-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G0Dbm4MPISJGyXt3enhcJMV0Ozf2IrnKwQosWGi5uTCTrRf3gx3ERI4HIVXnbCCo G5V/7Am/19lguxxX6rTwhg== 0000030099-96-000006.txt : 19960319 0000030099-96-000006.hdr.sgml : 19960319 ACCESSION NUMBER: 0000030099-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960318 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DRESSER INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000030099 STANDARD INDUSTRIAL CLASSIFICATION: PUMPS & PUMPING EQUIPMENT [3561] IRS NUMBER: 750813641 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04003 FILM NUMBER: 96535793 BUSINESS ADDRESS: STREET 1: 2001 ROSS AVE CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2147406000 MAIL ADDRESS: STREET 1: P O BOX 718 CITY: DALLAS STATE: TX ZIP: 75221 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the quarterly period ended January 31, 1996. [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-4003 DRESSER INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware C 75-0813641 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) P. O. Box 718 2001 Ross 75221 (P. O. Box) Dallas, Texas 75201 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code - 214-740-6000 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 29, 1996 Common Stock, par value $.25 181,602,020 INDEX Page Number Part I. Financial Information Management's Representation 3 Condensed Consolidated Statements of Earnings for the three months ended January 31, 1996 and 1995 4 Condensed Consolidated Balance Sheets as of January 31, 1996 and October 31, 1995 5 Condensed Consolidated Statements of Cash Flows for the three months ended January 31, 1996 and 1995 6 Notes to Condensed Consolidated Financial Statements 7-11 Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16 Part II. Other Information 17 Signature 17 Exhibit Index Exhibit 27 Financial Data Schedule MANAGEMENT'S REPRESENTATION The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, the notes to consolidated financial statements and management's discussion and analysis included in the Company's 1995 Annual Report on Form 10-K. In the opinion of the Company, all adjustments have been included that were necessary to present fairly the financial position of Dresser Industries, Inc. and subsidiaries as of January 31, 1996 and October 31, 1995, the results of operations for the three months ended January 31, 1996 and 1995, and cash flows for the three months ended January 31, 1996 and 1995. These adjustments consisted of normal recurring adjustments. The results of operations for such interim periods do not necessarily indicate the results for the full year. DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In Millions Except per Share Data)
Three Months Ended January 31, 1996 1995 (Unaudited) Revenues $1,462.9 $ 1,300.3 Cost of sales and services (1,142.5) (1,018.8) Gross earnings 320.4 281.5 Selling, engineering, administrative and general expenses (237.2) (217.4) Other income (deductions) Interest expense, net (10.0) (4.2) Other, net (.3) - (10.3) (4.2) Earnings before items below 72.9 59.9 Income taxes (24.8) (19.8) Minority interest (1.5) (1.5) Earnings before accounting change 46.6 38.6 Cumulative effect of accounting change, net of tax - (16.0) Net earnings $ 46.6 $ 22.6 Earnings per common share Earnings before accounting change $ .26 $ .21 Cumulative effect of accounting change - (.09) Net earnings $ .26 $ .12 Cash dividends per common share $ .17 $ .17 Average common shares outstanding 181.8 183.8 See accompanying Notes to Condensed Consolidated Financial Statements.
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Millions)
January 31, October 31, ASSETS 1996 1995 Current Assets (Unaudited) Cash and cash equivalents $ 163.3 $ 248.7 Notes and accounts receivable, net 936.6 963.7 Inventories, net 825.1 809.4 Deferred income taxes 86.3 84.8 Other current assets 87.6 94.6 Total Current Assets 2,098.9 2,201.2 Investments in and receivables from unconsolidated affiliates 184.7 201.9 Goodwill, net 848.1 845.2 Deferred income taxes 189.5 188.9 Other assets 152.3 143.1 Property, plant and equipment - at cost 2,618.2 2,572.9 Less accumulated depreciation 1,468.5 1,445.8 Net Property 1,149.7 1,127.1 Total Assets $4,623.2 $4,707.4 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term debt and current portion of long-term debt $ 166.2 $ 131.6 Accounts payable 510.7 520.4 Contract advances 366.4 324.4 Accrued compensation and benefits 199.6 237.7 Income taxes 109.7 113.2 Other current liabilities 343.2 385.1 Total Current Liabilities 1,695.8 1,712.4 Employee retirement and postemployment benefit obligations 686.9 689.2 Long-term debt 457.9 459.3 Deferred compensation, insurance reserves and other liabilities 111.3 110.7 Minority interest 64.7 79.0 Shareholders' Equity Common shares 46.1 46.1 Capital in excess of par value 450.0 451.6 Retained earnings 1,270.1 1,285.4 Cumulative translation adjustments (97.6) (76.7) Pension liability adjustment (7.0) (7.0) 1,661.6 1,699.4 Less treasury shares, at cost 55.0 42.6 Total Shareholders' Equity 1,606.6 1,656.8 Total Liabilities and Shareholders' Equity $4,623.2 $4,707.4 See accompanying Notes to Condensed Consolidated Financial Statements.
