-----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, ZQIo8vFndSXAg40nSrO7Lv8PnCfETnRIsjYeVFQXsEtGmqczfbz7MJeCuFe0Lnl6 cC8HMF6yzp4obIA39oxW0Q== 0000912057-95-000226.txt : 19950608 0000912057-95-000226.hdr.sgml : 19950608 ACCESSION NUMBER: 0000912057-95-000226 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19941031 FILED AS OF DATE: 19950127 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04003 FILM NUMBER: 95503534 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-K 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 1994. Commission file number 1-4003 DRESSER INDUSTRIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-0813641 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) POST OFFICE BOX 718 75221 (P.O. Box) 2001 ROSS AVENUE, DALLAS, TEXAS 75201 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (214) 740-6000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common Stock, Par Value 25 cents Per Share New York Stock Exchange, Inc. Pacific Stock Exchange Incorporated Baroid Corporation 8% Guaranteed Senior New York Stock Exchange, Inc. Notes due 2003 Preferred Stock Purchase Rights New York Stock Exchange, Inc. Pacific Stock Exchange Incorporated Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes No X ---- --- The aggregate market value of the voting stock (based on the closing price on the New York Stock Exchange as of January 25, 1995) held by non-affiliates of the registrant was approximately $3,584 million. As of January 25, 1995, there were 184,187,751 shares of Dresser Industries, Inc. Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Sections of Registrant's Notice of 1995 Annual Meeting of Shareholders and Proxy Statement (Part III). PART I ITEM 1. BUSINESS OF DRESSER. Dresser Industries, Inc., together with its subsidiaries (hereinafter "Dresser" or "Registrant" or the "Company") is a supplier of highly engineered products, technical services and project management for hydrocarbon energy- related activities that are primarily utilized in oil and gas drilling, production and transmission; gas distribution; power generation; gas processing; petroleum refining and marketing; and petrochemical production. Demand for Dresser's products and services are generally determined by global demand for energy and oil and gas by-products. Dresser was incorporated under the laws of Delaware in 1956 as a successor to a Pennsylvania corporation organized in 1938 by the consolidation of S. R. Dresser Manufacturing Company and Clark Bros. Company. Both were carrying on businesses founded in 1880. Dresser's executive offices are located at 2001 Ross Avenue, Dallas, Texas 75201 (telephone number 214/740-6000). For the fiscal year ended October 31, 1994, consolidated revenues of Registrant amounted to $5,330.7 million. A majority of such revenues was derived from the sale of products and services to energy-oriented industries, including oil and gas exploration, drilling and production, gas transmission and distribution; petroleum and chemical processing; production of electricity; and marketing of petroleum products. Registrant's operations are divided into three industry segments: Oilfield Services; Hydrocarbon Processing Industry; and Engineering Services. Effective January 28, 1994, Registrant sold its 29.5% interest in Western Atlas International, Inc. to a wholly owned subsidiary of Litton Industries, Inc. On January 19, 1994 shareholders of Registrant voted to approve the merger (the "Merger") of BCD Acquisition Corporation ("BCD"), a wholly owned Subsidiary of Registrant, into Baroid Corporation ("Baroid"). The Merger was effective January 21, 1994. Shareholders of Baroid received 37,286,662 million shares of Registrant's Common Stock in exchange for all of the issued and outstanding shares of Baroid. In addition, approximately 3.6 million shares of Registrant's Common Stock are reserved for issuance upon exercise of outstanding warrants to purchase Baroid common stock and for issuance pursuant to certain benefit plans assumed by Registrant. For financial reporting purposes, the Merger was treated as a pooling of interests. Baroid operations include drilling fluids, drilling services and products and offshore services businesses, and are included in the Oilfield Services segment. Further information concerning Baroid is included in the description of the Oilfiled Services segment and in Notes B, C and R to the Consolidated Financial Statements. In connection with the Merger, Registrant and Baroid reached an agreement with the Antitrust Division of the Department of Justice (the "Antitrust Division") pursuant to which Registrant sold its 64% interest in M-I Drilling Fluids Company, effective February 28, 1994, to Smith International, Inc. In addition, pursuant to the agreement, Registrant sold the United States diamond drill bit business of DB Stratabit (USA), Inc. ("DBS") to International Superior Products, Inc. ("International") effective July 28, 1994, and granted to International (i) a non-exclusive license to manufacture steel bodied and matrix bits inside the United States and (ii) a non-exclusive license to manufacture steel bodied bits outside the United States (except in the People's Republic of China). 2 On August 5, 1994, shareholders of Wheatley TXT Corp. ("Wheatley") voted to approve the merger (the "Merger") of WTXT Acquisition Corporation ("WTXT"), a wholly owned subsidiary of Registrant, into Wheatley. The Merger was effective August 5, 1994 (the "Effective Date"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated May 31, 1994, among Registrant, WTXT and Wheatley. Shareholders of Wheatley on the Effective Date received 8.3 million shares of Registrant's Common Stock in exchange for all of the issued and outstanding shares of Wheatley. In addition, approximately 350,000 shares of Registrant's Common Stock are reserved for issuance pursuant to certain benefit plans assumed by Registrant. For financial reporting purposes, the Merger was treated as a pooling of interests. Wheatley operations include pumps, valves, metering equipment and other products used in oil and gas production. Further information concerning Wheatley is included under the caption "Completion and Production Tools" and Notes B, C and R to the Consolidated Financial Statements. On September 21, 1994, Registrant and Ingersoll-Rand Company announced that they had completed the sale of each of their 50% interests in IRI International Corporation, a manufacturer of mobile drilling rigs headquartered in Pampa, Texas, to Energy Service International Limited. Registrant acquired, effective November 17, 1994, through a wholly owned Subsidiary, Subtec Asia Limited ("Subtec") and subsidiaries from Tamase Technical Maritime Services S.A. Subtec, operating primarily in the Mid and Far East, produces underwater technology services to the oil and gas industry. Subtec operations are included in the Oilfield Services segment. The Information by Industry Segment is included in Note R to Consolidated Financial Statements on pages 74-75 and in Management's Discussion and Analysis on pages 26-31. This information includes sales and service revenues, operating profit or loss and identifiable assets attributable to each of Registrant's business segments for each of the past three fiscal years. This information should be read in conjunction with the consolidated financial statements, notes and accountant's report appearing in Item 8 of this report. OILFIELD SERVICES Dresser's oilfield services segment supplies products and services for oil and gas exploration, drilling, production and transmission. These products and services include project management and integrated well services and products, drilling fluid systems, drilling services and products, underwater services, drill bits, completion and production tools and equipment and pipe coatings. Demand for these products and services is directly affected by energy prices and drilling activity. INTEGRATED SERVICES/PRODUCTS AND PROJECT MANAGEMENT Dresser Drilling and Production Services is a marketing arm and project manager for Dresser's oilfield services operations. This organization was formed in 1994 to provide oil and gas producers with project management capabilities and the integrated services and products required to drill and complete wells more efficiently. Dresser Drilling and Production Services activities include well planning, project management and the procurement of wellsite drilling, completion and production services and equipment. 3 DRILLING FLUIDS Baroid Drilling Fluids, Inc. provides oil and gas producers specially formulated fluids used in the drilling process to lubricate and cool the drill bit, seal porous well formations, remove rock cuttings and control downhole pressure. It also provides completion fluids and wellsite services. Total net revenues for Drilling Fluids were $554.0 in 1994, $777.8 million in 1993, and $723.7 million in 1992. Revenues include $147.0 million in 1994, $401.2 million in 1993 and $386.6 in 1992 for M-I Drilling Fluids Company which was sold effective February 28, 1994. DRILLING SERVICES AND PRODUCTS Sperry-Sun Drilling Services Inc. supplies oil and gas producers with directional and measurement-while-drilling (MWD) services and directional drilling equipment including mud motors, downhole steering and surveying instruments, and geological and drilling data monitoring. UNDERWATER SERVICES Sub Sea International Inc. provides production companies and offshore rig operators with diving and underwater engineering services. Sub Sea equipment is used to inspect, construct, maintain and repair offshore drilling rigs and platforms, underwater pipelines and other offshore oil and gas facilities. Sub Sea designs, manufactures and deploys remotely operated vehicles (ROVs) which are often used to perform these services. DRILL BITS Security DBS produces and markets to oil and gas producers and mining operators a complete line of roller-cone, polycrystalline diamond cutter (PDC) and natural diamond drill bits for use in drilling oil and gas wells and provides coring and hole enlargement services. Security DBS also makes a variety of downhole oilfield drilling tools and a full line of premium blast hole bits for the mining market. COMPLETION AND PRODUCTION TOOLS Dresser Oilfield Valves designs, manufactures and markets Wheatley and Tom Wheatley valves, Texsteam valves, actuators and chemical injection pumps, and TK ball valves. These products are used primarily in the production of oil and gas. Axelson Guiberson/AVA consists of Axelson surface safety equipment and downhole rod pumps and sucker rods as well as Guiberson/AVA's broad range of completion and production products, including sub-surface safety valves, gravel pack, downhole hydraulic pumps, tubing converged perforating equipment, production packers and swab cups. These products are also used in the production of oil and gas. Dresser Wheatley Canada is involved in the manufacturing of Wheatley valves and pumps but also represents in Canada the Axelson, Texsteam, Tom Wheatley and Clif Mock (meters, measurement equipment and sampling systems) products of Wheatley. 4 PIPE COATINGS Bredero Price provides a broad range of pipe coatings and related services to protect pipelines above ground, below ground and offshore in major oil and gas producing areas of the world. HYDROCARBON PROCESSING INDUSTRY Dresser's Hydrocarbon Processing Industry segment designs, manufactures and markets highly engineered products and systems for oil and gas producers, transporters, processors, distributors and users throughout the world. Products and systems of this segment include compressors, turbines, generators, electric motors, pumps, engines and power systems, valves and controls, instruments, meters and pipe couplings, blowers and gasoline dispensing systems. Demand for these products is directly effected by global economic activity, which influences demand for transportation fuels, petrochemicals, plastics, fertilizers, chemicals and by-products of oil and gas. COMPRESSORS Dresser-Rand Company, a New York partnership in which Dresser has a 51% interest, manufactures turbines, compressors, electric motors, generators and turbine-generator sets utilized in gas processing, refining and petrochemical activities. Dresser-Rand also is a producer of gas injection compression systems that enhance oil production and the manufacturer of powerful pipeline boosters for the transmission of natural gas. The Consolidated Statements of Earnings for 1994, 1993 and 1992 include $1,234.5 million, $1,118.1 million and $40.3 million, respectively, of Dresser- Rand's revenues. Revenues for 1992 are only Dresser's share of the earnings from Dresser-Rand. Dresser-Rand's revenues for 1992 were not included in the consolidated statements of earnings for 1992 while it was only 50% owned by Registrant. PUMPS Effective October 1, 1992, Dresser's Pump operations (except Mono Pumps) were combined with the Pump operations of Ingersoll-Rand Company to form Ingersoll-Dresser Pump Company, a partnership in which Dresser has a 49% interest. Ingersoll-Dresser Pump Company develops, manufactures and markets centrifugal pumps used for critical applications in energy processing and petrochemical markets as well as in utility and municipal water and waste water markets. Ingersoll-Dresser Pump also manufactures heavy-duty process pumps, submersible pumps, vertical turbine pumps, standard end-suction pumps, horizontal split-case and multistage pumps designed for general industrial, pipeline and high pressure services. Registrant's consolidated statements of earnings include net revenues for the Pump businesses transferred to Ingersoll- Dresser Pump Company of $527.6 million for eleven months for 1992. Dresser's wholly owned Mono Pump operations produce progressing cavity pumps for handling viscous fluids. These pumps have hydrocarbon energy-related applications and are also utilized by the waste water, mining, paper, food and chemical industries. 5 POWER SYSTEMS Dresser's Waukesha Engine Division produces spark-ignited, gas and diesel fueled engines and power systems. The division's products are used throughout the world in the gathering and storage of natural gas and as drivers for crude oil pumping and prime movers for electrical power generation and cogeneration. Roots offers a full line of low to medium pressure air and gas handling blowers along with vacuum pumps. These include rotary lobe and screw-type positive displacement products and several turbomachinery (centrifugal) lines. Among the many operations utilizing Roots products are natural gas processing plants, refineries, chemical plants, flue gas desulphurization facilities and waste water treatment plants. CONTROL PRODUCTS Dresser's Instrument Division designs and manufactures instruments for pressure and temperature measurement and control. These products are utilized by the oil, gas and power industries and a variety of customers in industrial and commercial markets. The Valve and Controls Division includes Dresser's Masoneilan and Industrial Valve operations. Masoneilan produces automated process control valves, instruments, level instruments and regulators. Industrial Valve manufactures Consolidated, Dewrance and Hancock safety, safety relief and line valves. Both the Masoneilan and Industrial Valve operations primarily serve process and power markets. DMD products include gas meters, pipe fittings, couplings and repair devices utilized by the gas and water utilities and other industrial markets. MARKETING SYSTEMS Dresser's Wayne Division manufactures and sells fully integrated vehicle fueling systems serving the retail petroleum marketing industry. These advanced systems include a variety of gasoline pumps and dispensers as well as equipment for point-of-sale functions including dispensing control, electronic fund transfer and management systems. ENGINEERING SERVICES Dresser's wholly owned subsidiary, The M.W. Kellogg Company, provides engineering, construction and related services primarily to the hydrocarbon process industries. M.W. Kellogg provides its own proprietary technologies and the advanced technologies of others to facilitate the environmentally acceptable conversion of raw hydrocarbon and other chemicals into value-added end products. Kellogg's services include the development of processes, engineering design, construction and procurement for energy-related complexes in the U.S. and international regions. Kellogg participates in projects involving liquefied natural gas (LNG) plants and receiving terminals, refining and petrochemical activities, ammonia/fertilizer facilities and the retrofitting of all kinds of energy-related complexes for environmental purposes. Revenues for The M.W. Kellogg Company were $1,265.2 million, $1,215.3 million, and $1,561.5 million for 1994, 1993, and 1992, respectively. 6 BACKLOG The backlog of unfilled orders at October 31, 1994, 1993 and 1992 is included in Management's Discussion and Analysis on pages 23-24. SALES AND DISTRIBUTION Registrant's products and services are marketed through various channels. In the United States, sales are generally made through a group or division sales organization or through independent distributors. Sales in Canada are usually effected through a division of Canadian subsidiaries. Sales in other countries are made directly by a United States division or subsidiary, through foreign subsidiaries or affiliates, and through distributor arrangements or with the ssistance of independent sales agents. COMPETITION AND ECONOMIC CONDITIONS Dresser's products are sold in highly competitive markets, and its sales and earnings can be affected by changes in competitive prices, fluctuations in the level of activity in major markets, or general economic conditions. FOREIGN OPERATIONS Registrant maintains manufacturing, marketing or service facilities serving more than 80 foreign countries. Global distribution of products and services is accomplished through more than 370 subsidiary and affiliated companies engaged in various production, manufacturing, service, and marketing functions, and through foreign representatives serving the principal market areas of the world. The Information by Geographic Area is included in Note R to Consolidated Financial Statements on pages 74-75 and in Management's Discussion and Analysis on pages 26-31. Registrant's foreign operations are subject to the usual risks which may affect such operations. Such risks include unsettled political conditions in certain areas, exposure to possible expropriation or other governmental actions, operating in highly inflationary environments, and exchange control and currency problems. RESEARCH, DEVELOPMENT AND PATENTS Registrant's divisions, subsidiaries and affiliates conduct research and development activities in laboratories and test facilities within their particular fields for the purposes of improving existing products and developing new ones to meet the needs of their customers. In addition, research and development programs are directed toward development of new products and services for diversification or expansion. For the fiscal years ended October 31, 1994, 1993 and 1992, Registrant spent $102.5 million, $98.5 million and $31.1 million, respectively, for research and development activities. At December 1, 1994, Registrant and its subsidiaries and affiliates owned 2,055 patents and had pending 819 patent applications, covering various products and processes. They also were licensed under patents owned by others. Registrant does not consider that any patent or group of patents relating to a particular product or process is of material importance when judged from the standpoint of 7 Registrant's total business. EMPLOYEES As of October 31, 1994, Registrant had approximately 17,600 employees in the United States (an increase of approximately 12% from October 31, 1993), of whom approximately 5,700 were members of 10 unions represented by 25 bargaining units. As of the same date, Registrant had approximately 11,600 employees at foreign locations of whom approximately 3,300 were members of unions. During fiscal 1994, Registrant experienced no contract negotiation strikes in the United States. Relations between Registrant and its employees are generally considered to be satisfactory. EXECUTIVE OFFICERS OF REGISTRANT The names and ages of all executive officers of Registrant, all positions and offices with Registrant presently held by each person named and their business experience during the last five years are stated below: Principal Occupation During --------------------------- Name, Age and Position Past Five Years ---------------------- --------------- John J. Murphy (63) Chairman of the Board and Chief Chairman of the Board, Chief Executive Officer of Registrant Executive Officer and since August 1983; President of Director Registrant, August 1982 - March 1992. B. D. St. John (63) Vice Chairman of Registrant since Vice Chairman and Director March 1992; Executive Vice President - Administration of Registrant, November 1982 - March 1992. William E. Bradford (60) President and Chief Operating President, Chief Operating Officer of Registrant since March Officer and Director 1992; President and Chief Executive Officer of Dresser-Rand Company, February 1988 - March 1992; Senior Vice President - Operations of Registrant, March 1984 - March 1992. James L. Bryan (58) Senior Vice President - Operations Senior Vice President - since January 1994; Vice President Operations - Operations of Registrant, May 1990 - January 1994; President and Chief Executive Officer of M-I Drilling Fluids Company, December 1986 - May 1990. Donald C. Vaughn (58) Chairman of the Board, President Senior Vice President - and Chief Executive Officer of The Operations M.W. Kellogg Company since March 1983; Senior Vice President - Operations of Registrant since January 1992. 8 Principal Occupation During --------------------------- Name, Age and Position Past Five Years ---------------------- --------------- Clint E. Ables (55) Vice President - General Counsel of Vice President - General Counsel Registrant since October 1993; Vice President - Corporate Development of Registrant, November 1992 - October 1993; Senior Counsel - Corporate Ventures of Registrant, July 1986 - November 1992. Paul M. Bryant (48) Vice President - Human Resources of Vice President - Human Resources Registrant since May 1993; Vice President - Human Resources of Dresser-Rand Company, January 1987 - May 1993. George A. Helland (57) Vice President of Registrant since Vice President March 1993; Deputy Assistant Secretary for Export Assistance, United States Department of Energy, September 1990 - January 1993; Principal, Innova Partners, Inc., January 1988 - September 1990; Independent Consultant, May 1985 - September 1990. Ardon B. Judd, Jr. (58) Vice President - Washington Counsel Vice President - Washington of Registrant since September 1986. Counsel George H. Juetten (47) Vice President - Controller of Vice President - Controller Registrant since May 1993; Audit Partner, Price Waterhouse, independent public accountants, July 1980 - May 1993. Rebecca R. Morris (49) Vice President - Corporate Counsel Vice President - Corporate Counsel of Registrant since January 1994 and Secretary and Secretary of Registrant since November 1990; Corporate Counsel of Registrant June 1987 - January 1994. David R. Smith (48) Vice President - Tax of Registrant Vice President - Tax since January 1994; Director of Tax of Registrant, October 1987 - January 1994. Paul W. Willey (57) Treasurer of Registrant since May Treasurer 1984. 9 OFFICER EMPLOYED BY JOINT VENTURE COMPANY Principal Occupation During --------------------------- Name, Age and Position Past Five Years ---------------------- --------------- Ben R. Stuart (60) President and Chief Executive Senior Vice President - Officer of Dresser-Rand Company Operations since March 1992; Senior Vice President - Operations of Registrant since March 1992; Vice President - Operations of Registrant, August 1988 - March 1992. All officers are elected annually by the Board of Directors at a meeting following the Annual Meeting of Shareholders. The officers serve at the pleasure of the Board of Directors and can be removed at any time by the Board. ITEM 2. PROPERTIES Registrant, together with its subsidiaries and affiliates, has more than 65 manufacturing plants, ranging in size from approximately 3,000 square feet to in excess of 1,500,000 square feet and totaling more than 14 million square feet, located in the United States, Canada, and various other foreign countries. The majority of the manufacturing sites are owned in fee. In addition, sales offices, warehouses, service centers and stock points are maintained, almost all in leased space, in the United States, Canada and certain other foreign countries. The properties are believed to be generally well maintained, adequate for the purposes for which they are used, and capable of supporting a higher level of market demand. During fiscal 1994 Baroid Drilling Fluids, Inc. had 20 grinding and/or other facilities for beneficiating mineral ores, containing approximately 1,200 acres in plant site property. The following are the locations of the principal facilities of Registrant and its majority owned joint ventures for each industry segment as of October 31, 1994:
Approximate Floor Area Industry Segment and Location Product Area (Square Feet) ----------------------------- ------------ ------------- Oilfield Services Aberdeen, Scotland (Underwater Services) 111,000 Dallas, Texas (Drill Bits) 294,000 Dallas, Texas (Completion & Production Tools) 278,500 Houston, Texas (Completion & Production Tools) 45,000 (1) Longview, Texas (Completion & Production Tools) 235,000 Colorado Springs, Colorado (Completion & Production Tools) 97,000 Kuantan, Malaysia (Pipe Coatings) 852,832 (1)
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Approximate Floor Area Industry Segment and Location Product Area (Square Feet) ----------------------------- ------------ ------------- Zhanjisng, China (Pipe Coatings) 116,251 (1) Layyah, Sharjah, U.A.E. (Pipe Coatings) 1,233,070 (1) Oilfield Services (continued) Warri, Nigeria (Pipe Coatings) 1,568,173 (1) Hydrocarbon Processing Industry Manchester, England (Mono Pumps) 242,000 Victoria, Australia (Mono Pumps) 145,000 Connersville, Indiana (Power Systems) 376,790 Huddersfield, England (Power Systems) 159,561 Waukesha, Wisconsin (Power Systems) 764,557 Appingedam, Netherlands (Power Systems) 136,935 Painted Post, New York (Compressors) 982,000 Broken Arrow, Oklahoma (Compressors) 129,000 Wythenshawe, England (Compressors) 306,000 Olean, New York (Compressors) 896,000 Lethbridge, Alberta, Canada (Compressors) 78,000 Houston, Texas (Compressors) 135,000 (1) LeHavre, France (Compressors) 538,000 Kongsberg, Norway (Compressors) 135,000 (1) Wellsville, New York (Steam Turbines) 389,000 Minneapolis, Minnesota (Motors) 350,000 Skelmersdale, England (Control Products) 177,000 (1) Uxbridge, England (Control Products) 105,942 Avon, Massachusetts (Control Products) 121,000 Canton, Massachusetts (Control Products) 40,590 Montebello, California (Control Products) 82,856 (1) Alliance, Ohio (Control Products) 62,000 Bradford, Pennsylvania (Control Products) 450,000 Houston, Texas (Control Products) 110,000 (1) Jacarei, Brazil (Control Products) 80,699 Conde, France (Control Products) 187,244 Barcelona, Spain (Control Products) 56,400 Burlington, Ontario, Canada (Control Products) 53,000 Naples, Italy (Control Products) 87,791 Stratford, Connecticut (Control Products) 335,000 Berea, Kentucky (Control Products) 105,000 Alexandria, Louisiana (Control Products) 308,640 Dumfermline, Scotland (Pitreavie) (Control Products) 153,850 Dumfermline, Scotland (Halbeath) (Control Products) 116,737
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Approximate Floor Area Industry Segment and Location Product Area (Square Feet) ----------------------------- ------------ ------------- Salisbury, Maryland (Marketing Systems) 370,395 (1) Austin, Texas (Marketing Systems) 103,491 Malmo, Sweden (Marketing Systems) 233,533 (1) Hydrocarbon Processing Industry (continued) Einbeck, Germany (Marketing Systems) 80,505 (1) Rio de Janeiro, Brazil (Marketing Systems) 129,166 (1) Bonnyrigg, Scotland (Marketing Systems) 60,000 Markham, Ontario, Canada (Marketing Systems) 55,631 (1) -------- (1) all or a portion of these facilities are leased.
Baroid Drilling Fluids, Inc. has mineral rights to proven and prospective reserves of barite and bentonite. Such rights included leaseholds and mining claims and property owned in fee either directly by Baroid Drilling Fluids, Inc. or by its wholly owned subsidiary Bentonite Corporation. The principal deposit of barite is located in Nevada, with deposits also located in Missouri and Georgia. Reserves of bentonite are located in Wyoming, Montana and South Dakota. Based on the number of tons of each of the above minerals consumed in fiscal 1994, Baroid Drilling Fluids, Inc. estimates its reserves, which it considers to be proven, to be sufficient for operation for a period of 10 years or more. ITEM 3. LEGAL PROCEEDINGS. The Company is involved in various legal proceedings. Information called for by this Item is included in Note M to the Consolidated Financial Statements on pages 59-64. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's security holders during the quarter ended October 31, 1994. 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Registrant is listed on the New York and Pacific Stock Exchanges. The stock symbol is DI. The quarterly market prices for Registrant's Common Stock, traded principally on the New York Stock Exchange, were as follows for the two most recent fiscal years:
First Second Third Fourth Year ----------------------------------------- 1994 High. . . . . $ 22.75 24.875 23.875 22.25 24.875 1994 Low . . . . . $ 18.625 20.50 20.375 19.00 18.625 1993 High. . . . . $ 18.75 21.88 25.13 25.38 25.38 1993 Low . . . . . $ 17.25 17.88 20.25 20.00 17.25
Dividends on Registrant's Common Stock are declared by the Board of Directors and normally paid to shareholders as of the record date during the third week of March, June, September and December. The cash dividends paid per share of common stock for the 1994 and 1993 fiscal years were:
First Second Third Fourth Year ----------------------------------------- 1994 . . . . . . . $ .15 .17 .17 .17 .66 1993 . . . . . . . $ .15 .15 .15 .15 .60
As of January 25, 1995, there were approximately 22,650 shareholders of the Registrant's Common Stock. 13 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto included in this report.
1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues 5,330.7 5,202.3 4,723.3 4,860.0 4,457.3 Earnings from continuing operations before extra- ordinary items and accounting changes 361.8 133.6 97.7 143.5 167.0 Per share 1.98 .74 .55 .81 .99 Total assets 4,323.6 4,445.6 3,901.9 3,784.9 3,841.3 Long-term debt 460.6 492.2 148.5 259.6 409.3 Cash dividends declared 116.5 100.2 96.3 96.8 89.3 Per share* .66 .60 .60 .60 .525 *Dresser historical dividends.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW MERGERS On January 21, 1994, Dresser merged with Baroid Corporation (Baroid). On August 5, 1994, Dresser merged with Wheatley TXT Corp. (Wheatley). The "Company" as used in this discussion refers to Dresser and its subsidiaries including Baroid and Wheatley. The mergers have been accounted for as pooling of interests. Financial data, statistical data, financial statements and discussion of financial information included in this report have been restated to reflect the financial position and results of operations as if the mergers had occurred on November 1, 1989. See Notes B and C to Consolidated Financial Statements for more information about the mergers. 14 OVERVIEW (CONTINUED) SPECIAL ITEMS During the last three years, the Company has entered into a number of unusual or nonrecurring transactions, including mergers, divestitures and restructuring of existing operations. The impact of these transactions is described below. The discussions of results of operations will focus on earnings excluding these transactions.
