-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pmnlcrjNbTNjUGEROccJfOmbYDpGbOSad2Nr45CK1hE6JewGozdxnsXAhLRDxvR3 9PlyvdZGPKh28MzWx0Qd9g== 0000030099-94-000057.txt : 19941012 0000030099-94-000057.hdr.sgml : 19941012 ACCESSION NUMBER: 0000030099-94-000057 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940731 FILED AS OF DATE: 19940914 DATE AS OF CHANGE: 19941011 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DRESSER INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000030099 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94549074 BUSINESS ADDRESS: STREET 1: 1600 PACIFIC STREET 2: P O BOX 718 CITY: DALLAS STATE: TX ZIP: 75221 BUSINESS PHONE: 2147406000 MAIL ADDRESS: STREET 1: P.O. BOX 718 CITY: DALLAS STATE: TX ZIP: 75221 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the quarterly period ended July 31, 1994. [ ] 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 . 1 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 August 31, 1994 Common Stock, par value $.25 183,794,107 2 INDEX Page Number Part I. Financial Information Management's Representation 3 Consolidated Condensed Statements of Earnings for the three months and the nine months ended July 31, 1994 and 1993 4 Consolidated Condensed Balance Sheets as of July 31, 1994 and October 31, 1993 5 Consolidated Condensed Statements of Cash Flows for the nine months ended July 31, 1994 and 1993 6 Notes to Consolidated Condensed Financial Statements 7-14 Management's Discussion and Analysis of Financial Conditions and Results of Operations 15-19 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 20 Signature 20 Exhibit Index Exhibit 27 Financial Data Schedule 3 MANAGEMENT'S REPRESENTATION The consolidated condensed 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 consolidated condensed financial statements should be read in conjunction with (1) the consolidated financial statements, the notes to consolidated financial statements and management's discussion and analysis included in the Company's 1993 Annual Report on Form 10-K and (2) the supplemental consolidated financial statements, the notes to supplemental consolidated financial statements and management's discussion and analysis included in the Company's Amendment No. 1 on Form 8-K/A dated March 10, 1994 to Current Report on Form 8-K dated January 21, 1994. 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 July 31, 1994 and October 31, 1993, the results of operations for the three months and the nine months ended July 31, 1994 and 1993, and cash flows for the nine months ended July 31, 1994 and 1993. 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. 4 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (In Millions Except Per Share Data) Three Months Ended July 31, 1994 1993 1994 1993 (Unaudited) Sales and service revenues.... $1,145.6 $1,276.9 $3,781.6 $3,647.4 Cost of sales and services... (888.9) (953.4) (2,914.4) (2,760.3) Gross earnings.............. 256.7 323.5 867.2 887.1 Earnings from major unconsolidated joint ventures.................... 0.4 13.0 6.8 52.3 Selling, engineering, administrative and general expenses.................... (206.8) (243.1) (662.0) (717.6) Special credits (charges)..... .- 4.1 8.9 (68.1) Earnings from operations.... 50.3 97.5 220.9 153.7 Other income (deductions) Interest expense, net....... (2.2) (8.8) (9.3) (19.0) Gain on sale of interest in Western Atlas........... .- .- 275.7 .- Gain on Mexican affiliates public offering............ .- .- 11.0 .- Retiree medical benefit plan curtailment................ .- .- .- 12.8 Other, net.................. 2.3 2.5 11.2 14.6 Total...................... 0.1 (6.3) 288.6 8.4 Earnings before income taxes and minority interest...... 50.4 91.2 509.5 162.1 Income taxes................... (14.0) (34.8) (211.1) (62.1) Minority interest.............. (1.2) (12.4) (17.1) (23.8) Net earnings................ $ 35.2 $ 44.0 $ 281.3 $ 76.2 Earnings per common share...... $ .20 $ .25 $ 1.61 $.44 Cash dividends per common share....................... $ .17 $ .15 $ .49 $ .45 Average common shares outstanding................. 175.4 174.4 175.2 174.2 5 See accompanying Notes to Consolidated Condensed Financial Statements. 6 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In Millions) July 31, 1994 October 31, (Unaudited) 1993 ASSETS Current Assets Cash and cash equivalents............. $ 383.6 $272.8 Notes and accounts receivable, net.... 761.6 854.8 Inventories, net...................... 620.4 728.3 Deferred income taxes................. 98.3 100.9 Other current assets.................. 36.7 46.5 Total Current Assets................ 1,900.6 2,003.3 Notes receivable from Western Atlas..... 200.0 .- Investments in and receivables from major unconsolidated joint ventures... 