0000030099-95-000008.txt : 19950915 0000030099-95-000008.hdr.sgml : 19950915 ACCESSION NUMBER: 0000030099-95-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19950914 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: 95573656 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 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 July 31, 1995. [ ] 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 August 31, 1995 Common Stock, par value $.25 182,519,076 INDEX Page Number Part I. Financial Information Management's Representation 3 Condensed Consolidated Statements of Earnings for the three months and nine months ended July 31, 1995 and 1994 4 Condensed Consolidated Balance Sheets as of July 31, 1995 and October 31, 1994 5 Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 1995 and 1994 6 Notes to Condensed Consolidated Financial Statements 7-16 Management's Discussion and Analysis of Financial Condition and Results of Operations 17-24 Part II. Other Information 25 Signature 25 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 Amendment No. 1 on Form 10-K/A dated February 3, 1995 to the Company's 1994 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 July 31, 1995 and October 31, 1994, the results of operations for the three months and the nine months ended July 31, 1995 and 1994, and cash flows for the nine months ended July 31, 1995 and 1994. 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 Nine Months Ended July 31, July 31, 1995 1994 1995 1994 (Unaudited) (Unaudited) Revenues $1,437.4 $1,193.4 $3,998.9 $3,914.1 Cost of sales and services (1,115.3) (915.4) (3,099.6) (2,985.7) Gross earnings 322.1 278.0 899.3 928.4 Selling, engineering, administrative and general expenses (237.2) (216.8) (673.9) (687.6) Special credit, net - - - 8.9 Other income (deductions) Interest expense, net (8.1) (3.9) (16.4) (14.0) Gain on sale of interest in Western Atlas - - - 275.7 Gain on affiliate's public offering - - - 11.0 Other, net .2 (2.4) .4 (1.8) Earnings before items below 77.0 54.9 209.4 520.6 Income taxes (25.4) (15.8) (69.1) (215.7) Minority interest (6.6) (1.2) (11.6) (17.1) Earnings before accounting change 45.0 37.9 128.7 287.8 Cumulative effect of accounting change, net of tax - - (16.0) - Net earnings $ 45.0 $ 37.9 $ 112.7 $ 287.8 Earnings per common share Earnings before accounting change $ .25 $ .21 $ .71 $ 1.58 Cumulative effect of accounting change - - (.09) - Net earnings $ .25 $ .21 $ .62 $ 1.58 Cash dividends per common share $ .17 $ .17 $ .51 $ .49 Average common shares outstanding 182.4 183.7 182.9 182.4 See accompanying Notes to Condensed Consolidated Financial Statements.
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Millions)
July 31, October 31, ASSETS 1995 1994 Current Assets (Unaudited) Cash and cash equivalents $ 252.2 $ 515.0 Notes and accounts receivable, net 917.6 865.8 Inventories, net 787.5 673.1 Deferred income taxes 76.2 74.9 Other current assets 75.9 68.2 Total Current Assets 2,109.4 2,197.0 Investments in and receivables from unconsolidated affiliates 258.2 240.4 Intangibles, net 841.0 657.4 Deferred income taxes 199.9 193.2 Other assets 145.6 106.0 Property, plant and equipment - at cost 2,515.1 2,245.0 Less accumulated depreciation 1,425.8 1,315.4 Net Property 1,089.3 929.6 Total Assets $ 4,643.4 $ 4,323.6 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term debt and current portion of long-term debt $ 202.6 $ 36.6 Accounts payable 502.6 361.6 Contract advances 303.1 265.4 Accrued compensation and benefits 237.2 230.7 Income taxes 102.6 92.7 Other current liabilities 363.4 379.8 Total Current Liabilities 1,711.5 1,366.8 Employee retirement and postemployment benefit obligations 691.2 668.2 Long-term debt 463.8 460.6 Deferred compensation, insurance reserves and other liabilities 109.6 112.1 Minority interest 71.1 83.6 Shareholders' Equity Common shares 46.1 46.0 Capital in excess of par value 453.2 448.6 Retained earnings 1,201.0 1,212.6 Cumulative translation adjustments (56.5) (63.1) Pension liability adjustment (7.5) (7.6) 1,636.3 1,636.5 Less treasury shares, at cost 40.1 4.2 Total Shareholders' Equity 1,596.2 1,632.3 Total Liabilities and Shareholders' Equity $ 4,643.4 $ 4,323.6 See accompanying Notes to Condensed Consolidated Financial Statements.