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Millions)
Three Months Ended January 31, 1996 1995 (Unaudited) Cash flows from operating activities: Net earnings $ 46.6 $ 22.6 Adjustments to reconcile net earnings to cash flow: Depreciation and amortization 54.4 52.2 Cumulative effect of accounting change, net of tax - 16.0 Equity earnings from unconsolidated affiliates (10.4) (3.4) Minority interest provision 1.5 1.5 Changes in working capital (56.3) (6.7) Changes in non-current assets and liabilities - (10.0) Net cash provided by operating activities 35.8 72.2 Cash flows from investing activities: Capital expenditures (84.2) (40.5) Business acquisitions (14.7) (34.0) Net cash used by investing activities (98.9) (74.5) Cash flows from financing activities: Dividends paid (30.8) (31.3) Purchases of common shares for Treasury (17.3) - Increase(decrease) in short-term debt 34.4 (6.4) Decrease(increase) in long-term debt (6.4) 1.7 Net cash used by financing activities (20.1) (36.0) Effect of translation adjustments on cash (2.2) (2.8) Net decrease in cash and cash equivalents (85.4) (41.1) Cash and cash equivalents, beginning of period 248.7 515.0 Cash and cash equivalents, end of period $ 163.3 $ 473.9 See accompanying Notes to Condensed Consolidated Financial Statements. DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS January 31, 1996 (Unaudited)
NOTE A - INFORMATION BY INDUSTRY SEGMENT (IN MILLIONS)
Three Months Ended January 31, 1996 1995 Revenues Petroleum Products and Services Drilling and Production Operations $ 353.4 $ 301.6 Kellogg Oil and Gas Services 112.8 56.4 466.2 358.0 Engineering Services M. W. Kellogg Operations 392.0 318.4 Energy Equipment Compression and Pumping 275.5 309.3 Measurement 147.7 144.9 Flow Control 145.8 100.3 Power Systems 64.5 71.5 633.5 626.0 Eliminations (28.8) (2.1) Total revenues $1,462.9 $1,300.3 Operating profit Petroleum Products and Services Drilling and Production Operations $ 50.3 $ 31.3 Kellogg Oil and Gas Services 2.6 (.2) 52.9 31.1 Engineering Services 19.1 11.4 Energy Equipment Compression and Pumping 14.1 11.3 Measurement 9.4 17.9 Flow Control 12.4 7.7 Power Systems 3.2 9.6 39.1 46.5 Total segment operating profit 111.1 89.0 Amortization of acquisition intangibles (8.4) (7.0) General corporate expenses (19.8) (17.9) Interest expense, net (10.0) (4.2) Earnings before taxes, minority interest and accounting change $ 72.9 $ 59.9
NOTE B - 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 these benefits. SFAS 112 requires accrual of the cost of these benefits currently. The Company had previously accrued the liability for salary continuation but had accounted for the other benefits as benefits were paid. The Condensed Consolidated Statement of Earnings for the three months ended January 31, 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. NOTE C - UNCONSOLIDATED AFFILIATED COMPANIES The Company has several investments in less than majority owned affiliates. A summary of the impact of these investments on the condensed consolidated financial statements follows (in millions):
Three Months Ended January 31, 1996 1995 Share of earnings of unconsolidated affiliates Ingersoll-Dresser Pump (49% owned) $ 9.2 $ 4.1 Other affiliates 1.2 (.7) $ 10.4 $ 3.4 January 31, October 31, 1996 1995 Investments in and receivables from unconsolidated affiliates Ingersoll-Dresser Pump (49% owned) $ 131.4 $ 143.0 Other affiliates 53.3 58.9 $ 184.7 $ 201.9
NOTE D - INVENTORIES The determination of inventory values and cost of sales under the LIFO method for interim financial results is based on management's estimates of expected year-end inventories. Inventories include the following (in millions):
January 31, October 31, 1996 1995 Finished products and work in process $ 636.8 $ 617.7 Raw materials and supplies 188.3 191.7 $ 825.1 $ 809.4
NOTE E - DIVIDENDS On November 16, 1995, the Company declared a quarterly dividend of $.17 per share of common stock payable on December 20, 1995 to shareholders of record on December 1, 1995. On January 19, 1996, the Company declared a quarterly dividend of $.17 per share of common stock payable on March 20, 1996 to shareholders of record on March 1, 1996. NOTE F - LITIGATION AND CONTINGENCIES The Company is involved in certain legal actions and claims arising in the ordinary course of business. See Note J - Commitments and Contingencies - in the Company's 1995 Annual Report on Form 10-K for a complete discussion of these matters. A discussion of significant changes subsequent to October 31, 1995 follows. 