   ---------  --------
Identifiable assets
  United States                                 $1,906.4    $1,656.3  $1,817.4
  Canada                                            90.0        85.6     100.4
  Latin America                                    246.6       182.0     196.2
  Europe                                           996.7       832.0     904.2
  Mid East, Far East and Africa                    303.5       260.9     412.3
  Adjustments and eliminations                    (231.0)     (128.7)   (155.5)
                                               ---------   ---------  --------
    Total identifiable assets                   $3,312.2    $2,888.1  $3,275.0
                                               ---------   ---------  --------
                                               ---------   ---------  --------

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, 1995, 1994 and 1993
Consolidated Balance Sheets - October 31, 1995 and 1994
Consolidated Statements of Shareholders' Equity -
  October 31,  1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years Ended
  October 31, 1995, 1994 and 1993
Note A - Accounting Change, Basis of Presentation  and Summary
  of Significant Accounting Policies
Note B - Acquisitions and Divestitures
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 and Special Charges
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)

                                       29

<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 pursues 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.

B. D. St. John, Vice Chairman and    G. H. Juetten, Vice President - Controller
 Chief Financial Officer


                                       30

<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, 1995
and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended October 31, 1995, 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.

/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP

Dallas, Texas
November 30, 1995

                                       31

<PAGE>

                      DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF EARNINGS

                                               YEARS ENDED OCTOBER 31,
                                         -------------------------------------
IN MILLIONS                                 1995          1994         1993
                                         ---------    -----------   ----------

Sales                                     $3,538.9       $3,562.3     $3,494.3
Service revenues                           2,073.7        1,745.0      1,631.9
Share of earnings of unconsolidated
  affiliates                                  16.1           23.4         76.1
                                         ---------    -----------   ----------
   Total revenues                          5,628.7        5,330.7      5,202.3
                                         ---------    -----------   ----------
Cost of sales                              2,526.0        2,538.2      2,386.2
Cost of services                           1,831.9        1,533.5      1,452.0
                                         ---------    -----------   ----------
   Total costs of sales and services       4,357.9        4,071.7      3,838.2
                                         ---------    -----------   ----------
   Gross earnings                          1,270.8        1,259.0      1,364.1

Selling, engineering, administrative
  and general expenses                      (909.1)        (896.7)      (973.8)
Special charges                                  -           (8.0)      (105.1)

Other income (deductions)
  Interest expense                           (47.4)         (49.3)       (44.5)
  Interest earned                             21.6           31.1         16.7
  Gain on sale of interest in Western Atlas      -          275.7            -
  Gain on affiliate's public offering            -           11.0            -
  Other, net                                   6.3           (3.4)        19.3
                                         ---------    -----------   ----------
  Earnings before income taxes and
    other items below                        342.2          619.4        276.7
Income taxes                                (109.3)        (224.7)       (98.8)
Minority interest                            (19.8)         (32.9)       (44.3)
                                         ---------    -----------   ----------
  Earnings before accounting change          213.1          361.8        133.6
Cumulative effect of accounting change       (16.0)             -            -
                                         ---------    -----------   ----------
  Net earnings                            $  197.1       $  361.8     $  133.6
                                         ---------    -----------   ----------
                                         ---------    -----------   ----------
Earnings per common share
  Earnings before accounting change       $   1.17       $   1.98     $    .74
  Cumulative effect of accounting change      (.09)             -            -
                                         ---------    -----------   ----------
  Net earnings                            $   1.08       $   1.98     $    .74
                                         ---------    -----------   ----------
                                         ---------    -----------   ----------

Average common shares outstanding            182.8          182.8        180.4

              SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       32

<PAGE>

                    DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                                    OCTOBER 31,
                                              -----------------------
IN MILLIONS                                      1995        1994
                                              ---------    ----------
ASSETS
Current Assets
  Cash and cash equivalents                   $   248.7       $ 515.0

  Notes and accounts receivable                   988.3         896.2
  Less allowance for doubtful receivables          24.6          30.4
                                              ---------      --------
                                                  963.7         865.8
  Inventories
    Finished products and work in process         617.7         529.9
    Raw materials and supplies                    191.7         143.2
                                              ---------      --------
                                                  809.4         673.1

  Deferred income taxes                            84.8          74.9
  Prepaid expenses                                 94.6          68.2
                                              ---------      --------
    Total Current Assets                        2,201.2       2,197.0
                                              ---------      --------
Investments in and receivables from
  unconsolidated affiliates                       201.9         240.4
Goodwill less accumulated amortization
  of $115.5 in 1995 and $94.7 in 1994             845.2         657.4
Deferred income taxes                             188.9         193.2
Other assets                                      143.1         106.0


Property, Plant and Equipment, at cost
  Land and land improvements                       98.9          90.5
  Buildings                                       429.7         376.2
  Machinery and equipment                       2,044.3       1,778.3
                                              ---------      --------
                                                2,572.9       2,245.0

Less accumulated depreciation                   1,445.8       1,315.4
                                              ---------      --------
    Total Properties, net                       1,127.1         929.6
                                              ---------      --------

      Total Assets                             $4,707.4      $4,323.6
                                              ---------      --------
                                              ---------      --------

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       33


<PAGE>

                      DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                            CONSOLIDATED BALANCE SHEETS


                                                    OCTOBER 31,
                                              -----------------------
IN MILLIONS                                      1995        1994
                                              ---------    ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
  Short-term debt and current portion of
    long-term debt                              $ 131.6      $   36.6
  Accounts payable                                520.4         361.6
  Contract advances                               324.4         265.4
  Accrued compensation and benefits               237.7         230.7
  Accrued warranty costs                           53.0          59.6
  Income taxes                                    113.2          92.7
  Other accrued liabilities                       332.1         320.2
                                              ---------    ----------
    Total Current Liabilities                   1,712.4       1,366.8
                                              ---------    ----------

Employee Retirement Benefit Obligations           689.2         668.2
Long-Term Debt                                    459.3         460.6
Deferred Compensation, Insurance Reserves
  and Other Liabilities                           110.7         112.1
Minority Interest                                  79.0          83.6

Commitments and Contingencies

Shareholders' Equity -
  Preferred shares, 10 million authorized             -             -
  Common shares, $0.25 par value
    Authorized: 400 million
    Issued: 184.5 million                          46.1          46.0
    Capital in excess of par value                451.6         448.6
  Retained earnings                             1,285.4       1,212.6
  Cumulative translation adjustment               (76.7)        (63.1)
  Pension liability adjustment                     (7.0)         (7.6)
                                              ---------    ----------
                                                1,699.4       1,636.5
  Less treasury shares, at cost                    42.6           4.2
                                              ---------    ----------
    Total Shareholders' Equity, net             1,656.8       1,632.3
                                              ---------    ----------

  Total Liabilities and Shareholders' Equity   $4,707.4      $4,323.6
                                              ---------    ----------
                                              ---------    ----------

         SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       34

<PAGE>

                  DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                               YEARS ENDED OCTOBER 31,
                                         -------------------------------------
IN MILLIONS, EXCEPT PER SHARE DATA          1995          1994         1993
                                         ---------    -----------   ----------
COMMON SHARES, PAR VALUE
  Beginning of year                     $     46.0       $   45.2     $   45.2
  Sale of common shares                          -             .5            -
  Shares issued under benefit and
  dividend reinvestment plans                   .1             .3            -
                                         ---------    -----------   ----------
  End of year                           $     46.1       $   46.0     $   45.2
                                         ---------    -----------   ----------
                                         ---------    -----------   ----------
CAPITAL IN EXCESS OF PAR VALUE
  Beginning of year                      $   448.6       $  407.3     $  410.2
  Sale of common shares                          -           29.5            -
  Shares issued under benefit and
    dividend reinvestment plans                3.0           11.8         (2.9)
                                         ---------    -----------   ----------
  End of year                            $   451.6       $  448.6     $  407.3
                                         ---------    -----------   ----------
                                         ---------    -----------   ----------
RETAINED EARNINGS
  Beginning of year                       $1,212.6       $  967.3     $  935.3
  Net earnings                               197.1          361.8        133.6
  Dividends on common shares*               (124.3)        (116.5)      (100.2)
  Other                                          -              -         (1.4)
                                         ---------    -----------   ----------
  End of year                             $1,285.4       $1,212.6     $  967.3
                                         ---------    -----------   ----------
                                         ---------    -----------   ----------
CUMULATIVE TRANSLATION ADJUSTMENTS
  Beginning of year                      $   (63.1)      $ (130.2)    $  (68.2)
  Translation rate changes                   (13.6)          67.1        (62.0)
                                         ---------    -----------   ----------
  End of year                            $   (76.7)      $  (63.1)    $ (130.2)
                                         ---------    -----------   ----------
                                         ---------    -----------   ----------
PENSION LIABILITY ADJUSTMENT
  Beginning of year                      $    (7.6)      $  (13.8)    $   (4.0)
  Current year adjustment                       .6            6.2         (9.8)
  End of year                            $    (7.0)      $   (7.6)    $  (13.8)
TREASURY SHARES, AT COST
  Beginning of year                      $    (4.2)      $   (3.6)    $  (15.8)
  Shares purchased                           (46.8)             -            -
  Shares issued (redeemed) under benefit
    and dividend reinvestment plans            8.4            (.6)        12.2
  End of year                            $   (42.6)      $   (4.2)    $   (3.6)
                                         ---------    -----------   ----------
                                         ---------    -----------   ----------
TOTAL SHAREHOLDERS' EQUITY, END OF YEAR  $ 1,656.8       $1,632.3     $1,272.2
                                         ---------    -----------   ----------
                                         ---------    -----------   ----------

* Dresser $.68 per share in 1995, Dresser $.66 per share in 1994 and Dresser
  $.60 per share, Baroid $.20 per share and Wheatley $.04 per share in 1993.

        SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       35
<PAGE>

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


                                               YEARS ENDED OCTOBER 31,
                                         -------------------------------------
IN MILLIONS                                 1995          1994         1993
                                         ---------    -----------   ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings                           $   197.1       $  361.8     $  133.6
  Adjustments to reconcile net earnings
  to cash flow:
    Depreciation and amortization            206.6          216.3        211.8
    Cumulative effect of accounting change    16.0              -            -
    Earnings from unconsolidated affiliates  (16.1)         (23.4)       (76.1)
    Dividends and advances from
      unconsolidated affiliates               23.0           28.6         23.2
    Minority interest provision               19.8           32.9         44.3
    Special charges                              -            8.0         31.0
    Gain on sale of interest in Western
      Atlas, net of tax                          -         (146.5)           -
    Changes in working capital               (27.3)        (130.0)      (192.9)
    Other, net                                15.4            6.4          3.7
                                         ---------    -----------   ----------
      Total adjustments                      237.4           (7.7)        45.0
                                         ---------    -----------   ----------
    Net cash provided by
      operating activities                   434.5          354.1        178.6
                                         ---------    -----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                      (288.2)        (187.1)      (193.0)
  Business acquisitions                     (325.7)         (85.5)      (337.5)
  Proceeds from disposal of assets            35.6            6.0         20.9
  Cash of acquired businesses                  8.6              -         38.3
  Proceeds of sales of interests in -
    Western Atlas - net of taxes paid            -          451.8            -
    M-I Drilling Fluids                          -          160.0            -
                                         ---------    -----------   ----------
    Net cash provided (used) by
      investing activities                  (569.7)         345.2       (471.3)
                                         ---------    -----------   ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Dividends paid                          (124.3)        (116.5)      (100.2)
  Increase (decrease) in short-term debt      58.2         (256.9)       217.2
    Decrease in long-term debt               (16.8)         (46.4)      (301.3)
  Purchase of common shares for Treasury     (46.8)             -            -
  Sale of common shares                          -           30.0            -
  Issuance of long-term debt                     -              -        538.4
                                         ---------    -----------   ----------
    Net cash provided (used) by
      financing activities                  (129.7)        (389.8)       354.1
                                         ---------    -----------   ----------

EFFECT OF TRANSLATION ADJUSTMENTS ON CASH     (1.4)           5.4        (12.2)
                                         ---------    -----------   ----------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                          (266.3)         314.9         49.2

CASH AND CASH EQUIVALENTS:
  Beginning of year                          515.0          200.1        150.9
                                         ---------    -----------   ----------
  End of year                            $   248.7       $  515.0     $  200.1
                                         ---------    -----------   ----------
                                         ---------    -----------   ----------

       SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       36

<PAGE>

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


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

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.  Annual expense
under SFAS 112 for 1995 was not significantly different from the actual cash
payments.  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.

BAROID AND WHEATLEY MERGERS

Dresser Industries, Inc. (Dresser) merged with Baroid Corporation (Baroid) on
January 21, 1994 and with Wheatley TXT Corp. (Wheatley) on August 5, 1994.
The "Company" as used in these consolidated financial statements refers to
Dresser and its subsidiaries including Baroid and Wheatley.  The mergers have
been accounted for as poolings of interests.  These consolidated financial
statements reflect the financial position, results of operations and cash
flows of the combined companies as if the mergers had occurred on November 1,
1992.

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.

                                      37

<PAGE>

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

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

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 $138.3 million, $138.7 million and
$112.4 million for the years ended October 31, 1995, 1994 and 1993,
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 $112.0 million and $107.2 million at
October 31, 1995 and 1994, respectively.  Under the average cost method,
inventories would have increased by $100.0 million and $97.1 million at
October 31, 1995 and 1994, respectively.

Inventories are stated net of progress payments received on contracts of
$94.5 million and $126.1 million at October 31, 1995 and 1994, respectively.

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.

INTANGIBLES

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.

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.

                                       38

<PAGE>

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

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

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.

RECLASSIFICATION OF PRIOR YEARS

Prior year financial statements have been reclassified to conform to 1995
presentations.

FUTURE REPORTING REQUIREMENTS

The Financial Accounting Standards Board has issued 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) and Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION (SFAS 123).

The Company must adopt the provisions of SFAS 121 and SFAS 123 beginning in
fiscal year 1997. SFAS 121 requires the write-down to market value of certain
long-lived assets.  SFAS 123 requires the recording of or disclosure of the
value of stock options or other equity instruments issued to employees. The
Company has not determined the effect that the adoption of either SFAS 121 or
SFAS 123 will have on its financial position or results of operations.

NOTE B - ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

On November 15, 1994, 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.

                                       39

<PAGE>

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

NOTE B - ACQUISITIONS AND DIVESTITURES (CONTINUED)

ACQUISITIONS (CONTINUED)

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 Statement of Earnings from the
acquisition dates.  The purchase prices exceeded the value of the net assets
acquired by $199.5 million.  The excess is included in goodwill in the
Consolidated Balance Sheet and is being amortized on a straight-line basis
over 40 years.  The pro forma effect of these acquisitions is not material.

In December 1993, Wheatley acquired Axelson, Inc. and Tom Wheatley Valve
Company for $85.5 million cash, a $1.7 million promissory note and
liabilities assumed of $2.0 million.  Axelson is a manufacturer of downhole
rod pumps and safety equipment used in the production of oil and Tom Wheatley
Valve Company produces valves for the oil and gas industry.  These
acquisitions were accounted for as purchases, and their results of operations
are included in the Consolidated Statement of Earnings from the acquisition
dates.

Effective February 1, 1993, Dresser acquired all the outstanding stock of
Bredero Price Holding B.V., a Netherlands corporation, from Koninklijke
Begemann Groep N.V. for $161.5 million in cash.  Bredero Price is a
multinational company that provides pipe coating for both onshore and
offshore markets.

Effective April 1, 1993, Dresser acquired TK Valve & Manufacturing, Inc. from
Sooner Pipe & Supply Corporation, Tulsa, Oklahoma, for  approximately $143.5
million in cash.  TK Valve supplies ball valves for the oil and gas
production and transmission industry.