(In millions) 1994 1993 1992 - ----------- -------- -------- ------- Earnings before special items $ 221.6 $ 211.4 $ 147.7 Gain on sale of interest in Western Atlas 146.5 - - Parker & Parsley litigation - insurance recovery/settlement 11.6 (41.6) - Merger expenses - Wheatley/Baroid (7.9) (30.6) - Restructuring and other special charges (10.0) (5.6) (50.0) -------- -------- -------- Earnings from continuing operations 361.8 133.6 97.7 Discontinued operations - - (35.3) Extraordinary items - - (6.3) Accounting changes - - (393.8) -------- -------- -------- Net earnings (loss) $ 361.8 $ 133.6 $ (337.7) -------- -------- -------- -------- -------- -------- Per Share 1994 1993 1992 - --------- -------- -------- -------- Earnings before special items $ 1.21 $ 1.17 $ .83 Gain on sale of interest in Western Atlas .80 - - Parker & Parsley litigation - insurance recovery/settlement .06 (.23) - Merger expenses - Wheatley/Baroid (.04) (.17) - Restructuring and other special charges (.05) (.03) (.28) -------- -------- --------- Earnings from continuing operations 1.98 .74 .55 Discontinued operations - - (.20) Extraordinary items - - (.03) Accounting changes - - (2.21) -------- -------- -------- Net earnings (loss) $ 1.98 $ .74 $ (1.89) -------- -------- -------- -------- -------- --------
15 OVERVIEW (CONTINUED) SPECIAL ITEMS (CONTINUED) The Company sold its 29.5% interest in Western Atlas International in January 1994 and recognized a pre-tax gain of $275.7 million. (See Note D to Consolidated Financial Statements.) The Company recorded pre-tax charges of $65.0 million in 1993 for settlement of the Parker & Parsley litigation. (See Note O to Consolidated Financial Statements.) 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 Parker & Parsley litigation. The Company recorded pre-tax expenses of $10.7 million in August 1994 related to the Wheatley merger and $31.0 million in October 1993 related to the Baroid merger. (See Notes B and O to Consolidated Financial Statements.) The Company recorded pre-tax expenses of $15.7 million in 1994, $9.1 million in 1993 and $70.0 million in 1992 for restructuring costs and other special items. The 1992 charges included $35.0 million for restructuring the Ingersoll-Dresser Pump joint venture. (See Note O to Consolidated Financial Statements.) In 1992, the Company spun-off its industrial products operations (INDRESCO) and made the decision to dispose of its Environmental Products business. The results of these operations are reflected as Discontinued Operations in the 1992 Consolidated Statement of Earnings. (See Note P to Consolidated Financial Statements.) The Company incurred losses totaling $9.8 million (pre-tax) in 1992 in connection with the redemption of its debentures. These losses are reported as an extraordinary item in the 1992 Statement of Earnings. (See Note J to Consolidated Financial Statements.) In 1992, the Company adopted two new accounting standards relating to retiree medical benefits and income taxes. The combined net effect of these changes was a one time non-cash charge of $394 million or $2.21 per share, which is reflected as the Cumulative Effect of Accounting Changes in the 1992 Consolidated Statement of Earnings. (See Notes H and N to Consolidated Financial Statements.) 16 RESULTS OF OPERATIONS GENERAL OPERATING ENVIRONMENT Dresser is a fully integrated manufacturer and supplier of products and services to customers in the oil and gas industry. The Company produces a broad range of highly engineered products for hydrocarbon exploration, drilling, production, transmission and processing activities. Dresser also provides engineering, procurement and project management services for all aspects of the energy business. Operations are organized into three segments: Oilfield Services, Hydrocarbon Processing Industry and Engineering Services. See Note R to Consolidated Financial Statements for a summary of the products and services included in each segment. Demand for Oilfield Services Segment products and services is directly affected by energy prices and drilling activity. Demand for the products and services offered by the Hydrocarbon Processing Industry Segment and Engineering Services Segment is affected by global and regional economic activity, which influences demand for processing capacity for the manufacture of transportation fuel, petrochemicals, plastics, fertilizers, chemicals and other by-products of oil and gas. In fiscal 1994, drilling activity increased 11% over the prior year in North America, due largely to strong natural gas prices early in the year. Internationally, drilling activity fell 5% reflecting a number of influences, including the low price of oil and political uncertainty in various regions of the world. In 1994, ongoing construction activity for hydrocarbon processing projects continued at relatively high levels. However, a slowdown in 1993 and early 1994 in new projects resulted in lower backlogs at several operations, including Dresser-Rand and M.W. Kellogg. CONSOLIDATED RESULTS 1994 COMPARED TO 1993 Revenues were $5.3 billion in 1994 compared to $5.2 billion in 1993. Oilfield Services revenues were lower primarily due to the inclusion of both M-I Drilling Fluids and Baroid Drilling Fluids in 1993, while 1994 included M-I Drilling Fluids for only four months. That decrease was more than offset by higher revenues by the other two segments. Revenues include the Company's share of earnings of unconsolidated affiliates, which was down $53 million in 1994 mostly attributable to $39 million in 1993 for Western Atlas. 17 RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS (CONTINUED) 1994 COMPARED TO 1993 (continued) Excluding the special items described above, net earnings increased $10 million to $221 million. Segment operating profit for 1994 was $40 million lower compared to 1993. However, 1993 included the results of Western Atlas ($39 million), the impact of a full year of M-I Drilling Fluids earnings ($16 million) and the favorable impact of a LIFO inventory adjustment ($21 million) at Ingersoll-Dresser Pump (IDP). Accordingly, comparable 1994 segment operating profit increased $36 million, reflecting high levels of drilling activity in North America and strong levels of demand for certain of the Company's hydrocarbon processing equipment. See the Industry Segment Analysis below for a discussion of the results of each segment. General Corporate Expenses declined $19 million to $69 million, reflecting lower self insurance costs and lower ongoing expenses associated with previously divested businesses. Net interest expense declined $10 million primarily due to the investment of the proceeds from the sale of Western Atlas and M-I Drilling Fluids. Other items impacting comparability of 1994 to 1993 include a non- recurring gain of $12.8 million in 1993 resulting from a change in the Company's Retiree Medical Benefit Plan and an increase in goodwill amortization of $5.6 million in 1994 associated with the Bredero Price, TK Valve and Axelson acquisitions. The effective tax rate applicable to earnings before taxes and special items declined to 28% from 33% in 1993, a reduction of $30 million. The lower effective rate resulted primarily from the recognition of tax benefits applicable to losses associated with receivables from IRI International. The effective tax rate should return to the 33%-35% level in 1995. Minority interest expense was $11 million lower in 1994 primarily due to the sale of M-I Drilling Fluids Company, which had a 36% minority owner. 18 RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS (CONTINUED) 1993 COMPARED TO 1992 Revenues increased from $4.7 billion in 1992 to $5.2 billion in 1993. The consolidation of Dresser-Rand's financial statements in 1993 was the primary reason for the increase. In 1992, Dresser-Rand was accounted for using the equity method. Excluding special items, 1993 net earnings increased $63.7 million to $211.4 million, and segment operating profit increased $121.4 million compared to 1992. The consolidation of Dresser-Rand in 1993 added $46 million to segment operating profit. The Company and its joint ventures amended retiree medical benefit plans in 1993, thus reducing the related expense by $17 million compared to 1992. Also during 1993, the Company recorded a favorable IDP LIFO inventory adjustment of $21 million. Excluding these items, 1993 segment operating profit increased $37 million due to the acquisition of Bredero Price and stronger results in the Oilfield Services Segment and Engineering Services Segment partially offset by a decline in the 1993 results of Ingersoll-Dresser Pump versus the operations of Dresser Pump Operation in 1992. See the Industry Segment Analysis below for a discussion of the results for each segment. The non-recurring gain resulting from the amendment to retiree medical plan mentioned above added $13 million to 1993 earnings versus 1992. Reduced interest expense resulting from the redemption of sinking fund debentures in 1992 was offset by interest on debt incurred to finance acquisitions. The effective tax rate applicable to earnings before taxes and special items declined to 33% in 1993 from 39% in 1992. Reduced losses in foreign countries with no tax benefit, increased utilization of foreign tax credits and a $9 million benefit associated with a change in the U.S. corporate income tax rate from 34% to 35%, caused the reduction. Despite the reduction in the effective tax rate, the increase in earnings before taxes and special items from $257 million to $382 million resulted in an increased tax charge of $26 million. The consolidation of Dresser-Rand in 1993 resulted in an increase in minority interest representing a 49% share of Dresser-Rand's earnings. 19 INDUSTRY SEGMENT ANALYSIS See details of financial information by Industry Segment and Geographic Area following the industry segment discussion and the backlog table. OILFIELD SERVICES Segment revenues of $1.65 billion were down $86 million in 1994 compared to 1993. Excluding the revenues of M-I Drilling Fluids, which was sold in February 1994, revenues increased 13%, or $168 million. The increase in 1994 revenues was due to the acquisition of Axelson in December 1993 and an 11% increase in North American drilling activity in 1994 versus 1993. Segment revenues from North American markets increased 33% in 1994, reflecting strength in the Gulf of Mexico and Canada. Operating profit of $156.8 million in 1994 was $33 million lower than 1993. Excluding $39 million of 1993 earnings from Western Atlas and $16 million lower earnings from M-I Drilling Fluids, segment earnings were up $22 million. The strong performance in North American drilling markets led to substantial increases in operating profit for Sperry-Sun and Baroid Drilling Fluids. The acquisition of Axelson as well as a $9 million reduction in overhead costs resulting from the Baroid merger also contributed to the increase. These improvements more than offset the decline in operating profit from international markets and lower earnings attributable to costs associated with the combination of Guiberson AVA with Axelson and Security with DBS. Management believes that steps taken during 1994 at these operations will result in improved performances next year. Despite the recent strength of the North American drilling markets, approximately 60% of 1994 segment revenues and operating profit were derived from markets outside North America. This is primarily due to the performance of the Bredero Price pipe coating business, which is entirely outside of North America. Segment revenues were $1.7 billion in 1993 compared to $1.4 billion in 1992. The increase included $211 million of 1993 revenues of Bredero Price and TK Valve, which were purchased in 1993. An increase in revenues from North American sources to 39% of total segment revenues from 35% was directly related to increased drilling activity in North America, particularly the Gulf of Mexico. A decline in revenues from drilling activities outside of North America was offset by the addition of Bredero Price and TK Valve. 20 INDUSTRY SEGMENT ANALYSIS (CONTINUED) OILFIELD SERVICES (CONTINUED) Operating profit before special charges in 1992 increased from $112 million to $189 million in 1993. The above-mentioned increase in North America drilling activity contributed to the substantial increase in segment operating profit and more than offset a decline in operating profit due to lower international drilling activity. All drilling-related businesses contributed to the improvement, particularly Sperry-Sun and Baroid Drilling Fluids. The addition of Bredero Price and TK Valve during 1993 accounted for approximately half of the total increase in segment operating profit. In 1993, approximately 60% of segment revenues and approximately 70% of segment operating profit were from markets outside North America. HYDROCARBON PROCESSING INDUSTRY DRESSER-RAND - Revenues of $1.2 billion in 1994 increased 10% from a year earlier due primarily to a 20% increase in revenues from markets outside North America, particularly in the Eastern Hemisphere. This primarily reflected the workoff of prior-year backlog of centrifugal products and compression services. Operating profit continued strong at $71.9 million but was down from $87.6 million in 1993 due to restructuring and early retirement costs as well as margin pressure on complete-unit sales. Bookings in 1994 were level with the prior year at $1 billion. Key markets contributing to 1994 bookings included Uzbekistan, China, Argentina, Thailand, Egypt and Denmark. Revenues from North American markets were 39% in 1994 compared to 44% in 1993. Operating profit from North America was essentially unchanged, with strong results from the field gas market offsetting a decline in the centrifugal product market. Internationally, significant improvements in operating profit in Venezuela and the North Sea only partially offset declines in continental Europe and the Middle East resulting from margin pressure on complete unit sales. 21 INDUSTRY SEGMENT ANALYSIS (CONTINUED) HYDROCARBON PROCESSING INDUSTRY (CONTINUED) Dresser-Rand's revenues were $1.1 billion in 1993 and operating profit was $87 million, and were fully consolidated after the Company acquired an additional 1% interest. On a basis comparable to 1993, revenues were $1.3 billion in 1992 and operating profit was approximately $84 million. In 1993, approximately 55% of Dresser-Rand revenues and operating profit were from sources outside the United States. INGERSOLL-DRESSER PUMP (IDP) - Earnings from the 49% owned joint venture were $9 million in 1994 and $17 million in 1993. However, 1993 included $21 million of earnings from the release of LIFO inventory reserves related to inventory contributed to IDP by the Company and sold by IDP to third parties. IDP's revenues were $752 million in 1994 versus $761 million in 1993. IDP's improved operating results reflect the impact of restructuring during the start-up period. IDP operated at a small loss in 1993, excluding the $21 million LIFO adjustment, as compared to a profit for the Company's separate Pump Operations of $27 million in 1992. This decline resulted primarily from a recession in Europe (a major market for IDP), and the discontinuity associated with the combination and rationalization of the separate Pump Operations of Dresser and Ingersoll-Rand. OTHER OPERATIONS - Revenues of $1.2 billion were up $48 million (4%) from 1993, and operating profit of $143 million was up $16 million (13%) from 1993. All operations except Valve and Controls, which felt the lingering impact of an economic recession in Europe, had higher revenues and operating profit. During 1994 the Valve and Controls Division downsized its European operations to reflect a changing market. Approximately 55% of segment revenues were from outside North America with about 26% being from Europe in both years. A record performance for the Wayne Division accounted for most of the increase in operating profit. In comparing 1993 with 1992, revenues were down $34 million (3%) and operating profit was down $3 million (2%). Revenues from outside North America were 45% in 1993 and 44% in 1992 with Europe accounting for 27% in 1993 and 32% in 1992. A strong performance in 1993 by the Wayne Division with earnings up $15 million from 1992 offsets a 23% decline in Valve and Controls earnings principally in Europe. Also, inventory reductions in 1992, which resulted in a favorable LIFO impact of $9 million, did not recur in 1993. 22 INDUSTRY SEGMENT ANALYSIS (CONTINUED) ENGINEERING SERVICES (M.W. KELLOGG COMPANY) Revenues in 1994 were $1.27 billion compared with $1.22 billion in 1993 and $1.56 billion in 1992. From 1992 to 1994, revenues from outside North America increased from 39% to 81% of the total, reflecting the significance of large international projects to which M.W. Kellogg provides process and execution technology differentiation, particularly in the areas of refining, ammonia and liquefied natural gas. In 1994, 44% of revenues came from the Mid East, Far East and Africa area and 30% came from Latin America. The Mid East, Far East and Africa area produced 45% of 1993 revenues and 28% of 1992 revenues. Operating profit was $85.5 million in 1994, $85.7 million in 1993 and $76.2 million in 1992. Operating profit for 1994 included a $11.0 million gain associated with an initial public offering by a Mexican affiliate. Operating profit in 1992 included a $15.5 million gain from the sale of a partial interest in a United Kingdom subsidiary. The nature of M.W. Kellogg's business presents ongoing opportunities for equity investments, which historically have produced similar gains. In 1992, operating profit was split between North American and international markets. However, in 1993 and 1994, substantially all operating profit was derived from international sources, particularly the Far East, North Africa and Latin America. BACKLOG OF UNFILLED ORDERS Backlog at the end of 1994 of $1.6 billion was down $.9 billion from the end of 1993, reflecting a slowdown during 1994 in the number of new awards for global hydrocarbon processing projects. Toward the end of 1994, global project activity began to improve. M.W. Kellogg, Dresser-Rand and Bredero Price currently have outstanding bids for a number of major projects that may be awarded during 1995. 23 BACKLOG OF UNFILLED ORDERS (CONTINUED)
October 31, ----------------------------- 1994 1993 1992 -------- -------- -------- (IN MILLIONS) CONSOLIDATED BACKLOG Oilfield Services $ 183.6 $ 196.6 $ 24.8 -------- -------- -------- Hydrocarbon Processing Industry Dresser-Rand (100%) 661.0 872.6 1,066.5 Other 280.1 254.7 259.9 -------- -------- -------- 941.1 1,127.3 1,326.4 -------- -------- -------- Engineering Services 1,626.1 2,478.1 1,634.7 -------- -------- -------- Eliminations (2.1) (4.4) (3.8) -------- -------- -------- Total consolidated $2,748.7 $3,797.6 $2,982.1 -------- -------- -------- -------- -------- -------- SHARE OF BACKLOG OF Ingersoll-Dresser Pump Company (49%) $ 188.3 $ 178.9 $ 219.3 -------- -------- -------- -------- -------- --------
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION The Company's liquidity and overall financial condition improved substantially during 1994. Cash provided by operating activities of $354 million exceeded capital expenditures and dividends by $50 million. Management does not expect capital expenditures, which were $187 million in 1994, to change significantly in 1995. Net cash provided by operations in 1994 was $180 million higher than in 1993. Included in 1994 receipts were $57 million from a large engineering and construction contract and $23 million from insurance companies concerning the Parker & Parsley litigation settlement. During 1993, the Company paid $58 million related to the Parker & Parsley settlement, and income exceeded cash collections by $43 million on a large engineering and construction contract. Excluding the $80 million of unusual 1994 receipts and the $101 million of unusual 1993 payments, cash flow from operations would have been $274 million and $275 million in 1994 and 1993, respectively. In addition, the Company received cash proceeds totaling $612 million, net of $106 million of taxes paid, from the sales of interests in Western Atlas International, Inc. and M-I Drilling Fluids. Management does not expect to generate cash from sales of major business units in the foreseeable future. The Company paid off approximately $300 million of short-term commercial paper and Baroid and Wheatley debt. As a result, the balance of cash and cash equivalents of $515 million at October 31, 1994 was $315 million higher than at October 31, 1993. 24 Liquidity, Capital Resources and Financial Condition (continued) The Company's ratio of total debt to total debt and shareholders' equity improved to 23/77 at October 31, 1994 compared to 39/61 at October 31, 1993. Management believes that the cash on hand of $515 million and $302 million of existing lines of credit, combined with cash that will be provided by future operations, will be adequate to finance known requirements. During 1994, the Company's debt ratings were upgraded by Standard and Poors from A- to A for long-term debt and from A-2 to A-1 for commercial paper. Management believes that the Company's strong financial condition and favorable credit ratings will allow the Company to borrow additional funds should the need arise. Legal and Environmental Matters The Company was involved for several years in litigation brought by Parker & Parsley Petroleum Company and related parties and in negotiations with its insurance carriers. The Parker & Parsley litigation was settled in 1993 and the related litigation and the insurance coverage disputes were settled in 1994. (See Note O to Consolidated Financial Statements.) The Company is currently involved in a number of lawsuits. See Note M to Consolidated Financial Statements for information on these lawsuits and evaluation of the Company's exposure. The Company has been identified as a potentially responsible party in a number of Superfund sites. Note M to Consolidated Financial Statements includes a review and evaluation of the claims. 25 INDUSTRY SEGMENT AND GEOGRAPHIC AREA FINANCIAL INFORMATION - COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS The following financial information by Industry Segment and Geographic Area for the years ended October 31, 1994, 1993 and 1992 is an integral part of Note R to Consolidated Financial Statements. Certain reclassifications have been made to prior-year data to conform to the 1994 presentation. In addition, geographic operating income is now presented on a point of destination basis as the Company believes this presentation more accurately reflects the economics of doing business on a global basis. INDUSTRY SEGMENT FINANCIAL INFORMATION The Company increased its ownership in Dresser-Rand Company from 50% to 51% as of October 1, 1992. As a result, Dresser-Rand is included as a consolidated subsidiary in 1993 and as an unconsolidated affiliate in 1992. Ingersoll- Dresser Pump Company was formed as of October 1, 1992 with the Company owning 49%. Ingersoll-Dresser is included as an unconsolidated affiliate in 1993 and 1994. The Company's Pump business that was transferred to Ingersoll-Dresser is included as Pump Operations in 1992.
1994 1993 1992 --------- -------- --------- (IN MILLIONS) REVENUES Oilfield Services $1,653.3 $1,739.5 $1,441.5 --------- -------- --------- Hydrocarbon Processing Industry Dresser-Rand 1,234.5 1,118.1 40.3 Ingersoll-Dresser Pump/ Pump Operations 8.8 17.1 527.6 Other Operations 1,172.8 1,125.1 1,158.8 --------- -------- --------- 2,416.1 2,260.3 1,726.7 --------- -------- --------- Engineering Services 1,265.2 1,215.3 1,561.5 --------- -------- --------- Eliminations (3.9) (12.8) (6.4) --------- -------- --------- Total revenues $5,330.7 $5,202.3 $4,723.3 --------- -------- --------- --------- -------- ---------
26 INDUSTRY SEGMENT AND GEOGRAPHIC AREA FINANCIAL INFORMATION - COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS INDUSTRY SEGMENT INFORMATION (CONTINUED)
1994 1993 1992 -------- -------- -------- (IN MILLIONS) Share of revenues of major joint ventures Western Atlas (29.5%) $ - $ 320.4 $ 354.5 Dresser-Rand (50%) - - 645.2 Ingersoll-Dresser Pump (49%) 368.6 372.9 39.7 -------- -------- -------- $ 368.6 $ 693.3 $1,039.4 -------- -------- -------- -------- -------- -------- OPERATING PROFIT AND EARNINGS BEFORE TAXES Oilfield Services Consolidated Operations $ 156.8 $ 150.0 $ 76.4 Western Atlas Operations - 39.2 35.2 Special charges - .6 (17.1) -------- -------- -------- 156.8 189.8 94.5 -------- -------- -------- Hydrocarbon Processing Industry Dresser-Rand operations 71.9 87.6 40.3 Ingersoll Dresser Pump/ Pump Operations 8.8 17.1 27.3 Other Operations 143.4 127.3 130.1 Special charges (6.2) (7.5) (49.3) -------- -------- -------- 217.9 224.5 148.4 -------- -------- -------- Engineering Services Operations 74.5 85.7 76.2 Gain on Mexican affiliate's public offering 11.0 - - -------- -------- -------- 85.5 85.7 76.2 -------- -------- -------- Total operating profit 460.2 500.0 319.1 Amortization of acquisition intangibles* (27.4) (21.8) (12.9) General corporate expenses (69.1) (88.3) (86.9) Special charges (1.8) (98.2) (3.6) Gain on sale of interest in Western Atlas 275.7 - - Retiree benefit curtailment gain - 12.8 - Interest expense, net (18.2) (27.8) (28.3) -------- -------- -------- Earnings before taxes $ 619.4 $ 276.7 $ 187.4 -------- -------- -------- -------- -------- --------
27 INDUSTRY SEGMENT AND GEOGRAPHIC AREA FINANCIAL INFORMATION - COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS INDUSTRY SEGMENT INFORMATION (CONTINUED)
1994 1993 1992 -------- -------- -------- (IN MILLIONS) * AMORTIZATION OF ACQUISITION INTANGIBLES BY SEGMENT Oilfield Services $ 12.6 $ 7.8 $ 3.6 Hydrocarbon Processing Industry 4.5 4.3 (.9) Engineering Services 10.3 9.7 10.2 -------- -------- -------- $ 27.4 $ 21.8 $ 12.9 -------- -------- -------- -------- -------- -------- IDENTIFIABLE ASSETS Oilfield Services Consolidated Operations $1,218.5 $1,320.3 $1,013.3 Western Atlas investment - 278.2 259.0 -------- -------- -------- 1,218.5 1,598.5 1,272.3 Hydrocarbon Processing Industry -------- -------- -------- Dresser-Rand 709.1 748.9 725.6 Ingersoll-Dresser Pump investment 155.1 140.0 147.8 Other Operations 644.8 535.7 562.3 -------- -------- -------- 1,509.0 1,424.6 1,435.7 -------- -------- -------- Engineering Services 204.8 273.8 220.2 -------- -------- -------- Eliminations (44.2) (21.9) (21.5) -------- -------- -------- Total identifiable assets 2,888.1 3,275.0 2,906.7 Acquisition intangible assets* 668.4 626.7 429.2 Corporate assets 767.1 543.9 566.0 -------- -------- -------- Total assets $4,323.6 $4,445.6 $3,901.9 -------- -------- -------- -------- -------- -------- * ACQUISITION INTANGIBLE ASSETS BY SEGMENT Oilfield Services $ 365.6 $ 312.7 $ 104.5 Hydrocarbon Processing Industry 85.5 80.3 80.7 Engineering Services 217.3 233.7 244.0 -------- -------- -------- $ 668.4 $ 626.7 $ 429.2 -------- -------- -------- -------- -------- --------
28 INDUSTRY SEGMENT AND GEOGRAPHIC AREA FINANCIAL INFORMATION - COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS INDUSTRY SEGMENT INFORMATION (CONTINUED)
1994 1993 1992 -------- -------- -------- (IN MILLIONS) CAPITAL EXPENDITURES Oilfield Services $ 108.4 $ 82.1 $ 66.2 -------- -------- -------- Hydrocarbon Processing Industry Dresser-Rand 39.2 57.5 - Pump Operations - - 12.7 Other Operations 35.1 33.6 40.3 -------- -------- -------- 74.3 91.1 53.0 -------- -------- -------- Engineering Services 2.1 2.8 13.1 -------- -------- -------- Corporate 2.3 17.0 2.4 -------- -------- -------- Total capital expenditures $ 187.1 $ 193.0 $ 134.7 -------- -------- -------- -------- -------- -------- DEPRECIATION AND AMORTIZATION Oilfield Services $ 87.6 $ 79.3 $ 68.0 -------- -------- -------- Hydrocarbon Processing Industry Dresser-Rand (100%) 65.4 64.4 - Pump Operations - .3 13.4 Other Operations 35.2 33.8 33.0 -------- -------- -------- 100.6 98.5 46.4 -------- -------- -------- Engineering Services 18.8 20.8 20.9 -------- -------- -------- Corporate 9.3 13.2 13.9 -------- -------- -------- Total depreciation and amortization $ 216.3 $ 211.8 $ 149.2 -------- -------- -------- -------- -------- --------
29 INDUSTRY SEGMENT AND GEOGRAPHIC AREA FINANCIAL INFORMATION - COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS GEOGRAPHIC AREA FINANCIAL INFORMATION The financial information by Geographic Area is as follows (in millions):
1994 1993 1992 -------- -------- -------- REVENUES BY POINT OF ORIGIN United States . . . . . . $3,061.8 $2,917.8 $2,648.9 Canada . . . . . . . . . 242.5 180.5 124.6 Latin America . . . . . . 409.8 252.1 177.4 Europe . . . . . . . . . 1,399.7 1,316.4 1,239.1 Mid East, Far East and Africa . . . . . . . . 753.4 895.3 755.5 Eliminations . . . . . . (536.5) (359.8) (222.2) -------- -------- -------- Total revenues . . . . $5,330.7 $5,202.3 $4,723.3 -------- -------- -------- -------- -------- -------- REVENUES BY POINT OF DESTINATION United States . . . . . . $1,801.4 $2,044.0 $2,083.6 Canada . . . . . . . . . 261.9 210.4 143.6 Latin America . . . . . . 722.3 439.7 284.8 Europe . . . . . . . . . 1,069.2 1,075.1 1,199.9 Mid East, Far East and Africa . . . . . . . . 1,475.9 1,433.1 1,011.4 -------- -------- -------- Total revenues . . . . $5,330.7 $5,202.3 $4,723.3 -------- -------- -------- -------- -------- -------- UNITED STATES EXPORT SALES Canada . . . . . . . . . . $ 52.5 $ 41.4 $ 26.8 Latin America . . . . . . . 291.1 184.4 129.9 Europe . . . . . . . . . . 82.5 51.0 36.5 Mid East, Far East and Africa . . . . . . . 512.6 388.6 255.4 -------- -------- -------- Total United States export sales . . . . $ 938.7 $ 665.4 $ 448.6 -------- -------- -------- -------- -------- --------
30 INDUSTRY SEGMENT AND GEOGRAPHIC AREA FINANCIAL INFORMATION - COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS GEOGRAPHIC AREA FINANCIAL INFORMATION (CONTINUED)
1994 1993 1992 -------- -------- -------- OPERATING PROFIT United States . . . . . . . $ 170.8 $ 152.9 $ 11.3 Canada . . . . . . . . . . 31.2 26.2 21.9 Latin America . . . . . . . 53.4 32.6 36.2 Europe . . . . . . . . . . 58.0 103.1 103.8 Mid East, Far East and Africa . . . . . . . . . 146.8 185.2 145.9 -------- -------- -------- Total operating profit . $ 460.2 $ 500.0 $ 319.1 -------- -------- -------- -------- -------- -------- IDENTIFIABLE ASSETS United States . . . . . . . $1,523.6 $1,817.4 $1,704.8 Canada . . . . . . . . . . 85.6 100.4 102.1 Latin America . . . . . . . 182.0 196.2 234.6 Europe . . . . . . . . . . 964.7 904.2 791.7 Mid East, Far East and Africa . . . . . . . 260.9 412.3 204.9 Adjustments and eliminations . . . . . . (128.7) (155.5) (131.4) -------- -------- -------- Total identifiable assets $2,888.1 $3,275.0 $2,906.7 -------- -------- -------- -------- -------- --------
31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Management Report of Independent Accountants - Price Waterhouse LLP Consolidated Statements of Earnings (Loss) Years Ended October 31, 1994, 1993 and 1992 Consolidated Balance Sheets - October 31, 1994 and 1993 Consolidated Statements of Shareholders' Equity - October 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows - Years Ended October 31, 1994, 1993 and 1992 Note A - Summary of Significant Accounting Policies Note B - Basis of Presentation and Baroid Financial Information Note C - Acquisitions and Divestitures Note D - Unconsolidated Affiliated Companies Note E - Cash Flow Data Note F - Long-Term Contracts Note G - Inventories Note H - Income Taxes Note I - Short-Term Debt Note J - Long-Term Debt Note K - Employee Incentive Plans Note L - Capital Shares Note M - Commitments and Contingencies Note N - Postretirement Benefits Note O - Supplementary Information and Special Charges Note P - Discontinued Operations Note Q - Financial Instruments Note R - Information by Industry Segment and Geographic Area (Financial information is included in Item 7. of this report.) Note S - Quarterly Financial Data (Unaudited) 32 REPORT OF MANAGEMENT The consolidated financial statements of Dresser Industries, Inc. and subsidiaries have been prepared by management and have been audited by independent accountants. The management of the Company is responsible for the financial information and representations contained in the financial statements and other sections of this report. Management believes that the financial statements have been prepared in conformity with generally accepted accounting principles appropriate under the circumstances to reflect, in all material respects, the substance of events and transactions that should be included. In preparing the consolidated financial statements, it is necessary that management make informed estimates and judgments based on currently available information of the effects of certain events and transactions. In meeting its responsibility for the reliability of the consolidated financial statements, management depends on the Company's internal control structure. This internal control structure is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and are properly recorded. In designing control procedures, management recognizes that errors or irregularities may occur. Also, estimates and judgments are required to assess and balance the relative cost and expected benefits of the controls. Management believes that the Company's internal control structure provides reasonable assurance that errors or irregularities that could be material to the consolidated financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned functions. The Board of Directors pursues its oversight role for the accompanying consolidated financial statements through its Audit and Finance Committee, which is composed solely of directors who are not officers or employees of the Company. The Committee meets with management and the internal auditors to review the work of each and to monitor the discharge by each of its responsibilities. The Committee also meets with the independent accountants and internal auditors, without management present, to discuss internal control structure, auditing and financial reporting matters. 33 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Dresser Industries, Inc. In our opinion, the consolidated financial statements and financial statement schedule listed in the index appearing under Item 14 (A) (1) and (2) and 14 (D) on page F-2 present fairly, in all material respects, the financial position of Dresser Industries, Inc. and its subsidiaries at October 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes H and N to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, and Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, both effective as of November 1, 1991. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Dallas, Texas December 2, 1994 34 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Years Ended October 31, -------------------------------- IN MILLIONS, EXCEPT PER SHARE DATA 1994 1993 1992 -------- -------- -------- Sales . . . . . . . . . . . . . . . . . $3,562.3 $3,494.3 $2,697.0 Service revenues. . . . . . . . . . . . 1,745.0 1,631.9 1,933.9 Share of earnings of unconsolidated affiliates . . . . . . . . . . . . . 23.4 76.1 92.4 -------- -------- -------- Total revenues . . . . . . . . . . . 5,330.7 5,202.3 4,723.3 -------- -------- -------- -------- -------- -------- Cost of sales . . . . . . . . . . . . . 2,538.2 2,386.2 1,722.7 Cost of services . . . . . . . . . . . 1,533.5 1,452.0 1,799.9 -------- -------- -------- Total costs of sales and services . . . . . . . . . . . . . 4,071.7 3,838.2 3,522.6 -------- -------- -------- -------- -------- -------- Gross earnings . . . . . . . . . . . 1,259.0 1,364.1 1,200.7 Selling, engineering, administrative and general expenses . . . . . . . . (896.7) (973.8) (919.8) Special charges . . . . . . . . . . . . (8.0) (105.1) (70.0) Other income (deductions) Interest expense . . . . . . . . . . (49.3) (44.5) (47.4) Interest earned . . . . . . . . . . . 31.1 16.7 19.1 Gain on sale of interest in Western Atlas . . . . . . . . . . 275.7 - - Gain on affiliate's public offering . 11.0 - - Other, net . . . . . . . . . . . . . (3.4) 19.3 4.8 -------- -------- -------- Earnings before income taxes and other items below . . . . . . . . 619.4 276.7 187.4 Income taxes . . . . . . . . . . . . . (224.7) (98.8) (79.4) Minority interest . . . . . . . . . . . (32.9) (44.3) (10.3) -------- -------- -------- Earnings from continuing operations 361.8 133.6 97.7 Discontinued operations . . . . . . . . - - (35.3) -------- -------- -------- Earnings before extraordinary items and accounting changes . . . . . . 361.8 133.6 62.4 Extraordinary items . . . . . . . . . . - - (6.3) Cumulative effect of accounting changes . . . . . . . . . . . . . . . - - (393.8) -------- -------- -------- Net earnings (loss). . . . . . . . . $ 361.8 $ 133.6 $ (337.7) -------- -------- -------- -------- -------- -------- Earnings (loss) per common share Earnings from continuing operations . $ 1.98 $ .74 $ .55 Discontinued operations . . . . . . . - - (.20) -------- -------- -------- Earnings before extraordinary items and accounting changes . . . 1.98 .74 .35 Extraordinary items . . . . . . . . . - - (.03) Cumulative effect of accounting changes . . . . . . . . . . . . . - - (2.21) -------- -------- -------- Net earnings (loss) . . . . . . . . . $ 1.98 $ .74 $ (1.89) -------- -------- -------- -------- -------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 35 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
October 31, ------------------ IN MILLIONS 1994 1993 ------------------ ASSETS Current Assets Cash and cash equivalents . . . . . . . $ 515.0 $ 200.1 Notes and accounts receivable. . . . . . 896.2 904.0 Less allowance for doubtful receivables. . . . . . . . . . . . . . 30.4 33.3 ------- ------- 865.8 870.7 Inventories Finished products and work in process. . . . . . . . . . . 529.9 597.9 Raw materials and supplies . . . . . . 143.2 153.3 ------- ------- 673.1 751.2 Deferred income taxes. . . . . . . . . . 74.9 101.8 Prepaid expenses . . . . . . . . . . . . 68.2 131.6 ------- ------- Total Current Assets . . . . . . . . . 2,197.0 2,055.4 ------- ------- Investments in and receivables from unconsolidated affiliates . . . . . 240.4 491.4 Intangibles less accumulated amortization of $94.7 in 1994 and $71.5 in 1993. . . . . . . . . . . 657.4 612.0 Deferred income taxes. . . . . . . . . . . 193.2 207.9 Other assets . . . . . . . . . . . . . . . 106.0 113.5 Property, Plant and Equipment, at cost Land and land improvements . . . . . . . 90.5 122.2 Buildings. . . . . . . . . . . . . . . . 376.2 399.1 Machinery and equipment. . . . . . . . . 1,778.3 1,854.1 ------- ------- 2,245.0 2,375.4 Less accumulated depreciation. . . . . . . 1,315.4 1,410.0 ------- ------- Total Properties, net . . . . . . . . . 929.6 965.4 ------- ------- Total Assets . . . . . . . . . . . . $4,323.6 $4,445.6 ------- ------- ------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 36 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