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"), seeking $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 Quantum's claim was barred by the statute of limitations and that Quantum is liable for damages for breach of contract, damages for theft of trade secrets and Kellogg's legal fees. The Court entered a judgment on the verdict on February 5, 1996 which awarded Kellogg $13.7 million. The Company believes that Quantum will file a motion for a new trial and probably will appeal the judgement. The Company has not recognized any income from the judgment. Asbestosis Litigation The Company has approximately 68,000 pending claims at January 31, 1996, with approximately 4,000 new claims filed and approximately 5,000 claims settled during the first quarter. Subsequent to January 31, 1996, the Company entered into a settlement agreement covering approximately 4,400 claims in New York. The Company had previously provided for the settlement amounts. 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. NOTE G - BAROID FINANCIAL INFORMATION Dresser Industries, Inc. (Dresser) merged with Baroid Corporation (Baroid) on January 21, 1994. Baroid has ceased filing periodic reports with the Securities and Exchange Commission. Baroid's 8% Senior Notes remain outstanding and are fully guaranteed by Dresser. Since the Notes remain outstanding, summarized financial information of Baroid is presented as follows (in millions):
January 31, October 31, Baroid Corporation 1996 1995 Current assets $ 686.1 $ 680.0 Noncurrent assets 540.7 532.8 Total $1,226.8 $1,212.8 Current liabilities $ 321.1 $ 345.1 Noncurrent liabilities 427.4 408.2 Shareholders' equity 478.3 459.5 Total $1,226.8 $1,212.8 Three Months Ended January 31, 1996 1995 Revenues $ 357.9 $ 288.7 Gross earnings $ 105.0 $ 87.0 Earnings from operations $ 46.8 $ 24.1 Other income (deductions) (7.1) (3.5) Earnings before taxes and minority interests 39.7 20.6 Income taxes (13.5) (6.8) Minority interest. (.2) - Net earnings $ 26.0 $ 13.8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULT OF OPERATIONS Three Months Ended January 31, 1996 Compared to 1995 In the first quarter of 1996, net earnings and earnings per share were $46.6 million and $.26 compared to $38.6 million and $.21 in 1995 before the effect of an accounting change for postemployment benefits. First quarter revenues of $1,462.9 million were up $162.6 million or 12.5%, and gross earnings of $320.4 million were up $38.9 million or 14% from the 1995 quarter. These increases reflect strong performances by the Drilling and Production Operations and the M. W. Kellogg Operations. See the Industry Segment Analysis for a detailed discussion. Selling, engineering, administrative and general expense were $237.2 million in the current quarter versus $217.4 million a year ago, an increase of 9%. The increase was mostly due to the expenses of operations acquired in later months of 1995 and to increased expenses associated with increased business activity. General Corporate expenses of $19.8 million (see Note A) were $1.9 million higher than a year ago primarily due to higher foreign exchange losses - mainly from the currency devaluation in Venezuela. The quarter's net interest expense of $10.0 million was up $5.8 million from last year due to $4.0 million lower interest income on a lower level of short-term investments and due to $1.8 million higher interest expense mostly attributable to U.S. commercial paper borrowings this year. The estimated income tax rate for 1996 is currently 34% compared to an estimated 1995 rate of 33% a year ago and the final 1995 tax rate of 32%. The higher 1996 rate reflects a lower projected utilization of foreign tax credits in 1996 than in 1995. INDUSTRY SEGMENT ANALYSIS See Note A to Condensed Consolidated Financial Statements for details of financial information by Industry Segment. Changes in Segment Revenue and Operating Profit for the three months ended January 31, 1996 versus 1995 are summarized as follows (in millions):
Increase(Decrease) Operating Revenue Profit Drilling and Production Operations $ 51.8 $ 19.0 Kellogg Oil and Gas Services 56.4 2.8 Total Petroleum Products and Services 108.2 21.8 Engineering Services M. W. Kellogg 73.6 7.7 Compression and Pumping (33.8) 2.8 Measurement 2.8 (8.5) Flow Control 45.5 4.7 Power Systems (7.0) (6.4) Total Energy Equipment 7.5 (7.4) Eliminations (26.7) - Total Operating Units $162.6 $ 22.1
Petroleum Products and Services Segment Drilling and Production Operations Revenues of $353.4 million and operating profit of $50.3 million were higher than the prior year quarter by 17% and 61%, respectively. Strong activity levels offshore and in international markets helped offset rig count declines in the U.S. and Canada. Sperry-Sun's revenues increased 23% as it benefitted from high utilization rates and the impact of approximately $80 million in new capacity investment during the past two years. The most significant revenue increases by Sperry-Sun were in Latin America, the Middle East, continental Europe, the U.K. and Canada. Baroid Drilling Fluids had a 22% revenue increase reflecting higher volumes in Alaska, Canada, the North Sea, Venezuela and Nigeria. Security DBS also contributed to the improvement in revenues and operating profit. Operating margin of 14.2% was well ahead of the 10.4% margin achieved