The purchase price exceeded the fair value of the net assets acquired by
$122.0 million for Bredero Price and $92.0 million for TK Valve.  Both
acquisitions were accounted for as purchases.  The resulting goodwill is
being amortized on a straight-line basis over 40 years.  The  Consolidated
Statement of Earnings includes the results of operations from the acquisition
dates.

On January 29, 1993 Baroid issued 17.7 million shares of its common stock,
equivalent to 7.1 million of Dresser's shares, in exchange for all of the
outstanding common stock of Sub Sea International Inc.  Sub Sea provides
diving services, engineering and remotely operated underwater vehicles to
inspect, construct, maintain and repair offshore drilling rigs and platforms,
underwater pipelines and other offshore oil and gas facilities.

The acquisition of Sub Sea was accounted for as a pooling of interests, and
the financial statements for periods prior to the Sub Sea merger have been
restated to reflect the financial position and results of operations of the
combined companies as if they had merged on November 1, 1992.

                                       40



<PAGE>

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


NOTE B - ACQUISITIONS AND DIVESTITURES (CONTINUED)

ACQUISITIONS (CONTINUED)

In 1993, Baroid acquired three small businesses and Wheatley acquired one
small business for cash totaling $32.5 million.  These acquisitions were
accounted for as purchases, and their results of operations are included in
the Consolidated Statement of Earnings from the acquisition dates.

DIVESTITURES

On January 28, 1994, the Company sold its 29.5% interest in Western Atlas
International, Inc. to a wholly-owned subsidiary of Litton Industries for
$558.0 million.  The Company recognized a gain of $275.7 million ($146.5
million net of tax) on the sale.

Following the Baroid merger (See Note A) and in accordance with an agreement
reached with the Antitrust Division of United States Department of Justice,
the Company sold its 64% interest in M-I Drilling Fluids Company to Smith
International, Inc. for $160.0 million in cash effective February 28, 1994.
The Company recognized a $2.6 million pre-tax gain on the sale.

In September 1994, the Company sold its 50% interest in IRI International
Corporation and recognized a pre-tax gain of $4.6 million.  Due to the sale,
the Company was able to recognize $17.5 million of tax benefits applicable to
previously unrecognized losses associated with IRI.

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):


<TABLE>
<CAPTION>
                                                        1995      1994      1993
                                                       ------   -------   -------
<S>                                                     <C>      <C>      <C>
Share of earnings of  unconsolidated affiliates
    Ingersoll-Dresser Pump Company                     $ 13.2   $  8.8    $ 17.1
    Western Atlas International, Inc. (See Note B)          -        -      39.2
    Bufete Industriale, S.A. de C.V.                     (5.2)     4.5       3.3
    Other affiliates                                      8.1     10.1      16.5
                                                        -----    -----     -----
                                                       $ 16.1   $ 23.4    $ 76.1
                                                        -----    -----     -----
                                                        -----    -----     -----
  Dividends received                                   $  7.4   $ 13.1    $ 13.5
                                                        -----    -----     -----
                                                        -----    -----     -----
  Advances received                                    $ 15.6   $ 15.5    $  9.7
                                                        -----    -----     -----
                                                        -----    -----     -----

</TABLE>

                                       41

<PAGE>


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



NOTE C - UNCONSOLIDATED AFFILIATED COMPANIES (CONTINUED)

<TABLE>
<CAPTION>
                                                OCTOBER 31,
                                           --------------------
                                               1995      1994
                                           ----------   -------
<S>                                         <C>          <C>

  Investments in and receivables from
    unconsolidated affiliates
      Ingersoll-Dresser Pump Company        $ 143.0    $ 155.1
      Other affiliates                         58.9       85.3
                                             ------     ------
                                            $ 201.9    $ 240.4
                                             ------     ------
                                             ------     ------
</TABLE>

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.  The 1993 pre-tax earnings includes $21.3 million from the
release of LIFO inventory valuation reserves related to inventory contributed
to the joint venture by the Company and sold by Ingersoll-Dresser Pump
Company to third parties.

In connection with the Ingersoll-Dresser Pump Company joint venture agreement
and a subsequent amendment, the Company granted to Ingersoll-Rand Company an
option to purchase 51% of the stock of Mono Group Limited for a price equal
to 51% of its book value, including unamortized goodwill, at the exercise
date. The option price will be the amount at January 31, 1995 or at the end
of the month during which Ingersoll-Rand gives notice of its intention to
exercise the option, whichever amount is lower.  The option will expire on
April 30, 1997. If the option to purchase is exercised by Ingersoll-Rand
Company, both Ingersoll-Rand and the Company have agreed to contribute their
respective Mono Group Limited shares to the Ingersoll-Dresser Pump Company as
a contribution of capital to the partnership.

Summarized financial information of Ingersoll-Dresser Pump Company is as
follows (in millions):

<TABLE>
<CAPTION>

                                                          OCTOBER 31,
                                                       ----------------
                                                        1995      1994
                                                       ------    ------
<S>                                                 <C>         <C>

    Current assets                                    $ 427.6   $ 354.4
    Noncurrent assets                                   145.5     180.9
                                                       ------    ------
    Total assets                                      $ 573.1   $ 535.3
                                                       ------    ------
                                                       ------    ------

    Current liabilities                               $ 174.6   $ 170.8
    Noncurrent liabilities                               45.4      47.2
    Partners' equity -
      Contributed capital and retained earnings         371.7     344.7
      Cumulative translation adjustment                 (18.6)    (27.4)
                                                       ------    ------
                                                        353.1     317.3
                                                       ------    ------
      Total liabilities and partners' equity          $ 573.1   $ 535.3
                                                       ------    ------
                                                       ------    ------

</TABLE>
                                        42
<PAGE>

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


NOTE C - UNCONSOLIDATED AFFILIATED COMPANIES (CONTINUED)


<TABLE>
<CAPTION>
                                   1995      1994      1993
                                 --------  -------   -------
<S>                              <C>       <C>       <C>
    Net sales                    $ 794.8   $ 752.2   $ 761.0
                                  ------    ------    ------
                                  ------    ------    ------
    Gross profit                 $ 191.2   $ 170.9   $ 159.1
                                  ------    ------    ------
                                  ------    ------    ------
    Net income                   $  27.0   $  30.3   $   3.3
                                  ------    ------    ------
                                  ------    ------    ------
</TABLE>


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 (See Note
L). As result of the sale, Kellogg's ownership interest fell below 20%.  In
the future, Kellogg will account 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, 1995, 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.

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 and significant noncash
investing and financing activities is as follows (in millions):

<TABLE>
<CAPTION>

                                             1995      1994      1993
                                           --------  -------   --------
<S>                                       <C>       <C>       <C>
    Cash payments for income taxes        $   82.6  $  210.3  $  116.7
                                           -------   -------   -------
                                           -------   -------   -------
    Cash payments for interest on debt    $   46.1  $   46.3  $   40.2
                                           -------   -------   -------
                                           -------   -------   -------
    Cash payments for interest on tax
      settlements                         $     .3  $    1.3  $   14.0
                                           -------   -------   -------
                                           -------   -------   -------
</TABLE>

The increase in cash payments for income taxes in 1994 is due to a $106.2
million payment for the gain on sale of the 29.5% interest in the Western
Atlas joint venture.