October 31, ------------------ IN MILLIONS 1994 1993 ------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term debt and current portion of long-term debt . . . . . . . $ 36.6 $ 308.3 Accounts payable . . . . . . . . . . . . . 361.6 372.4 Contract advances . . . . . . . . . . . . 265.4 288.3 Accrued compensation and benefits. . . . . 230.7 235.0 Accrued warranty costs . . . . . . . . . . 59.6 57.9 Income taxes . . . . . . . . . . . . . . . 92.7 102.4 Other accrued liabilities. . . . . . . . . 320.2 345.9 ------- ------- Total Current Liabilities. . . . . . . . 1,366.8 1,710.2 ------- ------- Employee Retirement Benefit Obligations. . . 668.2 707.6 Long-Term Debt . . . . . . . . . . . . . . . 460.6 492.2 Deferred Compensation, Insurance Reserves and Other Liabilities . . . . . . 112.1 108.5 Minority Interest. . . . . . . . . . . . . . 83.6 154.9 Commitments and Contingencies Shareholders' Equity - Preferred shares, 10 million authorized. . - - Common shares, $0.25 par value Authorized: 400 million Issued: 184.0 million. . . . . . . . . . 46.0 45.2 Capital in excess of par value . . . . . . 448.6 407.3 Retained earnings. . . . . . . . . . . . . 1,212.6 967.3 Cumulative translation adjustment. . . . . (63.1) (130.2) Pension liability adjustment . . . . . . . (7.6) (13.8) ------- ------- 1,636.5 1,275.8 Less treasury shares, at cost. . . . . . . 4.2 3.6 ------- ------- Total Shareholders' Equity, net. . . . . 1,632.3 1,272.2 ------- ------- Total Liabilities and Shareholders' Equity . . . . . . . . . . $4,323.6 $4,445.6 ------- ------- ------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 37 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended October 31, -------------------------------- IN MILLIONS, EXCEPT PER SHARE DATA 1994 1993 1992 -------------------------------- COMMON SHARES, PAR VALUE Beginning of year. . . . . . . . . . . . . . . . . $ 45.2 $ 45.2 $ 45.2 Sale of common stock . . . . . . . . . . . . . . . .5 - - Shares issued under benefit and dividend reinvestment plans. . . . . . . . . . . .3 - - ------- ------- ------- End of year. . . . . . . . . . . . . . . . . . . . $ 46.0 $ 45.2 $ 45.2 ------- ------- ------- ------- ------- ------- CAPITAL IN EXCESS OF PAR VALUE Beginning of year. . . . . . . . . . . . . . . . . $ 407.3 $ 410.2 * $ 390.3 Sale of common stock . . . . . . . . . . . . . . . 29.5 - - Shares issued in an acquisition. . . . . . . . . . - - 23.3 Shares issued under benefit and dividend reinvestment plans. . . . . . . . . . . 11.8 (2.9) (3.2) ------- ------- ------- End of year. . . . . . . . . . . . . . . . . . . . $ 448.6 $ 407.3 $ 410.4 ------- ------- ------- ------- ------- ------- RETAINED EARNINGS Beginning of year. . . . . . . . . . . . . . . . . $ 967.3 $ 935.3 * $1,772.0 Net earnings (loss). . . . . . . . . . . . . . . . 361.8 133.6 (337.7) INDRESCO Inc. spinoff. . . . . . . . . . . . . . . - - (402.2) Dividends on common shares** . . . . . . . . . . . (116.5) (100.2) (96.3) Other. . . . . . . . . . . . . . . . . . . . . . . - (1.4) - ------- ------- ------- End of year. . . . . . . . . . . . . . . . . . . . $1,212.6 $ 967.3 $ 935.8 ------- ------- ------- ------- ------- ------- CUMULATIVE TRANSLATION ADJUSTMENTS Beginning of year. . . . . . . . . . . . . . . . . $ (130.2) $ (68.2)* $ (41.8) Translation rate changes . . . . . . . . . . . . . 67.1 (62.0) (24.7) INDRESCO Inc. spinoff. . . . . . . . . . . . . . . - - (11.7) ------- ------- ------- End of year. . . . . . . . . . . . . . . . . . . . $ (63.1) $ (130.2) $ (78.2) ------- ------- ------- ------- ------- ------- PENSION LIABILITY ADJUSTMENT Beginning of year. . . . . . . . . . . . . . . . . $ (13.8) $ (4.0) $ (3.0) Current year adjustment. . . . . . . . . . . . . . 6.2 (9.8) (1.0) ------- ------- ------- End of year. . . . . . . . . . . . . . . . . . . . $ (7.6) $ (13.8) $ (4.0) ------- ------- ------- ------- ------- ------- TREASURY SHARES, AT COST Beginning of year. . . . . . . . . . . . . . . . . $ (3.6) $ (15.8) $ (48.0) Shares issued in an acquisition. . . . . . . . . . - - 20.0 Shares issued (redeemed) under benefit and dividend reinvestment plans . . . . . . . . . . . . . . . (.6) 12.2 12.2 ------- ------- ------- End of year. . . . . . . . . . . . . . . . . . . . $ (4.2) $ (3.6) $ (15.8) ------- ------- ------- ------- ------- ------- TOTAL SHAREHOLDERS' EQUITY, END OF YEAR. . . . . . . $1,632.3 $1,272.2 $1,293.4 ------- ------- ------- ------- ------- ------- * Beginning of year balance is not the same as end of prior year due to duplication of Baroid activity for November and December of 1993. ** Dresser $.66 per share in 1994 and Dresser $.60 per share, Baroid $.20 per share and Wheatley $.04 per share in 1993 and 1992.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 38 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, -------------------------------- IN MILLIONS 1994 1993 1992 -------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss). . . . . . . . . . . . . . . . $ 361.8 $ 133.6 $ (337.6) ------- ------- -------- Adjustments to reconcile net earnings (loss) to cash flow: Depreciation and amortization. . . . . . . . . 216.3 211.8 149.2 Retiree benefit curtailment gain . . . . . . . - (12.8) - Special charges. . . . . . . . . . . . . . . . 8.0 31.0 49.0 Earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . (23.4) (76.1) (92.4) Dividends and advances from unconsolidated affiliates. . . . . . . . . . 28.6 23.2 9.5 Minority interest less cash advanced to partner. . . . . . . . . . . . . (4.3) 14.8 10.3 Gain on sale of interest in Western Atlas, net of tax. . . . . . . . . . (146.5) - - Change in working capital. . . . . . . . . . . (70.4) (185.0) (9.5) Other, net . . . . . . . . . . . . . . . . . . (16.0) 33.1 (32.6) Cumulative effect of accounting changes. . . . . . . . . . . . . . . . . . . - - 393.8 Discontinued operations losses . . . . . . . . - - 35.3 ------- ------- -------- Total adjustments. . . . . . . . . . . . . (7.7) 40.0 512.6 ------- ------- -------- Net cash provided by operating activities . . . . . . . . . . . . . . . . . . 354.1 173.6 175.0 ------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds of sales of interests in - Western Atlas - net of taxes paid. . . . . . . . 451.8 - - M-I Drilling Fluids. . . . . . . . . . . . . . . 160.0 - - Capital expenditures . . . . . . . . . . . . . . . (187.1) (193.0) (134.6) Proceeds from disposal of assets . . . . . . . . . 6.0 20.9 83.2 Business acquisitions. . . . . . . . . . . . . . . (85.5) (337.5) (1.9) Cash of acquired businesses. . . . . . . . . . . . - 38.3 - Advances to discontinued operations. . . . . . . . - 5.0 (24.4) ------- ------- -------- Net cash provided (used) by investing activities. . . . . . . . . . . . . . 345.2 (466.3) (77.7) ------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Sale of common shares. . . . . . . . . . . . . . . 30.0 - - Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . - 538.4 64.1 Decrease in long-term debt . . . . . . . . . . . . (46.4) (301.3) (235.2) (Decrease) increase in short-term debt . . . . . . (256.9) 217.2 7.1 Dividends paid . . . . . . . . . . . . . . . . . . (116.5) (100.2) (96.3) ------- ------- -------- Net cash provided (used) by financing activities . . . . . . . . . . . . . (389.8) 354.1 (260.3) ------- ------- -------- EFFECT OF TRANSLATION ADJUSTMENTS ON CASH . . . . . . . . . . . . . . . . . . . . . 5.4 (12.2) 1.0 ------- ------- -------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . 314.9 49.2 (162.0) CASH AND CASH EQUIVALENTS - Beginning of year. . . . . . . . . . . . . . . . . 200.1 150.9* 322.2 ------- ------- -------- End of year. . . . . . . . . . . . . . . . . . . . $ 515.0 $ 200.1 $ 160.2 ------- ------- -------- ------- ------- -------- * Beginning of year balance is not the same as end of prior year due to duplication of Baroid activity for November and December of 1993.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 39 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION All majority-owned subsidiaries are consolidated and all material intercompany accounts and transactions are eliminated. Investments in 20% to 50% owned partnerships and affiliates are reported at cost adjusted for the Company's equity in undistributed earnings. REVENUE RECOGNITION Revenues and earnings from long-term construction contracts are recognized on the percentage-of-completion method, measured generally on a cost incurred basis. Estimated contract costs include allowances for completion risks, process and schedule guarantees and warranties that generally are not finally determinable until the latter stages of a contract. Estimated contract earnings are reviewed and revised periodically as the work progresses. Estimated losses are charged against earnings in the period in which such losses are identified. Revenues from sale of products and services other than from long-term construction contracts are recorded when the products are shipped or the services performed. INVENTORIES Inventories are valued at the lower of cost or market. The cost of most inventories is determined using either the first-in, first-out (FIFO) method or the average cost method. The cost of certain U.S. inventories is determined using the last-in, first-out (LIFO) method. PROPERTY, PLANT AND EQUIPMENT Fixed assets are stated at cost. Depreciation is computed principally by the straight-line method over the estimated useful lives of 10 to 40 years for buildings and 3 to 20 years for machinery and equipment. Certain assets with service lives of more than 10 years are depreciated on accelerated methods. Accelerated depreciation methods are also used for tax purposes, wherever permitted. Maintenance and repairs are expensed as incurred. Major improvements are capitalized. 40 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED) INTANGIBLES The difference between purchase price and fair values at date of acquisition of net assets of businesses acquired is amortized on a straight-line basis over the estimated periods benefited, not exceeding 40 years. In the event facts and circumstances indicate the carrying amount of goodwill associated with an acquisition is impaired, the carrying amount will be reduced to an amount representing the estimated undiscounted future cash flows before interest to be generated by the operation. TRANSLATION OF FOREIGN CURRENCIES For subsidiaries in countries which do not have highly inflationary economies, asset and liability accounts are translated at rates in effect at the balance sheet date, and revenue and expense accounts are translated at rates approximating the actual rates on the dates of the transactions. Translation adjustments are included as a separate component of shareholders' equity. For subsidiaries in countries with highly inflationary economies, inventories, cost of sales, property, plant and equipment and related depreciation are translated at historical rates. Other asset and liability accounts are translated at rates in effect at the balance sheet date, and revenues and expenses (excluding cost of sales and depreciation) are translated at rates approximating the actual rates on the dates of the transactions. Translation adjustments are reflected in the statement of earnings. RECLASSIFICATION OF PRIOR YEARS Prior year financial statements have been reclassified to conform to 1994 presentations. NOTE B - BASIS OF PRESENTATION AND BAROID FINANCIAL INFORMATION BAROID AND WHEATLEY MERGERS On January 21, 1994, a wholly owned subsidiary of Dresser Industries, Inc. (Dresser) merged with Baroid Corporation (Baroid). Dresser issued 0.4 shares of its common stock for each share of outstanding Baroid common stock. On August 5, 1994, a wholly owned subsidiary of Dresser merged with Wheatley TXT Corp. (Wheatley). 41 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - BASIS OF PRESENTATION AND BAROID FINANCIAL INFORMATION (CONTINUED) BAROID AND WHEATLEY MERGERS (CONTINUED) Dresser issued 0.7 shares of its common stock for each share of outstanding Wheatley common stock. Dresser issued 37.3 million shares in exchange for the Baroid shares and 8.3 million shares in exchange for the Wheatley shares. The "Company" as used in these consolidated financial statements refers to Dresser and its subsidiaries including Baroid and Wheatley. The mergers have been accounted for as poolings of interests. These consolidated financial statements reflect the financial position and results of operations of the combined companies as if the mergers had occurred on November 1, 1991. The Consolidated Statement of Earnings for 1992 includes Dresser and Wheatley for the twelve months ended October 31, 1992, and Baroid for the twelve months ended December 31, 1992. The Consolidated Statements of Earnings for 1993 and 1994 include twelve months ended October 31, 1993 for Dresser, Baroid and Wheatley. Baroid sales of $138.5 million and net earnings of $4.2 million for the months of November and December of 1992 are included in the Consolidated Statements of Earnings for both 1992 and 1993. BAROID FINANCIAL INFORMATION Baroid has ceased filing periodic reports with the Securities and Exchange Commission. Baroid's 8% Senior Notes remain outstanding, and the Notes are fully guaranteed by Dresser (See Note J). Because the Notes remain outstanding, summarized financial information of Baroid is presented as follows (in millions):
October 31, October 31, Baroid Corporation 1994 1993 - ------------------ ----------- ----------- Current assets. . . . . . . . . . . . . $ 468.9 $ 388.4 Noncurrent assets . . . . . . . . . . . 362.0 340.4 -------- -------- Total . . . . . . . . . . . . . . . . $ 830.9 $ 728.8 -------- -------- -------- -------- Current liabilities . . . . . . . . . . $ 229.5 $ 272.1 Noncurrent liabilities. . . . . . . . . 281.7 186.5 Shareholders' equity. . . . . . . . . . 319.7 270.2 -------- -------- Total . . . . . . . . . . . . . . . . $ 830.9 $ 728.8 -------- -------- -------- --------
42 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - BASIS OF PRESENTATION AND BAROID FINANCIAL INFORMATION (CONTINUED) BAROID FINANCIAL INFORMATION (CONTINUED)
Twelve Months Ended ---------------------------- October December ----------------- -------- 1994 1993 1992 ------- ------- ------- Revenues. . . . . . . . . . . .$ 923.2 $ 832.3 $ 759.7 ------- ------- ------- ------- ------- ------- Gross earnings. . . . . . . . .$ 245.8 $ 206.3 $ 197.5 ------- ------- ------- ------- ------- ------- Earnings from operations. . . .$ 78.2 $ 56.9 $ 46.6 Other income (deductions) . . . (17.8) (40.1) (11.3) ------- ------- ------- Earnings before taxes and minority interests. . . . 60.4 16.8 35.3 Income taxes. . . . . . . . . . (19.8) (13.8) (11.9) Minority interest . . . . . . . 1.9 (1.5) (1.1) ------- ------- ------- Net earnings. . . . . . . . . .$ 42.5 $ 1.5 $ 22.3 ------- ------- ------- ------- ------- -------
A provision of $30 million for merger expenses is included in other income (deductions) in 1993. NOTE C - ACQUISITIONS AND DIVESTITURES MERGERS OF DRESSER INDUSTRIES, INC., BAROID CORPORATION AND WHEATLEY TXT CORPORATION During 1994, Dresser merged with Baroid Corporation and with Wheatley TXT Corp. Each merger was accounted for as a pooling of interests. See Note B for more information. Separate results of the operations of the three companies are summarized below (in millions):
1994 1993 1992 ------- ------- ------- Revenues Dresser. . . . . . . . . . $4,255.5 $4,290.5 $3,886.0 Baroid . . . . . . . . . . 923.2 832.3 759.7 Wheatley . . . . . . . . . 152.0 79.5 77.6 ------- ------- ------- Combined . . . . . . . . . $5,330.7 $5,202.3 $4,723.3 ------- ------- ------- ------- ------- ------- 1994 1993 1992 ------- ------- ------- Earnings from continuing operations Dresser. . . . . . . . . $ 316.8 $ 126.7 $ 69.9 Baroid . . . . . . . . . 42.5 1.5 22.3 Wheatley . . . . . . . . 2.5 5.4 5.5 ------- ------- ------- Combined . . . . . . . . $ 361.8 $ 133.6 $ 97.7 ------- ------- ------- ------- ------- ------- Discontinued operations Dresser. . . . . . . . . . $ - $ - $ (35.3) ------- ------- ------- ------- ------- -------
43 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - ACQUISITIONS AND DIVESTITURES (CONTINUED) MERGERS OF DRESSER INDUSTRIES, INC., BAROID CORPORATION AND WHEATLEY TXT CORPORATION (CONTINUED)
1994 1993 1992 -------- -------- -------- Earnings before extraordinary items and accounting changes Dresser. . . . . . . . . $ 316.8 $ 126.7 $ 34.6 Baroid . . . . . . . . . 42.5 1.5 22.3 Wheatley . . . . . . . . 2.5 5.4 5.5 ------- ------- ------- Combined . . . . . . . . $ 361.8 $ 133.6 $ 62.4 ------- ------- ------- ------- ------- ------- Extraordinary items Dresser. . . . . . . . . . $ - $ - $ (6.3) ------- ------- ------- ------- ------- ------- Cumulative effect of accounting changes Dresser. . . . . . . . . $ - $ - $ (393.8) ------- ------- ------- ------- ------- ------- Net earnings (loss) Dresser. . . . . . . . . . $ 316.8 $ 126.7 $ (365.5) Baroid . . . . . . . . . . 42.5 1.5 22.3 Wheatley . . . . . . . . . 2.5 5.4 5.5 ------- ------- ------- Combined . . . . . . . . . $ 361.8 $ 133.6 $ (337.7) ------- ------- ------- ------- ------- -------
As discussed in Note O, non-recurring expenses of $31 million attributable to the Baroid merger have been included in the combined results of operations for the year ended October 31, 1993, and non-recurring expenses of $10.7 million attributable to the Wheatley merger have been included in the combined results of operations for the year ended October 31, 1994. OTHER ACQUISITIONS In December 1993, Wheatley acquired Axelson, Inc. for $79.4 million cash and acquired Tom Wheatley Valve Company for $6.1 million cash, a $1.7 million promissory note and liabilities assumed of $2.0 million. Axelson is a manufacturer of downhole rod pumps and safety equipment used in the production of oil and Tom Wheatley Valve Company produces valves for the oil and gas industry. These acquisitions were accounted for as purchases, and their results of operations are included in the Consolidated Statement of Earnings from the acquisition dates. The pro forma effect of these acquisitions is not significant. 44 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - ACQUISITIONS AND DIVESTITURES (CONTINUED) OTHER ACQUISITIONS (CONTINUED) Effective February 1, 1993, Dresser acquired all the outstanding stock of Bredero Price Holding B.V., a Netherlands corporation, from Koninklijke Begemann Groep N.V. for approximately $161.5 million in cash. Bredero Price is a multinational company that provides pipe coating for both onshore and offshore markets. Effective April 1, 1993, Dresser acquired TK Valve & Manufacturing, Inc. from Sooner Pipe & Supply Corporation, Tulsa, Oklahoma for approximately $143.5 million in cash. TK Valve supplies ball valves for the oil and gas production and transmission industry. The purchase price exceeded the fair value of the net assets acquired by approximately $122 million for Bredero Price and approximately $92 million for TK Valve. Both acquisitions were accounted for as purchases. The resulting goodwill is being amortized on a straight-line basis over 40 years. The Consolidated Statement of Earnings includes the results of operations of Bredero Price from February 1, 1993 and TK Valve from April 1, 1993. The following unaudited pro forma summary presents information as if the Bredero Price and TK Valve acquisitions had occurred at the beginning of each fiscal year. The pro forma information is provided for information purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined enterprises (in millions, except per share amounts):
Unaudited 1993 1992 -------- -------- Revenues . . . . . . . . . . . . . . . $5,292.0 $4,981.9 ------- ------- ------- ------- Earnings before extraordinary item and accounting changes . . . . . . . $ 142.1 $ 92.3 ------- ------- ------- ------- Net earnings (loss). . . . . . . . . . $ 142.1 $ (307.8) ------- ------- ------- ------- Per share: Earnings before extraordinary item and accounting changes. . . . $ .79 $ .52 ------- ------- ------- ------- Net earnings (loss). . . . . . . . . $ .79 $ (1.73) ------- ------- ------- -------
45 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - ACQUISITIONS AND DIVESTITURES (CONTINUED) OTHER ACQUISITIONS (CONTINUED) On January 29, 1993 Baroid issued 17.7 million shares of its common stock, equivalent to 7.1 million of the Company's shares, in exchange for all of the outstanding common stock of Sub Sea International Inc. (Sub Sea). Sub Sea provides diving services, engineering and unmanned, remotely operated underwater vehicles to inspect, construct, maintain and repair offshore drilling rigs and platforms, underwater pipelines and other offshore oil and gas facilities. The acquisition of Sub Sea was accounted for as a pooling of interests, and the financial statements for periods prior to the Sub Sea merger have been restated to reflect the financial position and results of operations of the combined companies as if they had merged on November 1, 1991. In 1993, Baroid acquired three small businesses and Wheatley acquired one small business for cash totaling $32.5 million. These acquisitions were accounted for as purchases, and their results of operations are included in the Consolidated Statement of Earnings from the acquisition dates. The pro forma effect of these acquisitions is not significant. In 1992, Dresser acquired all of the shares of AVA International Corp. (AVA) in exchange for 1.9 million shares of the Company's common stock with a value of $43.3 million and $1.9 million cash. AVA produces well completion products that are sold primarily in foreign markets. The transaction, which was accounted for as a purchase, resulted in goodwill of $39.3 million which is being amortized on a straight-line basis over 40 years. The pro forma effect of the acquisition is not significant. DIVESTITURES Western Atlas International, Inc. was formed May 1, 1987 when the Company and Litton Industries combined their respective Dresser Atlas and Resources Group operations. 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 ($146.7 million net of tax) on the sale. 46 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - ACQUISITIONS AND DIVESTITURES (CONTINUED) DIVESTITURES (CONTINUED) Following the Baroid merger (See Note B) 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. In September 1994, the Company sold its 50% interest in IRI International Corporation and recognized a pre-tax gain of $4.6 million. Due to the sale, the Company was able to recognize $17.5 million of tax benefits applicable to previously unrecognized losses associated with receivables from IRI. NOTE D - UNCONSOLIDATED AFFILIATED COMPANIES The Company has several investments in less than majority owned affiliates and the nature and extent of these investments change over time. A summary of the impact of these investments on the consolidated financial statements follows (in millions):
1994 1993 1992 --------- --------- --------- Share of earnings of unconsolidated affiliates Ingersoll-Dresser Pump $ 8.8 $ 17.1 $ 2.2 Western Atlas (See Note C) - 39.2 35.2 Dresser-Rand - - 40.3 Other affiliates 14.6 19.8 14.7 ------- ------- ------- $ 23.4 $ 76.1 $ 92.4 ------- ------- ------- ------- ------- ------- Dividends received $ 13.1 $ 13.5 $ 7.1 ------- ------- ------- ------- ------- ------- 1994 1993 --------- --------- Investments in and receivables from unconsolidated affiliates Ingersoll-Dresser Pump $ 155.1 $ 136.2 Western Atlas (See Note C) - 278.2 Other affiliates 85.3 77.0 ------- ------- $ 240.4 $ 491.4 ------- ------- ------- -------
The Company's share of earnings for Ingersoll-Dresser Pump and Dresser-Rand includes adjustments made by the Company for differences in the timing of adoption of accounting changes and for expenses retained by the Company. 47 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - UNCONSOLIDATED AFFILIATED COMPANIES (CONTINUED) INGERSOLL-DRESSER PUMP COMPANY Effective October 1, 1992, the Company and Ingersoll-Rand Company formed a joint venture comprised of the pump businesses of the two companies including all standard and engineered pump operations except the Company's Mono Pump subsidiaries. The new company, Ingersoll-Dresser Pump Company, is a general partnership owned 49% by the Company and 51% by Ingersoll-Rand Company. The Company contributed approximately $151 million of net assets in exchange for its ownership interest. The operating results of the contributed Dresser Pump business prior to October 1, 1992 are fully consolidated in the Company's Consolidated Statement of Earnings. The Company's share of operating results for the month of October, 1992 and all of 1993 and 1994 is included in share of earnings of unconsolidated affiliates. Summarized financial information is as follows (in millions):
October 31, 1994 1993 -------- -------- Current assets . . . . . . . . . . . . $ 354.4 $ 357.7 Noncurrent assets. . . . . . . . . . . 180.9 183.2 ------- ------- Total assets . . . . . . . . . . . $ 535.3 $ 540.9 ------- ------- ------- ------- Current liabilities. . . . . . . . . . $ 170.8 $ 218.0 Noncurrent liabilities . . . . . . . . 47.2 46.9 Partner's equity - Contributed capital and retained earnings . . . . . . . . . . . . . 344.7 311.6 Cumulative translation adjustment. . (27.4) (35.6) ------- ------- 317.3 276.0 ------- ------- Total liabilities and partner's equity . . . . . . . . . . . . . . $ 535.3 $ 540.9 ------- ------- ------- ------- Years Ended October 31, ------------------ 1994 1993 -------- --------- Net sales. . . . . . . . . . . . . . . $ 752.2 $ 761.0 ------- ------- ------- ------- Gross profit . . . . . . . . . . . . . $ 170.9 $ 159.1 ------- ------- ------- ------- Income from continuing operations and before extraordinary items . . . $ 30.3 $ 3.3 ------- ------- ------- ------- Net income . . . . . . . . . . . . . . $ 30.3 $ 3.3 ------- ------- ------- -------
48 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - UNCONSOLIDATED AFFILIATED COMPANIES (CONTINUED) INGERSOLL-DRESSER PUMP COMPANY (CONTINUED) The Company's share of pre-tax earnings for 1993 includes $21.3 million from the release of LIFO inventory valuation reserves related to inventory contributed to the joint venture by the Company and sold by Ingersoll-Dresser Pump Company to third parties. In connection with the Ingersoll-Dresser Pump Company joint venture agreement, the Company granted to Ingersoll-Rand Company an option to purchase 51% of the stock of Mono Group Limited for a price equal to 51% of its book value, including unamortized goodwill, at the exercise date. That option is scheduled to expire on April 30, 1995. The Company and Ingersoll-Rand have agreed to amend the joint venture agreement to extend the exercise period to April 30, 1997, and to change the date at which the option price is determined. Under the amendment, the option price will be the amount at January 31, 1995 or at the end of the month during which Ingersoll-Rand gives notice of its intention to exercise the option, whichever amount is lower. If the option to purchase is exercised by Ingersoll-Rand Company, both Ingersoll-Rand and the Company have agreed to contribute their respective Mono Group Limited shares to the Ingersoll-Dresser Pump Company as a contribution of capital to the partnership. DRESSER-RAND COMPANY The Company owned 50% of Dresser-Rand from its inception on January 1, 1987 through September 30, 1992. Effective October 1, 1992, the Company acquired an additional 1% ownership interest and since then Dresser-Rand is included as a fully consolidated subsidiary with a 49% minority interest. Summarized financial information for the period when equity accounting was applied is as follows (in millions):
Year Ended September 30, 1992 ------------- Net sales. . . . . . . . . . . . . . . . . $1,290.3 ------- ------- Gross profit . . . . . . . . . . . . . . . $ 244.8 ------- ------- Income from continuing operations before extraordinary items . . . . . . . $ 74.7 ------- ------- Net income . . . . . . . . . . . . . . . . $ 77.8 ------- -------
49 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE E - CASH FLOW DATA Cash and cash equivalents include cash on hand and investments with maturities of three months or less at time of original purchase. Supplemental information about cash payments and significant noncash investing and financing activities is as follows (in millions):
1994 1993 1992 -------- -------- -------- Cash payments for income taxes . . . . . . . $ 210.3 $ 116.7 $ 105.2 ------- ------- ------ ------- ------- ------ Cash payments for interest on debt . . . . . $ 46.3 $ 40.2 $ 48.1 ------- ------- ------ ------- ------- ------ Cash payments for interest on tax settlements . . . . $ 1.3 $ 14.0 $ - ------- ------- ------ ------- ------- ------ Acquisition of Businesses Assets acquired. . . . . . $ 54.4 Liabilities assumed. . . . (9.2) Common Shares issued from Treasury . . . . . . . . (43.3) ------ Net cash paid. . . . . $ 1.9 ------ ------
The increase in cash payments for income taxes in 1994 is due to a $106.2 million payment for the gain on sale of the 29.5% interest in the Western Atlas joint venture. Working capital changes on the Consolidated Statements of Cash Flows were as follows (in millions):
1994 1993 1992 -------- -------- -------- (Increase) decrease in receivables. . . . . . . . $ (74.7) $ (41.7) $ (38.2) (Increase) decrease in inventories. . . . . . . . 15.3 (85.4) 12.8 (Increase) decrease in deferred taxes and prepaid expenses . . . . . 84.6 (78.1) (34.6) Increase (decrease) in accrued liabilities and accounts payable . . . . . (59.5) (1.4) 43.7 Increase (decrease) in contract advances. . . . . (24.4) 55.1 44.6 Increase (decrease) in income taxes payable . . . (11.7) (33.5) (37.8) ------ ------ ------ $ (70.4) $(185.0) $ (9.5) ------ ------ ------ ------ ------ ------
50 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - LONG-TERM CONTRACTS Consistent with industry practice, service revenues and cost of services include the value of materials, equipment and labor contracts furnished by customers and for which the Company is responsible for the ultimate acceptability of performance of the project based on such material, equipment and labor. The value of such items was $138.7 million, $112.4 million and $114.0 million for the years ended October 31, 1994, 1993 and 1992, respectively. Amounts billed in excess of revenues recognized to date are included in current liabilities under contract advances. NOTE G - INVENTORIES Inventories on the LIFO method were $94.7 million and $77.9 million at October 31, 1994 and 1993, respectively. Under the average cost method, inventories would have increased by $96.8 million and $92.2 million at October 31, 1994 and 1993, respectively. During 1992, the Company experienced significant quantity reductions in LIFO inventories which were carried at lower costs that prevailed in prior years. Quantity reductions reduced the cost of sales by $14.6 million and increased earnings, net of tax, by $9.5 million or $.06 per share in 1992. Inventories are stated net of progress payments received on contracts of $126.1 million and $175.7 million at October 31, 1994 and 1993, respectively. Note H - INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), ACCOUNTING FOR INCOME TAXES, as of November 1, 1991. The 1992 Consolidated Statement of Earnings includes a charge of $40.8 million or $.24 per share for the cumulative effect of the change. 51 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - INCOME TAXES (CONTINUED) The domestic and foreign components of earnings before income taxes of continuing operations consist of the following (in millions):
1994 1993 1992 -------- -------- -------- Domestic . . . . . . . . . . $ 494.2 $ 135.7 $ 79.4 Foreign. . . . . . . . . . . 125.2 141.0 108.0 ------- ------- ------- Total earnings before income taxes . . . . . . $ 619.4 $ 276.7 $ 187.4 ------- ------- ------- ------- ------- -------
The components of the provision for income taxes of continuing operations are as follows (in millions):
1994 1993 1992 -------- -------- -------- Current U.S. Federal . . . . . . . $ 129.5 $ 49.6 $ 48.9 State. . . . . . . . . . . 5.1 3.2 2.0 Foreign. . . . . . . . . . 60.1 59.9 54.6 ------- ------- ------- 194.7 112.7 105.5 ------- ------- ------- Deferred U.S. Federal . . . . . . . 33.7 (19.1) (28.8) Foreign. . . . . . . . . . (3.7) 5.2 2.7 ------- ------- ------- 30.0 (13.9) (26.1) ------- ------- ------- Total income tax provision $ 224.7 $ 98.8 $ 79.4 ------- ------- ------- ------- ------- -------
Under the provisions of SFAS 109, the tax benefits of loss and credit carryforwards can be recognized in the period they arise if certain realization criteria are met. As a result of these provisions, the tax benefits attributable to approximately $40 million domestic carryforwards and $28 million of foreign carryforwards were reflected in the 1992 charge to earnings referred to above. Since the Company plans to continue to finance foreign operations and expansion through reinvestment of undistributed earnings of its foreign subsidiaries (approximately $750 million at October 31, 1994), no provisions are generally made for U.S. or additional foreign taxes on such earnings. When the Company identifies exceptions to the general reinvestment policy, additional taxes are provided. 52 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - INCOME TAXES (CONTINUED) The following is a reconciliation of income taxes at the U.S. Federal income tax rate (35% for 1994, 34.8% for 1993 and 34% for 1992) to the effective provision for income taxes for continuing operations reflected in the Consolidated Statements of Earnings (in millions):
1994 1993 1992 -------- -------- ------- Provision for income taxes at statutory rates . . . . . . . . $ 216.8 96.3 63.7 Minority interest's share of domestic partnership earnings. . . (3.8) (7.9) (3.1) Enacted tax rate change. . . . . . . - (8.7) - Withholding taxes and foreign income taxes on branch profits. . . . . . . . . 20.6 16.2 15.1 Utilization of foreign tax credits. . . . . . . . . . . . (24.8) (25.2) (15.1) Foreign losses not benefited . . . . 10.4 8.8 12.4 Foreign taxes in excess of U.S. . . rate on foreign earnings . . . . . 2.2 5.4 2.9 Additional taxes for repatriation of foreign earnings . . . . . . . . . . . . . - 4.1 4.9 Nondeductible merger expenses. . . . - 7.9 - Book/tax basis differential of acquired property . . . . . . . 4.7 - (1.4) Alternative minimum tax credit . . . (7.3) - - Book/tax basis differences on Western Atlas divesture . . . . 27.5 - - Change in valuation allowance attributable to: IRI divestiture. . . . . . . . . (17.5) - - Baroid domestic operations . . . (17.3) - - State and local income taxes, net of U.S. Federal income tax benefit. . . . . . . . . . . . 3.3 2.1 1.3 Other. . . . . . . . . . . . . . . . 9.9 (.2) (1.3) ------- ------- ------- Provision for income taxes . . . . $ 224.7 $ 98.8 $ 79.4 ------- ------- ------- ------- ------- -------
Deferred income tax benefits result from the recognition of temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in differences between income for tax purposes and income for financial statement purposes in future years. The deferred income tax provisions (credits) relate to the following (in millions): 53 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - INCOME TAXES (CONTINUED)
1994 1993 1992 -------- -------- -------- Post retirement benefits . . $ (2.8) $ 5.8 $ (11.2) Reserve for litigation settlement . . . . . . 22.4 (24.3) - Restructuring costs. . . . . 12.3 6.1 (17.3) Enacted tax rate change. . . - (8.7) - Bad debt . . . . . . . . . . 20.2 .7 - Decrease in valuation allowance on prior year's temporary differences. . . (34.8) - - Other items including warranty, insurance and similar accruals . . . . . 12.7 6.5 2.4 ------- ------- ------- Total deferred taxes . . $ 30.0 $ (13.9) $ (26.1) ------- ------- ------- ------- ------- -------
The components of the net deferred tax asset as of October 31, were as follows (in millions):
1994 1993 -------- -------- Deferred tax assets: Post retirement benefits . . . . . . $ 213.6 $ 210.8 Warranty reserves. . . . . . . . . . 10.4 10.1 Inventory. . . . . . . . . . . . . . 22.5 34.8 Restructuring costs. . . . . . . . . .2 12.5 Insurance reserves . . . . . . . . . 33.8 36.3 Bad debt . . . . . . . . . . . . . . 2.8 23.0 Pension. . . . . . . . . . . . . . . 1.8 6.5 Deferred compensation. . . . . . . . 18.8 18.7 Reserve for litigation settlement. . 1.9 24.3 Net operating loss carryforwards . . 22.6 26.2 Other items. . . . . . . . . . . . . 21.1 28.1 Valuation allowance. . . . . . . . . (21.9) (54.3) ------ ------ Total deferred tax asset . . . . . 327.6 377.0 Deferred tax liability: Depreciation and amortization. . . . (55.5) (65.8) Other items. . . . . . . . . . . . . (4.0) (1.5) ------ ------ Total deferred liability . . . . . (59.5) (67.3) ------ ------ Net deferred tax asset . . . . . . . . $ 268.1 $ 309.7 ------ ------ ------ ------
At October 31, 1994, the Company had foreign operating loss carryforwards of approximately $60 million that had not been benefited. The tax benefit of these losses is recorded as a deferred tax asset and offset with a corresponding valuation allowance. These losses are available to reduce the future tax 54 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - INCOME TAXES (CONTINUED) liabilities of their respective foreign entity. Approximately $35 million of these losses will carryforward indefinitely while the remaining amounts expire at various dates from 1995 to 2004. The net change of $32.4 million in the valuation allowance for deferred tax assets relates to reductions in the valuation allowance for the IRI divestiture, the elimination of the Baroid group domestic valuation allowance due to its inclusion in the Dresser Industries, Inc. consolidated income tax return, offset by an increase in the valuation allowance for foreign loss carryforwards. NOTE I - SHORT-TERM DEBT Short-term debt at October 31, 1994 consists of $33.1 million of borrowings from U.S. and foreign banks. The Company has short-term committed U.S. bank lines of credit totaling $125 million. Such lines provide for borrowings at prevailing prime interest rates. The lines of credit may be used by the Company and certain foreign subsidiaries, and include Eurodollars and foreign currencies. The lines of credit may be terminated at the option of the banks or the Company. Loan arrangements have been established with banks outside the United States, under which the Company's foreign subsidiaries may borrow on an overdraft and short-term note basis. At October 31, 1994 the amount available and unused under these arrangements aggregated $176.5 million. NOTE J - LONG-TERM DEBT Long-term debt is summarized as follows (in millions):
1994 1993 ------- ------- Notes, 6.25%, due 2000 . . . . . . . . $ 300.0 $ 300.0 Senior notes, 8%, due 2003 . . . . . . 149.1 149.0 Bank credit facility . . . . . . . . . - 21.0 Canadian credit facility, 4.6% . . . . - 6.9 Revolving credit facility, 8%. . . . . - 10.2 Other loan agreements, 3.5% to 11.75%, due in installments to 2002 . . . . . . . . . . . . . . . . 15.0 21.9 ------ ------ 464.1 509.0 Less portion due within one year . . . 3.5 16.8 ------ ------ $ 460.6 $ 492.2 ------ ------ ------ ------
55 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - LONG-TERM DEBT (CONTINUED) In June 1993, the Company made a public offering of debt securities in the form of $300.0 million of 6.25% Notes due 2000 from which the Company received $298.2 million in proceeds. The proceeds were used to retire short-term debt that was issued to acquire Bredero Price and TK Valve (See Note C). The interest is payable semi-annually on May 15 and November 15. During 1992 and 1993, the Company redeemed $195.6 million of Sinking Fund Debentures. Losses totaling $9.8 million were recorded net of taxes of $3.5 million as an extraordinary loss in the 1992 Consolidated Statement of Earnings. The Company's long-term debt includes $150 million of 8% Senior Notes which Baroid sold in April, 1993 via a public offering. On August 5, 1994, the Company completed a consent solicitation whereby the holders of the Notes consented to certain amendments to the Indenture which conformed various restrictive covenants to the Company's 6.25% notes. In return, Dresser 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. 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 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 date to set the interest rate, six-month LIBOR is less than 4.9%, the Company pays an effective floating rate of less than 8.0% and conversely if six- month LIBOR is greater than 4.9% the Company pays an effective floating rate greater than 8.0%. The effect of the swap is accrued monthly based upon current LIBOR estimates. The swap agreement increased interest expense $1.0 million in 1994 and decreased interest expense $1.2 million in 1993. Maturities of long-term debt in the fiscal years after October 31, 1994 are as follows (in millions):
Through 1999 . . . . . . . . . . . $ 10.0 After 1999 . . . . . . . . . . . . 454.1 ------ $ 464.1 ------
56 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - EMPLOYEE INCENTIVE PLANS STOCK COMPENSATION PLAN Dresser's 1992 Stock Compensation Plan includes a Stock Option Program, a Restricted Incentive Stock Program and a Performance Stock Unit Program. The Stock Option Program provides for the granting of options to officers and key employees for purchase of the Company's common shares. The Plan is administered by the Executive Compensation Committee of the Board of Directors, whose members are not eligible for grants under the Plan. No option can be for a term of more than ten years from date of grant. The option price is recommended by the committee, but cannot be less than 100% of the average of the high and low prices of the shares on the New York Stock Exchange on the day the options are granted. The exercise prices for options granted during 1993 and 1994 increase on the annual anniversary dates of grants. Baroid and Wheatley had performance incentive plans that provided for granting options to purchase common stock. In connection with the merger, Dresser assumed the outstanding options to purchase stock on the same terms and conditions as were applicable under the Baroid and Wheatley plans. Such options were converted into 1.5 million Dresser options upon the closings of the mergers. Changes in outstanding options during the three years ended October 31, 1994 and options exercisable at October 31, 1994, reflecting assumed Baroid and Wheatley options, are as follows:
Outstanding at November 1, 1991. . . . . . . . .1,927,860 Granted at $12.650 to $20.000. . . . . . . . . 496,449 Exercised at $4.475 to $21.250 . . . . . . . . (200,538) Canceled or expired. . . . . . . . . . . . . . (231,853) --------- Outstanding at October 31, 1992. . . . . . . . .1,991,918 Adjustment for year-end change . . . . . . . . 56,000 Granted at $14.375 to $21.000. . . . . . . . .1,692,850 Exercised at $4.475 to $21.250 . . . . . . . . (348,630) Canceled or expired. . . . . . . . . . . . . . (106,373) --------- Outstanding at October 31, 1993. . . . . . . . .3,285,765 Granted at $17.375 to $21.000. . . . . . . . . 662,263 Exercised at $5.583 to $21.980 . . . . . . . . (419,445) Canceled or expired. . . . . . . . . . . . . . (475,631) --------- Outstanding at October 31, 1994. . . . . . . . .3,052,952 --------- --------- Exercisable at $4.481 to $26.477 . . . . . . . .1,495,416 --------- ---------
57 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - EMPLOYEE INCENTIVE PLANS (CONTINUED) At October 31, 1994, a total of 8.5 million Dresser common shares were reserved for granting of future options under the 1992 plan. NOTE L - CAPITAL SHARES Changes in issued common shares during the three years ended October 31, 1994 are as follows (in thousands):