in the first quarter last year, and the overall margin for fiscal 1996 is expected to be higher than the 11.25% for fiscal 1995. Kellogg Oil and Gas Services Kellogg Oil and Gas Services improved from depressed levels in the prior year generating revenues of $112.8 million, double last year's level, and an operating profit of $2.6 million versus a prior year loss. Bredero Price's revenues and earnings more than doubled compared to the prior year due to new projects in Colombia and the U.S. and the effect of new work for Statoil in Norway. Sub Sea's revenues were 52% higher than last year reflecting the impact of acquisitions made during 1995. Wellstream, a flexible pipe manufacturer acquired in May 1995, also contributed to the improvement. Engineering Services Segment M. W. Kellogg Operations Revenues of $392.0 million and operating profit of $19.1 million rose 23% and 68%, respectively, from last year's quarter. The gains reflected higher activity on a major gas project in Uzbekistan, liquid natural gas projects in the Far East and an ammonia/fertilizer project in the U.S., combined with the earnings associated with the substantial completion of major contracts. Prior year operating profit was adversely affected by the equity losses of a Mexican affiliate. Energy Equipment Segment Compression and Pumping Dresser-Rand's revenues of $251.9 were down 13% from last year reflecting a seasonally soft first quarter combined with the impact of a major project in Venezuela that was completed in the first quarter of 1995. An increase in the Company's share of Ingersoll-Dresser Pump earnings more than offset the lower quarter for Dresser-Rand. Measurement Wayne Division's revenues were essentially the same as last year, but earnings were down versus last year due to lower margins caused by pricing pressures. Instrument Division had higher revenues on higher volume but earnings were level with the prior year. Flow Control Energy Valve's revenues and earnings were higher than a year ago primarily from the inclusion of Grove S.p.A. in the current year. Grove, acquired in June 1995, contributed $43.4 million of revenues and $3.7 million of earnings. An improved performance at the Valve and Controls Division also contributed to the overall higher revenues and earnings. Power Systems Waukesha had lower revenues and earnings than the prior year resulting from decreased volumes of original equipment shipments. Waukesha's backlog was down 10% from a year ago. Roots had a small operating profit but both revenues and earnings were below last year's levels. However, Roots' backlog is up 75% from a year ago. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION The Company's overall financial condition remained strong at January 31, 1996. Total debt was 28% of total capitalization as of January 31, 1996 compared to 26% as of October 31, 1995. The Cash Flow Statement shows that cash and cash equivalents decreased $85 million during the quarter. Major expenditures included $84 million for capital expenditures, $31 million for dividend payments, $17 million for common share repurchases and $15 million for business acquisitions. In addition, $56 million of cash was used for working capital primarily to fund increases in inventories and decreases in payables and accrued liabilities. Domestic commercial paper borrowings and foreign bank loans increased $34 million during the quarter making total debt $617 million as of January 31, 1996. Shareholders' equity decreased $57 million during the quarter as charges for dividend declarations (two declared, one paid), share repurchases and translation adjustments were more than earnings. On February 29, 1996, the company filed a Form S-3 with Securities and Exchange Commission for the shelf registration of $400 million of debt securities. An additional $100 million of debt securities remains from a similar filing in June 1993. The timing of sale of the debt securities will depend on the Company's capital requirements, market conditions and cost of other funds. LEGAL AND ENVIRONMENTAL MATTERS The Company is currently involved in a number of lawsuits, and has also been identified as a potentially responsible party in a number of Superfund sites. Note F to Condensed Consolidated Financial Statements includes significant changes subsequent to October 31, 1995. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit 27 Financial Data Schedule SIGNATURE Pursuant to the requirements 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. DRESSER INDUSTRIES, INC. By: /s/ George H. Juetten George H. Juetten Vice President - Controller Dated: March 15, 1996 EXHIBIT INDEX Exhibit Description 27 Financial Data Schedule. (Pursuant to Item 601(c)(iv) of Regulation S-K, the Financial Data Schedule is not deemed to be "filed" for purposes of Section 11 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended.) EX-27 2
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