150.5 414.4 Intangibles, net........................ 602.6 610.7 Deferred income taxes................... 201.1 210.9 Other assets............................ 183.4 189.7 Property, plant and equipment - at cost 2,124.9 2,340.3 Accumulated depreciation and amortization 1,265.6 1,398.6 Total Properties - Net.............. 859.3 941.7 Total Assets...................... $4,097.5 $4,370.7 LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities Short-term debt and current portion of long-term debt................... $ 43.2 $ 306.8 Accounts payable...................... 354.2 367.8 Advances from customers on contracts.. 264.6 288.3 Accrued compensation and benefits..... 214.9 234.9 Income taxes.......................... 142.1 102.3 Other current liabilities............. 358.2 399.2 Total Current Liabilities........... 1,377.2 1,699.3 Employee retirement benefit obligations 671.3 707.6 Long-term debt.......................... 459.9 486.7 Deferred compensation, insurance reserves and other liabilities........ 97.2 108.4 Minority interest....................... 69.2 154.9 Shareholders' Investment Common shares......................... 43.9 43.7 Capital in excess of par value........ 375.2 366.7 Retained earnings..................... 1,117.6 951.0 Cumulative translation adjustments.... (96.1) (130.2) Pension liability adjustment.......... (13.8) (13.8) 7 1,426.8 1,217.4 Less: Treasury shares, at cost....... 4.1 3.6 Total Shareholders' Investment...... 1,422.7 1,213.8 Total Liabilities and Shareholders' Investment........ $4,097.5 $4,370.7 See accompanying Notes to Consolidated Condensed Financial Statements. 8 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In Millions) Nine Months Ended July 31, 1994 1993 (Unaudited) Cash flows from operating activities: Net earnings........................... $ 281.3 $ 76.1 Adjustments to reconcile net earnings to cash flow: Gain on sale of interest in Western Atlas, net of tax....... (146.5) .- Retiree medical benefit plan changes.................... .- (12.8) Depreciation and amortization..... 159.0 154.8 Earnings from major unconsolidated joint ventures... (6.8) (51.9) Cash received from major unconsolidated joint ventures.................. 18.7 20.7 Minority interest in earnings..... 17.1 23.8 Cash advanced to minority partner (27.4) (24.5) Change in working capital*........ (89.8) (82.0) Change in non-current assets and liabilities* (13.7) (12.3) Net cash provided by operating activities........ 191.9 91.9 Cash flows from investing activities: Proceeds of sale of interest in Western Atlas....................... 358.0 .- Proceeds of sale of interest in M-I Drilling Fluids.............. 160.0 .- Income taxes paid on gain on sale of interest in Western Atlas........... (106.2) .- Business acquisitions less cash and cash equivalents acquired of $38.2....... .- (294.1) Capital expenditures.................. (118.8) (116.1) Net cash provided by (used by) investing activities.............. 293.0 (410.2) Cash flows from financing activities: Proceeds from issuance of 6.25% Notes .- 298.2 Proceeds from issuance of 8% Senior Notes .- 146.0 (Decrease) increase in short-term debt (248.1) 195.5 Redemption of debentures.............. .- (62.5) Decrease in other long-term debt...... (42.3) (128.5) Dividends paid........................ (84.9) (74.8) Net cash (used by) provided by financing activities........................ (375.3) 373.9 9 Effect of translation adjustments on cash 1.2 (6.2) Net increase in cash and cash equivalents 110.8 49.4 Cash and cash equivalents, beginning of period............................. 272.8 176.5 Cash and cash equivalents, end of period $ 383.6 $ 225.9 *Change is net of effect of businesses divested and purchased. See accompanying Notes to Consolidated Condensed Financial Statements. 10 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS July 31, 1994 (Unaudited) NOTE A - BASIS OF PRESENTATION On January 21, 1994, the Company merged with Baroid Corporation (Baroid). Dresser issued 0.4 share of its common stock for each share of outstanding Baroid common stock. The "Company" as used in these consolidated condensed financial statements refers to Dresser and its subsidiaries including Baroid. The merger has been accounted for as a pooling of interests. The 1994 financial statements and other financial information include Baroid from November 1, 1993. The 1993 financial statements and other financial information have been restated to include Baroid from November 1, 1992. In connection with the merger, the Antitrust Division of United States Department of Justice and the Company reached agreement that the Company would dispose of either its 64% general partnership interest in M-I Drilling Fluids Company (M-I) or its 100% Interest in Baroid Drilling Fluids Inc. by June 1, 1994. The Company completed the sale of its 64% interest in M-I to Smith International, Inc. for $160 million in cash effective February 28, 1994. The Company recognized a $3.0 million pre- tax gain on the sale. Baroid has ceased filing periodic reports with the Securities and Exchange Commission. Baroid's 8% Senior Notes remain outstanding, and the Notes are now fully guaranteed by Dresser (See Note D). Because the Notes remain outstanding, summarized financial information of Baroid is presented as follows (in millions): Baroid Corporation July 31, 1994 October 31, 1993 Current assets.............. 