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Millions)
Nine Months Ended July 31, 1995 1994 (Unaudited) Cash flows from operating activities: Net earnings $ 112.7 $ 287.8 Adjustments to reconcile net earnings to cash flow: Depreciation and amortization 152.2 164.2 Cumulative effect of accounting change 16.0 - Minority interest provision 11.6 17.1 Gain on sale of interest in Western Atlas, net of tax - (146.5) Changes in working capital (34.6) (79.5) Changes in non-current assets and liabilities 4.1 2.0 Net cash provided by operating activities 262.0 245.1 Cash flows from investing activities: Capital expenditures (193.3) (120.5) Business acquisitions including debt repayments (325.7) (74.1) Cash of acquired businesses 8.6 - Proceeds from sale of interest in - Western Atlas, net of taxes paid - 251.8 M-I Drilling Fluids - 160.0 Net cash (used) provided by investing activities (510.4) 217.2 Cash flows from financing activities: Dividends paid (93.2) (85.3) Purchase of common shares for Treasury (40.1) - Sale of common stock - 30.0 Increase (decrease) in short-term debt 129.9 (248.1) Decrease in long-term debt (13.2) (10.7) Net cash used by financing activities (16.6) (314.1) Effect of translation adjustments on cash 2.2 1.2 Net (decrease) increase in cash and cash equivalents (262.8) 149.4 Cash and cash equivalents, beginning of period 515.0 200.1 Cash and cash equivalents, end of period $ 252.2 $ 349.5 See accompanying Notes to Condensed Consolidated Financial Statements.
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS July 31, 1995 (Unaudited) Note A - Basis of Presentation and Accounting Change Wheatley Merger On August 5, 1994, the Company merged with Wheatley TXT Corp. (Wheatley). The merger was accounted for as a pooling of interests. The Condensed Consolidated Statement of Earnings for the three months and nine months ended July 31, 1994 and the Condensed Consolidated Statement of Cash Flows for the nine months ended July 31, 1994 have been restated to reflect the results of operations and the cash flows of the combined companies as if the merger had occurred on November 1, 1993. 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 expensed the other benefits as paid. Annual expense under SFAS 112 for 1995 is not expected to be significantly different from the actual cash payments. The Condensed Consolidated Statement of Earnings for the nine months ended July 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 B - Baroid Financial Information On January 21, 1994, Dresser merged with Baroid Corporation. Subsequent to the merger, 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. As long as the Notes remain outstanding, summarized financial information of Baroid is required as follows (in millions):
July 31, October 31, Baroid Corporation 1995 1994 Current assets $ 665.5 $ 468.9 Noncurrent assets 516.9 362.0 Total $1,182.4 $ 830.9 Current liabilities $ 389.7 $ 229.5 Noncurrent liabilities 359.1 281.7 Shareholders' equity 433.6 319.7 Total $1,182.4 $ 830.9
Three Months Ended Nine Months Ended July 31, July 31, 1995 1994 1995 1994 Revenues $ 355.8 $ 225.6 $ 947.8 $ 662.6 Gross earnings $ 95.6 $ 66.2 $ 255.5 $ 182.9 Earnings from operations $ 34.8 $ 17.6 $ 87.8 $ 56.0 Other income (deductions) (4.9) (5.6) (13.6) (11.7) Earnings before taxes and minority interests 29.9 12.0 74.2 44.3 Income taxes (9.9) (3.6) (24.5) (15.5) Minority interest .1 (.6) (.4) .9 Net earnings $ 20.1 $ 7.8 $ 49.3 $ 29.7
Note C - Acquisitions and Divestitures Effective June 8, 1995, the Company acquired all the outstanding shares of Grove S.p.A. (Grove), an Italian corporation, for a consideration of $157.7 million in cash. Grove is a multinational company engaged in the production of oilfield valves and regulators. On November 15, 1994, the Company acquired Subtec Asia Ltd. (Subtec), a Sharjah, United Arab Emirates company, which provides underwater technology services primarily to the offshore oil and gas industry, for approximately $34.0 million in cash. On May 2, 1995, the Company acquired the North Sea remotely operated vehicle business of NSA/HMB Group (North Sea Assets) for approximately $30.4 million in cash. On May 5, 1995, the Company acquired Wellstream Company L.P. (Wellstream), a partnership engaged in the production of high pressure flexible pipe and riser systems for $33.0 million in cash. Also, the Company acquired Energy Coatings Company (Energy Coatings) on May 5, 1995 and Pipeline Coating, Inc. (Pipeline Coating) on July 1, 1995 for a total of approximately $13.6 million in cash. These last two companies perform pipe coating services. The above acquisitions were accounted for as purchases, and their results of operations are included in the Condensed Consolidated Statement of Earnings from the acquisition dates. The purchase prices exceeded the value of the net assets acquired by approximately $192.0 million. The excess is included in intangibles in the Condensed 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. 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 $358 million in cash and $200 million in 7.5% notes. The 7.5% notes were paid in full in September, 1994. The Company recognized a gain of $275.7 million ($146.5 million net of tax) on the sale. Following the Baroid merger 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 million in cash effective February 28, 1994. The Company recognized a $2.6 million pre-tax gain on the sale. Note D - 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 Nine Months Ended July 31, July 31, 1995 1994 1995 1994 Share of earnings of unconsolidated affiliates Ingersoll-Dresser Pump (49% owned) $ 3.0 $ .4 $ 10.8 $ 6.8 Other affiliates (1.5) 4.2 1.8 11.5 $ 1.5 $ 4.6 $ 12.6 $ 18.3
July 31, October 31, 1995 1994 Investments in and receivables from unconsolidated affiliates Ingersoll-Dresser Pump (49% owned) $ 175.0 $ 155.1 Other affiliates 83.2 85.3 $ 258.2 $ 240.4
Summarized earnings statement information for Ingersoll-Dresser Pump Company is as follows (in millions):
Three Months Ended Nine Months Ended July 31, July 31, 1995 1994 1995 1994 Net sales $ 196.7 $ 190.4 $ 600.9 $ 572.5 Gross profit $ 44.7 $ 40.7 $ 147.9 $ 128.0 Earnings before taxes $ 7.3 $ 3.3 $ 25.7 $ 20.1
Note E - 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 under the LIFO method are approximately 15% of total inventories. Inventories include the following (in millions):
July 31, October 31, 1995 1994 Finished products and work in process $ 622.3 $ 529.9 Raw materials and supplies 165.2 143.2 $ 787.5 $ 673.1
Note F - Special Credit and Charge In 1993, the Company settled litigation brought by Parker & Parsley Petroleum Company. In the second quarter of 1994, the Company recognized a $18.4 million pre-tax gain from the settlement of a coverage dispute with certain insurance carriers regarding the litigation settlement. In the first quarter of 1994, the Company recorded a special charge of $9.5 million for the settlement of Drill Bit pricing litigation. Note G - Dividends On July 20, 1995, the Company declared a quarterly dividend of $.17 per share of common stock payable on September 20, 1995 to shareholders of record on September 1, 1995. Note H - Litigation 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 jury returned a verdict awarding the plaintiffs compensatory damages of $6.5 million and punitive damages of $4.0 million. This case has been appealed. 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 million in compensatory damages and $50 million in punitive damages. On October 13, 1994, the Court ordered a reduction of damages from $54 million to $12 million. This 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 a large number of pending claims in which it is alleged that third parties sustained injuries and damages resulting from inhalation of asbestos fibers used in products manufactured by the Company and its predecessor companies. Approximately half of the pending claims allege injury as a result of exposure to asbestos contained in refractory products with the other half alleging injury as a result of exposure to asbestos gaskets and packings and other materials used in products manufactured by the Company. Refractory product claims filed subsequent to July 31, 1992, are the responsibility of INDRESCO Inc. pursuant to an agreement entered into at the time of the spin-off of refractory product operations to Dresser shareholders. The Company has provided for the estimated exposure, based on past experience, for the open cases involving refractory products. The Company has also provided for estimated exposure relating to non-refractory product claims. However, the Company has less experience in settling such claims. Generally when settlements have been made, the amounts involved are substantially lower than the claims involving refractory products. 