                                        43
<PAGE>


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


NOTE D - CASH FLOW DATA (CONTINUED)

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

<TABLE>
<CAPTION>

                                                   1995       1994          1993
                                                ---------   --------      -------
<S>                                             <C>         <C>          <C>
  (Increase) decrease in receivables            $ (71.2)    $(111.9)     $ (71.1)
  (Increase) decrease in inventories              (89.2)       15.3        (85.4)
  (Increase) decrease in deferred taxes and
    prepaid expenses                              (33.3)       84.6        (78.1)
  Increase (decrease) in accrued
    liabilities and accounts payable               95.0       (81.9)        20.1
  Increase (decrease) in contract advances         56.3       (24.4)        55.1
  Increase (decrease) in income taxes payable      15.1       (11.7)       (33.5)
                                                 ------      ------       ------
                                                $ (27.3)    $(130.0)    $ (192.9)
                                                 ------      ------       ------
                                                 ------      ------       ------
</TABLE>


NOTE E - INCOME TAXES

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

<TABLE>
<CAPTION>
                                            1995       1994      1993
                                          -------     ------    ------
<S>                                       <C>        <C>       <C>
  Domestic                                $ 177.8    $ 494.2   $ 135.7
  Foreign                                   164.4      125.2     141.0
                                           ------     ------    ------
    Total earnings before income taxes    $ 342.2    $ 619.4   $ 276.7
                                           ------     ------    ------
                                           ------     ------    ------
</TABLE>



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

<TABLE>
<CAPTION>

                                            1995       1994      1993
                                          -------     ------    ------
  <S>                                     <C>         <C>        <C>
  Current
    U.S. Federal                          $  52.1    $ 129.5   $  49.6
    State                                     3.7        5.1       3.2
    Foreign                                  48.3       60.1      59.9
                                           ------     ------    ------
                                            104.1      194.7     112.7
                                           ------     ------    ------

  Deferred
    U.S. Federal                             (5.7)      33.7     (19.1)
    Foreign                                  10.9       (3.7)      5.2
                                           ------     ------    ------
                                              5.2       30.0     (13.9)
                                           ------     ------    ------
       Total income tax provision        $  109.3    $ 224.7   $  98.8
                                            ------    ------    ------
                                            ------    ------    ------

</TABLE>
                                        44
<PAGE>



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



NOTE E - INCOME TAXES (CONTINUED)

Since the Company plans to continue to finance foreign operations and
expansion through reinvestment of undistributed earnings of its foreign
subsidiaries (approximately $680.0 million at October 31, 1995), no
provisions are generally made for U.S. or additional foreign taxes on such
earnings.  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 (35% for 1995, 35% for 1994 and 34.8% for 1993) to the effective
provision for income taxes reflected in the Consolidated Statements of
Earnings (in millions):

<TABLE>
<CAPTION>

                                                       1995      1994      1993
                                                      -------   -------   ------
   <S>                                                <C>      <C>        <C>
    Provision for income taxes at statutory rates     $ 119.8  $ 216.8    $ 96.3
    Minority interest's share of domestic
      partnership earnings                                  -     (3.8)     (7.9)
    Enacted tax rate change                                 -        -      (8.7)
    Net tax benefits of foreign dividends
      and foreign tax credit carryforwards               (5.3)    (4.2)     (9.0)
    Foreign losses not benefited                          5.6     10.4       8.8
    Foreign taxes in excess of/less than U.S.
      rate on foreign earnings                           (6.9)     (.5)      3.0
    Additional taxes for repatriation of foreign
      earnings                                              -        -       4.1
    Nondeductible goodwill amortization                   7.1      6.9       6.3
    Nondeductible merger expenses                           -        -       7.9
    Book/tax basis differential of acquired property        -      4.7         -
    Alternative minimum tax credit                          -     (7.3)        -
    Book/tax basis differences on Western Atlas
      divestiture                                           -     27.5         -
    Change in valuation allowance
      attributable to:
        IRI divestiture                                     -    (17.5)        -
        Baroid domestic operations                          -    (17.3)        -
        Utilization of foreign net operating losses      (6.3)       -         -
        Utilization of capital losses                    (2.8)       -         -
    State and local income taxes, net of
      U.S. Federal income tax benefit                     2.4      3.3        2.1
    Other                                                (4.3)     5.7       (4.1)
                                                        ------   ------      -----
      Provision for income taxes                      $ 109.3  $ 224.7     $ 98.8
                                                        ------   ------      -----
                                                        ------   ------      -----

</TABLE>

Deferred income tax benefits result from the recognition of temporary
differences.  Temporary differences are differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements
that will result in differences between income for tax purposes and income
for financial statement purposes in future years.


                                        45
<PAGE>



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



NOTE E - INCOME TAXES (CONTINUED)

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

<TABLE>
<CAPTION>

                                                         1995    1994      1993
                                                      -------    -----    ------
<S>                                                   <C>       <C>      <C>
  Postretirement benefits                             $   4.6   $  9.8   $   5.8
  Reserve for litigation settlements                     (2.3)    22.4     (24.3)
  Restructuring costs                                     (.7)    12.3       6.1
  Enacted tax rate change                                   -        -      (8.7)
  Bad debt                                                 .2     20.2        .7
  Decrease in valuation allowance on prior year's
    temporary differences                                (9.1)   (34.8)        -
  Other items including warranty, insurance and
    similar accruals                                     12.5       .1       6.5
                                                      -------    -----    ------
      Total deferred taxes                           $    5.2   $ 30.0   $ (13.9)
                                                      -------    -----    ------
                                                      -------    -----    ------

</TABLE>

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

<TABLE>
<CAPTION>
                                                                1995       1994
                                                              ------    -------
  <S>                                                         <C>       <C>
  Deferred tax asset:
    Postretirement and postemployment benefits                $ 205.4   $ 201.0
    Long-term contracts                                          26.0       9.6
    Warranty reserves                                             9.6      10.4
    Inventory                                                    24.0      22.5
    Insurance reserves                                           34.7      29.3
    Deferred compensation                                        19.0      16.9
    Net operating loss carryforwards                             14.7      22.6
    Other items                                                   3.6      37.2
    Valuation allowance                                         (12.8)    (21.9)
                                                              -------    ------
      Total deferred tax asset                                  324.2     327.6
                                                              -------    ------
  Deferred tax liability:
    Depreciation and amortization                               (43.5)    (55.5)
    Other items                                                  (6.9)     (4.0)
                                                              -------    ------
      Total deferred tax liability                              (50.4)    (59.5)
                                                              -------    ------
  Net deferred tax asset                                      $ 273.8   $ 268.1
                                                              -------    ------
                                                              -------    ------
</TABLE>


At October 31, 1995, the Company had foreign operating loss carryforwards of
approximately $60.0 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 entity.  Approximately
$30.0 million of these losses will carryforward indefinitely while the
remaining amounts expire at various dates from 1996 to 2003.

The net change of $9.1 million in 1995 in the valuation allowance for
deferred tax assets relates to reductions in the valuation allowance for
foreign loss and capital loss carryforwards.

                                       46
<PAGE>




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


NOTE F - SHORT-TERM DEBT


Short-term debt at October 31, 1995 consists of $59.0 million of U.S.
commercial paper at interest rates of 5.8% and $70.3 million of foreign bank
loans including amounts drawn against overdraft facilities.  The foreign bank
loans are mostly in foreign currencies and are at negotiated interest rates.

The Company had short-term committed U.S. bank lines of credit totaling
$125.0 million as of October 31, 1995.  Such lines provide for borrowings at
negotiated interest rates for a high quality industrial company.  As of
October 31, 1995, $59.0 million of the lines were used to backup commercial
paper.  The lines of credit may be terminated at the option of the banks or
the Company.


As of October 31, 1995, 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, 1995, the amount unused and available under these arrangements
aggregated $165.8 million.

NOTE G - LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                OCTOBER 31,
                                            ---------------
                                             1995      1994
                                            ------    ------
<S>                                        <C>     <C>

  Notes, 6.25%, due 2000                   $ 300.0  $  300.0
  Senior notes, 8%, due 2003                 149.2     149.1
  Other loan agreements                       12.4      15.0
                                            ------    ------
                                             461.6     464.1
    Less portion due within one year           2.3       3.5
                                            ------    ------
                                          $  459.3   $ 460.6
                                            ------    ------
                                            ------    ------
</TABLE>

The Company's 6.25% Notes due 2000 were sold in June 1993 via a public
offering. The interest is payable semi-annually on May 15 and November 15.

The Company's 8% Senior Notes are notes which Baroid sold in April 1993 via a
public offering.  The Company completed a consent solicitation in 1994
whereby the holders of the Notes consented to certain amendments to the
Indenture which conformed various restrictive covenants to the Company's
6.25% Notes. In return, Dresser has fully and unconditionally guaranteed
payment of principal and interest on the Notes.