Shares at November 1, 1991 . . . . . . . . . . . 180,744 Issued under employee benefit and dividend reinvestment plans. . . . . . . . . 66 ------- Shares at October 31, 1992 . . . . . . . . . . . 180,810 Issued under employee benefit and dividend reinvestment plans. . . . . . . . . 152 ------- Shares at October 31, 1993 . . . . . . . . . . . 180,962 Sold in a public offering by Wheatley. . . . . 2,100 Issued under employee benefit and dividend reinvestment plans. . . . . . . . . 986 ------- Shares at October 31, 1994 . . . . . . . . . . . 184,048 ------- -------
Changes in common shares held in treasury during the three years ended October 31, 1994 are as follows (in thousands):
Treasury shares at November 1, 1991. . . . . . . 3,498 Issued in connection with the purchase of AVA International . . . . . . . . . . . . (1,925) Issued under benefit and dividend reinvestment plans . . . . . . . . . . . . . (697) ------- Treasury shares at October 31, 1992. . . . . . . 876 Issued under benefit and dividend reinvestment plans . . . . . . . . . . . . . (686) ------- Treasury shares at October 31, 1993 . . . . . . 190 Exchanged under benefit and dividend reinvestment plans . . . . . . . . . . . . . 6 ------- Treasury shares at October 31, 1994 . . . . . . 196 ------- -------
PREFERRED STOCK PURCHASE RIGHTS PLAN The Company has a plan under which it issues one Preferred Stock Purchase Right for each outstanding share of the Company's Common Stock. The Rights expire in 2000 unless they are redeemed earlier. 58 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - CAPITAL SHARES (CONTINUED) The Rights will generally not be exercisable until after 10 days (or such later time as the Board of Directors may determine) from the earlier of a public announcement that a person or group has, without Board approval, acquired beneficial ownership of 15% or more of the Company's Common Stock or the commencement of, or public announcement of an intent to commence, a tender or exchange offer which, if successful, would result in the offeror acquiring 30% or more of the Company's Common Stock. Once exercisable, each Right would entitle its holder to purchase 1/100 of a share of the Company's Series A Junior Preferred Stock at an exercise price of $90, subject to adjustment in certain circumstances. If the Company is acquired in a merger or other business combination not previously approved by the Company's Continuing Directors, each Right then exercisable would entitle its holder to purchase at the exercise price that number of shares of the surviving company's common stock which has a market value equal to twice the Right's exercise price. In addition, if any person or group (with certain exceptions) were to acquire beneficial ownership of 15% or more of the Company's Common Stock (unless pursuant to a transaction approved by the Company's Continuing Directors), each Right would entitle all rightholders, other than the 15% stockholder or group, to purchase that number of Series A Junior Preferred Stock having a market value equal to twice the Right's price. The Rights may be redeemed by the Company for $.01 per Right until the tenth day after a person or group has obtained beneficial ownership of 15% or more of the Company's Common Stock (or such later date as the Continuing Directors may determine). The Rights are not considered to be common stock equivalents because there is no indication that any event will occur which would cause them to become exercisable. NOTE M - COMMITMENTS 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 59 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - COMMITMENTS AND CONTINGENCIES (CONTINUED) LITIGATION (CONTINUED) 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, 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 to the U.S. Court of Appeals, Eleventh Circuit. 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. On October 13, 1994, the Court ordered a reduction of damages from $54 million to $12 million. The Company filed a notice of appeal on November 7, 1994. Based on a review of the current facts and circumstances, management has provided for what is believed to be a reasonable estimate of the exposure to loss associated with these matters. While acknowledging the uncertainties of litigation, management believes that these matters will be resolved without a material effect on the Company's financial position or results of operations. ASBESTOSIS LITIGATION The Company has approximately 40,000 pending claims (approximately 3,000 new claims filed in fiscal 1994 compared to 12,000 filed in fiscal 1993) 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 used in other products manufactured by the Company. 60 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - COMMITMENTS AND CONTINGENCIES (CONTINUED) ASBESTOSIS LITIGATION (CONTINUED) Since 1976, the Company has tried, settled or summarily disposed of approximately 19,000 such claims for a total cost of $40 million including legal fees. The Company has entered into agreements with insurance carriers covering approximately 60% of the pending claims, including all refractory claims, approximately 75% of all claims settled, and is in negotiation with insurance carriers for coverage of the remainder of the claims. Management has no reason to believe the carriers will not be able to meet their obligations pursuant to the agreements which based on current estimates is approximately $25 million. Under the agreements, insurance covers approximately 67% of legal fees and any settlements or awards. The net cost to the Company after recoveries from the carriers has been approximately $13 million. Of the 19,000 claims settled, approximately 70% relate to cases involving refractory products. 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. The Company has provided for the estimated exposure, based on past experience, for the remaining 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 accord with the evidence. The case currently is on appeal to the Mississippi Supreme Court. Any ultimate loss would be covered by the agreement with the insurance carriers described above. On December 19, 1994, the Company sustained an adverse judgement in Baltimore, Maryland in which the Company's share of damages awarded was $.9 million. The trial is not yet concluded. In later stages of the trial the jury will decide the amount of punitive damages. The Company believes there are serious errors in the trial to date and intends to contest final verdicts vigorously on post- trial motions and by appeal if necessary. Any ultimate loss would be covered by the agreement with the insurance carriers described above. 61 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - COMMITMENTS AND CONTINGENCIES (CONTINUED) ASBESTOSIS LITIGATION (CONTINUED) Subsequent to October 31, 1994 and during the first quarter of 1995, approximately 6,000 new non-refractory cases have been filed against the Company in Texas. While no investigation of these cases has occurred due to their recent nature, the Company does not believe they will be different from its other non-refractory cases which have traditionally been settled for substantially less than its refractory 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 is expected to be set during early 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 is identified as a potentially responsible party in 85 Superfund sites. Primary responsibility for nine of these sites was assumed by INDRESCO Inc. The Company has entered into an agreement to settle the Bio-Ecology site for $.9 million, and the agreement is before the Court for approval. At two of the remaining 62 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - COMMITMENTS AND CONTINGENCIES (CONTINUED) ENVIRONMENTAL MATTERS (CONTINUED) 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 eighteen Superfund sites at a total cost of $.4 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, Operating Industries and PAB Oil and Chemical, management believes that the other situations will be resolved without material effect on the Company's financial position or results of operations. SHAREHOLDER LITIGATION On December 17, 1993, a shareholder filed a purported class action against Baroid, certain Baroid Directors, and Dresser. The Complaint alleges, among other things, that the directors of Baroid breached their fiduciary duties to Baroid stockholders by approving a merger agreement which provided for the acquisition of Baroid by Dresser at an allegedly inadequate price. Plaintiff charges Dresser with aiding and abetting this alleged breach of fiduciary duty. Plaintiff seeks, among other forms of relief, damages in an unspecified amount. On February 28, 1994, all defendants moved to dismiss the Complaint. To date, plaintiff has not responded to defendant's motion to dismiss. Based upon management's knowledge of the facts and circumstances which gave rise to the action and the contents of the proxy statements furnished to shareholders of both Dresser and Baroid and the overwhelming approval of the merger by shareholders of both companies, management believes the action is totally without merit and will be resolved without material adverse 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. 63 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - COMMITMENTS AND CONTINGENCIES (CONTINUED) OTHER LITIGATION (CONTINUED) However, based upon the nature of and management's understanding of the facts and circumstances which gave rise to such actions and claims, management believes that such litigation and claims will be resolved without material effect on the Company's financial position or results of operations. OTHER The Company and certain subsidiaries are contingently liable as guarantors of obligations aggregating approximately $20 million at October 31, 1994. Total rental and lease expense charged to earnings was $99.0 million in 1994, $100.4 million in 1993 and $89.4 million in 1992. At October 31, 1994, the aggregate minimum annual obligations under noncancelable leases were: $49.3 million for 1995; $35.3 million for 1996; $21.0 million for 1997; $14.2 million for 1998; $12.4 million for 1999; and $53.0 million for all subsequent years. The lease obligations related primarily to general and sales office space and warehouses. NOTE N - POSTRETIREMENT BENEFITS BENEFITS OTHER THAN PENSIONS The Company sponsors a number of plans providing health and life insurance benefits for retired U.S. bargaining and non-bargaining employees meeting eligibility requirements. Although certain plans are contributory, the Company has generally absorbed the majority of the costs. The Company funds the benefit plans as claims and premiums are paid. The Company adopted Statement of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS (SFAS 106), for its U.S. benefit plans as of November 1, 1991. The Company elected to recognize this change in accounting on the immediate recognition basis. The cumulative effect as of November 1, 1991, reflected in the Consolidated Statement of Earnings for the year ended October 31, 1992 as cumulative effect of an accounting change, was as follows (in millions, except per share amount): 64 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE N - POSTRETIREMENT BENEFITS (CONTINUED) BENEFITS OTHER THAN PENSIONS (CONTINUED) Accrued postretirement benefit. . . . . . . . . . . $ 644.0 Amount applicable to minority interests . . . . . . (101.0) ------- 543.0 Income tax benefit. . . . . . . . . . . . . . . . . (190.0) ------- Decrease in net earnings. . . . . . . . . . . . . . $ 353.0 ------- ------- Decrease in earnings per common share . . . . . . . $ 2.05 ------- -------
During 1993, the Company, Dresser-Rand and Ingersoll-Dresser Pump Company adopted amendments to certain postretirement medical benefit plans, primarily the non-union plans. The major amendments included the elimination of benefits for younger employees and the introduction of limits on the amount of future cost increases which will be absorbed by the companies. These amendments resulted in a curtailment gain of $12.8 million which was recognized in 1993 and unrecognized gains of $208.3 million which are being recognized as a reduction in benefit expense on a straight line basis over periods ranging from 12 years to 18 years. The liability of the U.S. plans at October 31, 1994 and 1993 was as follows (in millions):
1994 1993 ------- -------- Actuarial present value of accumulated postretirement benefit obligation: Retirees . . . . . . . . . . . . . . $ 268.9 $ 306.6 Fully eligible, active plan participants . . . . . . . . . . . 43.8 72.0 Other active plan participants . . . 62.1 121.1 ------ ------- Total accumulated postretirement benefit obligation . . . . . . . 374.8 499.7 Unamortized gains from plan amendments . . . . . . . . . . . . 188.7 198.5 Unrecognized net gain (loss) . . . . 80.5 (28.2) ------ ------- Accrued postretirement benefit liability $ 644.0 $ 670.0 ------ ------- ------ -------
Accrued compensation and benefits on the Consolidated Balance Sheet include the current portion of the benefit liability. 65 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE N - POSTRETIREMENT BENEFITS (CONTINUED) BENEFITS OTHER THAN PENSIONS (CONTINUED) The net periodic postretirement benefit expense for the years ended October 31, 1994, 1993 and 1992 included the following components (in millions):
1994 1993 1992 ------- ------- -------- Service cost for benefits earned . . . . . . . . . . . $ 4.5 $ 7.6 $ 11.8 Interest cost on accumulated postretirement benefit obligation . . . . . . . . . 27.1 40.4 53.0 Net amortization of unrecognized gain. . . . . . (15.7) (9.8) - ------- ------- ------- Net periodic postretirement benefit cost*. . . . . . . . $ 15.9 $ 38.2 $ 64.8 ------- ------- ------- ------- ------- ------- Actual benefits paid . . . . . $ 24.8 $ 22.1 $ 22.7 ------- ------- ------- ------- ------- ------- *Includes $8.1 million in 1994, $14.3 million in 1993 and $20 million in 1992 for Dresser-Rand Company which was not consolidated in 1992.
Assumptions used to calculate the Accumulated Postretirement Benefit Obligation were as follows: Discount rate - October 31, 1994 . . . . . . 8.25% October 31, 1993 . . . . . . 7.0% October 31, 1992 . . . . . . 8.5% Health care trend rate (weighted based on participant count) - October 31, 1994 - 12% for 1994 declining to 5.5% in 2003 and level thereafter. October 31, 1993 - 13% for 1993 declining to 5.5% in 2003 and level thereafter. October 31, 1992 - 15% for 1992 declining to 6.0% in 2006 and level thereafter. The above changes in assumptions and changes in circumstances and experience resulted in an unrecognized net gain of $80.5 million at October 31, 1994 and an unrecognized net loss of $(28.2) million at October 31, 1993. A one percentage-point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation as of October 31, 1994 by 66 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE N - POSTRETIREMENT BENEFITS (CONTINUED) BENEFITS OTHER THAN PENSIONS (CONTINUED) approximately $29 million and would increase the net postretirement benefit cost for 1994 by approximately $3 million. DEFINED BENEFIT PENSION PLANS The Company has numerous defined benefit pension plans covering certain employees in the United States. The benefits for the U.S. plans covering the salaried employees are based primarily on years of service and employees' qualifying compensation during the final years of employment. The benefits for the U.S. plans covering the hourly employees are based primarily on years of service. The U.S. plans are funded in accordance with the requirements of applicable laws and regulations. The U.S. plan assets are invested in cash, short-term investments, equities, fixed-income instruments and real estate at October 31, 1994. The Company has additional defined benefit pension plans for employees outside the United States. The benefits under these plans are based primarily on years of service and compensation levels. The Company funds these plans in amounts sufficient to meet the minimum funding requirements under governmental regulations, plus such additional amounts as the Company may deem appropriate. The Company recognized a minimum pension liability for underfunded plans. The minimum liability is equal to the excess of the accumulated benefit obligation over plan assets. A corresponding amount is recognized as either an intangible asset or a reduction of shareholders' equity. The Company had recorded additional liabilities of $34.5 million and $39.9 million, intangible assets of $21.6 million and $15.9 million, and adjustments to shareholders' equity, net of income taxes, of $7.6 million and $13.8 million as of October 31, 1994 and 1993, respectively. Pension expense includes the following (in millions):
1994 1993 1992 -------- -------- -------- Service cost for benefits earned $ 22.8 $ 19.4 $ 18.2 Interest cost on projected benefit obligation . . . . . . 38.2 36.9 32.7 Actual return on plan assets . . (42.0) (36.0) (35.0) Net amortization and deferral. . 2.5 .7 (1.6) ------- ------ ------- Net pension expense. . . . . . . $ 21.5 $ 21.0 $ 14.3 ------- ------ ------- ------- ------ -------
67 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE N - POSTRETIREMENT BENEFITS (CONTINUED) DEFINED BENEFIT PENSION PLANS (CONTINUED) Cash contributions to the plans in 1994 were $28.8 million. The funded status of the plans on the measurement dates of October 31, 1994 and August 1, 1993 was as follows (in millions):
PLANS (PRIMARILY FOREIGN) WITH ASSETS EXCEEDING ACCUMULATED BENEFITS 1994 1993 -------- -------- Actuarial present value of benefit obligations: Vested benefit obligation . . . . . $ 136.2 $ 116.6 ------- ------- ------- ------- Accumulated benefit obligation. . . $ 138.1 $ 119.5 ------- ------- ------- ------- Projected benefit obligation . . . . . $ 158.3 $ 134.5 Plan assets at fair value. . . . . . . 236.9 212.6 ------- ------- Projected benefit obligation under plan assets. . . . . . . . . . 78.6 78.1 Unrecognized net (gain) loss . . . . . (10.3) (16.7) Prior service cost not yet recognized in net periodic pension cost . . . . 2.1 2.0 Unrecognized transition net asset. . . (20.3) (21.1) ------- ------- Prepaid pension costs recognized as of the measurement dates. . . . . $ 50.1 $ 42.3 ------- ------- ------- ------- PLANS (PRIMARILY DOMESTIC) WITH ACCUMULATED BENEFITS EXCEEDING ASSETS 1994 1993 ------- ------- Actuarial present value of benefit obligations: Vested benefit obligation . . . . . $ 271.4 $ 268.0 ------- ------- ------- ------- Accumulated benefit obligation. . . $ 288.2 $ 291.8 ------- ------- ------- ------- Projected benefit obligation . . . . . $ 371.6 $ 364.6 Plan assets at fair value. . . . . . . 230.8 212.8 ------- ------- Projected benefit obligation over plan assets . . . . . . . . . . (140.8) (151.8) Unrecognized net loss. . . . . . . . . 48.6 56.5 Prior service cost not yet recognized in net periodic pension expense. . . 26.7 24.1 Unrecognized transition obligation . . 6.9 5.3 Adjustment required to recognize minimum liability. . . . . . . . . . (34.5) (39.9) ------- ------- Pension liability recognized as of the measurement dates. . . . . . . . $ (93.1) $ (105.8) ------- ------- ------- -------
68 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE N - POSTRETIREMENT BENEFITS (CONTINUED) DEFINED BENEFIT PENSION PLANS (CONTINUED) On the Consolidated Balance Sheet, "Other assets" include prepaid pension costs and "Accrued compensation and benefits" include the current portion of the pension liabilities. The actuarial assumptions used in determining funded status of the plans were as follows:
U.S. PLANS 1994 1993 -------------- ------------ Discount rate. . . . . . 8.25% 7.0% Expected long-term rate of return on assets . . . 8.5% to 9.0% 8.5% to 9.0% Rate of increase in compensation levels. . 3.5% to 5.5% 3.5% to 4.0% FOREIGN PLANS 1994 1993 -------------- ------------ Discount rate. . . . . . 6.5% to 12.5% 5.0% to 10.5% Expected long-term rate of return on assets . . . 6.0% to 13.5% 7.5% to 12.0% Rate of increase in compensation levels. . 4.5% to 11.0% 3.0% to 7.5%
DEFINED CONTRIBUTION PLANS The Company has defined contribution plans for most of its U.S. salaried employees. Under these plans, eligible employees may contribute amounts through payroll deductions supplemented by employer contributions for investment in various funds established by the plans. The cost of these plans was $11.7 million, $17.5 million and $11.3 million in 1994, 1993 and 1992, respectively. POSTEMPLOYMENT BENEFITS In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS (SFAS 112), which requires that accrual accounting be used for the cost of benefits provided to former or inactive employees who have not yet retired. Such benefits include salary continuation, disability, severance and health care. Under SFAS 112, the cost of benefits must be accrued either over the employee's service period or at the date of an event that gives rise to the benefits. The Company currently accrues the cost of some benefits covered by SFAS 112 but not all. 69 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE N - POSTRETIREMENT BENEFITS (CONTINUED) POSTEMPLOYMENT BENEFITS (CONTINUED) The Company will adopt SFAS 112 in the first quarter of 1995, and will incur a charge to earnings of approximately $25 million ($16 million, net of tax or $.09 per share) for the cumulative effect of the accounting change. NOTE O - SUPPLEMENTARY INFORMATION AND SPECIAL CHARGES Earnings per common share are based on the average number of common shares outstanding during each period. The average common shares outstanding were 182.8 million in 1994, 180.4 million in 1993 and 178.4 million in 1992. Common stock equivalents do not have a material effect on earnings per share. Depreciation of property, plant and equipment charged to earnings amounted to $190.7 million in 1994, $189.6 million in 1993 and $133.1 million in 1992. The increase from 1992 to 1993 is primarily due to the consolidation of Dresser- Rand. Amortization of intangibles was $25.6 million in 1994, $22.2 million in 1993 and $16.1 million in 1992 and is included in selling, engineering, administrative and general expenses. Research and development costs charged to earnings were $102.5 million in 1994, $98.5 million in 1993 and $31.1 million in 1992. The increases in 1993 costs compared to 1992 costs are primarily due to the consolidation of Dresser-Rand. The components of other income (deductions), net on the Consolidated Statements of Earnings are as follows (in millions):
1994 1993 1992 -------- -------- -------- Gain on business disposals $ 7.1 $ - $ 18.2 Retiree medical benefit plan changes - 12.8 - Gains on sales of assets 3.1 4.8 - Foreign exchange gain (loss) (13.6) 1.7 (13.4) -------- -------- -------- $ (3.4) $ 19.3 $ 4.8 -------- -------- -------- -------- -------- --------
70 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE O - SUPPLEMENTARY INFORMATION AND SPECIAL CHARGES (CONTINUED) Special charges consist of the following (in millions):
1994 1993 1992 -------- -------- -------- Parker & Parsley - insurance recovery/litigation settlement $ (18.4) $ 65.0 $ - Drill bit pricing litigation 9.5 - - Restructuring charges 6.2 13.2 70.0 Merger expenses 10.7 31.0 - Retiree medical plan curtailment gain - (4.1) - ------- ------- ------- $ 8.0 $ 105.1 $ 70.0 ------- ------- ------- ------- ------- -------
In 1993, the Company recorded expenses of $65.0 million to cover settlement, legal fees and expenses of the Parker & Parsley and related litigation. In April 1994, the Company entered into settlement agreements with certain insurance carriers relating to the $65 million Parker & Parsley settlement. The Company had previously received approximately $13.5 million from other insurance carriers in connection with the litigation. Pursuant to the settlement agreements, the Company received approximately $33.8 million, which, after legal fees and a provision for other potential litigation settlements, resulted in a gain of $18.4 million. 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 August 1994. The Company paid $9.5 million in February 1994 for the settlement of drill bit pricing litigation. In the fourth quarter of 1994, the Company accrued expenses of $6.2 million primarily for personnel reduction costs associated with restructuring its Valve and Controls operations. Of the costs, $2.5 million was paid in 1994 and $3.7 million will be paid in 1995. The Company expects annual cost savings of $7.6 million in 1995 and $9.1 million thereafter. Also, in the fourth quarter of 1994, the Company recorded expenses associated with the Wheatley merger (See Note C) totaling $10.7 million, including professional fees and costs related to eliminating duplicate facilities. 71 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE O - SUPPLEMENTARY INFORMATION AND SPECIAL CHARGES (CONTINUED) In 1993, the Company recorded expenses of $13.2 million for restructuring and termination costs partially offset by a $4.1 million gain from curtailment of retiree medical benefits. The curtailments resulted from employee terminations associated with plant closings. These special charges reduced segment operating profit by $6.9 million and the remaining $67.2 million was reflected as nonsegment expenses. The 1993 Special Charges also included expenses associated with the Baroid merger (See Notes B and C) totaling $31 million and consisting of the following (in millions): Employee severance costs $ 11.3 Foreign taxes associated with change of ownership. . . . . . . . . . . . . . . . . 8.0 Professional fees. . . . . . . . . . . . . . 5.0 Write-off of debt issuance cost. . . . . . . 3.7 Advisory fees paid to Baroid officers. . . . 3.0 ------- $ 31.0 ------- -------
Baroid's Board of Directors concluded that the Advisory fee of $3 million was warranted in view of the time and service required of certain officers to negotiate and bring about the Merger and the fact that, as a result of their time and service, no investment banker was needed or hired by Baroid to represent Baroid in negotiating the Merger. Such amounts were determined to be reasonable in relation to avoided costs of investment banking fees. In 1992, the Company recorded expenses totaling $70.0 million. The expenses provided $35.0 million for the restructuring of the pump joint venture, $25.0 million for restructuring and termination costs in other operations, and $10.0 million primarily for the settlement of special warranty claims. The special charges reduced segment earnings of Oilfield Services by $17.1 million and Hydrocarbon Processing Industry by $49.3 million. The remaining $3.6 million was reflected as nonsegment expenses. NOTE P - DISCONTINUED OPERATIONS In 1992, the Company decided to dispose of its Environmental Products business and recorded a $12.0 million charge for the estimated costs of disposal and future operating losses. The Company sold its Environmental Products business to FLS Miljo A/S, a Danish company. 72 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE P - DISCONTINUED OPERATIONS In March 1992, Baroid completed the sale of its Atlas Bradford subsidiary for approximately $10.2 million in cash. In July 1992, Baroid completed the sale of its Shaffer subsidiary for approximately $36 million in cash. Estimated future losses of Atlas Bradford and Shaffer were accrued in the estimated loss on disposition of $16.0 million that was provided for in 1991. Effective August 1, 1992, the Company divested its industrial products and equipment businesses including its 50% interest in Komatsu Dresser Company. The divestiture/spin-off was accomplished by a distribution of one INDRESCO share for every five shares of the Company's common stock. The results of operations, net of income taxes, for Environmental Products (including the $12 million charge in 1992) and for the INDRESCO businesses are reported as discontinued operations. Summarized information on Discontinued Operations is as follows (in millions): 1992 --------- Net revenues . . . . . . . . . . . . . $ 499.5 -------- -------- Loss before income taxes . . . . . . . $ (39.2) Income tax expense (benefit) . . . . . (3.9) -------- Net loss . . . . . . . . . . . . . . $ (35.3) -------- --------
NOTE Q - FINANCIAL INSTRUMENTS The carrying amounts of financial instruments other than long-term debt approximates fair value because of the short maturity of those instruments. The carrying amounts of long-term debt were approximately $33.4 million higher than its fair value at October 31, 1994 and approximately $25.0 million less than its fair value at October 31, 1993. The estimated cost to terminate the interest rate swap (See Note J) was $5.5 million at October 31, 1994. Fair values of the debt and the cost to terminate the interest rate swap were determined by reference to market interest rates. The Company has cash and cash equivalents held in currencies other than local currencies, and current and future receivables and payables to be settled in currencies other than local currencies. These financial assets, liabilities and commitments create exposure to potential foreign exchange gains and losses arising on future 73 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE Q - FINANCIAL INSTRUMENTS (CONTINUED) changes in currency exchange rates. The Company protects against such risks by entering into forward exchange contracts. The Company does not engage in speculation, nor does the Company typically hedge balance sheet exposure. The fair value of foreign exchange contracts is based on year-end quoted rates for contracts with similar terms and maturity dates. At October 31, 1994, the Company had $248 million of forward exchange contracts outstanding, 73% of which were in European currencies, 20% of which were in Japanese Yen, and 7% of which were in other currencies. The fair value of the Company's foreign exchange contracts is not significant. NOTE R - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA The Company's industry segments are outlined below. See Notes B, D and P for information about the mergers of Dresser, Baroid and Wheatley and changes in joint venture operations. OILFIELD SERVICES The Segment provides products and services for oil and gas exploration, drilling, production and transmission. Principal products and services of consolidated operations include drilling fluid systems, drill bits, measurement-while-drilling services, directional drilling services, downhole production tools, pipe coating, ball valves and underwater pre-drilling and production services. The Western Atlas unconsolidated joint venture, in which the Company sold its interest in 1994, provided integrated reservoir description services, seismic services, core analysis and wireline logging services. HYDROCARBON PROCESSING INDUSTRY The Segment designs, manufactures and markets highly engineered products for oil and gas producers, transporters, processors, distributors and users. Principal products, services and systems of consolidated operations include compressors, turbines, generators, electric motors, engines and power systems, valves and controls, instruments, meters, pipe couplings, blowers and gasoline dispensing systems along with related repair services. The Ingersoll-Dresser Pump unconsolidated joint venture provides pumps along with related repair services. 74 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE R - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED) ENGINEERING SERVICES The Segment consists of the M. W. Kellogg Company which provides engineering, construction and related services primarily to the hydrocarbon process industries. M.W. Kellogg provides its own proprietary technologies and the advanced technologies of others to facilitate the environmentally acceptable conversion of raw hydrocarbons and other chemicals into value- added end products. Services include the development of processes, engineering design, construction and procurement for energy-related complexes. Kellogg participates in projects involving liquefied natural gas (LNG) plants and receiving terminals, refining and petrochemical activities, ammonia/fertilizer facilities and the retrofitting of energy-related complexes for environmental purposes. Total revenues include sales and services to unaffiliated customers and either intersegment sales and services or intergeographic area sales and services. The intersegment and intergeographic area sales and services are accounted for at prices which approximate arm's length market prices. The intersegment and intergeographic area revenues are eliminated. Revenues also include royalties and share of earnings or losses of unconsolidated affiliates. Operating profit consists of total revenues less total operating expenses and includes share of earnings or losses from unconsolidated affiliates. General corporate expenses, amortization of acquisition intangibles, interest income and expense, and other income and expenses not identifiable with a segment have been excluded in determining operating profit. Identifiable assets are those assets that are identified with particular segments. Corporate assets are principally cash and cash equivalents and deferred income tax benefits. INDUSTRY SEGMENT AND GEOGRAPHIC AREA FINANCIAL INFORMATION The Financial Information by Industry Segment and Geographic Area for the years ended October 31, 1994, 1993 and 1992 is included in Management's Discussion and Analysis included elsewhere in this report and is an integral part of this Note to Consolidated Financial Statements. 75 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE S - QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarters Ended ------------------------------------------------- January 31 April 30 July 31 October 31 ---------- -------- ------- ---------- IN MILLIONS, EXCEPT PER SHARE DATA 1994 Net revenues . . . . . $1,396.2 $1,324.6 $1,193.8 $1,416.1 Gross earnings . . . . 335.8 314.2 277.8 331.2 Net earnings . . . . $ 195.3(1) $ 54.5 $ 30.2 $ 81.8(2) -------- -------- -------- -------- -------- -------- -------- -------- Earnings per common share . . . . $ 1.08 $ .29 $ .16 $ .45 -------- -------- -------- -------- -------- -------- -------- -------- 1993 Net revenues . . . . . $1,153.3 $1,300.8 $1,313.5 $1,434.7 Gross earnings . . . . 278.2 342.0 347.0 396.9 Net earnings . . . . $ 24.9 $ 9.5 $ 45.3 $ 53.9(3) -------- -------- -------- -------- -------- -------- -------- -------- Earnings per common share . . . . $ .14 $ .05 $ .25 $ .30 -------- -------- -------- -------- -------- -------- -------- -------- (1) Includes gain on sale of interest in Western Atlas joint venture of $147 million. (2) Includes gain on sale of interest in IRI International of $22.1 million and Wheatley merger expense of $7.9 million. (3) Includes expenses incurred for merger of Baroid Corporation of $30.6 million.
76 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT. Certain information required by this Item is incorporated by reference to Dresser's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report (the "Dresser Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference to the Dresser Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is incorporated by reference to the Dresser Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item is incorporated by reference to the Dresser Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) List of Financial Statements, Financial Statement Schedules and Exhibits. (1) and (2) - Response to this portion of Item 14 is submitted as a separate section of this report. (3) Response to this portion of Item 14 is submitted as a separate section of this report. (b) Reports on Form 8-K. None. (c) Exhibits - Response to this portion of Item 14 is submitted as a separate section to this report. Management contracts or compensatory plans or arrangements in which Directors or executive officers participate are included in Exhibits 10.1 - 10.27. 77 (d) Financial Statement Schedules - The response to this portion of Item 14 is submitted as a separate section of this report. UNDERTAKINGS For the purpose of complying with the rules governing registration statements on Form S-8 under the Securities Act of 1933 (as amended effective July 31, 1990), the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's registration statements on Form S-8 Nos. 2-76847 (filed April 5, 1982), 2-81536 (filed January 28, 1983), 33-26099 (filed December 21, 1988), 33-30821 (filed August 28, 1989), 33-48165 (filed May 27, 1992), 33-52067 (filed January 28, 1994) and 33-52989 (filed April 6, 1994), and to the Post-Effective Amendments on Form S-8 to Registration Statement on Form S-4 Nos. 33-50563 (filed February 4, 1994) and 33-54099 (filed August 31, 1994): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Registrant pursuant to the provisions of the Company's Restated Certificate of Incorporation, as amended, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 78 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on January 27, 1995. DRESSER INDUSTRIES, INC. By: /s/ George H. Juetten George H. Juetten, Vice President - Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on January 27, 1994. SIGNATURE TITLE --------- ----- *JOHN J. MURPHY Chairman of the Board and Director (John J. Murphy) (Principal Executive Officer) /s/ George H. Juetten Vice President - Controller (George H. Juetten) (Principal Accounting Officer) *B. D. ST. JOHN Vice Chairman of the Board (B. D. St. John) (Principal Financial Officer) *WILLIAM E. BRADFORD *RAY L. HUNT (William E. Bradford, Director) (Ray L. Hunt, Director) *SAMUEL B. CASEY, JR. *J. LANDIS MARTIN (Samuel B. Casey, Jr., Director) (J. Landis Martin, Director) *LAWRENCE S. EAGLEBURGER *LIONEL H. OLMER (Lawrence S. Eagleburger, Director) (Lionel H. Olmer, Director) *RAWLES FULGHAM *JAY A. PRECOURT (Rawles Fulgham, Director) (Jay A. Precourt, Director) *JOHN A. GAVIN *RICHARD W. VIESER (John A. Gavin, Director) (Richard W. Vieser, Director) *By: /s/ Stanley E. McGlothlin Stanley E. McGlothlin (Attorney-In-Fact) FORM 10-K ITEM 14(A)(1) AND (2) AND ITEM 14(D) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES YEAR ENDED OCTOBER 31, 1994 DRESSER INDUSTRIES, INC. DALLAS, TEXAS F-1 LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements and report of independent accountants are included in Item 8: Page Number ------- Report of Independent Accountants . . . . . . . . . . . . . . 34 Consolidated Statements of Earnings(Loss)-- Years ended October 31, 1994, 1993, and 1992. . . . . . . . 35 Consolidated Balance Sheets-- October 31, 1994 and 1993 . . . . . . . . . . . . . . . . . 36 Consolidated Statements of Shareholders' Equity-- Years ended October 31, 1994, 1993 and 1992 . . . . . . . . 38 Consolidated Statements of Cash Flows-- Years ended October 31, 1994, 1993, and 1992. . . . . . . . 39 Notes to Consolidated Financial Statements. . . . . . . . . . 40 The following consolidated financial statement schedule of Dresser Industries, Inc. is included herein: Schedule II--Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Separate financial statements are not presented for any of the unconsolidated affiliates because none constitutes a significant subsidiary. Summarized financial statement information for Ingersoll-Dresser Pump Company (49% owned) and for the other unconsolidated affiliates in the aggregate is presented in Note D to Consolidated Financial Statements included in Item 8. F-2 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS DRESSER INDUSTRIES, INC. AND SUBSIDIARIES (MILLIONS OF DOLLARS)
Col. C ---------------------- Col. A Col. B Additions Col. D Col. E ---------- ---------- ---------------------- ----------- ---------- Balance at Charged to Charged to Balance at Beginning Costs and Other End of DESCRIPTIONS of Period Expenses Accounts Deductions Period ------------ ---------- ---------- ---------- ----------- ---------- ALLOWANCE DEDUCTED FROM ASSETS TO WHICH THEY APPLY Year ended October 31, 1994 For doubtful receivables classified as current assets . . . . . . . . . . . $ 33.3 $ 6.4 $ 1.1 $ 10.4 (C) $ 30.4 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- For deferred tax asset valuation allowance classified as noncurrent assets. . . . . . . . . . . . . . . . . $ 54.3 $ - $ - $ 32.4 $ 21.9 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Year ended October 31, 1993 For doubtful receivables classified as current assets . . . . . . . . . . . $ 27.0 $ 7.5 $ 5.2 (A) $ 6.4 (C) $ 33.3 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- For deferred tax asset valuation allowance classified as noncurrent assets. . . . . . . . . . . . . . . . . $ 42.9 $ 11.4 $ - $ - $ 54.3 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Year ended October 31, 1992 For doubtful receivables classified as current assets . . . . . . . . . . . $ 22.5 $ 7.5 $ 2.9 (B) $ 5.9 (C) $ 27.0 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- For deferred tax asset valuation allowance classified as noncurrent assets. . . . . . . . . . . . . . . . . $ - $ 42.9 $ - $ - $ 42.9 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Notes: (A) Primarily reclassification from other accrued liabilities, and addition of accounts due to acquisition. (B) Primarily addition of accounts due to acquisition of additional interest, partially offset by removal of companies accounts contributed to Ingersoll- Dresser Pump Company. (C) Receivable write-offs and reclassifications, net of recoveries.