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. The judgment does not conform to the Company's past experience and was not in accordance with the evidence. The case currently is on appeal to the Mississippi Supreme Court. 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 the current quarter, 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 Courts' 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 believes that any ultimate losses from either the Mississippi or Maryland cases would be covered by its agreements with insurance carriers described in Note M to Consolidated Financial Statements in Amendment No. 1 on Form 10-K/A dated February 3, 1995 to the Company's 1994 Annual Report on Form 10-K. Based upon recent experience, the Company has increased its estimated insurance recovery percentage from 67% to 80% of legal fees and any settlements or awards related to refractory products cases. 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. 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 is seeking $200 million in actual damages and punitive damages equal to twice the actual damages claimed. Kellogg has answered denying the claim and has filed a counterclaim against Quantum alleging libel, slander, breach of contract and fraud. Discovery has been completed, and a trial date has been set for October 2, 1995. Management believes the Quantum lawsuit is totally without merit and will be resolved without material adverse effect on the Company's financial position or results of operations. Environmental Matters The Company has been identified as a potentially responsible party in 88 Superfund sites. Primary responsibility for nine of these sites was assumed by INDRESCO Inc. The Company has entered into settlements in respect of 25 Superfund sites at a total cost of $1.4 million. Based upon the Company's historical experience with similar claims and management's understanding of the facts and circumstances, management believes that the situations at the 54 remaining sites will be resolved 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. Note I - Information by Industry Segment (In Millions)
Three Months Ended Nine Months Ended July 31, July 31, 1995 1994 1995 1994 Revenues Oilfield Services Industry Drilling and Production Operations $ 371.7 $ 286.7 $1,026.0 $ 981.9 Kellogg Oil and Gas Services 102.6 96.9 225.6 292.2 474.3 383.6 1,251.6 1,274.1 Hydrocarbon Processing Industry Dresser-Rand 262.5 260.5 762.0 888.0 Ingersoll-Dresser Pump Equity Earnings 3.0 .4 10.8 6.8 Other Operations 312.6 282.0 929.7 845.3 578.1 542.9 1,702.5 1,740.1 Engineering Services M. W. Kellogg Operations 393.9 268.0 1,055.4 902.8 Eliminations (8.9) (1.1) (10.6) (2.9) Total revenues $1,437.4 $1,193.4 $3,998.9 $3,914.1 Operating Profit Oilfield Services Industry Drilling and Production Operations $ 40.2 $ 20.4 $ 107.1 $ 78.8 Kellogg Oil and Gas Services 6.3 10.9 6.8 46.0 46.5 31.3 113.9 124.8 Hydrocarbon Processing Industry Dresser-Rand 17.4 4.4 29.9 34.4 Ingersoll-Dresser Pump 3.0 .4 10.8 6.8 Other Operations 29.5 32.8 99.4 93.9 49.9 37.6 140.1 135.1 Engineering Services M. W. Kellogg Operations 15.8 15.9 48.7 51.7 Gain on Mexican affiliate's public offering - - - 11.0 15.8 15.9 48.7 62.7 Total segment operating profit 112.2 84.8 302.7 322.6 Amortization of acquisition intangibles (7.5) (7.0) (21.3) (20.8) General corporate expenses (19.6) (19.0) (55.6) (51.8) Special credit, net - - - 8.9 Gain on sale of interest in Western Atlas - - - 275.7 Interest expense, net (8.1) (3.9) (16.4) (14.0) Earnings before taxes, minority interest and accounting change $ 77.0 $ 54.9 $ 209.4 $ 520.6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview 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 were accounted for as poolings of interests. Financial data, statistical data, financial statements and discussion of financial information included in this report have been prepared as if the mergers had occurred on November 1, 1993. Results of Operations - Three Months and Nine Months Ended July 31, 1995 Compared to 1994 ACCOUNTING CHANGE The Company recorded a charge of $16.0 million (net of tax of $9.0 million) or $0.09 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 Condensed Consolidated Financial Statements for more information. IMPACT OF UNUSUAL OR NONRECURRING ITEMS Results of operations for the first nine months of 1995 were favorable in comparison to the 1994 period when several unusual or nonrecurring items that occurred in the first six months of 1994 are excluded from 1994. A reconciliation and discussion of these items follows:
Nine Months Ended July 31, 1995 1994 (In millions except per share amounts) Reported earnings before accounting change $ 128.7 $ 287.8 Unusual or nonrecurring items, net of tax: Insurance recovery of litigation loss - 11.6 Gain on affiliate's stock offering - 10.0 M-I Drilling Fluids earnings - 6.3 Drill Bit pricing litigation settlement - (6.0) Gain on sale of interest in Western Atlas - 146.5 - 168.4 Earnings from operations $ 128.7 $ 119.4 Earnings Per Share Reported earnings before accounting change $ .71 $ 1.58 Unusual or nonrecurring items, net of tax: Insurance recovery of litigation loss - .06 Gain on affiliate's stock offering - .06 M-I Drilling Fluids earnings - .03 Drill Bit pricing litigation settlement - (.02) Gain on sale of interest in Western Atlas - .80 - .93 Earnings from operations $ .71 $ .65
In 1993, the Company settled litigation brought by Parker & Parsley Petroleum Company. In the second quarter of 1994, the Company settled a coverage dispute with certain insurance carriers regarding the litigation settlement and recognized a $18.4 million pre-tax gain which was reported as a " Special Credit". The M. W. Kellogg Company, a wholly-owned subsidiary of the Company, recognized a pre-tax gain of $11.0 million on a public stock offering by an affiliated company in Mexico. The Company sold its interest in M-I Drilling Fluids Company in February, 1994 following the merger with Baroid Corporation. The Company settled litigation concerning Drill Bit pricing and recorded a pre-tax "Special Charge" of $9.5 million in the first quarter of 1994. The Company sold its interest in Western Atlas International, Inc. in January, 1994 and recognized a pre-tax gain of $275.7 million. CONSOLIDATED RESULTS Net earnings for the three months increased 19% to $45.0 million, or $.25 per share, from $37.9 million, or $.21 per share, a year ago. As noted above, nine month net earnings before an accounting change were $128.7 million or $.71 per share in 1995, up 8% from $119.4 million, or $.65 per share excluding unusual or nonrecurring items from 1994. Revenues of $1,437.4 million for the three months were up $244.0 million or 20% from a year ago. Revenues for the nine months of 1995 of $3,998.9 million were up $231.8 million or 6% from 1994 excluding $147.0 million of M-I Drilling Fluids revenues for the four months ended February 1994. The revenue increases in the three months were primarily attributable to M. W. Kellogg engineering services, Baroid Drilling Fluids, Sperry-Sun Drilling Services and Sub Sea underwater engineering operations. In the nine months, revenue increases by M. W. Kellogg, Baroid Drilling Fluids, Sperry-Sun Drilling Services, Sub Sea, Valve and Controls, Wayne and Instrument divisions more than offset large decreases by Dresser-Rand and Bredero Price. Consolidated gross earnings as a percentage of revenues were 22.4% and 22.5% for the three months and nine months ended July 31, 1995, respectively, and were down approximately 1% from the 1994 periods. The decreases for the quarter and the nine months reflect lower margins in the M. W. Kellogg engineering services business. See discussion under Industry Segment Analysis for more information. The decrease for the nine months also reflects the impact in 1994 of M-I Drilling Fluids. Selling, engineering, administrative and general expenses were up $20.4 million in the quarter but were down $13.7 million in the nine months. The increase for the quarter reflects the expenses of acquired businesses and increased expenses by M. W. Kellogg in connection with increased bid activity. The nine month decrease is primarily attributable to the 1994 expenses of M-I Drilling Fluids offset by the 1995 expenses of acquired businesses. The effective income tax rate was 33% for both the three months and the nine months of 1995 compared to 29% for the three months and 41% for the nine months of 1994. The lower effective