415.3 $ 388.4 Noncurrent assets........... 374.1 340.4 Total....................$ 789.4 $ 728.8 Current liabilities......... 309.7 $ 272.1 Noncurrent liabilities...... 179.7 186.5 Shareholders' investment.... 300.0 270.2 Total..................... 789.4 $ 728.8 Three Months Ended July 31, 1994 1993 1994 11 Revenues.................... $ 225.6$ 212.1 $ 662.6 $ 591.7 Gross earnings.............. $ 66.2$ 55.0 $ 182.9 $ 144.8 Earnings from operations.... $ 17.6$ 17.3 $ 56.0 $ 34.7 Other income (deductions)... (5.6) (4.0) (11.7) (5.6) Earnings before taxes and minority interests.... 12.0 13.3 44.3 29.1 Income taxes................ (3.6) (3.7) (15.5) (9.0) Minority interest........... (.6) (.5) .9 (1.0) Net earnings................ $ 7.8 $ 9.1 $ 29.7 $ 19.1 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS July 31, 1994 (Unaudited) Separate results of Baroid for the periods prior to the merger are shown in the 1993 summarized financial information above and in the following summary (in millions): Three Months Ended January 31, 1994 Revenues........................ $ 225.3 Gross earnings.................. $ 65.5 Earnings from operations........ $ 25.4 Other income (deductions)....... (1.9) Earnings before taxes and minority interests......... 23.5 Income taxes.................... (8.7) Minority interest............... 1.1 Net earnings.................... $ 15.9 12 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JULY 31, 1994 (UNAUDITED) NOTE B - MAJOR UNCONSOLIDATED JOINT VENTURES The Company's investment in and receivables from major unconsolidated joint ventures consists of the following (in millions): July 31, October 31, 1994 1993 Western Atlas International, Inc. $ .- $ 278.2 Ingersoll-Dresser Pump Company... 150.5 136.2 $ 150.5 $ 414.4 Summarized earnings statement information for major unconsolidated joint ventures is as follows (in millions): Three Months Ended July 31, 1994 1993 1994 1993 Ingersoll-Dresser Pump Company (49% owned) Net sales......... $ 190.4 $ 199.0 $ 572.5 $ 600.4 Gross profit...... $ 40.7 $ 45.2 $ 128.0 $ 127.6 Net income........ $ 2.2 $ 3.0 $ 21.5 $ (1.4) The Company's share of pre-tax earnings......... $ .4 $ 1.9 $ 6.8 $ 19.8 Western Atlas International, Inc. (29.5% owned until January 28, 1994) Net sales......... $ .- $ 263.6 $ .- $ 851.1 Gross profit.......$ .- $ 59.4 $ .- $ 188.8 Net income........ $ .- $ 22.1 $ .- $ 66.5 The Company's share of pre-tax earnings......... $ .- $ 11.1 $ .- $ 32.5 The Company's share of earnings for Ingersoll-Dresser Pump for nine months ended July 31, 1993 included $21.3 million of earnings related to the release of LIFO inventory reserves associated with inventories contributed to the joint venture by the Company and sold by Ingersoll-Dresser Pump to third parties. On January 28, 1994, the Company sold its 29.5% interest in 13 Western Atlas International, Inc. to a wholly-owned subsidiary of Litton Industries for $358 million in cash and $200 million in 7 1/2% notes due over seven years. The Company recognized a gain of $275.7 million, before taxes. 14 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JULY 31, 1994 (UNAUDITED) NOTE C- INVENTORIES The determination of inventory values and cost of sales under the LIFO method for interim financial results are based on management's estimates of expected year-end inventories. Inventories include the following (in millions): July 31, October 31, 1994 1993 Finished products and work in process........................ $ 488.5 $ 584.8 Raw materials and supplies....... 