F-3 INDEX TO EXHIBITS EXHIBIT DESCRIPTION - ------- ----------- 3.1 Restated Certificate of Incorporation of Registrant and amendments thereto. (Incorporated by reference to Exhibit 3(a) to Registrant's Form 10-K for the year ended October 31, 1991). 3.2 By-Laws, as amended, of Registrant. (Incorporated by reference to Exhibit 3(b) to Registrant's Form 10-K for the year ended October 31, 1992). 4.1 Rights Agreement dated August 16, 1990, between Registrant and Harris Trust Company of New York as Rights Agent. (Incorporated by reference to Exhibit 1 to Registration Statement on Form 8-A filed on August 30, 1990, as amended by Amendment No.1 on Form 8 filed on October 3, 1990). 4.2 Form of Indenture between Dresser Industries, Inc. and NationsBank of Texas, N.A., as Trustee, for unsecured debentures, notes and other evidences of indebtedness. (Incorporated by reference to Exhibit 4.1 to Registrant's Registration Statement on Form S-3, Registration No. 33-59562). 4.3 Form of Indenture between Baroid Corporation and Texas Commerce Bank National Association, as Trustee, for 8% Senior Notes due 2003. (Incorporated by reference to Exhibit 4.01 to the Registration Statement on Form S-3 of Baroid Corporation, Registration No. 33-60174). 4.4 Form of Supplemental Indenture between Dresser Industries, Inc., Baroid Corporation and Texas Commerce Bank National Association, as Trustee, for 8% Guaranteed Senior Notes due 2003. (Incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-4 filed by Baroid Corporation, Registration No. 33-53077). 10.1 Dresser Industries, Inc. Deferred Compensation Plan. (Incorporated by reference to Exhibit A to Registrant's Proxy Statement dated February 11, 1966, filed pursuant to Regulation 14A, File No. 1-4003). 10.2 Dresser Industries, Inc. Short-Term Deferred Compensation Plan. (Incorporated by reference to Exhibit 10(b) to Registrant's Form 10-K for the year ended October 31, 1992). 10.3 Dresser Industries, Inc. Retirement Income Plan under ERISA, as amended effective May 1, 1984, and Amendments No. 1, 2 and 3 thereto. (Incorporated by reference to Exhibit 10(d) to Registrant's Form 10-K for the year ended October 31, 1986). *10.4 Dresser Industries, Inc. Consolidated Salaried Retirement Plan, as amended by restatement effective May 1, 1994. 10.5 Incentive Compensation Plan for the Officers and Headquarters Staff of Dresser Industries, Inc. (Incorporated by reference to Exhibit 10(g) to Registrant's Form 10-K for the year ended October 31, 1992). * Filed Herewith INDEX TO EXHIBITS (CONT.) EXHIBIT DESCRIPTION - ------- ----------- 10.6 Dresser Industries, Inc. 1982 Stock Option Plan. (Incorporated by reference to Exhibit A to Registrant's Proxy Statement dated February 12, 1982, filed pursuant to Regulation 14A, File No. 1- 4003). 10.7 ERISA Excess Benefit Plan for Salaried Employees of Dresser Industries, Inc. and Its Participating Subsidiaries Who Are Not Represented by a Recognized Union, and Amendments No. 1 and 2 thereto. (Incorporated by reference to Exhibit 10(k) to Registrant's Form 10-K for the year ended October 31, 1990). 10.8 ERISA Compensation Limit Benefit Plan for Executives of Dresser Industries, Inc. (Incorporated by reference to Exhibit 10(l) to Registrant's Form 10-K for the year ended October 31, 1989). 10.9 Supplemental Executive Retirement Plan for Top Executives of Dresser Industries, Inc., as amended by restatement effective May 1, 1992 (renamed Supplemental Executive Retirement Plan of Dresser Industries, Inc. effective August 1, 1993). (Incorporated by reference to Exhibit 10(l) to Registrant's Form 10-K for the year ended October 31, 1992). 10.10 Amendment No. 1 to the Supplemental Executive Retirement Plan of Dresser Industries, Inc. (Incorporated by reference to Exhibit 10.12 to Registrant's Form 10-K for the year ended October 31, 1993). 10.11 Dresser Industries, Inc., Performance Stock Unit Plan. (Incorporated by reference to Exhibit 10(l) to Registrant's Form 10-K for the year ended October 31, 1985). 10.12 Dresser Industries, Inc. Deferred Compensation Plan for Non- employee Directors, as amended. (Incorporated by reference for Exhibit 10(n) to Registrant's Form 10-K/A for the year ended October 31, 1992). 10.13 Dresser Industries, Inc. 1989 Restricted Incentive Stock Plan. (Incorporated by reference to Exhibit A to Registrant's Proxy Statement dated February 10, 1989, filed pursuant to Regulation 14A, File No. 1-4003). 10.14 Dresser Industries, Inc. 1989 Director Retirement Plan, as amended by restatement effective July 15, 1993. (Incorporated by reference to Exhibit 10.16 to Registrant's Form 10-K for the year ended October 31, 1993). * Filed Herewith INDEX TO EXHIBITS (CONT.) EXHIBIT DESCRIPTION - ------- ----------- 10.15 Form of Election for Deferral of 1989 Director Retirement Plan Awards pursuant to the Dresser Industries, Inc. 1989 Director Retirement Plan. (Incorporated by reference to Exhibit 10.17 to Registrant's Form 10-K for the year ended October 31, 1993). 10.16 The M. W. Kellogg Company Retirement Plan, and Amendments No. 1, 2 and 3 thereto. (Incorporated by reference to Exhibit 10(r) to Registrant's Form 10-K for the year ended October 31, 1990). 10.17 Amendment No. 4 to The M. W. Kellogg Company Retirement Plan. (Incorporated by reference to Exhibit 10(r) to Registrant's Form 10-K for the year ended October 31, 1991). 10.18 The M. W. Kellogg Company Long Term Performance Plan. (Incorporated by reference to Exhibit D to Registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report). 10.19 The M. W. Kellogg Company Annual Incentive Plan. (Incorporated by reference to Exhibit C to Registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report). 10.20 Dresser Industries, Inc. 1992 Stock Compensation Plan. (Incorporated by reference to Exhibit A to Registrant's Proxy Statement dated February 7, 1992, filed pursuant to Regulation 14A, File No. 1-4003). 10.21 Amendments No.1 and 2 to Dresser Industries, Inc. 1992 Stock Compensation Plan. (Incorporated by reference to Exhibit A to Registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report). 10.22 Dresser-Rand Company President and Chief Executive Officer Fiscal Year 1992 Incentive Plan. (Incorporated by reference to Exhibit 10(v) to Registrant's Form 10-K for the year ended October 31, 1992). 10.23 Dresser-Rand Company Retirement Savings Plan. (Incorporated by reference to Exhibit 10(x) to Registrant's Form 10-K for the year ended October 31, 1992). 10.24 Dresser-Rand Company Pension Plan. (Incorporated by reference to Exhibit 10(y) to Registrant's Form 10-K for the year ended October 31, 1992). 10.25 Dresser Industries, Inc. Deferred Savings Plan. (Incorporated by reference to Exhibit 10(z) to Registrant's Form 10-K for the year ended October 31, 1992). * Filed Herewith INDEX TO EXHIBITS (CONT.) EXHIBIT DESCRIPTION - ------- ----------- *10.26 The M. W. Kellogg Company Executive Benefits Program. 10.27 The 1995 Executive Incentive Compensation Plan. (Incorporated by reference to Exhibit B to Registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report). *21 Subsidiaries of Registrant at October 31, 1994. *23 Consent of Price Waterhouse LLP. *24 Powers of Attorney. *27 Financial Data Schedule. * Filed Herewith EX-10.4 2 EXHIBIT 10.4 DRESSER INDUSTRIES, INC. CONSOLIDATED SALARIED RETIREMENT PLAN As Amended Effective May 1, 1994 DRESSER INDUSTRIES, INC. CONSOLIDATED SALARIED RETIREMENT PLAN AS AMENDED, EFFECTIVE MAY 1, 1994 INDEX PREAMBLE: EFFECTIVE DATES . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1 .01 Accrued Benefit. . . . . . . . . . . . . . . . . . . . . . . . 1 .02 Actuarial (or Actuarially) Equivalent. . . . . . . . . . . . . 2 .03 Actuary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 .04 Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 .05 Annuity Starting Date. . . . . . . . . . . . . . . . . . . . . 2 .06 Associated Company . . . . . . . . . . . . . . . . . . . . . . 3 .07 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . 3 .08 Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 .09 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 .10 Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 .11 Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 .12 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 4 .13 Continuous Service . . . . . . . . . . . . . . . . . . . . . . 6 .14 Covered Compensation . . . . . . . . . . . . . . . . . . . . . 7 .15 Credit Service . . . . . . . . . . . . . . . . . . . . . . . . 8 .16 Early Retirement Date. . . . . . . . . . . . . . . . . . . . . 9 .17 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 9 .18 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 .19 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 .20 Employment Commencement Date . . . . . . . . . . . . . . . . . 10 .21 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 .22 Final Average Monthly Earnings . . . . . . . . . . . . . . . . 10 .23 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . 11 .24 Hour of Service. . . . . . . . . . . . . . . . . . . . . . . . 12 .25 Insurer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 .26 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 .27 Leased Employee. . . . . . . . . . . . . . . . . . . . . . . . 12 .28 Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 .29 Named Fiduciary. . . . . . . . . . . . . . . . . . . . . . . . 13 .30 Normal Retirement Age. . . . . . . . . . . . . . . . . . . . . 13 .31 Normal Retirement Date . . . . . . . . . . . . . . . . . . . . 13 .32 Participant. . . . . . . . . . . . . . . . . . . . . . . . . . 13 .33 Period of Absence. . . . . . . . . . . . . . . . . . . . . . . 13 .34 Period of Service. . . . . . . . . . . . . . . . . . . . . . . 13 .35 Period of Severance. . . . . . . . . . . . . . . . . . . . . . 14 .36 Permitted Percentage . . . . . . . . . . . . . . . . . . . . . 14 .37 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 .38 Plan Year. . . . . . . . . . . . . . . . . . . . . . . . . . . 14 .39 Predecessor Plan . . . . . . . . . . . . . . . . . . . . . . . 14 .40 Previous Plan. . . . . . . . . . . . . . . . . . . . . . . . . 15 .41 Prior Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 15 .42 Qualified Domestic Relations Order . . . . . . . . . . . . . . 15 .43 Reemployment Commencement Date . . . . . . . . . . . . . . . . 17 .44 Related Entity . . . . . . . . . . . . . . . . . . . . . . . . 17 .45 Severance from Service Date. . . . . . . . . . . . . . . . . . 17 .46 Social Security Pension. . . . . . . . . . . . . . . . . . . . 18 .47 Social Security Retirement Age . . . . . . . . . . . . . . . . 19 .48 Total Disability or Totally Disabled . . . . . . . . . . . . . 19 .49 Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 .50 Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 21 .51 Vesting Service. . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE II - PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . 22 .01 Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE III - CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . 23 .01 Employer Contributions . . . . . . . . . . . . . . . . . . . . 23 .02 Participant Contributions. . . . . . . . . . . . . . . . . . . 23 .03 Refund of Nondeductible Employer Contributions . . . . . . . . 23 ARTICLE IV - BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 .01 Normal Retirement. . . . . . . . . . . . . . . . . . . . . . . 25 .02 Immediate Early Retirement . . . . . . . . . . . . . . . . . . 32 .03 Deferred Early Retirement. . . . . . . . . . . . . . . . . . . 35 .04 Disability Benefits. . . . . . . . . . . . . . . . . . . . . . 36 .05 Other Termination Benefits . . . . . . . . . . . . . . . . . . 39 .06 Spouse's Death Benefit for Persons Participating in Prior Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 41 .07 Spouse's Death Benefit for Persons Not Participating in Prior Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 42 .08 Established Benefits . . . . . . . . . . . . . . . . . . . . . 43 .09 Nonduplication . . . . . . . . . . . . . . . . . . . . . . . . 44 .10 Postponed Retirement Benefit . . . . . . . . . . . . . . . . . 45 .11 Notice 88-131 and Revenue Procedure 89-65. . . . . . . . . . . 46 ARTICLE V - OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 .01 Standard Benefit Form. . . . . . . . . . . . . . . . . . . . . 48 .02 Options Available. . . . . . . . . . . . . . . . . . . . . . . 48 (a) Life-Only Option. . . . . . . . . . . . . . . . . . . . . 48 (b) Joint and Survivorship Options. . . . . . . . . . . . . . 49 (c) Guaranteed Period Option. . . . . . . . . . . . . . . . . 49 (d) Level Income Option . . . . . . . . . . . . . . . . . . . 49 -ii- .03 Making Elections . . . . . . . . . . . . . . . . . . . . . . . 50 .04 Lump-Sum Payment . . . . . . . . . . . . . . . . . . . . . . . 52 .05 Distribution Rules . . . . . . . . . . . . . . . . . . . . . . 53 .06 Consent to Benefit Commencement. . . . . . . . . . . . . . . . 56 ARTICLE VI - ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . 57 .01 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 .02 Committee Operations . . . . . . . . . . . . . . . . . . . . . 57 .03 Committee Duties and Powers. . . . . . . . . . . . . . . . . . 57 .04 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 .05 Disqualification . . . . . . . . . . . . . . . . . . . . . . . 58 .06 Plan Manager . . . . . . . . . . . . . . . . . . . . . . . . . 58 .07 For the Protection of the Committee and Manager. . . . . . . . 59 .08 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 .09 Qualified Domestic Relations Orders. . . . . . . . . . . . . . 59 .10 Withholding on Distributions . . . . . . . . . . . . . . . . . 60 .11 Rollover Provisions. . . . . . . . . . . . . . . . . . . . . . 60 ARTICLE VII - EMPLOYERS. . . . . . . . . . . . . . . . . . . . . . . . . . 61 .01 Current. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 .02 New Employers. . . . . . . . . . . . . . . . . . . . . . . . . 61 .03 Delegation . . . . . . . . . . . . . . . . . . . . . . . . . . 61 .04 Terminating Participation. . . . . . . . . . . . . . . . . . . 61 .05 Corporate Changes. . . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE VIII - AMENDMENT OR TERMINATION. . . . . . . . . . . . . . . . . . 63 .01 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 63 .02 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 63 .03 Insufficient Funds and Allocation Thereof. . . . . . . . . . . 66 ARTICLE IX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 68 .01 Spendthrift. . . . . . . . . . . . . . . . . . . . . . . . . . 68 .02 No Employment Contract . . . . . . . . . . . . . . . . . . . . 68 .03 Communications . . . . . . . . . . . . . . . . . . . . . . . . 68 .04 Employee Data and Verification . . . . . . . . . . . . . . . . 69 .05 Incompetents . . . . . . . . . . . . . . . . . . . . . . . . . 69 .06 Presumptions . . . . . . . . . . . . . . . . . . . . . . . . . 69 .07 Nondiscrimination. . . . . . . . . . . . . . . . . . . . . . . 70 .08 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 70 .09 Advisors Not Fiduciaries . . . . . . . . . . . . . . . . . . . 70 .10 Purchase of Annuity Contracts. . . . . . . . . . . . . . . . . 70 .11 Recovery of Payments Made by Mistake . . . . . . . . . . . . . 71 .12 Representations Contrary to Plan . . . . . . . . . . . . . . . 71 -iii- ARTICLE X - SPECIAL RULES. . . . . . . . . . . . . . . . . . . . . . . . . 72 .01 Reemployment . . . . . . . . . . . . . . . . . . . . . . . . . 72 .02 Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . 74 .03 Military Service . . . . . . . . . . . . . . . . . . . . . . . 75 .04 Lump-Sum Cash Out. . . . . . . . . . . . . . . . . . . . . . . 76 .05 Pre- and Post-Plan Termination Restrictions. . . . . . . . . . 80 .06 Absolute Limitation. . . . . . . . . . . . . . . . . . . . . . 81 (a) Definitions . . . . . . . . . . . . . . . . . . . . . . . 81 (b) Collective Treatment. . . . . . . . . . . . . . . . . . . 91 (c) Annual Benefit Limit. . . . . . . . . . . . . . . . . . . 91 (d) Overall Limit . . . . . . . . . . . . . . . . . . . . . . 92 (e) Special Rules Applicable to Computation of Overall Limit. 93 .07 Claims and Appeals Procedures. . . . . . . . . . . . . . . . . 94 .08 Plan Mergers . . . . . . . . . . . . . . . . . . . . . . . . . 94 .09 Special Transfer or Reemployment Situations. . . . . . . . . . 95 .10 Employment Past Normal Retirement Date and Return to . . . . . 96 Active Employment .11 Top-Heavy Requirements . . . . . . . . . . . . . . . . . . . . 98 .12 Sales, Transfers and Other Dispositions. . . . . . . . . . . . 99 ARTICLE XI - COORDINATION WITH PREDECESSOR PLANS . . . . . . . . . . . . . 101 .01 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 .02 Predecessor Plans Frozen as of April 30, 1986. . . . . . . . . 101 .03 Marion Power Shovel. . . . . . . . . . . . . . . . . . . . . . 103 .04 McGraw-Edison Companies. . . . . . . . . . . . . . . . . . . . 107 .05 Waukesha Engine Division . . . . . . . . . . . . . . . . . . . 108 .06 Reliance Insurance Company . . . . . . . . . . . . . . . . . . 109 .07 International-Hough Division . . . . . . . . . . . . . . . . . 110 .08 Galino: Power Transmission: And Electra Motors Service Coordination Frozen as of 5/1/86 . . . . . . . . . . . . . . . 110 .09 Jeffrey Benefit Frozen as of 5/1/86. . . . . . . . . . . . . . 112 .10 Pilot Retirement Provisions. . . . . . . . . . . . . . . . . . 113 .11 Bay State Abrasives. . . . . . . . . . . . . . . . . . . . . . 116 .12 Dresser-Rand Company, Acquisition of Machinery Repair Division, Boston, Massachusetts. . . . . . . . . . . . . . . . 116 .13 Acquisition of Norris City Operation . . . . . . . . . . . . . 117 .14 Acquisition of Baker Hughes Tool Diamond Products Company . . . . . . . . . . . . . . . . . . . . . . . 118 .15 Early Retirement Factors for Predecessor Plan Benefits Components . . . . . . . . . . . . . . . . . . . . . . . . . . 118 -iv- ARTICLE XII - JOINT VENTURES AND SALES . . . . . . . . . . . . . . . . . . 122 .01 Ideco Joint Venture. . . . . . . . . . . . . . . . . . . . . . 122 .02 M-I Drilling Fluids Co.. . . . . . . . . . . . . . . . . . . . 123 .03 Dresser-Rand Company . . . . . . . . . . . . . . . . . . . . . 125 .04 Kongsberg Dresser Power, Inc.. . . . . . . . . . . . . . . . . 127 .05 Western Atlas. . . . . . . . . . . . . . . . . . . . . . . . . 128 .06 Swaco Geolograh. . . . . . . . . . . . . . . . . . . . . . . . 130 .07 B-J Titan. . . . . . . . . . . . . . . . . . . . . . . . . . . 133 .08 Dresser Leasing Sale . . . . . . . . . . . . . . . . . . . . . 134 .09 Reliance Standard Life . . . . . . . . . . . . . . . . . . . . 135 .10 Bay State Abrasives/General Abrasive Divestiture . . . . . . . 136 .11 Komatsu Dresser Company. . . . . . . . . . . . . . . . . . . . 136 .12 Leroi Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 138 .13 Environmental Products Sale. . . . . . . . . . . . . . . . . . 139 EXHIBIT A List of Current Employer Corporations Under Section 7.01. . . . . . . 140 -v- PREAMBLE: EFFECTIVE DATES Dresser Industries, Inc. hereby adopts and publishes a restatement of the Dresser Industries, Inc. Consolidated Salaried Retirement Plan (the "Plan"), as amended effective May 1, 1989, except where otherwise noted, as herein set forth and as it may be amended from time to time. This is a pension plan for those of its salaried employees who perform services in or for its operations within the United States of America and certain U.S. citizens and residents employed abroad. Any person whose benefit amount was determined under a previous version of this Plan shall continue to have benefits computed under such previous version, without regard to whether benefit payments have actually commenced as of the Effective Date. Any terms used herein in a particular gender or number shall, unless the context clearly indicates otherwise, be construed to include other genders or numbers. ARTICLE I - DEFINITIONS The following words and phrases used herein shall have the following meaning unless a different meaning is clearly required by the context. 1.01 "Accrued Benefit" shall mean, as of any date, the benefit to which the Participant would be entitled in the form of a single life annuity at his Normal Retirement Date were he to retire or incur a Severance from Service Date on the date in question and be fully vested. Provided, however, the Accrued Benefit shall be limited as provided in Section 4.11 of this Plan. Further provided, if the Participant is an Employee after his Normal Retirement Age, his Accrued Benefit shall be the benefit to which the Participant would be entitled in the form of a single life annuity if he were to retire on the date in question. 1.02 "Actuarial (or Actuarially) Equivalent", when used with respect to a specified benefit payable in a form other than a lump-sum provided for in Section 10.04, the amount of benefit of a different type or payable from a different age which can be provided at the same cost as such specified benefit (including any survivor benefits related thereto), using an interest rate assumption of 5% per annum and unisex mortality rates derived from the 1971 Group Annuity Mortality Table weighted 90% male and 10% female as to active and retired Participants. Solely for the purpose of defining Actuarial Equivalent for lump-sum calculations, factors stated in Section 10.04 shall apply. Section 1.42 defines Actuarial Equivalent for purposes of calculations related to Qualified Domestic Relations Orders. 1.03 "Actuary" shall mean the actuary or actuarial firm or firms used by the Company or an Insurer hereunder to compute contributions and values under this Plan. The Actuary shall be an Enrolled Actuary within the meaning of ERISA. 1.04 "Age" shall mean a person's age on the most recent anniversary of his birth. For this purpose, February 28 is deemed the anniversary of February 29 each year that is not a leap year. This definition of Age is intended only for use when determining eligibility for normal and early retirement, as well as spouse's death benefits. However, for computing Actuarial Equivalence and to determine early retirement reduction factors, exact age in years and months is calculated. 1.05 "Annuity Starting Date" means: (a) the first day of the first period for which a benefit is payable as an annuity, -2- (b) in the case of a benefit not payable in the form of an annuity, the first day on which the events have occurred which entitle the Participant to such benefit, or (c) where a benefit is to be received by reason of Total Disability, the first day of the first period for which a benefit is to be received by reason of disability shall be treated as the Annuity Starting Date only if such benefit is not an auxiliary benefit. An auxiliary benefit is a benefit as defined in Section 1.401(a)-20 Q&A 10(c)(1) of the regulations under the Code. 1.06 "Associated Company" shall mean any corporation which is a member of a controlled group of corporations (within the meaning of section 414(b) of the Code) which includes the Company, any trade or business under common control (within the meaning of section 414(c) of the Code) and on or after May 1, 1983 shall include any organization which is a member of an affiliated service group (within the meaning of section 414(m) of the Code) and any other entity required to be aggregated with the Company under section 414(o). 1.07 "Beneficiary" shall mean the person or persons last designated by the Participant in writing to the Manager or his appointee to receive any death benefits that may become payable hereunder. If no such designation is made, Beneficiary shall mean the person or persons entitled to receive the proceeds of the principal group life insurance program maintained for the Participant by his Employer. If a Beneficiary is no longer living when death benefits would otherwise become payable to him, they shall be paid to any alternate Beneficiary designated as above by the Participant. Where no designated or deemed Beneficiary is alive on -3- the date for payment of death benefits, they shall be paid as described in Section 9.06. As to a married Participant or unless otherwise required under a Qualified Domestic Relations Order, the Beneficiary shall be the spouse of the Participant on the earlier of the Annuity Starting Date or the date of death unless the Participant has elected a non-spouse Beneficiary with written spousal consent as witnessed by a Plan representative or Notary Public and provided on the form and in the manner prescribed by the Company. 1.08 "Board" shall mean the Board of Directors of the Company. 1.09 "Code" shall mean the Internal Revenue Code of 1986 and any amendments thereto. 1.10 "Committee" shall mean the Employee Benefits Committee of the Company. 1.11 "Company" shall mean Dresser Industries, Inc. 1.12 "Compensation" shall mean for any calendar year an Employee's base salary, overtime, gain sharing payment, profit sharing payment, non- deferred incentive awards, special awards, or bonuses ("Bonus") accrued for the Fiscal Year ending in that calendar year, foreign service allowance, severance pay received while on a leave of absence, and amounts received under the Short Term Deferred Compensation Plan, as these items are reported on such Employee's W-2 for that calendar year (or in the case of non-deferred Bonus, will be so reported for the following calendar year), and shall include amounts contributed for that calendar year by an Employer on behalf of an Employee pursuant to a salary reduction agreement for qualified benefits under a cafeteria plan described in section 125 of -4- the Code or as a deferral under a cash or deferred arrangement described in section 401(k) of the Code. For these purposes, an Employee's earnings shall include salary or other items paid (or Bonus accrued) by any and all Employers except that earnings shall not include any amounts attributable to the exercise of any option under any Company stock option plan, any amounts paid under a Dresser performance unit/share plan or incentive stock unit plan, or any amounts received as cash pay attributable to any "BenefitsPay" credits under the Dresser Industries, Inc. BenefitsPay program. Effective January 1, 1992, for periods after December 31, 1991, Compensation shall include the Bonus in the calendar year in which paid, rather than the Bonus accrued for the Fiscal Year ending in the calendar year for which Compensation is being determined. In addition to other applicable limitations which may be set forth in the Plan and notwithstanding any other contrary provision of the Plan, Compensation taken into account under the Plan for the Plan Year beginning May 1, 1989 shall not exceed $200,000 for the 1989 calendar year and any prior calendar year if such calendar year Compensation is used to determine the Accrued Benefit after April 30, 1989. Each calendar year of Compensation taken into account in calculating Final Average Monthly Earnings in Plan Years beginning on or after May 1, 1990, shall be adjusted for changes in the cost of living after 1989 as provided in section 415(d) of the Code. If any Plan Year contains fewer than twelve (12) calendar months, the $200,000 or the adjusted limit is an amount equal to the compensation limit in effect on the first day of the calendar year in which a plan year begins (or with which a plan year may correspond, if the plan -5- year is changed) multiplied by the ratio obtained by dividing the number of full months in the short period by twelve (12). If an Employee accepts employment directly from the Company with an employer that is a joint venture between the Company and one or more other companies and such former Employee returns to the Company as an Employee, then components of such Employee's compensation from the joint venture that are analogous to components of Compensation under this Plan shall be considered Compensation under this Plan. 1.13 "Continuous Service" shall mean, except as it may be modified by Articles XI and XII: (a) for periods before May 1, 1976, continuous, uninterrupted time as an employee (including time while participation is suspended or while on leave of absence), or as then provided in Section 10.03 regarding military service, from original date of hire, with an Employer and any Related Entity, or any predecessor thereof, as reflected on Company records, plus (b) for periods after April 30, 1976, Periods of Service beginning with the Employment Commencement Date or May 1, 1976, whichever is later and ending on his Severance from Service Date (see also Section 10.01 for special rules in cases of reemployment); plus (c) service with an Associated Company and, on or after May 1, 1984, service as a Leased Employee. -6- 1.14 "Covered Compensation" shall mean for any calendar year, one-twelfth of the average (without indexing) of the Social Security Wage Base in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which the Participant attains (or will attain) Social Security Retirement Age, rounded to the nearest $600, as shown in regulations published by the Internal Revenue Service. In determining a Participant's Covered Compensation for any calendar year, the Social Security Wage Base in effect for the current calendar year and any subsequent calendar year will be assumed to be the same as that in effect as of the beginning of the calendar year for which the determination is being made. A Participant's Covered Compensation for a calendar year ending before the 35-year period ending with the last day of the calendar year in which the Participant attains his or her Social Security Retirement Age is based on a projection of the Social Security Wage Base in effect as of the beginning of the calendar year. A Participant's Covered Compensation for any calendar year after such 35-year period is the Participant's Covered Compensation for the calendar year during which the Participant attained his or her Social Security Retirement Age. Therefore, Covered Compensation does not change after the Participant attains his or her Social Security Retirement Age. For any Participant to whom subsection (a)(6) of Section 1.45 applies or for any Participant who becomes eligible to receive a monthly disability pension as provided by Section 4.04, the calendar year of the determination of Covered Compensation shall be the last calendar year in which the Participant received compensation from the Employer. Therefore, such Covered Compensation for such calendar year shall include the Social Security Wage Base in effect as of the beginning of the last calendar year in which the Participant received compensation from the Employer for such last calendar year and for each subsequent calendar year until the end of the 35-year period. -7- 1.15 "Credited Service" shall mean, except as it may be modified by Articles XI and XII, the Continuous Service of an Employee excluding the following: (a) Continuous Service prior to the date participation in the Prior Plan or any Predecessor Plan or Previous Plan actually began, if such participation did not begin on the earliest date such participation could have begun, due to action or inaction by the Employee, including an Employee's being eligible but declining to contribute to the Prior Plan; (b) Continuous Service before May 1, 1986, if the Participant was not participating in the Prior Plan as of April 30, 1986, because he was eligible to, but declined to participate in the Prior Plan. (c) Continuous Service with a predecessor prior to the date of acquisition if after March 1, 1972 by the Company or Related Entity, or if later, except as otherwise provided in the Plan, the date employees of operations so acquired are first granted the right to participate in this Plan; (d) Continuous Service after becoming a Participant, during the time when a Participant is on an authorized leave of absence commencing prior to March 1, 1986 or on layoff, or is otherwise suspended from participation under Section 10.02; (e) Continuous Service after becoming a Participant, attributable to the part of any authorized leave of absence that commences after February 28, 1986 that is in excess of 12 months. -8- (f) Continuous Service prior to becoming an Employee, in the case of an individual changing his status ineligible employee to Employee, as provided in Section 4.09(a). (g) Continuous Service after attainment of Age 65 and prior to May 1, 1986. (h) Continuous Service after Age 60 and before Age 65 if such service was before May 1, 1986. 1.16 "Early Retirement Date" shall mean the first day of the first month following the month in which a Participant, Age 55 or over but not yet having attained Age 65, and having met the service requirements for early retirement benefits set out in Section 4.02, has a Severance from Service Date. 1.17 "Effective Date" shall mean May 1, 1989. 1.18 "Employee" shall mean any person employed by an Employer, who is not (a) compensated strictly on an hourly basis, (b) a nonresident alien, (c) employed by an operation located in Puerto Rico, or (d) in a unit of employees covered by a collective bargaining agreement unless such collective bargaining agreement specifically provides for participation in this Plan, but shall include U.S. citizens, and resident aliens employed by domestic subsidiaries or by foreign subsidiaries with respect to which the Company has entered into appropriate agreements under section 3121 of the Code (covering such employees for Social Security purposes), provided other nongovernmental retirement benefits are not being provided by any other employer for such person for such service, all as provided -9- in section 406 or 407 of the Code (whichever may be applicable). Effective for services performed after December 31, 1986, notwithstanding any other provisions of the Plan, for purposes of the pension requirements of section 414(n)(3) of the Code, Employees shall include Leased Employees. Notwithstanding the foregoing, if such Leased Employees constitute less than twenty percent (20%) of the non-highly compensated work force of the Company and Associated Company(ies) within the meaning of section 414(n)(5)(C)(ii) of the Code, the term "Employee" shall not include those Leased Employees covered by a plan described in section 414(n)(5) of the Code unless otherwise provided by the terms of the Plan. 1.19 "Employer" shall mean the Company and each other corporation that joins this Plan and sponsors it for some or all of its Employees. 1.20 "Employment Commencement Date" shall mean the date on which the Employee first performs an Hour of Service for an Employer, Related Entity or any predecessor thereof, as reflected on company records. 1.21 "ERISA" shall mean the Employee Retirement Income Security Act of 1974 and all amendments thereto. 1.22 "Final Average Monthly Earnings" shall mean the highest total Compensation of a Participant for any five consecutive complete calendar years out of the last ten consecutive complete calendar years of active employment prior to a Participant's Severance from Service Date that such Participant was a Participant in this Plan or in a Prior Plan (but not in a Predecessor Plan) divided by 60. For any Participant with less than five consecutive complete calendar years of employment with an -10- Employer, the total Compensation shall be divided by the number of months and fractional parts of a month in the period of employment to determine the Final Average Monthly Earnings as of the Severance from Service Date. For determining an Accrued Benefit as of any date, other than a Severance from Service Date (e.g., a date at which the Plan benefit formula changed), for which a Participant has less than five consecutive complete calendar years of employment under this Plan, Compensation shall be adjusted to include, if necessary, a one-twelfth pro rata portion of the first and last calendar year of Compensation in the calculation period multiplied by the number of completed months in the first and last calendar years in the calculation period, rather than determining the sum of the actual monthly Compensation for the period of employment used in the calculation. Effective January 1, 1991, for any Participant with a Severance From Service Date on and after January 1, 1991, the determination of Final Average Monthly Earnings shall also include Compensation of a Participant from January 1 to the Severance from Service Date of the calendar year in which the Severance from Service Date occurs. This period shall be deemed to be an eleventh complete calendar year. Therefore, the Final Average Monthly Earnings shall mean, in effect, the highest total Compensation for any five consecutive complete calendar years out of the last eleven consecutive complete calendar years of active employment prior to a Participant's Severance from Service Date. 1.23 "Fiscal Year" shall mean, in the case of each Employer, the accounting year, for tax purposes, of that Employer. -11- 1.24 "Hour of Service" means each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer, and all other hours required to be counted under Department of Labor regulation section 2530.200b-2. 1.25 "Insurer" shall mean any insurance company that is or may be used to fund some or all benefits hereunder, and/or to issue annuities for payment of benefits. 1.26 "Interest" shall mean, for periods prior to May 1, 1988, interest compounded annually at 5%; provided, however, if interest at a lesser rate was provided in a Prior Plan or any Predecessor or Previous Plan or under any insurance contract, such lower rate shall be used for periods provided in such Plans or contracts as to contributions thereunder. For periods on or after May 1, 1988, interest shall be compounded annually at the rate of 120% of the Federal mid-term rate (as in effect under section 1274 of the Code.) 1.27 "Leased Employee" shall mean any person who performs service for the Company and Associated Companies on a substantially full-time basis for at least one year pursuant to an agreement with a leasing organization, unless such services are not of a type historically performed by Employees in the Employer's line of business or are performed on a temporary project with an ascertainable termination date under circumstances in which it is not customary to hire permanent Employees. A Leased Employee within the meaning of section 414(n)(2) of the Code shall become a Participant in, or accrue benefits under, the Plan based on service as a Leased Employee only as provided in provisions of the Plan other than this Section 1.27. -12- 1.28 "Manager" shall mean the individual employee of the Company from time to time designated by the Committee to perform routine administration of the Plan under Section 6.06. 1.29 "Named Fiduciary" shall mean the Company, for purposes of ERISA. 1.30 "Normal Retirement Age" shall mean effective May 1, 1988, the date the Participant has both attained Age 65 and either accrued five (5) years of Vesting Service or reached the fifth anniversary of participation in the Plan, at which time such Participant shall have a fully vested interest in his Accrued Benefit. 1.31 "Normal Retirement Date" shall mean the first day of the month coincident with or next following the date the Participant shall attain the Normal Retirement Age. 1.32 "Participant" shall mean any Employee, except a Leased Employee, of an Employer who participates herein. 1.33 "Period of Absence" shall mean the period of time commencing with the start of an Employee's absence from service for any reason other than a quit, discharge, retirement, death, or Total Disability and ending with the earlier of his Severance from Service Date or the first subsequent date on which he performs an Hour of Service for an Employer. 1.34 "Period of Service" shall mean a period of service commencing on the Employee's Employment Commencement Date or Reemployment Commencement Date, whichever is applicable and ending on his Severance from Service Date. Where an Employee has more than one Period of Service, they shall -13- be aggregated. However, see the exceptions provided in Section 10.01 for certain reemployment situations. 1.35 "Period of Severance" shall mean the period of time commencing on the Severance from Service Date and ending on the date on which the Employee again performs an Hour of Service. 1.36 "Permitted Percentage" shall mean the percentage applied to the Participant's Final Average Monthly Earnings in excess of Covered Compensation in order to determine the Participant's monthly pension as described in Section 4.01. The Permitted Percentage varies based on the Participant's Social Security Retirement Age. If the Social Security Retirement Age is 65, the Permitted Percentage is .75%; if Age 66, .70%; if Age 67, .65%. 1.37 "Plan" shall mean the Dresser Industries, Inc. Consolidated Salaried Retirement Plan. 1.38 "Plan Year" shall mean the year ending April 30. 1.39 "Predecessor Plan" shall mean any qualified retirement plan that covered employees of operations acquired on or after March 1, 1972, by the Company, or a domestic subsidiary thereof, as in effect on the date of acquisition, the participants of which are eligible to participate in this Plan to the extent provided in Article XI. Plan provisions that relate to Predecessor Plans are provided for in Article XI. -14- 1.40 "Previous Plan" shall mean any qualified retirement plan that covered employees of operations acquired before March 1, 1972, by the Company, as in effect on the date of acquisition, once such plan was amended and restated into a Prior Plan. 1.41 "Prior Plan" shall mean the Dresser Industries, Inc. Retirement Income Plan Under ERISA as amended and restated most recently, effective May 1, 1984 including all amendments thereto, or the Dresser Industries, Inc. Retirement Income Plan as it existed April 30, 1976. 1.42 "Qualified Domestic Relations Order" shall mean any judgment, decree or order pursuant to a state domestic relations or community property law which relates to the provision of child support or marital property rights, which creates or recognizes the existence of an alternate payee's right to (or assigns to an alternate payee the right to) receive all or part of a Participant's Accrued Benefit, and meets the requirements of (a) and (b) below, as interpreted in accordance with section 414(p) of the Code: (a) Such order specifies: (1) the name and last known mailing address of the Participant and each alternate payee; (2) the amount or the percentage of the Participant's accrued benefit to be paid to each alternate payee, or the manner in which such amount or percentage is to be determined; (3) the number of payments or period to which the order applies; -15- (4) each plan to which such order applies. (b) Such order does not require the Plan to: (1) provide any type or form of benefit or option not otherwise provided under the Plan; (2) provide increased benefits; or (3) pay to an alternate payee amounts required to be paid to another alternate payee under a prior Qualified Domestic Relations Order. Solely for the purpose of determining the portion of the Participant's benefit to be allocated to the alternate payee, for calculations as of a date on or after May 1, 1989 Actuarial Equivalent calculations shall be based on the assumed interest rate and assumed mortality rates described in the third paragraph of Section 10.04, which are used to determine the single sum value of certain nonforfeitable accrued benefits. For all other purposes relating to both the Participant's and alternate payee's benefit, Actuarial Equivalencies shall be as defined in Section 1.02. In no event shall the Actuarial Equivalent present value of all benefits payable to all parties under a qualified order exceed the Actuarial Equivalent present value of the Accrued Benefits of the Participant otherwise payable under this Plan. -16- 1.43 "Reemployment Commencement Date" shall mean the first date during, and hence ending, a Period of Severance, on which the Employee performs an Hour of Service for an Employer. 