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.

                                        47
<PAGE>



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


NOTE H - EMPLOYEE INCENTIVE PLANS (CONTINUED)

STOCK COMPENSATION PLAN (CONTINUED)

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 1,323,246
shares granted in 1993, 1994 and 1995 and still outstanding include prices
that increase on the annual anniversary dates of grants.

Changes in outstanding options during the three years ended October 31, 1995
and options exercisable at October 31, 1995 are as follows:

<TABLE>


<S>                                                          <C>
    Outstanding at October 31, 1992                           1,991,918
      Adjustment for year-end change                             56,000
      Granted at $14.375 to $21.00                            1,692,850
      Exercised at $4.475 to $21.25                            (348,630)
      Canceled or expired                                      (106,373)
                                                              ---------
    Outstanding at October 31, 1993                           3,285,765
      Granted at $17.375 to $21.00                              662,263
      Exercised at $5.583 to $21.98                            (419,445)
      Canceled or expired                                      (475,631)
                                                              ---------
    Outstanding at October 31, 1994                           3,052,952
      Granted at $19.313 to $23.00                              474,737
      Exercised at $9.313 to $23.04                            (414,082)
      Canceled or expired                                       (29,470)
                                                              ---------
    Outstanding at October 31, 1995                           3,084,137
                                                              ---------
                                                              ---------
    Exercisable at October 31, 1995 at $9.125 to $25.17       1,911,518
                                                              ---------
                                                              ---------

</TABLE>

At October 31, 1995, a total of 8.0 million Dresser common shares were
reserved for granting of future options under the 1992 plan.

NOTE I - CAPITAL SHARES

Changes in issued common shares during the three years ended October 31, 1995
are as follows (in thousands):

<TABLE>

<S>                                                       <C>
  Shares at October 31, 1992                               180,810
    Issued under benefit and dividend reinvestment plans       152
                                                           -------
  Shares at October 31, 1993                               180,962
    Sold in a public offering by Wheatley                    2,100
    Issued under benefit and dividend reinvestment plans       986
                                                           -------
  Shares at October 31, 1994                               184,048
    Issued under benefit and dividend reinvestment plans       418
                                                           -------
  Shares at October 31, 1995                               184,466
                                                           -------
                                                           -------
</TABLE>
                                        48
<PAGE>



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


NOTE I - CAPITAL SHARES (CONTINUED)

Changes in common shares held in treasury during the three years ended
October 31, 1995 are as follows (in thousands):

<TABLE>

<S>                                                          <C>
  Treasury shares at October 31, 1992                            876
      Issued under benefit and dividend reinvestment plans      (686)
                                                              ------
  Treasury shares at October 31, 1993                            190
    Exchanged under benefit and dividend reinvestment plans        6
                                                              ------
  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
                                                              ------
                                                              ------
</TABLE>

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 $.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.
                                        49
<PAGE>



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



NOTE J - COMMITMENTS AND CONTINGENCIES

GENERAL LITIGATION

The Company continues to be involved in a lawsuit brought by parties who
purchased a construction equipment dealership from a third party in 1988.  In
April 1994, the plaintiffs were awarded judgment of $6.5 million for
compensatory damages and $4.0 million for punitive damages.  The Company
appealed the case.  Appeal brief was filed in March 1995 and oral arguments
were heard in October 1995.  A decision is not expected for several months.

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.
The case has been appealed.

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 69,000 pending claims, including approximately
36,000 new claims filed in fiscal 1995, 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.  The Company
believes that the increase in pending asbestos claims from October 31, 1994,
reflects more an acceleration of filings rather than an absolute increase in
the number of claims for which the Company may be responsible.  The Company
believes that this acceleration was caused by the perception that federal or
state tort reform initiatives pending during 1995 could adversely affect the
remedies of potential plaintiffs.  Of the pending claims, approximately
17,000 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 80% 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 that amount
to 84%.  Since 1976, the Company has tried, settled or summarily disposed of
approximately 16,000 such claims for a gross cost of $36.7 million, 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 approximately 52,000 non-refractory product claims, approximately half
are covered, in whole or in part, by a separate agreement with insurance
carriers.  Because the agreement for these claims is governed by exposure
dates, the covered amount varies by individual claim, but currently averages
69% of fees, expenses and indemnity payments.  Since 1976, the Company has
tried, settled or summarily disposed of approximately 9,000 such claims for a
gross cost of $6.1 million, including

                                        50
<PAGE>



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


NOTE J - COMMITMENTS AND CONTINGENCIES (CONTINUED)

ASBESTOSIS LITIGATION (CONTINUED)

legal fees, expenses and indemnity payments.  Management has no reason to
believe the carriers will not be able to meet their obligations under the
agreement.

Regarding the claims that are not currently covered by any agreement with
carriers, the Company has tried, settled or summarily disposed of
approximately 16,000 such claims since 1976 for a total cost of $4.8 million,
including fees, expense and indemnity payments.  A lawsuit has been filed
against a separate group of insurers seeking to recover the defense and
indemnity costs for these claims, and the Company is in negotiation with
those carriers.  There is no guarantee that the amount covered by insurance
under any future agreements will be similar to prior agreements.  The Company
has provided for the estimated exposure of the open non-refractory claims
based upon recent per claim settlement costs.

In 1993, the Company sustained an adverse judgment in cases filed by
employees of Ingalls Shipyard in Pascagoula, Mississippi.  The Company's
share of damages awarded in six cases amounted to $3.8 million plus 10% add
on for punitive damages.  In August 1995, an agreement was reached with
plaintiff's counsel to settle these claims, along with 16,542 additional
claims for which the Company is responsible.  Individual plaintiffs have the
right to opt out of the settlement.  The Company expects that the settlement
will be implemented in its entirety, and has fully provided for its
liability.  This settlement, in conjunction with additional settlements
subsequent to October 31, 1995, also fully provided for, should reduce the
number of pending claims against the Company by about 25%.

In December 1994, a jury in Baltimore, Maryland returned a verdict on the
liability portion of a consolidated asbestos case and awarded compensatory
damages for five trial plaintiffs, including two against the Company's former
Refractory Division.  On February 9, 1995, the jury returned its verdict in
the punitive damages portion of the case, applying a 200% punitive damage
multiplier.

During 1995, the Baltimore Court overturned the jury's verdict both as to any
Company responsibility for the asbestos illnesses of the two individual trial
plaintiffs and the punitive damage multiplier for the two plaintiffs and
future claimants.  Plaintiffs have appealed the Court's ruling.  The Court
did sustain the jury's findings that the Company was negligent in using
asbestos in its products and in addition is responsible for any injury caused
by exposure to those products on a strict liability basis.  These findings,
which the Company has appealed, would apply to additional claimants, each of
whom would have to establish in a future mini-trial both the existence of an
asbestos-related disease and that the Company's products were a substantial
cause of that disease.

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.
                                        51

<PAGE>



                  DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FIANCIAL 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.  The Company believes that Quantum will make various
post trial motions and probably will appeal the judgement.  The Company has
not recognized any income related to the jury verdict.

ENVIRONMENTAL MATTERS

The Company has been preliminarily identified as a potentially responsible
party in 89 Superfund sites.  Primary responsibility for nine of these sites
was assumed by Harbison-Walker Refractories Company (formerly INDRESCO Inc.).
The Company has entered into settlements at 26 sites at a total cost of $1.3
million.  Upon evaluation of the information concerning various sites, the
Company determined that it is not a responsible party and has no liability at
29 sites.  Based on the Company's historical experience with similar claims
and management's understanding of the facts and circumstances, management
believes that the resolution of liability at the 25 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 $103.4 million in
1995, $99.0 million in 1994 and $100.4 million in 1993.  At October 31, 1995,
the aggregate minimum annual obligations under noncancelable leases were:
$54.3 million for 1996; $33.8 million for 1997; $23.8 million for 1998; $18.6
million for 1999; $10.5 million for 2000; and $43.8 million for all
subsequent years. The lease obligations related primarily to general and
sales office space and warehouses.
                                       52
<PAGE>



                  DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FIANCIAL 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 1993, the Company adopted amendments to certain postretirement medical
benefit plans, primarily the non-union plans.  The major amendments
eliminated benefits for younger employees and established limits on the
Company's future cost increases.  These amendments resulted in a curtailment
gain of $12.8 million in 1993 and unrecognized gains of $208.3 million which
are being recognized as a reduction in benefit expense on a straight-line
basis over periods of 12 years to 18 years.