131.9 143.5 $ 620.4 $ 728.3 NOTE D - DEBT Short-term debt at July 31, 1994 consisted of $43.2 million of borrowings from U.S. and foreign banks. At October 31, 1993 short-term debt included $216.0 million of domestic commercial paper as well as $74.0 million of borrowings from U.S. and foreign banks. The commercial paper and certain bank borrowings have been repaid in 1994. The Company's long-term debt includes $150 million of 8% Senior Notes which Baroid sold in April, 1993 via a public offering. On February 17, 1994, the Company gave notice to the holders of the Notes of the holder's right to require the Company to purchase all or any portion of the holder's Notes for a cash purchase price equal to 101% of the principal amount plus accrued and unpaid interest. No holder exercised such option. On August 5, 1994, the Company completed a consent solicitation whereby the holders of the Notes consented to certain amendments to the Indenture which removed various restrictive covenants. In return, Dresser fully and unconditionally guaranteed payment of principal and interest on the Notes. Baroid entered into a three year reverse interest rate swap beginning May 7, 1993 and ending May 7, 1996. Under terms of the swap agreement, the Company receives a fixed interest payment of 4.9% and pays six-month LIBOR for the prior six months on $150 million. During the first year of the swap, the Company received interest of $1.1 million greater than it paid under the swap agreement. The effect of the reverse interest rate swap is to convert the first three years of the 8% Senior Notes from a fixed rate obligation to a floating rate 15 obligation (composed of a fixed payment of 3.1% plus a floating payment based on six-month LIBOR for the prior six months). If on the set date six-month LIBOR is less than 4.9%, the Company will pay an effective floating rate of less than 8.0% and conversely if six-month LIBOR is greater than 4.9%, the Company will pay an effective floating rate greater than 8.0%. On September 13, 1994, six-month LIBOR was approximately 5.5%. This same rate on the next set date (November 7, 1994) would result in a payment of approximately $.4 million for the six months then ended, which is in addition to the 8% due holders of the Notes. NOTE E - SPECIAL CREDITS AND CHARGES In April 1994, the Company entered into settlement agreements with the remaining insurance carriers relating to the $65 million settlement of the Parker & Parsley litigation. The Company had previously received approximately $13.5 million from other insurance carriers in connection with the litigation. Pursuant to the recent 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 which was recognized in the quarter ending April 30, 1994. Legal actions arising from the same facts in the Parker & Parsley litigation filed by Glyn Snell, et. al., were settled in June 1994, whereby the Company paid $7.5 million in 16 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JULY 31, 1994 (UNAUDITED) NOTE E - SPECIAL CREDITS AND CHARGES (CONTINUED) August 1994. Additional legal actions arising from the same facts in the Parker & Parsley litigation filed by working interest owners remain outstanding. Management believes that adequate provisions have been made for these remaining outstanding actions. In the first quarter of 1994, the Company recorded a special charge of $9.5 million for the settlement of litigation related to Drill Bit pricing. This charge and the Parker & Parsley settlement gain noted above resulted in a net special credit of $8.9 million for the nine months ended July 31, 1994. The 1993 special charges include $65.0 million in the nine months ended July 31, 1993, to cover settlement, legal fees and expenses related to the Parker & Parsley litigation, the Glyn Snell, et. al. litigation and the working interest owners litigation. In addition, the Company recorded $7.2 million of special charges in the nine months ended July 31, 1993 for employee termination costs associated with restructuring certain operations and $4.1 million of special credits in the three months and nine months ended July 31, 1993 from curtailment of retiree medical benefits resulting from employee termination associated with plant closings. NOTE F - DIVIDENDS On July 21, 1994, the Company declared a quarterly dividend of $.17 per share of common stock payable September 20, 1994 to shareholders of record on September 1, 1994. NOTE G - LITIGATION AND CONTINGENCIES Litigation In 1988, certain individuals purchased from a third party a construction equipment dealership which sold Dresser products. The Company was not a party to the transaction, except to the extent that it was a party to the Distributorship Agreement with the dealership. The dealership was purchased prior to the announcement by the Company of the intent to form the Komatsu Dresser joint venture. The plaintiffs sued the Company claiming that the Company failed to disclose to them its intent to enter into the joint venture and that the value of the dealership, which they subsequently sold at a loss, was impaired by the formation of the joint venture. In April, 17 1994, the jury returned a verdict awarding the plaintiffs compensatory damages of $6.5 million and punitive damages of $4.0 million. 