rate in 1995 approximates the effective rate the Company experienced for fiscal year 1994, after adjusting for nonrecurring items, and is the Company's current estimate of the annual rate for 1995. In 1994, a lower tax basis on the investment in Western Atlas, compared to the book basis, resulted in a tax charge of $129.7 million or 47% on the gain on sale. The Western Atlas transaction increased the overall rate for the nine months of 1994 from 37% to 41%. Minority interest was up $5.4 million for the quarter but down $5.5 million for the nine months compared to the 1994 periods. The increase for the quarter was mostly due to higher 1995 earnings of Dresser-Rand (49% minority owned). The decrease for the nine months was due to lower 1995 earnings of Dresser-Rand and the 36% minority interest in M-I Drilling Fluids in 1994. INDUSTRY SEGMENT ANALYSIS See Note I to Condensed Consolidated Financial Statements for details of financial information by industry segment. Oilfield Services During the third quarter, the Company reorganized its Oilfield Services businesses into two groups. The divisions that provide basic oilfield products and services became known as Drilling and Production Operations. The Company formed Kellogg Oil and Gas Services consisting of the Bredero Price pipecoating and Sub Sea underwater engineering operations. The new Kellogg Oil and Gas Services organization represents an important new strategy to benefit from anticipated growth in subsea completion and transmission markets. In the three months, the Drilling and Production Operations had operating profits of $40.2 million and revenues of $371.7 million, up 97% and 30%, respectively, from the 1994 quarter. Excluding M-I Drilling Fluids operating profit of $10.0 million and revenues of $147.0 million in the first four months of 1994, the Drilling and Production Operations' nine month operating profits of $107.1 million and revenues of $1,026.0 million were up 56% and 23%, respectively, from 1994. The largest gains came from Baroid Drilling Fluids and Sperry-Sun Drilling Services, both of which achieved record results reflecting increased volume in most major markets, particularly in the Gulf of Mexico, Latin America and the North Sea. Security DBS and Dresser Oil Tools also showed improvements over the 1994 periods reflecting the benefits of major restructuring programs. All these gains were achieved despite a small decline in the worldwide rig count. During the quarter, the Company acquired Grove S.p.A., a multinational Italian company that manufactures oilfield valves and regulators. Grove, which has annual revenues of approximately $150 million, has been combined with the Company's Wheatley Valve and TK Valve businesses to form the Dresser Energy Valve Division which is now one of the world's largest manufacturers of valves for oilfield and pipeline applications. The Bredero Price pipecoating division experienced significantly lower operating profits and revenues in both the quarter and nine months. Bredero Price has been experiencing a cyclical downturn in business. Bredero Price's current backlog of $426 million is up from $78 million at October 31, 1994. The increase is principally due to a $300 million contract for a pipecoating project in the North Sea. The contract will be performed over the next three or four years. The Sub Sea underwater engineering operations had higher operating profits and revenues in both the quarter and the nine months than in 1994. Sub Sea was favorably impacted by conditions in the Gulf of Mexico as well as the North Sea and by three business acquisitions. The acquisitions have annual revenues of approximately $100 million. Hydrocarbon Processing Industry Dresser-Rand - Operating profits of $17.4 million for the three months increased $13.0 million from the 1994 quarter reflecting a return to more normal margin levels. Revenues for the three months were slightly higher than in 1994. Nine month operating profits of $29.9 million and revenues of $762.0 million were down 13% and 14%, respectively, from 1994 due to lower volumes of complete units and repair parts during the first half of the year attributable to a cyclical slow down in the industry. Backlog rose to $1.0 billion, up 53% from a year ago, considerably improving the outlook for 1996. Recent orders came from a broad base