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

<TABLE>
<CAPTION>
                                                       1995      1994      1993
                                                     -------     ------    ------
  <S>                                               <C>        <C>       <C>
  Service cost for benefits earned                  $   4.2    $   4.5   $   7.6
  Interest cost on accumulated postretirement
      benefit obligation                               29.7       27.1      40.4
  Net amortization of unrecognized gain               (18.5)     (15.7)     (9.8)
                                                     ------     ------    ------
  Net periodic postretirement
    benefit expense                                 $  15.4    $  15.9   $  38.2
                                                     ------     ------    ------
                                                     ------     ------    ------

Actual benefits paid                                $  25.3    $  24.8   $  22.1
                                                     ------     ------    ------
                                                     ------     ------    ------
</TABLE>


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

<TABLE>
<CAPTION>

                                                                 1995    1994
                                                              -------   -------
<S>                                                           <C>       <C>
  Actuarial present value of accumulated postretirement
    benefit obligation:
      Retirees                                                $  268.9   $ 268.9
      Fully eligible active plan participants                     47.4      43.8
      Other active plan participants                              69.1      62.1
                                                               -------   -------
        Total accumulated postretirement benefit obligation      385.4     374.8
      Unamortized gains from plan amendments                     173.6     188.7
      Unrecognized net gain                                       75.0      80.5
                                                               -------   -------
  Accrued postretirement benefit liability                    $  634.0  $  644.0
                                                               -------   -------
                                                               -------   -------

</TABLE>


Accrued compensation and benefits on the Consolidated Balance Sheet include the
current portion of the accrued liability.

                                        53
<PAGE>



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



NOTE K - POSTRETIREMENT BENEFITS (CONTINUED)

HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)

Assumptions used to calculate the Accumulated Postretirement Benefit
Obligation as of October 31 were as follows:

<TABLE>
<CAPTION>
                                     1995      1994      1993
                                     -----    ------    ------
<S>                                  <C>      <C>       <C>
  Discount rate                      8.25%    8.25%      7.0%

  Health care trend rate (weighted based on participant count) -
    1995 - 10.0% for 1995 declining to 5.5% in 2002 and level thereafter.
    1994 - 12.0% for 1994 declining to 5.5% in 2003 and level thereafter.
    1993 - 13.0% for 1993 declining to 5.5% in 2003 and level thereafter.


</TABLE>

A one percentage-point increase in the assumed health care cost trend rate
for each year would increase the net postretirement benefit expense for 1995
by approximately $3.6 million and would increase the accumulated
postretirement benefit obligation as of October 31, 1995 by approximately
$31.6 million.

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, 1995.

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.

During 1995, the Company amended the primary defined benefit pension plans
for its U.S. salaried employees and froze the benefits as of May 31, 1995.
In addition, effective June 1, 1995, the Company implemented a new 401(K)
retirement savings plan that replaced the previous defined contribution
401(K) plan for most of its U.S. salaried employees.  Under the new plan, the
Company makes an equalizing contribution for employees covered by the frozen
defined benefit pension plan  designed to provide employees with benefits
comparable to what they would have had if the plan had not been frozen.  The
May 31, 1995 change to the defined benefit pension plan resulted in a gain of
$35.0 million that is being recognized over 10 years as an offset to the
expenses of the equalizer contribution under the new retirement savings plan.

                                        54
<PAGE>



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


NOTE K - POSTRETIREMENT BENEFITS (CONTINUED)

PENSION PLANS AND RETIREMENT SAVINGS PLANS (CONTINUED)

Expense for all defined contribution plans was $24.4 million, $18.6 million
and $17.5 million in 1995, 1994 and 1993, respectively.  The 1995 expense
increase resulted from the new retirement savings plan and is essentially
offset by lower defined benefit plan expenses.

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



<TABLE>
<CAPTION>

                                                       1995      1994     1993
                                                      -------   ------   -------
<S>                                                  <C>       <C>      <C>
Service cost for benefits earned                     $   17.4  $  22.8  $  19.4
Interest cost on projected benefit obligation            41.0     38.2     36.9
Actual return on plan assets                            (44.6)   (42.0)   (36.0)
Net amortization and deferral                            (1.2)     2.5       .7
                                                      -------   ------   ------
Net pension expense                                  $   12.6  $  21.5  $  21.0
                                                      -------   ------   ------
                                                      -------   ------   ------

Cash contributions                                   $   23.5  $  28.8  $  38.7
                                                      -------   ------   ------
                                                      -------   ------   ------

</TABLE>


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

Plans with Assets Exceeding Projected Benefits

<TABLE>
<CAPTION>
                                                               1995         1994
                                                              -------     -------
<S>                                                          <C>         <C>
    Actuarial present value of benefit obligations:
      Vested benefit obligation                              $  238.6    $  136.2
                                                              -------     -------
                                                              -------     -------
      Accumulated benefit obligation                         $  243.3    $  138.1
                                                              -------     -------
                                                              -------     -------
      Projected benefit obligation                           $  262.9    $  158.3
    Plan assets at fair value                                   348.6       236.9
                                                              -------     -------
    Plan assets over projected benefit obligation                85.7        78.6
    Unrecognized net loss (gain)                                 13.3       (10.3)
    Prior service cost not yet recognized in net periodic
       pension expense                                          (29.5)        2.1
    Unrecognized transition net asset                           (19.6)      (20.3)
                                                              -------     -------
    Prepaid pension costs                                    $   49.9    $   50.1
                                                              -------     -------
                                                              -------     -------
</TABLE>
                                        55
<PAGE>



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


NOTE K - POSTRETIREMENT BENEFITS (CONTINUED)

PENSION PLANS AND RETIREMENT SAVINGS PLANS (CONTINUED)


Plans with Projected Benefits Exceeding Assets

<TABLE>
<CAPTION>


                                                                  1995       1994
                                                                -------      ------
      <S>                                                      <C>          <C>
      Actuarial present value of benefit obligations:
         Vested benefit obligation                             $  206.9     $ 271.4
                                                                -------      ------
                                                                -------      ------
         Accumulated benefit obligation                        $  222.5     $ 288.2
                                                                -------      ------
                                                                -------      ------
         Projected benefit obligation                          $  253.5     $ 371.6
      Plan assets at fair value                                   181.8       230.8
                                                                -------      ------
      Projected benefit obligation over plan assets               (71.7)     (140.8)
      Unrecognized net loss                                          .8        48.6
      Prior service cost not yet recognized in net periodic
          pension expense                                          20.8        26.7
      Unrecognized transition obligation                            8.9         6.9
      Adjustment required to recognize minimum liability          (28.3)      (34.5)
                                                                -------      ------
      Pension liability                                        $  (69.5)    $ (93.1)
                                                                -------      ------
                                                                -------      ------
</TABLE>

On the Consolidated Balance Sheet, "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,
1995 and 1994, the Company had recorded additional liabilities of $28.3
million and $34.5 million, intangible assets of $16.3 million and $21.6
million, and adjustments to shareholders' equity, (net of income taxes and
minority interest) of $7.0 million and $7.6 million, respectively.