18 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JULY 31, 1994 (UNAUDITED) NOTE G - LITIGATION AND CONTINGENCIES (CONTINUED) Litigation (Continued) The purchasers of the Company's former hand tool division sued the Company for fraud in connection with the October 1983 transaction alleging, among other things, that the Company knowingly failed to disclose certain alleged liabilities associated with the hand tool business. The plaintiffs previously had been awarded in arbitration a $1.3 million adjustment to the purchase price paid by them to acquire the division. In May, 1994, the jury returned a verdict awarding the plaintiffs $4 million in compensatory damages and $50 million in punitive damages. In both cases, the Company is preparing appropriate post-trial motions, and if relief is denied by the trial court, the Company intends to appeal. Based on a review of the current facts and circumstances and discussions with legal counsel, 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 operation. Environmental Matters The Company is identified as a potentially responsible party in 81 Superfund sites. Primary responsibility for nine of these sites was assumed by INDRESCO Inc. The Company has entered into agreements to settle the Bio-Ecology site for $.9 million and the Gulf Coast Vacuum site for $.4 million. The Bio- Ecology agreement is before the Court for approval. The Gulf Coast Vacuum administrative settlement is pending public notice and execution by the United States Environmental Protection Agency. At two of the remaining 70 sites, Operating Industries and PAB Oil and Chemical, the Company may be responsible for remediation costs currently estimated at between $.3 million and $1 million each. The Company previously has entered into settlements in respect of fourteen Superfund sites at a total cost of $.2 million. Based upon the Company's historical experience with similar claims and management's understanding of the facts and circumstances relating to the sites other than Bio-Ecology, Gulf Coast Vacuum, Operating Industries and PAB Oil and Chemical, management believes that the other situations will be resolved without material effect on the Company's 19 financial position or results of operations. 20 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JULY 31, 1994 (UNAUDITED) NOTE H - INFORMATION BY INDUSTRY SEGMENT (IN MILLIONS) Three Months Ended July 31, 1994 1993 1994 1993 Sales and service revenues* Oilfield Services.............$ 338.8$ 424.9 $1,156.6$1,159.9 Hydrocarbon Processing Industry Dresser-Rand................ 260.9 272.8 887.0 797.9 Other operations............ 281.0 277.2 843.0 818.8 541.9 550.0 1,730.0 1,616.7 Engineering Services.......... 266.0 303.3 897.7 882.4 Eliminations.................. (1.1) (1.3) (2.7) (11.6) Total sales and service revenues.................... $1,145.6$1,276.9 $3,781.6$3,647.4 Operating profit and earnings before taxes Oilfield Services Consolidated operations.....$ 23.5$ 35.9 $ 103.3$ 77.5 Western Atlas operations.... .- 11.1 .- 32.5 Special credits .- 0.6 .- 0.6 23.5 47.6 103.3 110.6 Hydrocarbon Processing Industry Dresser-Rand operations..... 4.1 17.9 33.4 45.4 Ingersoll-Dresser Pump operations................ 0.4 1.9 6.8 19.8 Other operations............ 33.0 31.9 93.7 78.6 Special credits (charges)... .- 3.4 .- (3.8) 37.5 55.1 133.9 140.0 Engineering Services Operations.................. 13.4 23.1 44.3 48.8 Gain on Mexican affiliate's public offering........... .- .- 11.0 .- 13.4 23.1 55.3 48.8 Total segment operating profit 74.4 125.8 292.5 299.4 General corporate expenses...... (14.7) (13.9) (45.6) (46.0) Other nonsegment expenses, net.. (7.1) (11.9) (15.7) (20.1) Special credits (charges)....... .- .- 8.9 (65.0) Gain on sale of interest in Western Atlas................. .- .- 275.7 .- Gain on sale of interest in M-I Drilling Fluids............... .- .- 3.0 .- Retiree medical benefit plan changes....................... .- .- .- 12.8 Interest expense, net........... (2.2) (8.8) (9.3) (19.0) Earnings before taxes.........$ 50.4$ 91.2 $ 509.5$ 162.1 * Amounts do not include the Company's share of revenues for the major unconsolidated joint ventures as follows: 21 Three Months Ended July 31, 1994 1993 1994 1993 Western Atlas (29.5%)........$ .-$ 77.6 $ .- $ 250.9 Ingersoll-Dresser Pump (49%). 93.2 97.5 280.5 294.2 $ 93.2$ 175.1 $ 280.5 $ 545.1 22 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JULY 31, 1994 (UNAUDITED) NOTE I - SUBSEQUENT EVENT On June 1, 1994, the Company and Wheatley TXT Corp. (Wheatley) signed an agreement to merge Wheatley into a wholly owned subsidiary of the Company in a tax free transaction. The merger became effective on August 5, 1994 following approval by Wheatley's shareholders and appropriate government agencies. As a result of the merger, 0.70 shares of Dresser common stock has been exchanged for each of Wheatley's approximately 12 million shares outstanding. The merger is being accounted for as a pooling of interests. Supplemental unaudited financial information assuming the merger had occurred on November 1, 1993 is as follows (in millions, except earnings per share): Three Months Ended Nine Months Ended July 31, July 31, 1994 1993 1994 1993 Revenues.................... $1,188.1 $1,296.0$3,893.7$3,703.3 Gross earnings.............. $ 271.5 $ 329.4$ 906.6$ 903.1 Earnings from operations.... $ 55.4 $ 99.8$ 234.5$ 159.7 Other income (deductions)... (0.6) (6.3) 286.0 8.3 Earnings before taxes and minority interests.... 