1.44 "Related Entity" shall mean each domestic or foreign corporation, partnership, joint venture or other business organization, other than an Employer, in which Dresser Industries, Inc., has, either directly or indirectly, a substantial ownership interest. 1.45 "Severance from Service Date" shall mean, except as otherwise provided in Section 10.12 and Article 12: (a) the earliest of the date on which an Employee: (1) quits; (2) retires; (3) is discharged; (4) dies; (5) in the case of a Period of Absence other than one described in (6) below, reaches the first anniversary of the first date of a Period of Absence, if without pay, or if later, the last day in a Period of Absence for which Compensation is actually paid; or (6) in the case of a Period of Absence due to an authorized leave of absence commencing after February 28, 1986, the last day of such authorized leave of absence; provided, however, that (b) for absences from work for maternity or paternity reasons solely for purposes of Section 10.01, Severance from Service Date shall mean the second anniversary of the first date of such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons shall mean an absence (1) by reason of the pregnancy of the individual, (2) by reason of the birth of a child of the individual, (3) by reason of the -17- placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. A Severance from Service Date shall also occur under certain circumstances described in Section 4.04 covering Disability Benefits. 1.46 "Social Security Pension" shall mean the amount of primary retirement benefits under the Social Security Act, as well as the amount of retirement benefits under the Canada Pension Plan, Quebec Pension Plan and (Canadian) Old Age Security Act (or any replacement legislation), to which a Participant is, was, or will be entitled (without consideration of the excess earnings deduction) upon proper application at his attainment of Age 65, computed in case of retirement on or after attainment of Age 65 as the benefit payable on the basis of law in effect at actual retirement age and (i) in case of a Severance from Service Date prior to attainment of Age 65, (ii) in the case of a Participant who becomes eligible to receive a monthly disability pension as provided in Section 4.04 or (iii) in the case of a Participant to whom subsection (a)(6) of Section 1.45 applies, on the basis of the law in effect as of the last date the Participant receives compensation, but assuming that he will continue to receive until his attainment of Age 65 compensation which would be treated as wages under the respective legislative provisions at the same rate as he was receiving such compensation in the last full calendar year in which he was actively rendering services to his Employer. The Employer may use an estimated salary history for any preemployment periods for which it does not have actual salary information for a Participant, provided that all of the following rules are satisfied: -18- (a) The estimation is made by applying the actual change in the average wages from year to year as determined by the Social Security Administration. (b) Notice is given to each Participant (1) of his right to supply his actual salary history and of the financial consequences of failing to supply such history and (2) that the Participant can obtain his actual salary history from the Social Security Administration. (c) Notice is provided that the benefit for a Participant who supplies documentation of his actual salary history will be adjusted to reflect the recomputed offset based on that history (although post- separation earnings will still be projected for Participants who retire or separate from service prior to attainment of Age 65). Such documentation must be provided no later than one year after the later of the date of separation from service (by retirement or otherwise) and the time when the Participant is notified of the benefit to which he or she is entitled. 1.47 "Social Security Retirement Age" shall mean Age 65 if the Participant was born before January 1, 1938; Age 66 if the Participant was born after December 31, 1937 but before January 1, 1955; and Age 67 if the Participant was born after December 31, 1954, as provided under Code section 401(1)(5)(D)(iii) and regulations thereunder. 1.48 "Total Disability" or "Totally Disabled" shall mean -19- (a) in the first 24 months of a period of Total Disability, the inability of any Employee as a direct result of disease, pregnancy related condition or injury to perform the material duties of his or her own occupation; except that if he or she starts work at a reasonable occupation he or she will no longer be deemed Totally Disabled. (b) after the first 24 months of a period of Total Disability, the inability of an Employee as a direct result of disease, pregnancy related condition or injury to perform the duties of any reasonable occupation. For purposes of this Section, a reasonable occupation shall mean any gainful activity for which the Employee is, or may reasonably become suited, by education, training or experience, but excluding work under an approved rehabilitation program or a partial disability employment program. The Committee shall make the determination of Total Disability upon consideration of medical evidence submitted to it (which shall include or consist of the report of a licensed physician retained by the Company). The Committee may accept, as evidence of Total Disability and the continuation of Total Disability, payment of long-term disability benefits under a group insurance or welfare plan sponsored by the Employer of the Employee. An individual will cease to be Totally Disabled when and if (prior to the date on which the Employee would terminate long-term disability benefits under the group insurance program for which the Employee is eligible, whether or not the Employee actually participated in -20- such program) the Committee determines (as described above) that the Employee's condition has changed so that the Employee is capable of performing the duties of a position as described in (a) or (b) above. 1.49 "Trust" shall mean the trust agreement between the Company and The Northern Trust Company, Chicago, Illinois, as Trustee, dated the first day of July, 1977 and entitled the "DRESSER INDUSTRIES, INC. MASTER RETIREMENT TRUST AGREEMENT", as may be amended from time to time, and any additional or successor trust agreement utilized as a funding media for this Plan. 1.50 "Trust Fund" shall mean funds held pursuant to the Trust. 1.51 "Vesting Service" shall mean Continuous Service except that there shall be excluded (a) any leave of absence prior to May 1, 1976, (b) any service during which the Participant was eligible but declined to contribute to the Prior Plan, and (c) any service prior to becoming a participant in the Prior, Previous or Predecessor Plans, where such participation did not begin when the person was first eligible to join. See also Section 10.01 for special rules in cases of reemployment. -21- ARTICLE II - PARTICIPATION SECTION 2.01. MEMBERS. Employees who were Participants in this Plan immediately before this amendment and restatement of the Plan as of May 1, 1989, shall continue to be Participants in the Plan as long as they continue to meet all of the other requirements to be a Participant. Each other Employee, except a Leased Employee, shall begin participation in this Plan on the first day of the first month on which he shall have satisfied all of the following requirements: (a) He shall be then actively employed by an Employer in a business unit not excluded by the Employer, (b) He shall have completed at least one year of Continuous Service. (c) He is not a resident alien actively participating in another pension plan sponsored by an Employer or a Related Entity. Provided, however, Employees who were hired on and after August 1, 1983 and prior to May 1, 1988, and who had attained Age 60 as of their Employment Commencement Date became eligible to participate effective May 1, 1988 if such Employees had not had a Severance from Service Date on or before May 1, 1988. Prior to May 1, 1988, such Employees were not eligible to participate in the Plan. -22- ARTICLE III - CONTRIBUTIONS SECTION 3.01. EMPLOYER CONTRIBUTIONS. Each Employer shall periodically contribute to the Trust Fund amounts determined by the Company, on the basis of periodic reports of studies made by the Actuary, to be necessary and appropriate to fund the normal and past service liabilities of the benefits to be provided to Employees of that Employer under this Plan. This shall be the funding policy of the Company. Employer contributions shall be made in amounts sufficient but not limited to the amount necessary to satisfy the minimum funding standards of ERISA unless a waiver of such requirements has been granted under ERISA. The obligation to make Employer contributions is not contractual, and is specifically subject to amendment or termination, as provided in Sections 8.01 and 8.02. Employer contributions shall be paid over to the Insurer or Trust Fund at such times as may appear practicable and appropriate to the Company, in keeping with the purposes of the Plan and the requirements of ERISA. Funds and investments of the Plan may be subject to direction and control by the Pension Investment Committee of the Company. SECTION 3.02. PARTICIPANT CONTRIBUTIONS. No Participant shall be required or permitted to make contributions under this Plan. SECTION 3.03. REFUND OF NONDEDUCTIBLE EMPLOYER CONTRIBUTIONS. Notwithstanding anything to the contrary: (a) any contribution made to the Plan by the Employer by a mistake of fact shall be returned to the Employer without interest but reduced by any investment loss attributable thereto, as soon as practicably possible -23- following discovery of the mistake, but not later than one year after the discovery of the mistake; (b) all contributions made to the Plan by the Employer are conditioned upon qualification of the Plan under the Code and, if the Plan receives an adverse determination with respect to its request for qualification, then all contributions shall be returned to the Employer without interest but reduced by any investment loss attributable thereto, within one year after such determination, but only if application for the determination is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan was adopted, or such later date as the Secretary of the Treasury may prescribe; and (c) each contribution made to the Plan by the Employer is conditioned upon the current deductibility of the contribution under section 404 of the Code and, to the extent the deduction is not allowed for the year claimed, the contribution shall be returned to the Employer (to the extent disallowed), without interest but reduced by any investment loss attributable thereto, as soon as practicably possible following disallowance of the deduction, but not later than one year after disallowance. -24- ARTICLE IV - BENEFITS SECTION 4.01. NORMAL RETIREMENT. Each Participant shall have a nonforfeitable interest in the Accrued Benefit upon reaching Normal Retirement Age. Subject to the minimum benefit stated in the last paragraph of this Section 4.01, such Participant shall upon reaching the Normal Retirement Date be entitled to receive a basic monthly pension that, in the Life-Only benefit form, is equal to the sum of the benefits provided in subsection (a) plus the greater of the benefit provided in subsections (b)(1) plus (c)(1), or subsections (b)(2) plus (c)(2), with that result reduced by the benefit described in subsection (d), as follows: (a) For any Employee who is a Participant on or after December 1, 1990, as to Credited Service attributable to Periods of Service on and after December 1, 1990, the sum of (i) .85% of the Participant's Final Average Monthly Earnings and (ii) the Permitted Percentage of the Participant's Final Average Monthly Earnings in excess of Covered Compensation multiplied by the Participant's number of years (and fractions thereof, including only completed months) of Credited Service after December 1, 1990, to a maximum total of 35 years of Credited Service for all Periods of Service combined. When determining the maximum to be applied to Credited Service after December 1, 1990, for a Participant who has earned Credited Service before December 1, 1990, the 35 year maximum shall first include all years of Credited Service attributable to Periods of Service prior to December 1, 1990. Therefore, if a Participant has accrued 35 years of service as of December 1, 1990, no additional service shall accrue after December 1, 1990 for benefit calculation purposes. -25- (b) On and after May 1, 1989 and prior to December 1, 1990 as to Credited Service attributable to Periods of Service on and after May 1, 1989 and prior to December 1, 1990, (1) and (2) are calculated as follows: (1) a benefit determined as described in (a) above of this Section 4.01, but based only on Credited Service attributable to Periods of Service on and after May 1, 1989 and prior to December 1, 1990, subject to the 35 year maximum as described in Section 4.01(a) above. (2) a benefit determined according to the provisions of this Plan as in effect on April 30, 1989, but based only on the Final Average Monthly Earnings and the Social Security Pension calculated as of December 1, 1990 (or Severance from Service Date, if earlier) and on Credited Service attributable to Periods of Service on and after May 1, 1989 and prior to December 1, 1990. Further provided, for any Participant determined to be a highly compensated Employee within the meaning of section 414(q)(1)(A) or (B) of the Code as of April 30, 1989, only paragraph (1) above of this Section 4.01(b) shall apply. Further provided, for any Participant determined to be a highly compensated Employee as of April 30, 1990, who had not been deemed a highly compensated employee as of April 30, 1989, such Participant's benefit prior to May 1, 1990 shall be determined in the manner described above for any nonhighly compensated employee and only paragraph (1) above of this Section 4.01(b) shall apply as to Periods of Service on -26- and after May 1, 1990. In addition, for any Participant who was not a Plan Participant as of April 30, 1989 and who became a Plan Participant on or after May 1, 1989 and prior to December 1, 1990, such Participant's benefit shall be determined using only subsections (a) and (b)(1) of this Section 4.01; subsections (b)(2) and (c) shall not apply to such a Plan Participant. (c) For any Participant who was a Plan Participant as of April 30, 1989, as to Credited Service, if any, attributable to Periods of Service prior to April 30, 1989, (1) and (2) are calculated as follows: (1) an amount equal to the adjusted accrued benefit as defined below determined as of April 30, 1989 under the terms of the Plan as in effect on April 30, 1989 but based on the Final Average Monthly Earnings and the Social Security Pension calculated as of April 30, 1989, with the resulting adjusted accrued benefit multiplied by the ratio than 1 (one)) of Final Average Monthly Earnings computed at the Severance from Service Date divided by Final Average Monthly Earnings computed as of April 30, 1989. For this purpose, the adjusted accrued benefit is determined in all aspects according to the terms of the Plan as in effect on April 30, 1989, except for the following modifications: (A) For Credited Service between May 1, 1986 and May 1, 1989, 1.43% instead of 1.50% shall be multiplied times the Participant's April 30, 1989 monthly Social Security Pension. -27- The percentage of the Participant's April 30, 1989 Final Average Monthly Earnings shall remain 1.50%. (B) For Credited Service prior to May 1, 1986, 1.59% instead of 1-2/3% shall be multiplied times the Participant's April 30, 1989 monthly Social Security Pension. The percentage of the Participant's April 30, 1989 Final Average Monthly Earnings shall remain 2.0%. (C) In particular, the amount of pension provided for a Participant's Continuous Service prior to the merger of a Predecessor Plan into the Prior Plan or this Plan or the offset of Predecessor Plan benefits from this Plan, shall be the amount of pension as defined in Article XI of this Plan with respect to each Predecessor Plan. Further provided, the maximum offset allowed in paragraph (l)(A) or (l)(B) above for the Social Security Pension shall be 50% of the Final Average Earnings portion of the benefit amount determined in paragraph (l)(A) or (l)(B) above without regard to the offset for the Social Security Pension. (2) a benefit determined according to the provisions of this Plan as in effect on April 30, 1989, but based on the Final Average Monthly Earnings and the Social Security Pension calculated as of December 1, 1990 (or Severance from Service Date, if earlier) and on Credited Service attributable to Periods of Service prior to May 1, -28- 1989. Further provided, for any Participant determined to be a highly compensated Employee within the meaning of section 414(q)(1)(A) or (B) of the Code as of April 30, 1989, only paragraph (1) above of this Section 4.01(c) shall apply. Further provided, for any Participant determined to be a highly compensated Employee as of April 30, 1990, who had not been deemed a highly compensated employee as of April 30, 1989, such Participant's benefit prior to May 1, 1990 shall be determined in the manner described above for any nonhighly compensated employee and only paragraph (1) above of this Section 4.01(c) shall apply as to Periods of Service on and after May 1, 1990. (d) Monthly amounts, if any, that an insurance company became obligated to pay the Participant, measured in the form of a Life-Only benefit with a modified cash refund feature where applicable, upon attainment of Normal Retirement Date under the terms of any annuity contract or, contracts that were (i) purchased upon the termination of the Dresser Industries, Inc. Retirement Income Plan Under ERISA or (ii) purchased upon the termination of the Dresser Industries, Inc. Retirement Income Plan for Salaried Employees of Marion Power Shovel Division on April 30, 1986 with respect to benefits accrued under such plans as of April 30, 1986, or (iii) purchased from any other insurer to provide benefits under the Prior Plan. Notwithstanding any other provisions of this Section 4.01, a Participant shall not be entitled to an amount under subsections (b)(2) plus (c)(2) for -29- Credited Service up to December 1, 1990 which exceeds the amount that would have been calculated if only subsections (a) and (b) of subsection 4.01 of this Plan as in effect on April 30, 1989 were applicable and respective periods of credited service under the Predecessor Plan had been considered respective periods of Credited Service under this Plan up to December 1, 1990. For the purpose of this maximum benefit calculation, respective periods of credited service under the Predecessor Plan shall be deemed to be respective periods of Credited Service under this Plan. Notwithstanding any other provisions of this Section 4.01, the maximum monthly amount determined under the sum of subsections (b)(2) and (c)(2) above for Credited Service up to December 1, 1990 as measured under the Life-only benefit form shall be 2% of a Participant's Final Average Monthly Earnings less 1-2/3% of the monthly Social Security Pension, multiplied by the number of years (and fractions thereof for completed months) of Credited Service accrued prior to December 1, 1990, to a maximum of 30. For the purpose of this maximum benefit calculation, respective periods of credited service under the Predecessor Plan shall be deemed to be respective periods of Credited Service under this Plan. Notwithstanding any other provisions of this Section 4.01, a Participant who was covered by a Predecessor Plan shall not be entitled to an adjusted accrued benefit determined under subsection (c)(l) for Credited Service up to May 1, 1989 which exceeds the sum of (i) and (ii); where (i) equals, for Periods of Service prior to May 1, 1986, 2% of a Participant's Final Average Monthly Earnings as of April 30, 1989 less 1.59% of the monthly April 30, 1989 Social Security Pension multiplied by the number of years (and fractions thereof for completed months) of Credited Service accrued prior to May 1, 1986 to a -30- maximum of 30, and multiplied by the ratio (not less than 1 (one)) of Final Average Monthly Earnings computed at Severance from Service Date divided by Final Average Monthly Earnings computed as of April 30, 1989, and (ii) equals, for Periods of Service between May 1, 1986 and May 1, 1989, 1.5% of Participant's Final Average Monthly Earnings as of April 30, 1989 less 1.43% of the monthly April 30, 1989 Social Security Pension multiplied by the number of years (and fractions thereof for completed months) of Credited Service accrued between May 1, 1986 and May 1, 1989 to a maximum of 35 years applied to all combined years of Credited Service accrued prior to May 1, 1989, including Credited Service prior to May 1, 1986 and multiplied by the ratio (not less than 1 (one)) of Final Average Monthly Earnings computed at Severance from Service Date divided by Final Average Monthly Earnings computed as of April 30, 1989. For the purpose of this maximum adjusted accrued benefit calculation, credited service under the Predecessor Plan shall be deemed to be Credited Service under this Plan. Notwithstanding any other provisions of this Section 4.01, the maximum adjusted accrued benefit determined under subsection (c)(1) above for Credited Service up to May 1, 1989 as measured under the Life-only benefit form shall be 2% of a Participant's final Average Monthly Earnings as of April 30, 1989 less 1.59% of the monthly April 30, 1989 Social Security Pension, multiplied by the number of years (and fractions thereof for completed months) of Credited Service accrued prior to May 1, 1989, to a maximum of 30 and multiplied by the ratio (not less than 1 (one)) of Final Average Monthly Earnings computed at Severance from Service Date divided by Final Average Monthly Earnings computed as of April 30, 1989. For the purpose of this maximum adjusted accrued benefit -31- calculation, credited service under the Predecessor Plan shall be deemed to be Credited Service under this Plan. Notwithstanding any other provisions of this Section 4.01, the Participant shall be entitled to a minimum monthly Pension, that in the Life-Only benefit form, is equal to the Accrued Benefit calculated as of April 30, 1989 using the Participant's Final Average Monthly Earnings, Credited Service, and monthly Social Security Pension calculated as of that date under the terms of this Plan in effect on that date. SECTION 4.02. IMMEDIATE EARLY RETIREMENT. Each Participant whose Severance from Service Date precedes his Normal Retirement Date but is after he attains Age 55 and who (1) commenced participation in the Dresser Industries, Inc. Retirement Income Plan Under ERISA prior to August 1, 1983, (2) commenced participation in the Dresser Industries, Inc. Retirement Income Plan Under ERISA on or after August 1, 1983 but prior to May 1, 1986 and has 5 years or more of Vesting Service, or (3) commences participation in this Plan on or after May 1, 1986 and has 10 years or more of Vesting Service, may elect to receive a basic monthly pension effective as of his Early Retirement Date. Subject to the minimum benefit stated in the last paragraph of this Section 4.02, the amount of such basic monthly benefit in the Life-Only benefit form shall be an amount computed under the benefit formula of Section 4.01 hereof, but reduced as follows according to the applicable subsections of 4.01 specified below: -32- 4.01(a), (b)(1), (b)(2), (c)(1)(A) The amount of benefit determined under and the component of (c)(2) with applicable subsections (referenced to respect to service after May 1, 1986 the left) of Section 4.01 of this Plan shall be reduced to an Actuarial Equivalent amount, considering the age of the Participant on his Early Retirement Date. 4.01(c)(1)(B) and the component of The Final Average Earnings component of (c)(2) with respect to service before the benefit determined under May 1, 1986 applicable subsections (referenced to the left) of Section 4.01 of this Plan shall be reduced by 1/4th of 1% thereof for each full month by which the Participant is less than Age 65 on his Early Retirement Date, but not more than 60 such months, and (if applicable) 1/6 of 1% thereof for each full month by which he is then less than Age 60. -33- 4.01(c)(1)(B) and the component of The Social Security component of the (c)(2) with respect to service before benefit determined under applicable May 1, 1986 subsections (referenced to the left) of Section 4.01 of this Plan shall be reduced by .5556% for each full month by which the Participant is less than Age 65 on his Early Retirement Date, but not by more than 60 such months, and (if applicable) by .2778% thereof for each full month by which he is less than Age 60. 4.01(c)(1)(C) and the component of The early retirement factors specified (c)(2) with respect to any in Article XI for the respective Predecessor Plan(s) Predecessor Plan shall be used to reduce the component of the benefit defined in applicable subsections (referenced to the left) of Section 4.01 of this Plan 4.01(d) The early retirement factors with respect to a Participant's benefits used by the insurance company referred to in subsection (d) of Section 4.01 of this Plan shall be used for component (d) of the Participant's benefit. In the event of the applicability of the second or third paragraphs of Section 4.01 of this Plan, relating to maximum benefits, the maximum early retirement benefit payable -34- under this Plan shall be determined by using the age adjustment factors applicable to the respective components of the benefit set out in this Section to the components of the benefit defining such maximum benefits. Application for and receipt of benefits under this section by a Participant who is Totally Disabled shall cause a permanent cessation of any salary continuance and long-term disability benefits under Employer sponsored programs that such Participant otherwise would have been entitled to receive. Such benefit shall be payable in the Life-Only form or the surviving spouse benefit form as provided in Section 5.01, unless an optional benefit form is elected under Section 5.02. Notwithstanding any other provision of this Section 4.02, the Participant shall be entitled to a minimum monthly benefit, that in the Life-Only benefit form, is equal to the benefit under Section 4.02 of this Plan in effect on April 30, 1989, based on Credited Service and Final Average Monthly Earnings as of that date defined under the terms of the Plan as of that date. The Participant's age and Vesting Service as of his Severance from Service Date shall be used in the calculation of this minimum monthly benefit. SECTION 4.03. DEFERRED EARLY RETIREMENT. Each other Participant whose Severance from Service Date occurs before his Normal Retirement Date and who meets one of the early retirement eligibility alternatives set out in Section 4.02 shall receive a basic monthly pension payable beginning on the first day of the month coincident with or following his attainment of Age 65. The amount of such basic monthly pension shall be Actuarially Equivalent to the basic monthly pension to which he would have been entitled at his Early Retirement Date under Section 4.02 had such -35- Section then been applicable. Such benefit shall be payable in the Life-Only or surviving spouse benefit form as provided in Section 5.01, unless another option is elected under Section 5.02. Should such person die prior to the Annuity Starting Date, his surviving spouse (if any) shall receive a life income of 50% of the monthly reduced benefit (as computed under Section 4.02) which he would have been entitled to receive had he commenced receiving benefits during the month of his death in the standard benefit form for a person who is married as of the date benefits commence (as described in Section 5.01). A Participant who is entitled to basic monthly benefits under this Section may elect to receive benefits Actuarially Equivalent to those payable at Age 65, at any time after his Severance from Service Date but prior to his attaining Age 65. SECTION 4.04. DISABILITY BENEFITS. As to periods prior to October 1, 1990, each Participant who becomes Totally Disabled and who remains so disabled until he attains Age 65, shall be deemed then to have a Severance from Service Date and shall receive a basic monthly pension payable on the first day of each month after attaining Age 65 up to and including the month in which he dies. Provided, however, that this Section 4.04 shall not be applicable to a Participant who is eligible for an Early Retirement benefit under Section 4.02 or 4.03 and elects to retire under Section 4.02 or 4.03. The amount of such pension shall be the benefit that would have been payable to him had he continued to be actively employed in covered employment by his Employer until he attained Age 65 at an amount of annual compensation equal to his Compensation for the last complete calendar year for which he received regular compensation from his Employer. As to periods after September 30, 1990, each Participant who becomes Totally Disabled, who remains disabled and who continues to receive salary continuance or benefits under his Employer's long term disability program (or would have received -36- benefits had he been a participant in such program) until he attains Normal Retirement Age may thereafter elect to retire and receive a basic monthly pension payable beginning on the first day of any subsequent month he chooses and continuing each month thereafter up to and including the month in which he dies. An election to receive such pension benefits shall cause a permanent cessation of any salary continuance and long term disability benefits under Employer sponsored programs that such Participant otherwise would have been entitled to receive. Provided further, a Totally Disabled Participant who has attained Normal Retirement Age and has not earlier elected to receive benefits hereunder, shall automatically be retired and begin receiving a basic monthly pension hereunder beginning the month following the month in which long term disability benefit payments under an Employer sponsored long term disability program ceases, or would have ceased if the Participant had been a participant in such program. Provided, however, that this Section 4.04 shall not be applicable to a Participant who is eligible for an Early Retirement benefit under Section 4.02 or 4.03 and elects to retire under Section 4.02 or 4.03. The amount of such pension shall be the benefit that would have been payable to him had he continued to be actively employed in covered employment by his Employer during the period prior to benefit commencement for which he receives salary continuance benefits from his Employer plus (i) the period during which he receives benefits under his Employer's long term disability program if he is a participant under such program or (ii) during the period for which he would have received long term disability payments had he been a participant in such program, based on an amount of annual compensation equal to his Compensation for the last complete calendar year for which he received regular compensation from his Employer. Such a Participant shall also receive Vesting Service and Credited Service during such period. -37- As to periods after September 30, 1990, each such Participant who becomes Totally Disabled and continues to be so disabled, but whose salary continuance and long term disability benefits are exhausted (or would have been exhausted if he had been a participant in the long term disability program) before attainment of Normal Retirement Age, shall incur a Severance from Service Date upon such exhaustion for purposes of computing Credited Service and Final Average Monthly Earnings, but such a Participant shall continue to accumulate Continuous Service for the purpose of benefit eligibility until he attains Normal Retirement Age; whereupon he shall receive a basic monthly pension payable beginning in the month subsequent to the month of attainment of Normal Retirement Age and continuing each month thereafter up to and including the month in which he dies. Provided, however, that this Section 4.04 shall not be applicable to a Participant who is eligible for an Early Retirement benefit under Sections 4.02 or 4.03 and elects to retire under Section 4.02 or 4.03. The amount of such pension shall be the benefit that would have been payable to him (without regard to any requirements as to years of Vesting Service) had he continued to be actively employed in covered employment by his Employer during the period prior to Severance from Service Date, based on an amount of annual compensation equal to his Compensation for the last complete calendar year for which he received regular compensation from his Employer. The benefit shall be payable in the Life-Only form or the surviving spouse benefit form as provided in Section 5.01, unless an election is made under Section 5.02. A person who ceases to be Totally Disabled and thereupon becomes employed by an Employer in covered employment shall continue participation in the Plan on the basis of his new employment and retain Credited Service for his term of disability. Such a resumption of employment for a Related Entity or in a non-covered unit shall result in a suspension of participation under Section 10.02, but without loss of Credited Service for -38- his term of Total Disability. Cessation of Total Disability before attainment of Normal Retirement Age but without resumption of employment by an Employer or Related Entity shall result in a Severance from Service Date as of the date such recovery is determined by the Committee to have occurred, for all purposes hereunder. Continued participation under this provision is conditioned upon a Participant's submission from time to time, if and when so requested by the Committee, to examination by a licensed physician selected by the Committee. This Section shall apply to any former participant in a Previous Plan that covered employees of any operation acquired before March 1, 1972 by the Company, and was amended and restated into the May 1, 1976 "Dresser Industries, Inc. Retirement Income Plan," who as of May 1, 1976 had not attained Age 65, but who had previously terminated active employment while participating in such Previous Plan because he was Permanently Disabled (as defined in such Previous Plan), provided he continues to be Permanently Disabled (as defined in such Previous Plan) on May 1, 1976, is not entitled to current benefits under such Previous Plan, and can expect equal or greater benefits under this provision than under such Previous Plan's provision for disability, and otherwise qualifies under this Section; such benefit to be in lieu of any and all benefits otherwise payable under such Previous Plan. SECTION 4.05. OTHER TERMINATION BENEFITS. Each Participant who incurs a Severance from Service Date and who does not and will not qualify for benefits under any of the above Sections shall (except as provided in Section 10.03 regarding military service) receive deferred vested benefits under this Section. Each such Participant shall be entitled to a basic monthly pension payable in the Life-Only or surviving spouse benefit form, or such other forms as selected under Section 5.02, beginning on the Participant's Normal Retirement Date. The amount of such basic monthly pension shall -39- be determined as the Participant's Accrued Benefit multiplied by the appropriate factor determined by the Participant's years of Vesting Service as of his Severance from Service Date, as follows:
Full Years of Percentage of Vesting Service Accrued Benefit Vested --------------- ---------------------- less than 5 0% 5 or more 100%
A Participant who is entitled to elect a lump sum settlement of any portion of his monthly benefits under Section 10.04 shall, unless he elects otherwise as provided in Section 10.04, receive such benefits as an immediate annuity effective on the first of the month coincident with or next following the Participant's Severance from Service Date in the standard benefit form of Section 5.01 in an amount that is Actuarially Equivalent (except as otherwise specified in Section 11.11) to those payable at age 65. Provided however, effective for Participants with a Severance from Service Date on or after March 31, 1992, if the Participant elects the single sum settlement option under the Prior Plan or Predecessor Plan and if a portion of the benefit from the Plan is not eligible for single sum settlement option, then the Participant shall be entitled to elect that benefits under this Plan be in a deferred standard benefit form or to be able to cash out to the extent allowed under Section 10.04, with a deferred standard benefit form for the remainder, subject to any spousal consent requirements. Participants with a Severance from Service Date before March 31, 1992, who elect a single sum settlement option under the Prior Plan or Predecessor Plan must elect to receive benefits under this Plan in a single sum settlement option to the extent allowed under Section 10.04. Any Participant who has met the service requirements under the Plan for eligibility for early retirement benefits may elect to receive benefits Actuarially Equivalent (except as -40- otherwise specified in Section 11.11) to those payable at age 65 at any time after attainment of Age 55. SECTION 4.06. SPOUSE'S DEATH BENEFIT FOR PERSONS PARTICIPATING IN PRIOR PLAN. In the case of a Participant who was a participant (including a permanently disabled participant) in the Prior Plan as of April 30, 1986, if he has completed five or more years of Vesting Service and dies before the Annuity Starting Date, or if a Participant has less than five years of Vesting Service, commenced participation in a Prior Plan prior to August 1, 1983 and dies after attaining Age 55 but prior to his Annuity Starting Date while employed, there shall be payable to his surviving spouse either: (a) a monthly benefit for life equal to 50% of the monthly reduced benefit to which the Participant would have been entitled if such Participant had terminated employment on the earlier of the date of his actual termination of employment or the date of his death, survived to Age 55, retired at Age 55 with the surviving spouse benefit form under Section 5.01 and died immediately thereafter, or (b) in the case of a Participant who dies after attaining Age 55, such Participant had retired with the surviving spouse benefit form under Section 5.01 on the day before such Participant's death. Unless the spouse elects to delay payment as provided in Section 5.06, payment shall commence to the spouse in the month following the month in which the Participant dies, or if later, in the case of a Participant dying before Age 55, in the month in which the Participant would have attained Age 55 and shall be payable -41- the first day of each month thereafter up to and including the month in which the surviving spouse dies. SECTION 4.07. SPOUSE'S DEATH BENEFIT FOR PERSONS NOT PARTICIPATING IN PRIOR PLAN. In the case of a Participant who was not a participant (or a permanently disabled participant) in the Prior Plan as of April 30, 1986, if he has completed five or more years of Vesting Service and dies before the Annuity Starting Date, there shall be payable to his surviving spouse one of the following: (a) for a Participant who has completed ten or more years of Vesting Service and dies prior to attaining Age 55, a monthly benefit for life equal to 50% of the monthly reduced benefit to which the Participant would have been entitled if such Participant had terminated employment on the earlier of the date of his actual termination of employment or the date of his death, survived to earliest retirement age, retired at such earliest retirement age with the surviving spouse benefit form under Section 5.01 and died immediately thereafter, or (b) for a Participant who has completed ten or more years of Vesting Service and dies after attaining Age 55, a benefit that would have been payable had such Participant retired with the surviving spouse benefit form under Section 5.01 on the day before such Participant's death, or (c) for a Participant who has completed less than ten years of Vesting Service, a monthly benefit for life equal to 50% of the monthly benefit to which the Participant would have been entitled if such Participant had terminated employment on the earlier of the date of his actual termination of -42- employment or the date of his death, survived to Age 65, retired at Age 65 with the surviving spouse benefit form under Section 5.01 and died immediately thereafter. In the case of a Participant who has completed ten or more years of Vesting Service at the time of death, unless the spouse elects to delay payment as provided in Section 5.06, payment shall commence to the spouse in the month following the month in which the Participant dies, or if later, in the case of a Participant dying before Age 55, in the month in which the Participant would have attained Age 55. In the case of a Participant who has completed less than ten years of Vesting Service at the time of death, payment shall commence to the spouse in the month in which the Participant would have attained Age 65. In either case, payments to the spouse shall continue payable the first day of each month thereafter up to and including the month in which the surviving spouse dies. The spouse shall be permitted to delay payment to the extent permitted in Section 5.06. SECTION 4.08. ESTABLISHED BENEFITS. Except as otherwise provided in Section 2.01, each Participant in the Previous Plan, any Prior Plan, any Predecessor Plan and/or previous statements of this Plan whose benefit payments thereunder commenced, whose active employment ceased or whose transfer to employment not affording eligibility for participation in this Plan occurred prior to the effective date of the amendment and restatement of such plan into this Plan, shall receive only the benefits then provided under the relevant plan and shall not receive any benefits under the provisions of this restatement of the Plan. -43- SECTION 4.09. NONDUPLICATION. (a) In the case of persons who become Participants after having changed employment status from that of ineligible employee to that of Employee, Credited Service for purposes of determining benefits shall include only Continuous Service after the date such person became an Employee hereunder, but all service as an employee shall be included as Continuous Service