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                               ENERGY INDUSTRIES
 
            NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 Equipment Under Operating Leases and Held for Lease
 
  Energy Industries leases certain equipment to customers under agreements that
contain an option to purchase the equipment at any time. The option amount is
computed based on the original purchase price, less payments received, plus
interest and insurance during the period from the inception of the lease to the
date the option is exercised. The lease payments are generally computed to pay-
out the original purchase price plus interest over approximately 36 months.
Leases with noncancelable lease terms greater than 18 months are considered
sales-type leases because by the end of the original lease term, the option
price is expected to be lower than the equipment's fair market value. Equipment
leased under agreements with noncancelable lease terms of less than 18 months
and those which do not include a purchase option are accounted for as operating
leases and included in the rental fleet in property and equipment. Rental
equipment is depreciated over its estimated useful life.
 
 Concentrations of Credit Risk
 
  Energy Industries sells, leases, and rents gas compressors to customers in
the oil and gas industry. Energy Industries generally does not require
collateral. However, cash prepayments and security deposits are required for
accounts with indicated credit risks. Energy Industries also bills for progress
payments from time to time on large long-term construction projects. Energy
Industries maintains reserves for potential losses, and credit losses have been
within management's expectations.
 
  At June 30, 1995 and September 30, 1994, Energy Industries had cash deposits
concentrated primarily in one bank.
 
 Revenue
 
  Revenues are recognized as services are performed, or as parts or equipment
deliveries are made. In some cases, revenue is recognized on large compressor
equipment construction when the project is completed, but before the equipment
is actually shipped. This practice occurs when a customer agrees to take
delivery and pay for the equipment, but is not yet ready to take possession of
the equipment. Energy Industries provides a limited warranty on certain
equipment and services. The warranty period varies depending on the equipment
sold or service performed. A liability for performance under warranty
obligations is accrued based upon the nature of the warranty and historical
experience.
 
  Revenues are recognized on rental contracts as rental equipment is provided.
Most rental contracts have an initial contract term of six to twelve months and
then continue on a month-to-month basis.
 
 Income Taxes
   
  Energy Industries is included in the Company's consolidated U.S. federal
income tax return; however, income tax effects are reflected on a separate
company basis for financial reporting purposes. Energy Industries's method of
accounting for income taxes recognizes deferred tax liabilities and assets
based on the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement carrying amounts and the tax basis of assets and
liabilities using currently enacted tax rates.     
 
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