54.8 93.5 520.5 168.0 Income taxes................ (15.7) (35.7) (215.7) (64.3) Minority interest........... (1.2) (12.4) (17.1) (23.8) Net earnings................ $ 37.9 $ 45.4$ 287.7$ 79.9 Earnings per share.......... .21$ .25 1.58 .44 July 31, 1994 Current assets.............. $1,972.2 Noncurrent assets........... 2,302.8 Total..................... $4 275.0 Current liabilities......... $1,397.5 Noncurrent liabilities...... 1,359.1 Shareholders' investment.... 1,518.4 Total..................... $4,275.0 The Company currently expects to record approximately $15 million of special charges in the fourth quarter of 1994 for expenses associated with the merger, including professionsl fees and costs related to eliminating duplicate facilities. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED July 31, 1994 Results of Operations - Three Months and Nine Months Ended July 31, 1994 Compared to 1993 Net earnings (after-tax) are summarized as follows: Three Months Ended July 31, 1994 1993 Amount Per Share Amount Per Share Earnings before special items 35.2 $ .20 $ 41.5 $ .24 Restructuring credits .- .- 2.5 .01 Net earnings $ 35.2 $ .20 $ 44.0 $ .25 Nine Months Ended July 31, 1994 1993 Amount Per Share Amount Per Share Earnings before special items $127.4 $ .73 $119.0 $.68 Parker & Parsley lawsuit recovery (settlement) 11.6 .06 (40.9) (.23) Drill Bit lawsuit settlement (6.0) (.03) .- .- Restructuring charges .- . - (1.9) (.01) Gain on sale of interest in Western Atlas 146.4 .84 .- .- Gain on sale of interest in M-I Drilling Fluids 1.9 .01 .- .- Net earnings $ 281.3 $ 1.61 $ 76.2 $ .44 Unusual Items In April 1994, the Company recognized a $18.4 million pre-tax gain from the settlement of a coverage dispute with certain insurance carriers regarding the 1993 Parker & Parsley litigation settlement on which the Company recorded pre-tax charges of $65.0 million in the nine months of 1993. In June 1994, the Company settled certain litigation arising from the same facts in the Parker & Parsley litigation and, in August 1994, made a $7.5 million payment which was charged to accrual liabilities. See Notes E and G to Consolidated Condensed Financial Statements. As explained in Note A to Consolidated Condensed Financial Statements, the Company sold its interest in M-I Drilling Fluids Company effective February 28, 1994 and recorded a pre- tax gain of $3.0 million. As explained in Note B to Consolidated Condensed Financial Statements, the Company sold its interest in Western Atlas International, Inc. in January 1994, and recognized a pre-tax gain of $275.7 million. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED July 31, 1994 Results of Operations - Three Months and Nine Months Ended July 31, 1994 Compared to 1993 (Continued) Operations Sales and service revenues for the current quarter of $1,145.6 million were down $131.3 million (10.3%) from the prior year quarter. The Oilfield Services Segment was down $86.1 million primarily due to $99.6 million of 1993 sales of M-I Drilling Fluids. Engineering Services Segment was down $37.3 million. Gross earnings and the gross earnings ratio were down $66.8 million and 2.9%, respectively, for the current quarter compared with the 1993 quarter. These decreases were also primarily due to the prior year sales of M-I Drilling Fluids. Sales and service revenues for the nine months of 1994 of $3,781.6 million were up $134.2 million (3.7%) from the prior year nine months. The Hydrocarbon Processing Segment contributed $113.3 million of the increase primarily from the Dresser-Rand operations which had higher sales of $89.1 million. Gross earnings and the gross earnings ratio were down $19.9 million and 1.4%, respectively, for the nine months. The decrease attributable to 1993 sales of M-I Drilling Fluids was partially offset by margins on higher sales of other operations. Earnings before special items for the third quarter were down $6.3 million versus the prior year, but up $8.4 million for the first nine months of 1994 compared to last year. Segment Operating Profit excluding the impact of Western Atlas was down $40.3 million for the third quarter compared with the 1993 quarter but was up $25.6 million for the nine months compared to the prior year nine months primarily due to a strong first quarter in 1994. Earnings from unconsolidated joint ventures were down $12.6 million for the three months and $45.5 million for the nine months. The Company has not recognized any earnings from Western Atlas operations in 1994, but had $11.1 million and $32.5 million of such earnings in the three months and nine months, respectively, of 1993. The 1993 nine month results also included $21.3 million of non-recurring earnings recognized in the first two quarters from the release of LIFO inventory reserves related to inventories contributed to Ingersoll-Dresser Pump Company and sold to third parties by Ingersoll-Dresser Pump. 