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

<TABLE>
<CAPTION>

    U.S. Plans                                      1995              1994
                                                ------------      ------------
  <S>                                           <C>                <C>
  Discount rate                                     8.25%            8.25%
  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%      3.5% to 5.5%

    Foreign Plans

  <S>                                           <C>                <C>
  Discount rate                                 7.0% to 12.5%      6.5% to 12.5%
  Expected long-term rate of return on assets   7.0% to 13.5%      6.0% to 13.5%
  Rate of increase in compensation levels       4.0% to 11.0%      4.5% to 11.0%

</TABLE>
                                        56
<PAGE>



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


NOTE L - SUPPLEMENTARY INFORMATION AND SPECIAL CHARGES

Depreciation of property, plant and equipment charged to earnings amounted to
$174.4 million in 1995, $187.0 million in 1994 and $185.9 million in 1993.

Amortization of intangibles was $32.2 million in 1995, $29.3 million in 1994 and
$25.9 million in 1993 and is included in selling, engineering, administrative
and general expenses.

Research and development costs charged to earnings were $96.5 million in 1995,
$102.5 million in 1994 and $98.5 million in 1993.

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

<TABLE>
<CAPTION>
                                            1995       1994        1993
                                          -------     -------     ------
<S>                                       <C>         <C>         <C>
Gain on business disposals                $    -      $  7.1     $    -
Retiree medical benefit plan changes           -           -       12.8
Gains on sales of assets                     7.5         3.1        4.8
Foreign exchange gain (loss)                (1.2)      (13.6)       1.7
                                           -----       -----      -----
                                          $  6.3      $ (3.4)    $ 19.3
                                           -----       -----      -----
                                           -----       -----      -----

</TABLE>


Special charges consist of the following (in millions):

<TABLE>
<CAPTION>
                                                         1994     1993
                                                       ------    -------
<S>                                                    <C>      <C>
Parker & Parsley - insurance
   recovery/litigation settlement                      $ 18.4   $ (65.0)
Merger expenses                                         (10.7)    (31.0)
Drill bit pricing litigation                             (9.5)        -
Restructuring charges                                    (6.2)    (13.2)
Retiree medical plan curtailment gain                       -       4.1
                                                        ------   ------
                                                       $ (8.0)  $(105.1)
                                                        ------   ------
                                                        ------   ------

</TABLE>

In 1993, the Company recorded expenses of $65.0 million to cover settlement,
legal fees and expenses of the Parker & Parsley and related litigation. In
April 1994, the Company entered into settlement agreements with certain
insurance carriers relating to the $65.0 million Parker & Parsley settlement.
The Company had previously received approximately $13.5 million from other
insurance carriers in connection with the litigation.  Pursuant to the
settlement agreements, the Company received approximately $33.8 million,
which, after legal fees and a provision for other potential litigation
settlements, resulted in a gain of $18.4 million.

In 1994, the Company recorded expenses associated with the Wheatley merger
(See Note A) totaling $10.7 million, including professional fees and costs
related to eliminating duplicate facilities.

The Company paid $9.5 million in February 1994 for the settlement of drill
bit pricing litigation.

In 1994, the Company accrued expenses of $6.2 million primarily for personnel
reduction costs associated with restructuring its Valve and Controls
operations. Of the costs, $2.5 million was paid in 1994 and $3.7 million was
paid in 1995.
                                        57


<PAGE>



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


NOTE L - SUPPLEMENTARY INFORMATION AND SPECIAL CHARGES (CONTINUED)

The 1993 Special Charges included expenses associated with the Baroid merger
(See Note A) totaling $31.0 million for employee severance costs, foreign
taxes associated with change of ownership, professional fees, write-off of
debt issuance cost and advisory fees paid to Baroid officers.  Baroid's Board
of Directors concluded that the advisory fee of $3.0 million was warranted in
view of the time and service required of certain officers to negotiate and
bring about the Merger and the fact that, as a result of their time and
service, no investment banker was needed or hired by Baroid to represent
Baroid in negotiating the Merger.  Such amounts were determined to be
reasonable in relation to avoided costs of investment banking fees.

The 1993 Special Charges also included expenses of $13.2 million for
restructuring and termination costs partially offset by a $4.1 million gain
from curtailment of retiree medical benefits.  The curtailments resulted from
employee terminations associated with plant closings.  These special charges
reduced segment operating profit by $6.9 million and the remaining $2.2
million was reflected as nonsegment expenses.

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 approximately $4.8
million lower than fair value at October 31, 1995 and approximately $33.4
million higher than fair value at October 31, 1994.  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 $394.0 million and $248.0
million, notional amounts, of forward exchange contracts outstanding at
October 31, 1995 and 1994, respectively.  The notional amounts are used to
express the volume of these transactions and do not represent exposure to
loss.  At October 31, 1995, 83% of these contracts were in European
currencies, 15% in Japanese Yen and 2% in other 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, 1995 because they are either with high quality financial
institutions or widely dispersed across many customers and financial
institutions.
                                        58
<PAGE>



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


NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA

To provide more informative segment data, the Company has adopted a new
segment reporting structure for 1995.  The segment titles have been changed
for clarity, and sub-segment categories have been expanded.  The Energy Valve
Division, which was included in the Oilfield Services Segment, is now
included in the Energy Equipment Segment in the Flow Control Products
category.  Prior years have been reclassified to conform to the new reporting
structure.

The industry segments are as follows:

      PETROLEUM PRODUCTS AND SERVICES (FORMERLY OILFIELD SERVICES)

      This segment provides services and project management for oil and
      gas exploration, drilling, completion, production and transmission
      activities. Principal products and services of the Drilling and
      Production Operations 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.  Kellogg Oil & Gas Services is 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
      oil and natural gas 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 (FORMERLY HYDROCARBON PROCESSING INDUSTRY)

      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 specialities.  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, 1995, 1994 and 1993 is included on pages 24 through
29 of Management's Discussion and Analysis included elsewhere in this report
and is an integral part of this Note to Consolidated Financial Statements.

                                        59
<PAGE>



                  DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FIANCIAL 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, and the Notes are
fully guaranteed by Dresser (See Note G).  Because the Notes remain
outstanding, summarized financial information of Baroid is presented as
follows (in millions):


<TABLE>
<CAPTION>

                                             OCTOBER 31,
                                        ---------------------
    BAROID CORPORATION                    1995         1994
                                        --------     --------
<S>                                     <C>          <C>
Current assets                          $  680.0     $  468.9
Noncurrent assets                          532.8        362.0
                                         --------     -------
    Total                               $1,212.8     $  830.9
                                         --------     -------
                                         --------     -------


Current liabilities                        345.1     $  229.5
  Noncurrent liabilities                   408.2        281.7
  Shareholders' equity                     459.5        319.7
                                         --------     -------
    Total                               $1,212.8     $  830.9
                                         --------     -------
                                         --------     -------


                                         1995            1994         1993
                                        -------       --------       -------
<S>                                     <C>          <C>            <C>

Revenues                                $1,323.3     $  923.2      $   832.3
                                         -------      -------         ------
                                         -------      -------         ------
Gross earnings                          $  358.8     $  245.8      $   206.3
                                         -------      -------         ------
                                         -------      -------         ------
Earnings from operations                $  133.1     $   78.2      $    56.9
Other income (deductions)                  (18.5)       (17.8)         (40.1)*
                                         -------      -------         ------
Earnings before taxes
  and minority interests                   114.6         60.4           16.8
Income taxes                               (37.8)       (19.8)         (13.8)
Minority interest                             .4          1.9           (1.5)
                                         -------      -------         -------
Net earnings                            $   77.2         42.5        $   1.5
                                         -------      -------         -------
                                         -------      -------         -------
</TABLE>

*Includes $30 million for merger expenses.