for purposes of determining eligibility to participate in this Plan and Vesting Service. Such a Participant shall, in addition to other benefits provided under this Plan, be entitled to receive under this Plan an amount equal to benefits accrued to him, subject to the vesting provisions of this Plan, to the date of such change in employment status in any other nongovernmental, tax-qualified defined benefit pension plan to which any Employer (or predecessor thereof) has contributed, less any amounts (or Actuarially Equivalent amounts) which such Participant is entitled to receive under the provisions of such other plan or plans. In determining the amount of benefits accrued under such other plan or plans (other than the merged plans provided for in Article XI) for a Participant whose benefits under this Plan commence prior to his Normal Retirement Date, the accrued benefit from such other plan or plans shall be multiplied by the appropriate early retirement percentage factor applicable to the Social Security component of the benefit, as indicated in Section 4.02, considering the age of the Participant at the time benefits commence. Further provided that for any Participant who had changed status from ineligible employee to "Employee" under the Prior Plan and who was a participant in the Prior Plan as of April 30, 1986, the benefits accrued under -44- the Prior Plan as of April 30, 1986, in respect of service as an ineligible employee prior to entering the Prior Plan shall be determined under this Plan as if such benefits were deemed to be 100% vested. The excess of such 100% vested accrued benefit as of April 30, 1986 over the benefit provided under the Prior Plan in respect of such service as an ineligible employee shall be paid to such Participant from this Plan. (b) In the case of all other Participants, benefits otherwise payable under this Plan will be reduced to the extent of benefits provided by contributions of the Company or a Related Entity to another qualified nongovernmental defined benefit pension plan and actually payable for the same periods of employment as are payable under this Plan. SECTION 4.10. POSTPONED RETIREMENT BENEFIT. Each Participant who continues in employment past the Normal Retirement Date may elect to retire and commence receiving a basic monthly pension calculated in the manner set out in Section 4.01 of this Plan but including Credited Service and Compensation after the Normal Retirement Date but prior to the Severance from Service Date. In any case benefit payments must commence no later than April 1 of the calendar year after the calendar year in which the Participant attains Age 70-1/2, unless the Participant was 70-1/2 before January 1, 1988. The benefit payable on this first required beginning date shall be determined using the benefit accrued as of the prior December 31. The benefit payable thereafter shall be recalculated and adjusted effective on each January 1 after the first required beginning date to include the additional compensation and Credited Service earned -45- during each calendar year. The form of benefit payment that is already in effect for such a Participant shall also apply to all subsequent recalculations and adjustments. SECTION 4.11. NOTICE 88-131 AND REVENUE PROCEDURE 89-65. Notwithstanding any other contrary provision of the Plan, in calculating the Accrued Benefit (including the right to any optional benefit provided under the Plan) of any Plan Participant who was a highly compensated employee for the Plan Year beginning May 1, 1989, within the meaning of section 414(q)(1)(A) or (B) of the Code, such highly compensated employee shall accrue no additional benefit under the Plan on or after May 1, 1989, to the extent that such additional benefit accrual exceeds the benefit which would otherwise accrue in accordance with the terms of the Plan subsequent to December 1, 1990, the implementation date of the restatement of the Plan to comply with the Tax Reform Act of 1986 (TRA '86) and amended to comply with Income Tax Regulations section 1.401(b)-l(b)(2)(ii). In determining highly compensated employees, the Plan will use the calendar year election as defined in Regulation 1.414(q)-1T. Until December 1, 1990, no such highly compensated employee received from the Plan after January 31, 1989, any amount in excess of such employee's Accrued Benefit under the Plan as of April 30, 1989. In addition, in calculating the Accrued Benefit for the Plan Year beginning May 1, 1990 (including the right to any optional benefit provided under the Plan) of any additional highly compensated employee who had not been deemed a highly compensated employee as of April 30, 1989 within the meaning of section 414(q)(1)(A) or (B) of the Code, such highly compensated employee shall accrue no additional benefit under the Plan on or after May 1, 1990, to the extent that such additional benefit accrual exceeds the benefit which would otherwise accrue in accordance with the terms of the Plan subsequent to December 1, 1990, the date of implementation to comply with -46- those qualification requirements described in Income Tax Regulations section 1.401(b)-l(b)(2)(ii). Until December 1, 1990, no such highly compensated employee received from the Plan after April 30, 1990, any amount in excess of such employee's Accrued Benefit under the Plan as of April 30, 1990. In addition, the Accrued Benefit determined as of December 1, 1990 of Plan Participants other than highly compensated employees (within the meaning of section 414(q)(1)(A) or (B) of the Code), shall be the larger of the Accrued Benefit determined (1) under the Plan as in effect just prior to the date of the restatement or (2) under the Plan as it was so restated. -47- ARTICLE V - OPTIONS SECTION 5.01. STANDARD BENEFIT FORM. In the case of a Participant who is not married on the Annuity Starting Date, the standard benefit form shall be the basic monthly pension under Article IV (including where applicable, amounts based on benefits accrued under a Predecessor Plan) payable for the lifetime of the Participant. This is the Life-Only benefit form. In the case of a Participant who is married on the Annuity Starting Date, the standard benefit form shall be a reduced monthly pension payable for the lifetime of the Participant, with one-half of such reduced monthly pension to continue to his spouse for her lifetime (provided she was his spouse on the Annuity Starting Date) should she survive the Participant. This is the surviving spouse benefit form. The amount of benefit payable under this surviving spouse benefit form shall be Actuarially Equivalent to the basic monthly pension determined under Article IV, including where applicable, amounts based on benefits accrued under a Predecessor Plan. SECTION 5.02. OPTIONS AVAILABLE. Each optional benefit form unless otherwise provided, shall have a value that is Actuarially Equivalent to the relinquished benefit on the Annuity Starting Date, and shall consist of the optional benefit selected, in the manner provided in Section 5.03, from the following list: (a) LIFE-ONLY OPTION. A Participant who is married on the Annuity Starting Date may elect to receive benefits in the Life-Only form described in Section 5.01, in which case his surviving spouse will not be entitled to any monthly benefit after his death. This form may only be elected with written spousal consent as witnessed by a Plan representative or Notary Public. -48- (b) JOINT AND SURVIVORSHIP OPTIONS. A Participant who is married on the Annuity Starting Date may elect to reduce his monthly pension so that his spouse, should she survive him, will receive for her lifetime an amount equal to 100% or 66.67% of the reduced monthly pension to which the Participant is entitled. Such election shall not require spousal consent. (c) GUARANTEED PERIOD OPTION. A Participant may elect to receive reduced monthly pension benefits so that pension payments will continue for the Participant's lifetime but at least for a total of 60, 120 or 180 months (as the Participant shall have elected) and should the pensioned Participant die before receiving all guaranteed payments, remaining monthly payments after his death shall be made to his Beneficiary. As to a married Participant, this form may only be elected with written spousal consent as witnessed by a Plan representative or Notary Public. (d) LEVEL INCOME OPTION. Participants whose Annuity Starting Date is prior to the date on which the Social Security Pension is to commence and whose monthly pension payment would be equal to or exceed the expected Social Security Pension, may elect to have monthly payments under this Plan adjusted to coordinate with the Social Security Pension in such a way that total monthly payments from both sources will remain approximately equal before and after the Social Security Pension commences (except that Social Security increases after pension payments commence will not affect pension payments). The Social Security amount used to determine the Level Income pension will be based on the Participant's retirement age, date of birth and assumed and actual earnings history. This benefit form -49- may be elected in conjunction with any other option. As to a married Participant, this form may only be elected with written spousal consent as witnessed by a Plan representative or Notary Public. SECTION 5.03. MAKING ELECTIONS. An election by a Participant to have his benefits paid under one or more of the optional benefit forms provided in this Article in lieu of the standard benefit form described in Section 5.01 shall be effective only if made on a form authorized by the Committee, which is completed, signed and delivered to the Manager or his appointee within 90 days before the Annuity Starting Date and no later than the date scheduled for the first benefit payment under Article IV. Notwithstanding the preceding sentence, to the extent necessary to permit the election to be made within this time period, the date scheduled for the first benefit payment under Article IV may be delayed until the first day of the first month not sooner than 14 days after receipt of the properly executed election form but not later than 90 days after the Participant has been furnished full particulars of the financial effects on his pension of such election. Any election to select options under Section 5.02(a), (c) or (d) shall be accompanied by written spousal consent as witnessed by a Plan representative or Notary Public. For the purpose of this election, the Participant shall be furnished with an explanation of the full particulars of the financial effects on the pension amount of such election which shall include a general description of the material features and an explanation of the relative values of the optional forms of benefit available under the Plan in a manner that shall satisfy the notice requirements of Code section 417(a)(3) and related regulations. This explanation shall be provided no less than 30 days or more than 90 days before the Annuity Starting Date. In addition, the Manager shall endeavor to voluntarily furnish to each Participant general information similar to the information referred to in the preceding sentence nine -50- months before his Normal Retirement Date or as soon as practicable before or after his Early Retirement Date. Such a general explanation of the options and their financial effects will be provided to each Participant about nine months before his 55th birthday. If the Participant has no living spouse on the Annuity Starting Date, benefits shall not be payable under the surviving spouse benefit form or the Joint and Survivorship Options benefit form. Any election made under this Section may be revoked by written notice to the Employer, on a form authorized by the Committee, including written spousal consent as required during the period in which such election could have been made; and after such election has been revoked, another election may be made, in the same manner as the earlier election, during such period. Notwithstanding any of the above provisions of this Section 5.03 to the contrary, if a Participant elects an optional form of benefit other than a single sum settlement under the provisions of the Prior Plan, a Predecessor Plan or the Dresser Industries, Inc. Retirement Income Plan for Salaried Employees of Marion Power Shovel Division, as the case may be, then the optional form of benefit under this Plan shall be the same as the optional form of benefit under the Prior Plan, Predecessor Plan or the Dresser Industries, Inc. Retirement Income Plan for Salaried Employees of Marion Power Shovel Division, to the extent that this Plan provides for such option. If the Participant elects a single sum settlement option under the Prior Plan or Predecessor Plan and if the entire benefit from this Plan is eligible for a single sum settlement option under Section 10.04, then such benefit shall be paid under such single sum settlement option, subject to the other provisions of this Section 5.03. Effective for Participants with a Severance from Service Date on or after March 31, 1992, if the Participant elects the single sum settlement option under the Prior Plan or Predecessor Plan and if a portion of the benefit from this Plan is -51- not eligible for a single sum settlement option, then the entire benefit under this Plan shall be paid subject to the other provisions of this Section 5.03 under any of the optional forms provided for under this Article V, including the lump-sum cash out to the extent allowed under Section 10.04. Participants with a Severance from Service Date before March 31, 1992, who elect a single sum settlement option under the Prior Plan or Predecessor Plan must elect to receive benefits under this Plan in a single-sum settlement option to the extent allowed under Section 10.04. Provided however, if a Participant has elected an option under the Prior Plan, Predecessor Plan or the Dresser Industries, Inc. Retirement Income Plan for Salaried Employees of Marion Power Shovel Division that corresponds to one of the options available under Sections 5.02(a) or (c) or 5.04 and the written spousal consent required for the options under Sections 5.02(a) or (c) or elect such option is not obtained, then the only option available under this Plan shall be the standard benefit form provided for in Section 5.01. Subject to the other conditions for making elections under this Section 5.03, a Participant who retires and is reemployed must continue the option that was in effect upon his initial retirement. Notwithstanding the preceding sentence, such Participant may elect a lump-sum settlement as to the benefit accrued after re-employment subject to the restrictions of Section 10.04. Also, in the case of a Participant whose marital status has changed as of his subsequent retirement, when compared to his initial retirement, such Participant may elect any benefit form available in Article V or Section 10.04 as to the benefit accrued after re-employment. SECTION 5.04. LUMP-SUM PAYMENT. Section 10.04 contains provisions relating to the payment of lump-sum benefits under the Plan. -52- SECTION 5.05. DISTRIBUTION RULES. (a) Notwithstanding anything in the Plan to the contrary, the payment of benefits to a Participant hereunder shall begin not later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (1) the date on which such Participant attains Age 65; (2) the tenth anniversary of the date on which such Participant began participation in the Plan; and (3) the date on which such Participant terminates his employment hereunder (a Participant described in Section 4.04 who is receiving salary continuance or Long Term Disability benefits shall not be considered to have terminated employment for purposes of this Section 5.05); provided, however, that if the application of subsection (b) of this Section would require an earlier date, the payment of benefits to such Participant shall begin not later than such earlier date. (b) The payment of benefits to a Participant hereunder shall begin not later than April 1 of the calendar year following the calendar year in which such Participant attains Age 70-1/2. This subparagraph (b) shall not apply to any Participant who reached age 70-1/2 before January 1, 1988. -53- (c) The entire interest of a Participant must be distributed: (1) over the life of the Participant; (2) over the joint and survivor lives of the Participant and his Beneficiary; (3) over a period not extending beyond the life expectancy of the Participant; or (4) over the joint and survivor life expectancies of the Participant and his Beneficiary. For purposes of this subsection (c), life expectancy shall be computed by use of the expected return multiples in Treas. Reg. Section 1.72-9, or, in the case of payments under a contract issued by an insurance company, the period computed by the use of the mortality tables of such company. (d) An annuity or endowment contract issued by an insurance company which provides for nonincreasing payments over one of the periods specified in subsection (c) beginning not later than April 1 following the close of the taxable year of the Participant in which he attains Age 70-1/2, shall be deemed to satisfy the requirements of subsection (b). (e) If the Participant dies after distribution of his interest has commenced, the remaining portion of such interest will continue to be distributed at least as -54- rapidly as under the method of distribution being used prior to the Participant's death. (f) If a Participant who is eligible to receive retirement benefits dies before distribution commences, the Participant's interest shall commence to a designated Beneficiary within one year after the Participant's death. If the designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin under this paragraph shall not be later than the date on which the Participant would have attained Age 70-1/2 and, if the spouse dies before payments begin, subsequent distributions shall be made as if the spouse had been the Participant. (g) If the amount of payment required to commence by a certain date in accordance with the Plan cannot be ascertained by such date, or if the Committee does not have sufficient information to enable it to make distribution, or if it is not possible to make payment on such date because the Committee has been unable to locate the Participant or Beneficiary after making reasonable efforts to do so, a payment retroactive to such date may be made no later than 60 days after the earliest date on which the amount of such payment can be ascertained under the Plan, or sufficient information is obtained, or the date on which the Participant or Beneficiary is located, whichever is applicable. (h) After the Annuity Starting Date except as otherwise provided under Section 5.03 or Section 10.04, neither partial nor a total single-sum distributions may be made, regardless of the present value of the nonforfeitable accrued benefit. -55- (i) Any distribution from the Plan will be made in accordance with Code Section 401(a)(9) and any related regulations, including but not limited to 1.401(a)(9)-2. In the event that distributions made in accordance with Code Section 401(a)(9) or any related regulations shall conflict with any other Plan provisions, this Section 5.05(i) shall rule. SECTION 5.06. CONSENT TO BENEFIT COMMENCEMENT. If, at the time of distribution, the Actuarial Equivalent present value of the Participant's or the Participant's surviving spouse benefit under the Plan exceeds $3,500, the written consent of the Participant or the written consent of the Participant's surviving spouse if the Participant has died, shall be required if such commencement is before the time the Participant attains or would have attained Age 65 under the Plan. Such consent must be obtained not more than 90 days before the commencement of said benefits. -56- ARTICLE VI - ADMINISTRATION SECTION 6.01. GENERAL. Administration and interpretation of the Plan shall be the ultimate responsibility of the Company, which shall be the Named Fiduciary. The Company may choose to act on these matters through the Committee, which may, however, delegate routine administrative and interpretative matters to the Manager, all as provided herein. In addition, the Company may delegate investment responsibility regarding the Trust Fund to a committee appointed for that purpose and/or to independent investment managers retained for that purpose. SECTION 6.02. COMMITTEE OPERATIONS. The Committee shall be the Employee Benefits Committee of the Company as such may be constituted from time to time by the Board. Committee action may be by unanimous written approval or by resolution of a majority of the existing members at any meeting held by them. The Committee shall determine its own structure and procedures. SECTION 6.03. COMMITTEE DUTIES AND POWERS. The Committee shall have the sole duty and power to direct administration of the Plan, including the interpretation, construction and reconciliation of its provision, the resolution of all questions that may arise hereunder, the authorization or promulgation of any procedures, rules or forms that may appear to be necessary or desirable, and the adoption of any tables, charts, formulae or actuarial assumption or reports that it chooses to utilize in administering the Plan. The Committee shall have the duty to verify the computation and payment order of benefits by a Trustee or Insurer in the case of a basic monthly pension that exceeds $3,000. The duty and power to compute and order payments of lesser amounts shall be delegated to the Manager pursuant to Section 6.06 unless specifically withheld or -57- withdrawn by the Committee. The Committee shall endeavor to treat alike all Participants similarly situated, but any action taken in good faith shall be binding upon all persons. SECTION 6.04. RELIANCE. The Committee may rely upon facts or documents presented by the Participant to the Company or to the Committee regarding such Participant, and may rely upon the advice of counsel, who may be counsel for the Company, and may rely upon any opinion, certificate, valuation or other report, or any tables, assumptions, formulae, or other recommendation or determination rendered by an Actuary hired by the Company for that purpose. SECTION 6.05. DISQUALIFICATION. No Committee member may participate in the resolution of any claim for benefits that may result from his participation in the Plan. SECTION 6.06. PLAN MANAGER. The Manager shall be one or more employees of the Company and shall be appointed by the Committee, to serve at its pleasure, to supervise and carry out administrative details. The duties and powers of the Plan Manager shall consist of the following functions, plus such other duties and powers as may be delegated from time to time by resolution of the Committee delivered to the Manager, or minus any specifically withheld in the same manner. The recording secretary for the Committee shall keep its files and minutes. The Manager shall, within any limitations that may be or have been imposed by actions of the Company or its agreements with the Trustee, act to coordinate necessary or desirable communications between the Committee, the Company, the Employer, the Employees, Participants and other interested parties. He shall distribute and explain booklets, forms, and procedures related to the Plan, compute and order payment of benefits within the limitations provided in Section 6.3 and may apply the Plan provisions or decisions of the -58- Committee to the resolution of any questions that may arise in the course of his functions, so long as the resolution of such questions does not involve a substantial or basic policy that should be referred to the Committee. In carrying out his nondiscretionary functions he may utilize the employees of any Employer or Related Entity as appointees for gathering or disseminating information. Decisions of the Manager made in good faith shall be conclusive and binding upon all parties who may be affected thereby, subject always to review, and modification or reversal, by the Committee, or as prescribed under ERISA. SECTION 6.07. FOR THE PROTECTION OF THE COMMITTEE AND MANAGER. Neither the Committee, nor any member thereof, nor the Manager shall jointly or severally be liable for any action taken in good faith and in the performance of their duties under the Plan, except as required under ERISA. SECTION 6.08. EXPENSES. All expenses incident to the operation, administration, termination or protection of the Plan and Trust Fund, including but not limited to actuarial fees, accounting fees, premiums to the Pension Benefit Guaranty Corporation (PBGC), and Trustee's fees may be paid by the Company. Alternatively, the Company may instruct that items as in the judgment of the Committee are determined to be proper plan expenses under ERISA shall be paid by the Trustee from the Trust Fund. SECTION 6.09. QUALIFIED DOMESTIC RELATIONS ORDERS. The Committee shall maintain reasonable written procedures to determine whether a domestic relations order is a Qualified Domestic Relations Order and to administer such orders. -59- SECTION 6.10. WITHHOLDING ON DISTRIBUTIONS. Distributions under this Plan shall be subject to federal income tax withholding as prescribed by section 3405 of the Code and the regulations thereunder. SECTION 6.11. ROLLOVER PROVISIONS. A written explanation of the tax consequences of a qualifying rollover distribution shall be provided to each Participant in accordance with section 402 of the Code. -60- ARTICLE VII - EMPLOYERS SECTION 7.01. CURRENT. The corporations named in "Exhibit A", attached hereto, shall constitute Employers under this Plan as of the Effective Date or such other date as is specifically indicated; provided, however, employees of any division or other departmental unit thereof that is so noted as an exception in such list shall not be eligible to participate in this Plan unless such exception is specifically limited in duration. SECTION 7.02. NEW EMPLOYERS. Any corporation more than 50% of the voting stock of which is owned directly or indirectly by the Company may join and become an Employer hereunder by resolution of its board of directors. Any other corporation may, with the consent of the Board, join and become an Employer hereunder by resolution of its board of directors. Except as provided in Section 7.05, in any such case the joining Employer may in such resolution exclude employees of any designated division or other departmental operating unit thereof; but in the absence of such limitations or other limitations inherent in this Plan, it shall extend to cover all eligible Employees, but unless otherwise provided in Article XI, Credited Service can include only Continuous Service with the adopting Employer after the effective date of such resolution. SECTION 7.03. DELEGATION. Each adopting corporation by its adoption delegates to the Company the power to act on its behalf in all matters regarding the Plan and Trust, and adopts as its funding medium such trust agreements or insurance contracts as may be selected by the Company. SECTION 7.04. TERMINATING PARTICIPATION. Any Employer whose relationship to the Company changes (by change of stock ownership or otherwise) so -61- that the Board determines that the business reasons for its continuing to be joined in sponsoring this Plan no longer exists, shall, upon notification of such determination by the Board, terminate such joint sponsorship by terminating the Plan for its employees or by continuing the Plan for its employees in a separately stated document, with funding under a separate trust, as determined by its board of directors. In either event, the Trust Fund and/or insurance funds shall be segregated for such terminating Employer in the manner outlined in Section 8.02 in the case of termination or partial termination of the Plan or in Section 10.08 in the case of merger, consolidation, or other transfer of Plan assets. SECTION 7.05. CORPORATE CHANGES. If all or a part of an Employer's business shall by merger or otherwise become a part of another Employer, all the affected Employees' coverage hereunder shall continue uninterrupted. If an Employer shall by merger or otherwise succeed to all or a part of the business of a non- Employer and shall continue such business as a separate, identifiable division or other business unit, coverage under this Plan of the employees so acquired shall not occur until approved by resolution of the Employer's board of directors. If all or a part of an Employer's business shall by sale or otherwise become operated by a non-Employer, such part shall be treated as a terminating Employer under Section 7.04 unless the successor is eligible to and does thereupon become a new Employer under Section 7.02 hereof as to all its Employees (or as to the Employees in such acquired business operation if they are in a separate, identifiable business unit), in which event coverage for such Employees will continue uninterrupted. -62- ARTICLE VIII - AMENDMENT OR TERMINATION SECTION 8.01. AMENDMENTS. The Company may at any time amend this Plan, such amendment to be effective as of the date therein specified, provided that no such amendment shall reduce the value of Accrued Benefits of Participants as of such effective date except as otherwise permitted by ERISA. Notwithstanding the foregoing, a retroactive amendment may be made at any time (a) if necessary to obtain or retain qualification of the Plan under the Internal Revenue Code, or to comply with ERISA or any other laws, rules or regulations, or (b) if otherwise permitted. Any amendment that has a non-substantive effect on the Accrued Benefits of any Participant or Beneficiary or that makes nondiscretionary legally required changes shall be by resolution of either the Board or the Company's Employee Benefits Committee. Any other amendment, including an amendment that has a substantive effect on the Accrued Benefits of any Participant or Beneficiary, shall be by resolution of the Board, except that the Board may by resolution approve such changes to the Plan and authorize the Employee Benefits Committee to have prepared and to adopt such amendment of the Plan that accomplishes the approved changes. Any person dealing with the Plan or the Company may rely on actions taken either by the Employee Benefits Committee or the Board with regard to amending the Plan, and shall not be required to inquire into the authority of either party in acting to amend the Plan. SECTION 8.02. TERMINATION. Subject to the qualified joint and survivor and the pre-retirement annuity requirements set out in Articles IV and V, the Company and each other Employer reserve the right to terminate the Plan at any time as to its employees or any departmental unit thereof. In the event of termination or partial termination of the Plan, which may be by formal action or by complete discontinuance of Company -63- contribution, all Accrued Benefits, to the extent funded on the date of such event, shall become vested and nonforfeitable and the assets then remaining in the Trust Fund, subject to provision for expenses of administration or liquidation, shall be allocated in the manner and order described in the following paragraphs: (a) First, an amount equal to the value of that portion of each individual's Accrued Benefit which is derived from Participant's contributions, if any, which were not mandatory. (b) Second, an amount equal to that portion of each individual's Accrued Benefit which is derived from Participant's contributions, if any, which were mandatory, which is in excess of Accrued Benefits previously paid to the Participant and the joint annuitant or Beneficiary of a deceased Participant. (c) Third, an amount equal to the value of the Accrued Benefits (excluding any increases in such Accrued Benefits resulting from Plan amendments during the preceding five (5) years) accrued to all Participants, their joint annuitants and Beneficiaries: (1) to whom Accrued Benefits have been in pay status for at least three (3) years prior to the date of Plan termination (taking the lowest Accrued Benefit in pay status during any three (3) year period used), and (2) to whom Accrued Benefits (other than those described in the foregoing subparagraph) would have been in pay status had an -64- eligible Participant actually retired on a retirement date at least three (3) years prior to the date of Plan termination, as if such Accrued Benefits had commenced under the normal form of Accrued Benefit payment under the Plan as of the beginning of such period. (d) Fourth, an amount equal to the value of Accrued Benefits not provided above, for all Participants entitled to any additional Accrued Benefits under the foregoing paragraph and for all Participants, if any, entitled to Accrued Benefits pursuant to Section 4.05, or who would be entitled to such Accrued Benefits if their employment were terminated on the date of Plan termination, to the extent such Accrued Benefits are guaranteed by the Pension Benefit Guaranty Corporation. (e) Fifth, an amount equal to the value of Accrued Benefits for all Participants, if any, entitled to Accrued Benefits pursuant to Section 4.05, or who would be entitled to such Accrued Benefits if their employ were terminated on the date of Plan termination, to the extent such vested Accrued Benefits have not been provided for under the foregoing paragraph (d); provided, however, that if such amounts are insufficient to satisfy in full Accrued Benefits hereunder, the allocation provided within the second paragraph of Section 8.03 shall apply. (f) Sixth, an amount equal to the value of Accrued Benefits for all other Participants not provided for above. The payment of Accrued Benefits referred to in this Section may be implemented through the continuance of any existing trust or establishment of a new trust, through -65- the continuance of any insured annuity contract, through the purchase by the Trust of an insured annuity contract, through lump-sum payment to the Participant or Beneficiary of the amount allocated to him under the provisions of this Section, with such lump-sum determined based on mortality and interest assumptions in effect by the PBGC for plan terminations as of such termination date, or through a combination of these methods, except that different methods shall not be used within the same class of nonguaranteed Accrued Benefits described under Section 4044(a) of ERISA, all as determined by the Committee to the extent allowed by regulations. If any assets remain after provision for satisfaction of all liabilities of the Plan in the event of termination, they shall be returned to the Company. SECTION 8.03. INSUFFICIENT FUNDS AND ALLOCATION THEREOF. If assets shall be insufficient to provide in full the Accrued Benefits of the entire class of individuals described within paragraphs (a), (b), (c), (e) or (f) of Section 8.02, the available assets for such class shall be allocated among the Participants of that class and their joint annuitants and Beneficiaries, pro rata among such individuals on the basis of the present value (as of the Plan termination date) of their respective Accrued Benefits as described in such paragraph, and not previously provided for under the Trust Agreement. If the assets available for allocation under paragraph (d) of Section 8.02 are insufficient to satisfy in full the Accrued Benefits of participants described within that paragraph, the available assets for such class shall be allocated on the basis of the Accrued Benefits of Participants of that class and their joint annuitants and Beneficiaries, not previously provided for under the Trust Agreement, based upon the Plan as in effect at the beginning of the five (5) year period ending on the date of Plan termination; or, if additional assets remain available for allocation under such paragraph -66- (d), the available assets shall be allocated on the basis of the Plan as amended by the next succeeding Plan amendment effective during such five (5) year period, under which the assets available for allocation are sufficient to satisfy in full the Accrued Benefits of the class of individuals described in paragraph (d) of Section 8.02; and, any assets thereafter remaining to be allocated under such paragraph (d) shall be allocated on the basis of the Plan as amended by the next succeeding Plan amendment effective during such five (5) year period. -67- ARTICLE IX - MISCELLANEOUS SECTION 9.01. SPENDTHRIFT. No right or interest of any kind in this Plan, or the Trust Fund and/or insurance funds, shall be assignable or transferable by any Participant, his spouse or his Beneficiary and no such right or interest shall be subject to offset, adjustment, encumbrance, garnishment, attachment, execution or levy of any kind, voluntary or involuntary. This paragraph shall also apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant pursuant to a domestic relations order, unless such order is determined to be a Qualified Domestic Relations Order which is entered on or after January 1, 1985. A domestic relations order entered before January 1, 1985 will be treated as a Qualified Domestic Relations Order if payment of benefits pursuant to the order has commenced as of such date and may be treated as a Qualified Domestic Relations Order if payment of benefits has not commenced as of such date, even though the order does not satisfy the requirements of section 414(p) of the Code. SECTION 9.02. NO EMPLOYMENT CONTRACT. The existence of this Plan shall not diminish the rights of any Employer to discharge or discipline any employee nor otherwise constitute a contractual commitment to retain any employee in its employ. SECTION 9.03. COMMUNICATIONS. All notices, requests, elections or other communications must be in writing to be effective. Communications from a Participant or any other recipient or potential recipient of benefits hereunder shall be effective only upon receipt by the Manager or his designee, and communications or payments to a Participant, his spouse or his Beneficiary shall be effective upon its deposit in the United States mail with proper stamp attached and addressed to such person's last known address. -68- SECTION 9.04. EMPLOYEE DATA AND VERIFICATION. The Committee, the Manager and the Employer each may in administering this Plan utilize the employment records maintained by any Employer and any Related Entity or predecessor and any facts stated in any communication received from the Participant, his spouse or Beneficiary, whether such communication relates directly to this Plan or not. However, evidence sufficient to reasonably verify any pertinent facts, including but not limited to matters such as the age, condition or continued existence of a current or projected benefit recipient, may be required as a condition precedent to continued accrual of Credited Service or payment of benefits. SECTION 9.05. INCOMPETENTS. Whenever it shall appear to the Committee that an individual entitled to benefit payments under this Plan is not capable of handling his financial affairs, such payments may instead be made to any individual or institution that the Committee believes will utilize such payments for the benefit of such individual, and such payment will constitute full payment of benefits to such individual. SECTION 9.06. PRESUMPTIONS. If the existence and location of an individual apparently entitled to benefits hereunder cannot be determined and verified by reasonable effort within two years after the request for verification of such facts was mailed in registered form to the individual at his last known address, such individual shall be presumed to have died as of the first day such benefit payments were due but unpayable. If on account of the death (verified or presumed) of a Participant, his spouse and/or his Beneficiary there is no designated person to whom benefits can be paid, they shall be paid to the Participant's estate, if one exists. If no such estate is formulated within twelve months after verification of death, or the two-year period noted earlier where death is presumed, unpaid benefits shall be treated as abandoned and used, -69- together with forfeitures under this Plan, to reduce future Employer contributions, unless and until proper claim therefor is made by an individual entitled thereto under this Plan. SECTION 9.07. NONDISCRIMINATION. In the exercise of discretion in interpreting and administering this Plan, the Committee and the Manager shall strive for uniform and equitable treatment of Participants, but they shall not be bound to treat every similar circumstance identically. SECTION 9.08. GOVERNING LAW. This Plan shall be governed by ERISA and any provision herein that would be contrary thereto shall be construed and interpreted by the Committee in such a manner as to comply with ERISA while still retaining insofar as practicable the original purpose of such provision. In matters not within the purview of ERISA, the law of the State of Texas shall apply. SECTION 9.09. ADVISORS NOT FIDUCIARIES. The Company and the Committee and other Plan fiduciaries may solicit the advice of attorneys, actuaries, accountants, and other professionals and may rely upon their advice in the performance of duties under the Plan. No such advisor shall be considered a fiduciary by virtue of having advised a fiduciary but shall be a fiduciary only to the extent he expressly accepts that role. SECTION 9.10. PURCHASE OF ANNUITY CONTRACTS. From time to time the Plan may purchase or cause to be purchased individual or group annuity contracts covering all or part of the Plan's liability to one or more Plan Participants or Beneficiaries. The purchase of such a contract shall be in full discharge of the liability covered by the contract, and neither the Plan nor the Committee nor the Company shall be responsible for the subsequent failure of the insurance company or companies issuing or underwriting the contract to pay benefits for any reason, including insolvency. -70- SECTION 9.11. RECOVERY OF PAYMENTS MADE BY MISTAKE. Notwithstanding anything to the contrary, a Participant or Beneficiary is entitled only to those benefits provided by the Plan and promptly shall return any payment made by mistake of fact or law or any other error, unless recovered by adjustment in the monthly payments. SECTION 9.12. REPRESENTATIONS CONTRARY TO PLAN. No employee, supervisor, officer or director of the Company has authority to alter, vary or modify the terms of the Plan, except in writing through the Plan's formal amendment procedures set forth in Section 8.01. No representation contrary to the terms of the Plan and formal amendments thereto shall be binding on the Plan, the Trustee, the Committee, or the Company. -71- ARTICLE X - SPECIAL RULES SECTION 10.01. REEMPLOYMENT. The general rule is that an Employee who has a Severance from Service Date followed by a Reemployment Commencement Date will have his two (or more) periods of employment or service combined for all purposes under the Plan, except that if he fails to pay into the Plan within five years after his Reemployment Commencement Date an amount equal to any lump- sum distribution (plus Interest thereon) that he received at severance, his benefits hereunder will be reduced to reflect this early distribution. Such reduction shall be the Actuarial Equivalent of any payments received from the Plan since the Participant's Severance