of industries including oil and gas production and transmission as well as downstream processing operations. Ingersoll-Dresser Pump - The Company's equity in earnings of this 49% owned joint venture was higher in both the quarter and the nine months compared to 1994. IDP continues to benefit from internal efficiencies reflecting cost reduction and restructuring programs. Backlog of $400 million was up approximately 4% from a year ago. Other Operations - Operating profits for the three months were $29.5 million, 10% lower than the 1994 quarter. Three month revenues of $312.6 million were 11% higher than in 1994. All operations were profitable in the quarter, but lower earnings by the Waukesha Engine and Wayne operations more than offset increases by the Valve and Controls, Instrument and Roots operations. Valve and Controls is benefiting from restructuring programs. For the nine months, operating profits of $99.4 million and revenues of $929.7 million were up 6% and 10%, respectively, from 1994. All operations were profitable in the nine months and all had increases over 1994 except Wayne and Mono Pump. Valve and Controls and Instrument accounted for most of the earnings increase. All operations reported revenue increases for the nine months except Roots which was essentially the same as 1994. Engineering Services (The M. W. Kellogg Company) M. W. Kellogg's operating profit in the quarter of $15.8 million was essentially the same as in the 1994 quarter while operating profit for the nine months of $48.7 million was down 6% from 1994. However, revenues were up 47% to $393.9 million in the quarter and 17% to $1,055.4 million in the nine months. Profits have not followed the revenue increases because certain large turnkey projects with higher margins represent a smaller percentage of Kellogg's revenue in 1995 than in 1994. Earnings were adversely affected by higher bid and proposal costs reflecting increased activity. The financial crisis in Mexico resulted in M. W. Kellogg s 25% owned Mexican affiliate reporting a substantial loss for the nine months. M. W. Kellogg's share of that loss was $4.0 million compared to earnings of $2.9 million in 1994. Kellogg's backlog declined slightly in the quarter to $1.6 billion, but it does not yet include a large Nigerian LNG project for which financial support is expected to be finalized by year-end. Liquidity, Capital Resources and Financial Condition The Company's liquidity and overall financial condition remain strong. As shown on the statement of cash flows, cash provided by operating activities of $262.0 million substantially covered capital expenditures and dividends which totaled $286.6 million. Increased working capital required to finance growth in the Oilfield Service businesses reduced the amount of cash provided by operating activities in the current year. Cash and cash equivalents decreased $262.8 million during the nine months primarily due to $325.7 million used for business acquisitions (see Note C to Consolidated Condensed Financial Statements) and $40.1 million to purchase two million shares of the Company's common stock. The acquisitions were funded from cash on hand and from short-term borrowings of $127.0 million. Shareholders' equity declined $36.1 million in the nine months as dividends and stock repurchases more than offset earnings. The Company's ratio of total debt to total debt and shareholders' equity was 29/71 at July 31, 1995, compared to 23/77 at October 31, 1994. Management believes that the cash on hand, cash that will be provided by future operations and existing lines of credit will be adequate to finance known requirements. Management also 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 H to Condensed 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 H to Consolidated Financial Statements also includes a review and evaluation of the claims. PART II. OTHER INFORMATION 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 (Principal Accounting Officer) Dated: September 13, 1995 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.) EX-27 2
5 1,000 9-MOS OCT-31-1995 JUL-31-1995 252,200 0 917,600 0 787,500 2,109,400 2,515,100 1,425,800 4,643,400 1,711,500 463,800 46,100 0 0 1,550,100 4,643,400 2,512,500 3,998,900 1,804,600 3,099,600 673,900 0 16,400 209,400 69,100 128,700 0 0 (16,000) 112,700 0.62 0.62