                                        60


<PAGE>


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



NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED)


<TABLE>
<CAPTION>
                                                                   QUARTERS ENDED
                                                --------------------------------------------
IN MILLIONS, EXCEPT PER SHARE DATA              JANUARY 31   APRIL 30    JULY 31  OCTOBER 31
                                                ----------   --------    -------- ----------
<S>                                             <C>          <C>         <C>       <C>
  1995
    Net revenues                                  $1,300.3   $1,261.2   $1,437.4  $1,629.8
    Gross earnings                                   281.5      295.7      322.1     371.5
                                                   -------     ------    -------   -------
                                                   -------     ------    -------   -------
    Earnings before accounting change             $   38.6    $  45.1   $   45.0  $   84.4
    Cumulative effect of accounting change           (16.0)         -          -         -
                                                   -------     ------    -------   -------
        Net earnings                              $   22.6    $  45.1   $   45.0  $   84.4
                                                   -------     ------    -------   -------
                                                   -------     ------    -------   -------

    Earnings per common share
      Earnings before accounting change           $    .21    $   .25   $    .25  $    .46
      Cumulative effect of accounting change          (.09)         -          -         -
                                                   -------     ------    -------   -------
        Net earnings                              $    .12    $   .25   $    .25  $    .46
                                                   -------     ------    -------   -------
                                                   -------     ------    -------   -------
  1994
   Net revenues                                   $1,396.2   $1,324.5   $1,193.4  $1,416.6
   Gross earnings                                    335.8      314.6      278.0     330.6
      Net earnings                                   195.3(1)    54.6       37.9      74.0(2)
                                                   -------     ------    -------   -------
                                                   -------     ------    -------   -------
   Earnings per common share                      $   1.08   $    .29    $   .21  $    .40
                                                   -------     ------    -------   -------
                                                   -------     ------    -------   -------


</TABLE>

(1) Includes gain on sale of interest in Western Atlas joint venture of $146.5
    million.
(2) Includes gain on sale of interest in IRI International of $22.1 million and
    Wheatley merger expense of $7.9 million.

                                          61

<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 -
               10.24.


                                       62

<PAGE>

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

                                  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) and
33-52989 (filed April 6, 1994), 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.


                                       63

<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 26, 1996.

                                        DRESSER INDUSTRIES, INC.


                                        By:  /s/ George H. Juetten
                                             ---------------------
                                             George H. Juetten,
                                             Vice President - 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 26, 1996.

SIGNATURETITLE


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

/s/ George H. Juetten                        Vice President - Controller
-----------------------------------          (Principal Accounting  Officer)
(George H. Juetten)

*B. D. ST. JOHN                              Vice Chairman of the Board and
-----------------------------------          Director (Principal Financial
(B. D. St. John, Director)                   Officer)

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

*LAWRENCE S. EAGLEBURGER                     *JOHN J. MURPHY
-----------------------------------          -----------------------------------
(Lawrence S. Eagleburger, Director)          (John J. Murphy, Chairman of the
                                             Board and Director)

*SYLVIA A. EARLE, PH.D.                      *LIONEL H. OLMER
-----------------------------------          -----------------------------------
(Sylvia A. Earle, Ph.D., Director)           (Lionel H. Olmer, Director)

*RAWLES FULGHAM                              *JAY A. PRECOURT
-----------------------------------          -----------------------------------
(Rawles Fulgham, Director)                   (Jay A. Precourt, 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 SCHEDULES
                           YEAR ENDED OCTOBER 31, 1995
                            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                                      31

     Consolidated Statements of Earnings--
       Years ended October 31, 1995, 1994, and 1993                         32

     Consolidated Balance Sheets--
       October 31, 1995 and 1994                                            33

     Consolidated Statements of Shareholders' Equity--
       Years ended October 31, 1995, 1994 and 1993                          35

     Consolidated Statements of Cash Flows--
       Years ended October 31, 1995, 1994, and 1993                         36

     Notes to Consolidated Financial Statements                             37

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.

Summarized financial statement information for Ingersoll-Dresser Pump Company
(49% owned) is presented in Note C to Consolidated Financial Statements included
in Item 8.


                                       F-2

<PAGE>

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

                              (MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>

                                                                                       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, 1995
   For doubtful receivables classified as current assets        $   30.4      $     3.7       $     .7       $   10.2(B)    $   24.6
                                                                --------      ---------       --------       --------       --------
                                                                --------      ---------       --------       --------       --------
   For deferred tax asset valuation
     allowance classified as noncurrent assets                  $   21.9      $       -       $      -       $    6.9       $   15.0
                                                                --------      ---------       --------       --------       --------
                                                                --------      ---------       --------       --------       --------

Year ended October 31, 1994
   For doubtful receivables classified as current assets        $   33.3      $     6.4      $     1.1       $   10.4(B)    $   30.4
                                                                --------      ---------       --------       --------       --------
                                                                --------      ---------       --------       --------       --------
   For deferred tax asset valuation
     allowance classified as noncurrent assets                  $   54.3      $       -      $       -       $   32.4       $   21.9
                                                                --------      ---------       --------       --------       --------
                                                                --------      ---------       --------       --------       --------

Year ended October 31, 1993
   For doubtful receivables classified as current assets        $   27.0      $     7.5      $     5.2(A)    $    6.4(B)    $   33.3
                                                                --------      ---------       --------       --------       --------
                                                                --------      ---------       --------       --------       --------
   For deferred tax asset valuation
     allowance classified as noncurrent assets                  $   42.9      $    11.4      $       -       $      -       $   54.3
                                                                --------      ---------       --------       --------       --------
                                                                --------      ---------       --------       --------       --------
</TABLE>


Notes:
 (A) Primarily reclassification from other accrued liabilities, and addition of
     accounts due to acquisition.
 (B) Receivable write-offs and reclassifications, net of recoveries.


                                      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(a) to
             Registrant's Form 10-K for the year ended October 31, 1991).

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

     4.1     Rights Agreement dated August 16, 1990, between Registrant and
             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).

    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-K for the year ended October 31, 1992).

    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).

----------------
* Filed Herewith

<PAGE>

                            INDEX TO EXHIBITS (CONT.)

 EXHIBIT                           DESCRIPTION
 -------                           -----------

    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.

    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.

   *10.8     ERISA Compensation Limit Benefit Plan for Dresser Industries, Inc.,
             as amended and restated effective June 1, 1995.

   *10.9     Supplemental Executive Retirement Plan of Dresser Industries, Inc.,
             as amended and restated effective June 1, 1995.

    10.10    Dresser Industries, Inc., Performance Stock Unit Plan.
             (Incorporated by reference to Exhibit 10(l) to Registrant's Form
             10-K for the year ended October 31, 1985).

    10.11    Dresser Industries, Inc. Deferred Compensation Plan for Non-
             employee Directors, as amended.  (Incorporated by reference for
             Exhibit 10(n) to Registrant's Form 10-K/A for the year ended
             October 31, 1992).

    10.12    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).

----------------
* Filed Herewith

<PAGE>


                            INDEX TO EXHIBITS (CONT.)

  EXHIBIT                          DESCRIPTION
  -------                          -----------

    10.13    Dresser Industries, Inc. 1989 Director Retirement Plan, as amended
             by restatement effective July 15, 1993.  (Incorporated by reference
             to  Exhibit 10.16 to Registrant's Form 10-K for the year ended
             October 31, 1993).

    10.14    Form of Election for Deferral of Awards pursuant to the Dresser
             Industries, Inc. 1989 Director Retirement Plan.  (Incorporated by
             reference to  Exhibit 10.17 to Registrant's Form 10-K for the year
             ended October 31, 1993).

   *10.15    The M. W. Kellogg Company Retirement Plan, as amended and
             restated effective January 1, 1989.

    10.16    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).

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

    10.18    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).

    10.19    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).

----------------
* Filed Herewith

<PAGE>

                            INDEX TO EXHIBITS (CONT.)

  EXHIBIT                          DESCRIPTION
  -------                          -----------

    10.20    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).

    10.21    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).

    10.22    The M. W. Kellogg Company Executive Benefits Program.
             (Incorporated by reference to  Exhibit 10.26 to Registrant's Form
             10-K for the year ended October 31, 1994).

    10.23    The 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).

   *10.24    Dresser Industries, Inc. Retirement Savings Plan - A, as adopted
             effective June 1, 1995.

      *21    Subsidiaries of Registrant at October 31, 1995.

      *23    Consent of Price Waterhouse LLP.

      *24    Powers of Attorney.

      *27    Financial Data Schedule.

----------------
* Filed Herewith