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED July 31, 1994 Results of Operations - Three Months and Nine Months Ended July 31, 1994 Compared to 1993 (Continued) Selling, engineering, administrative and general expenses are lower in the three months and nine months of 1994 than in the 1993 periods. The decreases are primarily due to the sale of M-I Drilling Fluids. Net interest expense is lower in the 1994 periods than in 1993 primarily due to interest income on a higher level of investments from the proceeds of the sale of interests in M-I Drilling Fluids and Western Atlas. This more than offset the effect of higher interest rates on debt resulting from the issuance of $450 million of long term debt in 1993 which replaced lower rate short-term borrowings, as follows (in millions): Three Months Nine Months 1994 1993 1994 1993 Interest expense $ (11.2) $ (13.0) $ (34.8) $ (31.0) Interest income 9.0 4.2 25.5 12.0 $ (2.2) $ (8.8) $ (9.3) $ (19.0) The current year higher year-to-date effective tax rate (41.4% versus 38.3%) is attributable to a higher effective tax rate on the Company's gain on the sale of its interest in Western Atlas. The higher rate on the Western Atlas gain is attributable to tax on a lower tax basis in the Company's investment in Western Atlas. Absent the tax on the Western Atlas gain, the Company's year-to-date effective tax rate on continuing operations is approximately 35%. The lower tax rate for the three months ended July 31 is a result of the revision of the estimated tax rate for the full fiscal year. In prior years a similar revision did not occur until the fourth quarter. Segment Results See details of segment revenues and operating profit in Note H to Consolidated Condensed Financial Statements. Oilfield Services Consolidated Oilfield Services operations' revenues and operating profits for the current quarter were down $86.1 million and $12.4 million, respectively, from the same 1993 quarter. The decreases included revenues of $99.6 million and operating profits of $6.1 million of M-I Drilling Fluids in the 1993 quarter. The Baroid Drilling Fluids and Sperry-Sun Drilling Services operations both had higher revenues and operating profits primarily due to higher drilling activity in the Gulf of Mexico and Canada and improved prices. The Sub Sea underwater engineering operations had higher revenues as a result of increased work in Australia; however, operating profit was lower due to higher than anticipated job costs and increased engineering and operational staff expenses both in 26 the United States and the North Sea. The Security and DBS drill bit businesses had lower sales and operating profits as a result of a slowdown in international drilling and the absorption of one-time costs. The Bredero Price pipe coating operation had lower revenues and operating profit due to project delays. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED July 31, 1994 Segment Results (Continued) Oilfield Services (Continued) Revenues were essentially the same as the prior year on a year- to-date basis. A $141.9 million reduction in sales due to the sale of M-I Drilling Fluids was offset by increases from the inclusion in 1994 of the full nine months for Bredero Price and TK Valve which were acquired in 1993 and increases by Baroid Drilling Fluids, Sperry-Sun and Sub Sea. Year-to-date operating profits were up $25.8 million. The inclusion of Bredero Price for the full nine months in 1994 added to operating profit. An increase in North American drilling activity favorably impacted both Baroid Drilling Fluids and Sperry Sun. On August 5, 1994, the Company and Wheatley TXT Corp. completed the merger of Wheatley into the Company. See Note I to Consolidated Condensed Financial Statements for more information. The Wheatley merger adds pumps, valves, metering equipment and other products used in the production of oil and gas. Giving effect to recent acquisitions, Wheatley had pro forma sales of $161.6 million and net earnings of $8.2 million for its fiscal year ended February 28, 1994. See Note I to Consolidated Condensed Financial Statements. Hydrocarbon Processing Industry In the current quarter, Dresser-Rand had lower revenues and operating profits reflecting a continued low level of inter- national activity due to persistent economic and political un- certainty in many markets. For the nine months, Dresser-Rand's revenues were up due to favorable demand for aftermarket parts and service as well as high levels of steam turbine shipments and rental unit activity in the first quarter of 1994. Year- to-date operating profits were down reflecting a slow-down in market conditions. Dresser-Rand's backlog was $656.8 million at July 31, 1994 compared to $652.3 million at April 30, 1994 and $872.6 million at October 31, 1993. Ingersoll-Dresser Pump (IDP) had lower revenues in the three months and nine months compared to the prior year, reflecting the continued slow-down in international markets. Dresser's earnings from IDP in 1994 were down in the nine months primarily because 1993 included $21.3 million of earnings from the release of LIFO reserves related to inventories contributed to IDP by Dresser and sold to third parties by IDP. The other Hydrocarbon Processing Industry operations had improved revenues and operating profits for both the three months and the nine months compared to the prior year periods. The Wayne dispensing systems operations had substantial increases in revenues and operating profits reflecting better market demand in the U.S. The Mono Pump, Waukesha, Instrument, Roots and DMD operations also contributed to the increases. The Valve and Controls Division had lower revenues and operating profits due to slower market conditions in Europe. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED July 31, 1994 Segment Results (Continued) Engineering Services The M. W. Kellogg Company's revenues decreased $37.3 million or 12% in the current quarter compared to the prior year quarter reflecting lower activity levels as several major projects move toward completion. Year-to-date revenues remained slightly ahead of the prior year. Kellogg's operating profit was down $9.7 million for the quarter and $4.5 million year-to-date. Kellogg's backlog at July 31, 1994 was $1.90 billion compared with $1.94 billion at April 30, 1994 and $2.5 billion at October 31, 1993. Liquidity, Capital Resources and Financial Condition The Company's liquidity and overall financial condition improved during the nine months ended July 31, 1994. As shown on the Statements of Cash Flows, the Company received cash proceeds totaling $518.0 million from the sales of interests in Western Atlas International, Inc. and M-I Drilling Fluids. The Company used the proceeds to reduce debt $290.4 million and to make $106.2 million of tax payments attributable to the gain on sale of Western Atlas. The balance of cash and cash equivalents of $383.6 million was $110.8 million higher than at October 31, 1993 primarily due to the remainder of the proceeds. Approximately $23.1 million of additional taxes attributable to the gain on sale of Western Atlas will be paid in October. The Company's ratio of total debt to total debt and shareholders' investment improved to 26/74 at July 31, 1994 compared to 40/60 at October 31, 1993. The Company continues to have access to additional capital resources should the need arise. Management believes that the cash balance of $383.6 million and availability of $125.0 million under existing lines of credit, combined with cash provided by operations, will be adequate to finance known requirements. Baroid Corporation issued 8% Senior Notes in April 1993 via a public offering. On August 5, 1994, the Company completed a consent solicitation whereby the holders of the Notes agreed to amendments to the Note Indentures removing various restrictive covenants. In return, Dresser guaranteed the Notes (see Note D to Consolidated Condensed Financial Statements). Litigation and Environmental Issues As noted in the discussion of operations, the Company has settled certain insurance claims concerning the 1993 settlement of the Parker & Parsley litigation. Also, juries have awarded damages to the plaintiffs in two lawsuits against the Company. See Notes E and G to Consolidated Condensed Financial Statements for further discussion of these legal matters. Note G also includes disclosure of environmental clean-up situations in which the Company is involved. 29 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: September 15, 1994 30 EXHIBIT INDEX Exhibit Description 27 Financial Data Schedule. (Pursuant to Item 601(c)(iv) of Regulation S-X, 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.) 31 EX-27 2 ART. 5 FDS FOR DRESSER INDUSTRIES, INC. AND SUBS
5 1,000,000 9-MOS OCT-31-1994 JUL-31-1994 384 0 762 0 620 1,901 2,125 1,266 4,097 1,377 460 44 0 0 1,379 4,097 0 3,782 0 2,914 653 0 9 509 211 281 0 0 0 281 1.61 1.61
-----END PRIVACY-ENHANCED MESSAGE-----