from Service Date plus Interest on such payments. Provided, however, for Participants who subsequently have a Severance from Service Date on or after May 1, 1992, and who previously had a single-sum settlement of any portion of their benefits upon an Early Retirement Date, such reduction shall be determined by recalculating the original early retirement benefit with respect to the portion previously paid in a single sum settlement and assuming it would be paid on the new benefit commencement date and then subtracting such amount from the newly calculated benefit amount. However, the following modifications to this general rule shall apply: (a) If the Reemployment Commencement Date of an Employee occurs within twelve months after the last day on which the Participant completed an Hour of Service within the meaning of Department of Labor regulation section 2530.200-2(a), any intervening Period of Severance shall be added to his Period of Service, (that is Continuous Service and Vesting Service, but not Credited Service). -72- (b) Subject to subparagraph (c) below, if an Employee entitled to Vesting Service under the Plan has less than five years of Vesting Service on his Severance from Service Date, his prior Period of Service (that is Continuous Service, Vesting Service and Credited Service) shall be disregarded for all purposes of this Plan. (c) The Employee's prior Continuous Service, Vesting Service, Credited Service, and Period of Service shall be reinstated if the Employee's Reemployment Commencement Date occurs before his Period of Severance equals or exceeds the greater of five years or the amount of the Employee's Vesting Service completed prior to his most recent Severance from Service Date. Any Employee whose Severance from Service Date was prior to May 1, 1986 and whose Reemployment Commencement Date is after April 30, 1986, and who has service prior to May 1, 1986 restored according to the above rules shall have benefits provided by this Plan, the Prior Plan, and the MPS defined in Section 11.03 as if such plans were a single plan. To the extent benefits from the Prior Plan or the MPS Plan cannot be restored under such plans, such benefits shall be restored under this Plan. All optional forms of payments with respect to Accrued Benefits shall be determined in accordance with Article V and Section 10.04 of the this Plan, and vesting in the Employer provided portion of such Accrued Benefit shall be determined in accordance with Section 4.05 of this Plan. The benefits described in this paragraph are subject to the provisions of Section 10.09. Reemployed Participant options shall be governed by the last paragraph of Section 5.03. -73- SECTION 10.02. TRANSFERS. The participation of an Employee who changes employment from one Employer to covered employment under another Employer without any intervening period shall continue uninterrupted. A Participant who remains employed but ceases to be an Employee (i.e., changes his status) or a Participant whose employment with an Employer ceases but who is immediately thereafter employed by a Related Entity, or a Participant who is transferred to a business unit of his Employer that is excluded from coverage hereunder, shall have his participation in this Plan (accrual of benefits) suspended so long as his uncovered employment or ineligible status continues. Upon his resumption of services in covered employment or eligible status therein, his participation shall immediately resume, in which case his intervening nonparticipation service time shall be counted as Continuous Service for eligibility and vesting purposes, but not as Credited Service for benefit accrual purposes. Otherwise, upon cessation of employment resulting in a Severance from Service Date from all Employers and Related Entities, the Participant previously suspended from participation shall be entitled to his frozen Accrued Benefit hereunder, if any, as though he had ceased employment with his last Employer as of his Severance from Service Date. That is, service during suspension of participation will not be considered to increase his Accrued Benefit, although it will be considered Vesting Service. Simultaneous covered employment by a Participant for two or more Employers shall be combined and treated as a single employment for purposes of the Participant's eligibility and benefits, but each Employer shall make a ratable proportion of Employer's contributions. An employee who is a participant in the Dresser Canada, Inc. Retirement Income Plan, who transfers to employment in which he is eligible to participate in this Plan, shall participate hereunder and receive benefits as though his Continuous Service, Vesting Service and Credited Service included such service under the other plan, and he shall receive no benefits under the other plan. Conversely, an employee other than a U.S. citizen or resident alien transferring -74- employment to Canadian operations will transfer from this Plan to such other plan and will receive all benefits under the other plan and none under this Plan, the intent being in each case to have benefits paid only from the plan covering the employee at termination or retirement for all service under both plans. SECTION 10.03. MILITARY SERVICE. A Participant who ceases active employment to serve in the Armed Forces of the United States (whether such service is voluntary or involuntary) shall be treated as having begun a Period of Absence as of the date he reports for military duty, which will result in a Severance from Service Date, unless he returns to employment within twelve months, in which case the person will be entitled to benefits in accordance with Plan provisions. If such a former Participant does not return to employment within twelve months, (a) but honorably is released or discharged and has a Reemployment Commencement Date with any Employer business unit thereof within 90 days thereafter, he shall be treated as having been on an authorized leave of absence for purposes of Section 1.45, his participation shall resume upon such Reemployment Commencement Date, and his period of military service shall be included as Continuous and Credited Service hereunder (at the Compensation level he had attained when he left for military service) for all purposes of this Plan; (b) but honorably is released or discharged and becomes employed by a Related Entity or by an Employer in noncovered service, within 90 days thereafter, he shall receive Continuous and Credited Service for his military service time, as prescribed for Participants returning to covered -75- employment; in other respects and for the period of reemployment he shall be treated as prescribed in Section 10.02; or (c) and is not honorably released or discharged or does not return to employment with any Employer or Related Entity within 90 days after honorable release or discharge, he shall be charged with a Severance from Service Date as of the first anniversary of his military service and shall be treated as any other Participant who has incurred a Period of Severance. Notwithstanding anything to the contrary, the purpose of this Section 10.03 is to comply with the Veterans' Reemployment Rights Act, 38 U.S.C. 52021 ET SEQ., as amended, and this Section shall be construed and applied in a manner consistent with said Act. SECTION 10.04. LUMP-SUM CASH OUT. In the event that any benefit otherwise payable under this Plan to any recipient (after all reductions described in Article IV) would at the time of termination have a lump-sum value based on the New PBGC rate of $3,500 or less, payment of such benefit to said recipient shall be made in a lump-sum calculated using the New PBGC rate, in lieu of payment of monthly benefits. For purposes of this Section, if the present value of an Employee's vested Accrued Benefit is zero, the Employee shall be deemed to have received a distribution of such vested Accrued Benefit. For purposes of this Section, "New PBGC rate" shall mean, if the resulting lump-sum value of the benefit is less than or equal to $25,000, the interest rate or rates which would be used by the Pension Benefit Guaranty Corporation as of the first day of the Plan Year in which distribution occurs for purposes of determining benefits under the Plan if the Plan had terminated on the date distribution commences with insufficient assets to provide benefits guaranteed by the PBGC on that date, or if -76- such lump-sum value exceeds $25,000, 120 percent of the aforestated rate, provided the resulting lump-sum value using the 120 percent rate shall not be less than $25,000. If the lump-sum value of a Participant's benefit, based on the New PBGC rate, would be greater than $3,500, the Participant may, at his or her written election without Committee consent, receive the portion of his or her benefits payable under the Plan attributable to service prior to May 1, 1986 (as described in Section 4.01, including the reduction in Section 4.01(d)) in an immediate lump-sum benefit in lieu of monthly benefits. In addition, if an amount is payable because of benefits granted after the Participant's Annuity Starting Date and the lump sum value based on the New PBGC rate is less than or equal to $3,500 and the Participant previously received his entire benefit from the Plan as a single-sum settlement, the Participant may at his or written election without Committee consent, receive such benefits in an immediate lump- sum benefit in lieu of monthly benefits. In addition, at the time a Participant's benefit is adjusted under the Level Income Option of Section 5.02 when Social Security benefits were assumed to commence, such Participant may elect as provided in the preceding sentence to receive the entire benefit in a lump-sum if the lump-sum value based on the New PBGC rate is less than or equal to $3,500. The election for a lump-sum by a married Participant shall not be valid unless the Participant's spouse consents to such election in writing, the request is witnessed by a Plan representative or notary public, and the spouse's consent acknowledges the effect of the election. Such an election shall be valid only if made on a form authorized by the Committee, which is completed, signed and delivered to the Employer within 90 days before benefits are to commence. The Participant shall be furnished with actual figures indicating the financial effect of such election on his benefits in the form and manner that shall satisfy the requirements of section 417(a)(3) of the Code and related regulations. Except as otherwise specifically provided in Section 5.03 or this Section 10.04, if a Participant has elected to begin and -77- has begun receiving monthly benefits or failed to elect a lump-sum cash out during the earliest period that it was available, he or she may not thereafter elect a lump-sum cash out. Such financial information shall be furnished as soon as administratively feasible but no less than 30 days or more than 90 days before the Annuity Starting Date. Such an election may be revoked by written notice to the Employer prior to payment of the lump-sum benefit, and another election may be made within the period for making such an election, accompanied by written spousal consent as required. The election period shall begin 90 days before benefits are to commence and shall end as of the Annuity Starting Date. Notwithstanding the preceding sentence, to the extent necessary to permit the election to be made within this time period, the date scheduled for the benefit payment may be delayed until the first day of the first month not sooner than 14 days after receipt of the properly executed election form but not later than 90 days after the Participant has been furnished full particulars of the financial effects on his pension of such election. A lump-sum benefit described in the second paragraph of this Section shall be the single sum value of the non-forfeitable accrued benefit as of a Participant's retirement or other termination date, using whichever of the following three sets of interest rate factors and benefit calculation methods yields the greatest benefit; (1) an interest rate based on the highest 15 year or next longer U.S. Treasury bond yield, compounded annually, as reported in the WALL STREET JOURNAL or any successor publication on the first publication date on which the yield is quoted following the last working day of the month prior to the month in which the Participant terminates, and based on the present value of a life annuity and the 1971 Group Annuity Mortality Table weighted 90% males and 10% females, (2) an interest rate equal to the latest published interest rate as of such date of retirement or other termination, based on the highest 15 year or next longer U.S. Treasury bond yield, compounded annually, as reported in the WALL STREET JOURNAL -78- or any successor publication, but not less than 10.5%, and using the present value of an annuity certain for the period equal to the Participant's life expectancy according to the 1971 Group Annuity Mortality Table weighted 90% males and 10% females, or (3) an interest rate equal to the Old PBGC rate, and based on the present value of a life annuity and the 1971 Group Annuity Mortality Table weighted 90% males and 10% females. For purposes of this section, the Old PBGC rate shall mean the interest rate used by the Pension Benefit Guaranty Corporation to value immediate annuities for plans terminating as of the first day of the Plan Year that contains the proposed payment data. Any Participant who has elected a lump-sum cash out as described in the second paragraph of this Section 10.04 (relating to benefits attributable to service prior to May 1, 1986) may also elect a lump-sum cash out of any vested benefits under the Plan attributable to service after April 30, 1986 (as described in Section 4.01(b)) in an immediate lump-sum benefit based on the Old PBGC rate, in lieu of monthly benefits. However, this election shall be available only if the lump-sum value of such benefit, based on the Old PBGC rate, is less than $10,000 at the time of termination. The spousal consent requirement and other administrative rules and procedures set out in the second paragraph of this Section shall also be applicable to elections under this paragraph. If the lump-sum benefit payable is in respect of service before May 1, 1986 only, then the lump-sum shall be a least as large as the lump-sum value of the benefit in respect of such service using the New PBGC rate. If the lump-sum benefit payable is in respect of service before and after May 1, 1986, then the lump-sum shall be at least as large as the lump-sum value of the benefit in respect of such service using the New PBGC rate. -79- SECTION 10.05. PRE AND POST PLAN TERMINATION RESTRICTIONS. Benefits from this Plan shall be limited to the extent required under section 1.401(a)(4)-5 of regulations under the Code. Notwithstanding the preceding sentence, if the referenced regulations are revised or withdrawn or the effective date is delayed, these provisions shall be modified to comply with any such changes or delay in effective date. (a) Notwithstanding anything to the contrary, in the event of Plan termination, the benefit of any highly compensated employee and any highly compensated former employee as defined in section 414(q) of the Code is limited to a benefit that is nondiscriminatory under section 401(a)(4) of the Code. The Plan Administrator shall reduce the benefit of any highly compensated employee or highly compensated former employee to the extent required to meet this requirement. (b) The annual payments to an Employee described in subsection (c) of this Section 10.05 shall be restricted to an amount equal to the payments that would be made on behalf of the Employee under a single life annuity that is the Actuarial Equivalent of the Employee's Accrued Benefit under the Plan. The restrictions in this subsection (b) do not apply, however, if: (1) After payment to a Participant described in subsection (c) of this Section 10.05 of all benefits described in subsection (d) of this Section 10.05, the value of Plan assets equals or exceeds 110 percent of the value of current liabilities, as defined in section 412(1)(7) of the Code or -80- (2) The value of the benefit described in subsection (d) of this Section 10.05 for a Participant described in subsection (c) of this Section 10.05 is less than 1 (one) percent of the value of current liabilities before distribution, or (3) The value of the benefit described in subsection (d) of this Section 10.05 for a Participant described in subsection (c) of this Section 10.05 falls into the category of benefits payable under the first paragraph of Section 10.04. (c) The Participant whose benefits are restricted on distribution include the 25 highly compensated employees and the 25 highly compensated former employees with the greatest compensation in the current Plan Year and in any prior Plan Year. (d) For purposes of this Section 10.05, "benefit" includes loans in excess of the amounts set forth in section 72(p)(2)(A) of the Code, any periodic income, any withdrawal values payable to a living Employee, any death benefits not provided for by insurance on the Employee's life, and any lump-sum benefits. SECTION 10.06. ABSOLUTE LIMITATION. Following are provisions describing the limitations on benefits under this Plan: (a) DEFINITIONS. For purposes of this Section 10.06, the following definitions and interpretations shall apply: -81- (1) "Adjustment Factor" shall mean the cost of living adjustment factor prescribed by the Secretary of the Treasury under section 415(d) of the Code for years beginning after December 31, 1987, applied to such items and in such manner as the Secretary shall prescribe. (2) "Annual Additions" shall mean the sum, credited to a Participant's account under a defined contribution plan for any Limitation Year, of (A) Employer contributions, (B) forfeitures, if any, (C) employee contributions (excluding rollover contributions), and (D) amounts, if any, described in Code sections 415(1)(1) and 419A(d)(2). (3) "Annual Benefit" shall mean: (A) A benefit which is payable annually in the form of a single life annuity under the Plan with no ancillary benefits. Such benefit does not include any benefits attributable to employee contributions. (B) The annual benefit attributable to mandatory employee contributions, determined by using the factors described in section 411(c)(2)(B) of the Code and the regulations thereunder, shall not be taken into account in determining the annual benefit. However, mandatory employee contributions shall be considered a separate defined contribution plan maintained by the Employer. -82- (C) When there is a transfer of assets or liabilities from one qualified plan to another, the annual benefit attributable to the assets transferred shall not be taken into account by the transferee plan in applying the limitations of section 415 of the Code. The annual benefit payable on account of the transfer for any individual that is attributable to the assets transferred will be equal to the annual benefit transferred on behalf of such individual multiplied by a fraction, the numerator of which is the total assets transferred and the denominator of which is the total liabilities transferred, provided, however, that the fraction shall never be greater than the value 1.000. (D) A retirement benefit payable in any form other than a single life annuity shall be actuarially adjusted to an equivalent single life annuity beginning at the same age, in accordance with rules determined by the Commissioner of Internal Revenue so that it is the Actuarial Equivalent of a single life annuity. However, the following values are not taken into account: (i) The value of a qualified joint and survivor annuity (as defined in section 401(a)(11)(G)(iii) of the Code and the regulations thereunder) provided by the Plan to the extent that such value exceeds the sum of (a) the value of a single life annuity beginning on the same date and (k) the value of any post-retirement death -83- benefits which would have been payable even if the annuity was not in the form of a joint and survivor annuity; (ii) The value of benefits that are not directly related to retirement benefits (such as pre-retirement disability and death benefits and post-retirement medical benefits); (iii) The value of benefits provided by the Plan which reflect post-retirement cost-of-living increases to the extent that such increases are in accordance with section 415(d) of the Code and the regulations thereunder. (E) If the retirement benefit of a Participant commences BEFORE the Participant's Social Security Retirement Age, the Maximum Permissible Amount shall be adjusted so that it is the Actuarial Equivalent of an annual benefit of $90,000, multiplied by the Adjustment Factor, as prescribed by the Secretary of the Treasury, beginning at the Social Security Retirement Age, based on an interest rate assumption which is not less than the greater of the interest rate assumption under the Plan or five percent (5%) per year. The adjustment made in the preceding sentence shall be made in such manner as the Secretary of the Treasury may prescribe which is consistent with the reduction for old age insurance benefits -84- commencing before the Social Security Retirement Age under the Social Security Act. (F) If the retirement benefit of a Participant commences AFTER the Participant's Social Security Retirement Age, the Maximum Permissible Amount shall be adjusted so that it is the Actuarial Equivalent of a benefit of $90,000 beginning at the Social Security Retirement Age, multiplied by the Adjustment Factor as provided by the Secretary of the Treasury, based on an interest rate assumption which is not greater than the lesser of the interest rate assumption under the Plan or an assumption of five percent (5%) per year. (G) If a Participant has completed less than ten years of participation, the Participant's accrued benefit shall not exceed the Maximum Permissible Amount as adjusted by multiplying such amount by a fraction, the numerator of which is the Participant's number of years (or part thereof) of participation in the Plan, and the denominator of which is ten. If a Participant has completed less than ten years of service with the Company or an Associated Company, the limitations described in sections 415(b)(1)(B) and 415(b)(4) of the Code shall be adjusted by multiplying such amounts by a fraction, the numerator of which is the Participant's number of years of service (or part thereof), and the denominator of which is ten. In no event shall the two immediately preceding sentences reduce the limitations -85- provided under section 415(b)(1) and (4) of the Code to an amount less than one-tenth of the applicable limitation (as determined without regard to the two immediately preceding sentences). (H) For purposes of subsections (E) and (F) of this Section 10.06(a)(3), actuarial equivalence shall be calculated by employing a five percent (5%) interest rate assumption. (4) "Earnings", with respect to a Limitation Year: (A) includes amounts paid or made available to a Participant (regardless of whether the Participant was such during the entire Limitation Year): (i) as wages, salaries, fees for professional service, and other amounts received for personal services actually rendered in the course of employment with any Employer including but not limited to commissions, compensation for services on the basis of a percentage of profits and bonuses; (ii) for purposes of (i) above, earned income from sources outside the United States (as defined in section 911(b) of the Code), whether or not excludable from gross income under section 911 or deductible under section 913 of the Code; -86- (iii) amounts described in sections 104(a)(3), 105(a) and 105(h) of the Code, but only to the extent that these amounts are includable in the gross income of the Participant; (iv) amounts described in section 105(d) of the Code, whether or not these amounts are excludable from the gross income of the Participant under that section; (v) amounts paid or reimbursed by the Employer for moving expenses incurred by the Participant, but only to the extent that these amounts are not deductible by the Employer under section 217 of the Code; (vi) the value of a non-qualified stock option granted to a Participant by the Employer, but only to the extent that the value of the option is includable in the gross income of the Participant for the taxable year in which granted; the amount includable in the gross income of a Participant upon making the election described in section 83(b) of the Code. (B) does not include: (i) contributions made by the Employer to a plan of deferred compensation to the extent that, before the -87- application of the limitations of section 415 of the Code to that plan, the contributions are not includable in the gross income of the Participant for the taxable year in which contributed. In addition, Employer contributions made on behalf of a Participant to a simplified employee pension described in section 408(k) of the Code are not considered as Earnings for the taxable year in which contributed to the extent such contributions are deductible by the Participant under section 219(b)(2) of the Code. Additionally, any distributions from a plan of deferred compensation are not considered as Earnings, regardless of whether such amounts are includable in the gross income of the Participant when distributed. However, any amounts received by a Participant pursuant to an unfunded non-qualified plan shall be considered as Earnings in the year such amounts are includable in the gross income of the Participant; (ii) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by a Participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture (see section 83 of the Code and the regulations thereunder); -88- (iii) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified or incentive stock option; (iv) other amounts which receive special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement)toward the purchase of an annuity described in section 403(b) of the Code (whether or not the amounts are actually excludable from the gross income of the Employee). (5) "Employer" shall mean the Company and any corporation which is a member of a controlled group of corporations (as defined in section 414(b) as modified by section 415(h) of the Code) which includes the Company or any trades or businesses (whether or not incorporated) which are under common control (as defined in section 414(c) as modified by section 415(h) of the Code) with the Company. (6) "Limitation Year" shall mean a calendar year. (7) "Maximum Permissible Amount" shall mean, for a Limitation Year with respect to any Participant, the lesser of the amounts described in subparagraphs (A) and (B) below, subject to the rules of subparagraphs (C), (D) and (E) below: (A) $90,000, or -89- (B) 100% of the Participant's Earnings for the Participant's high three consecutive years of service. (C) As of January 1 of each calendar year commencing with the calendar year 1988, or such other year as designated by the Commissioner of Internal Revenue, the dollar limitation set forth in subparagraph (A) above shall be adjusted automatically to equal the dollar limitation as determined by the Commissioner of Internal Revenue for that calendar year under section 415(d)(1)(A) of the Code. This adjusted dollar limitation applies for the Limitation Year ending with that calendar year. It is applicable to employees who are Participants in the Plan and to employees who have retired or otherwise terminated their service under the Plan with a nonforfeitable right to accrued benefits, regardless of whether they have actually begun to receive such benefits. The annual benefit payable to a terminated Participant which is otherwise limited by the dollar limitation shall be increased to take into account the adjustment of the dollar limitation. The Maximum Permissible Amounts for each calendar year 1988, 1989, 1990, 1991, and 1992 are $94,023, $98,064, $102,582, $108,963, and $112,221 respectively. (D) With regard to Participants who have separated from service with a nonforfeitable right to an accrued benefit, the Earnings limitation described in subparagraph (B) above -90- applicable to Limitation Years commencing on or after January 1, 1976 shall be adjusted annually by the Adjustment Factor. For any Limitation Year beginning after the separation occurs, the adjustment of the Earnings limitation is made as specified in regulations and rules prescribed by the Commissioner of Internal Revenue. (8) "Projected Annual Benefit" shall mean the annual benefit to which a Participant would be entitled under the Plan on the assumption that he continues employment until the normal retirement age (or current age, if that is later) thereunder, that his Earnings continue at the same rate as in effect for the Limitation Year under consideration until such age, and that all other relevant factors used to determine benefits under the Plan remain constant as of the current Limitation Year for all future Limitation Years. (b) COLLECTIVE TREATMENT. For purposes of applying the limitations of sections 415(b), (c) and (e) of the Code applicable to a Participant for a particular Limitation Year, all qualified defined contribution plans (without regard to whether a plan has been terminated) ever maintained by the Employer will be treated as one defined contribution plan and all qualified defined benefit plans (without regard to whether a plan has been terminated) ever maintained by the Employer will be treated as part of this Plan. (c) ANNUAL BENEFIT LIMIT. The annual benefit to which a Participant is entitled at any time under all defined benefit plans may not, during the Limitation Year, exceed the Maximum Permissible Amount. If the annual benefit -91- would but for this Section 10.06(c) exceed the Maximum Permissible Amount during the Limitation Year, the rate of benefit accrual under all defined benefit plans shall be frozen or reduced to the extent necessary to prevent the Annual Benefit from exceeding the Maximum Permissible Amount. Provided, however, that if the Accrued Benefit of a Participant who was a participant in a plan of a prior employer exceeds the benefit limitations under section 415(b) of the Code (as modified by subsection 10.06(a)(2)(E), (F) and (G)), then for purposes of section 415(b) and (e) of the Code, the Maximum Permissible Amount with respect to such individual shall be equal to such Accrued Benefit. (d) OVERALL LIMIT. For any Participant of this Plan who at any time participated in a defined contribution plan of the Employer, the rate of benefit accrual by such Participant in this Plan during the Limitation Year will be reduced to the extent necessary to prevent the sum of the following two fractions, computed as of the close of the Limitation Year, from exceeding 1.0: FRACTION (1) ------------ Projected annual benefit of the Participant under this Plan. ------------------------------------------------------------ The lesser of (1) the product of 1.25, multiplied by the dollar limitation in effect under Section 10.06(a)(6)(A) for such Limitation Year, or (2) the product of (A) 1.4 multiplied by (B) the amount which may be taken into account under Section 10.06(a)(6)(B) with respect to such Participant for such Limitation Year. FRACTION (2) ------------ Sum of Annual Additions to such Participant's account under all defined contribution plans in such Limitation Year. --------------------------------------------------------------- The sum of the lesser of the following amounts determined for such year of service with the Employer: (1) the product of 1.25, multiplied by the dollar limitation in effect under section 415(c)(1)(A) of the Code for such Limitation Year, or (2) the product of (A) 1.4, multiplied by (B) 25% of the Participant's Earnings for such Limitation Year. -92- (e) SPECIAL RULES APPLICABLE TO COMPUTATION OF OVERALL LIMIT. (1) For purposes of applying the defined contribution plan fraction in Section 10.06(d) for any Limitation Year beginning after December 31, 1975, the following rules shall apply with respect to Limitation Years before January 1, 1976: (A) The aggregate amount taken into account in determining the numerator of such fraction is deemed not to exceed the aggregate amount taken into account in determining the denominator of this fraction. (B) The amount taken into account for purposes of Section 10.06(a)(1)(C)(i) is an amount equal to the excess of the aggregate amount of the Participant's contributions for such years during which he was an active Participant in the plan, over 10% of the Participant's aggregate Earnings for all such years, multiplied by a fraction, the numerator of which is one and the denominator of which is the number of years beginning before January 1, 1976, during which the Participant participated in the plan. Participant contributions made on or after October 2, 1973 shall be taken into account for purposes of the preceding sentence only to the extent that the amount of such contributions is permissible under a plan as in effect on that date. -93- (2) In any case where the sum of the fractions in Section 10.06(d) is greater than 1.0 calculated as of the close of the last Limitation Year beginning before January 1, 1983 for a Participant, in accordance with regulations prescribed by the Commissioner of Internal Revenue pursuant to section 235(g)(3) of TEFRA, an amount shall be subtracted from the numerator of the defined contribution plan fraction so that the sum of such fractions do not exceed 1.0 for such Limitation Year. SECTION 10.07. CLAIMS AND APPEALS PROCEDURE. Pursuant to procedures established by the Committee, claims for benefits shall be made on prescribed forms and notice in writing shall be provided to any benefit applicant whose claim for benefits under the Plan has been denied. Such notice shall set forth the specific reason for such denial as well as reference to provisions of the Plan on which the denial is based, written in a manner calculated to be understood by the applicant. Provided review is requested in writing within 65 days after written notification of the denial of such claim was issued, such person or persons as are appointed by the Company shall review the decision denying the claim, giving particular attention to items raised in the review request, and communicate to the claimant the results of the specific reason therefor, including a reference to provisions of the Plan on which the decision was based. The results shall be communicated to the claimant within 60 days after receipt of a request for review unless special circumstances require a longer period, but not later than 120 days after receipt of a request for review. SECTION 10.08. PLAN MERGERS. In the event of a planned merger or consolidation of the Plan with any other plan of deferred compensation maintained or to be established for the benefit of all or some of the Participants of this Plan, or a planned -94- transfer in whole or in part of the assets or liabilities of the Trust Fund to another trust fund held under another plan, the merger, consolidation, or transfer of the assets of the Trust Fund applicable to Participants in this Plan shall occur only if: (a) each Participant would (if the Plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer that is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer if the Plan had then terminated, or unless the requirements of Code section 414(1) are otherwise satisfied; (b) the Company and/or any new or successor employer of the affected Participants shall authorize such events, and, in the case of the new or successor employer of the affected Participants, it shall assume the liabilities with respect to such Participants inclusion in the new employer's plan; and (c) such other plan and trust shall be qualified under section 401 and 501 of the Code. SECTION 10.09. SPECIAL TRANSFER OR REEMPLOYMENT SITUATIONS. Separate periods of service may be combined as set forth in Sections 10.01, 10.02, or 10.03; however, any benefit payable from the Plan based on such combined Periods of Service shall be reduced to reflect any lump-sum distribution which may have been made at the Severance from Service Date unless the Participant pays into the Plan within five years after his Reemployment Commencement Date an amount equal to such lump-sum distribution (plus Interest from the date of distribution to the date of repayment). -95- The amount of such repayment shall become the Participant's basis amount. This basis amount shall not change after the date of repayment and any future distribution in a lump sum form of the benefit with respect to service which is reinstated due to the repayment shall not be less than the amount of such repayment without adjustment for interest after the date of repayment. SECTION 10.10. EMPLOYMENT PAST NORMAL RETIREMENT DATE AND RETURN TO ACTIVE EMPLOYMENT. Provided that appropriate notification is given, all benefit payments even though duly applied for and otherwise payable under this Plan shall be permanently withheld for any calendar months prior to the April 1 following the calendar year in which a Participant attains Age 70-1/2 and during which a Participant continues after his Normal Retirement Date in employment described in the immediately succeeding sentence; provided, however, in the event the provisions of this Section 10.10 shall conflict with the provisions of Section 5.05(i), Section 5.05(i) shall rule. Also, subject to notification requirements, all such payments shall be suspended and permanently withheld during any months in which a pensioner receives payment from the Company, or effective May 1, 1992, any subsidiary 80% or more owned by the Company, directly or indirectly for any hours of service performed (or payment for vacation, holiday, illness, disability, layoff, jury duty, military leave or leave of absence) on each of eight or more days during a calendar month. Payments shall commence or resume, whichever is the case, no later than the first day of the third calendar month after the calendar month in which the Employee or pensioner does not receive payment as described above on each of eight or more days; provided that the initial payment upon resumption shall include the payment scheduled to occur in the calendar month when payments resume and any amounts withheld during the period between the cessation of -96- employment and the resumption of payments, less any amounts which are subject to offset. Any Participant or pensioner whose benefits are being permanently withheld under provisions of this Section shall be afforded the right to review described in Section 10.07 of the Plan. In addition, any Participant or pensioner may request and receive a determination from the Committee whether specific contemplated employment will be service which would result in permanent withholding of benefits. Such a request for determination shall be submitted in writing to the Company and the procedure described in Section 10.07 of the Plan shall be followed in handling the request. Provided, however, that upon resumption of monthly benefit payments after a suspension, there shall be deducted from such payments any amounts previously paid by the Plan during calendar months in which the Participant or pensioner was employed as described in the first paragraph of this Section. The amount of such deduction shall not, however, exceed in any one month 25 percent of the month's total benefit payment which would otherwise have been due, except that such 25 percent limitation shall not apply to the initial payment described in this paragraph. Further provided, that no payments shall be withheld unless the Participant or pensioner is notified of the withholding by personal delivery or first class mail during the first calendar month in which such payments are to be withheld. The notification shall describe the specific reasons why benefits are being withheld, a general description of this Plan provision providing for permanent withholding, a copy of this provision, a statement to the effect that applicable Department of Labor regulations may be found in section 2530.203-3 of the Code of Federal Regulations, and a statement that any Participant or pensioner whose benefits are being so withheld may request and receive a -97- review under provisions of Section 10.07 of this Plan. Furthermore, if there is to be an offset for any suspendible amounts actually paid during periods of employment described in the first paragraph of this Section, the notification shall identify specifically the periods of employment, the suspendible amounts which are subject to offset, and the manner in which such suspendible amounts are to be offset. SECTION 10.11. TOP-HEAVY REQUIREMENTS. Notwithstanding any other provision of the Plan, the following rules shall apply, if as of the determination date (which shall be the last day of the preceding Plan Year), based on valuations as of such date, the present value of the cumulative accrued benefits under this Plan, (using assumptions set out in Section 1.02) and of accounts under any defined contribution plan, of key employees (as defined in section 416(i) of the Code) exceeds 60% of a similar sum for all employees under each such plan in which a key employee participates and each other plan of the Employer which enables any such plan to meet the requirements of section 401(a)(4) or 410 of the Code, taking into account for this purpose amounts distributed within the preceding five years. However, accounts and benefits shall not be taken into account with respect to any individual who has not performed services for any Employer at any time during the five-year period ending on the determination date. (a) Compensation for any Employee shall not be taken into account under the Plan in excess of $200,000. (b) All present and all future accrued benefits under the Plan shall be immediately 100% vested. -98- (c) A non-key employee Participant's minimum accrued benefit, when expressed as an annual benefit, shall be 2% of the Participant's average annual compensation for the period of five consecutive years during which he had the greatest aggregate compensation multiplied by the Participant's years of participation service occurring after April 30, 1984, in which the Plan is top-heavy; however, such minimum benefit shall not be greater than the five-year average compensation multiplied by 20%. The minimum accrued benefit of this subsection (c) shall be provided to a non-key employee Participant regardless of the non-key employee Participant's level of compensation and regardless of whether the non-key employee Participant is employed on any specified date. (d) For purposes of applying the provisions of section 415 of the Code to a key employee Participant, the dollar limitations in the defined benefit plan fraction and the defined contribution plan fraction shall be multiplied by 1.0 rather than 1.25, and no benefits may be accrued for a Participant over the 1.0 limit. The provisions of this Section 10.11 shall be interpreted in accordance with the provisions of section 416 of the Code and any regulations thereunder, which are hereby expressly incorporated by reference. SECTION 10.12. SALES, TRANSFERS AND OTHER DISPOSITIONS. Except as provided in Article 12 of the Plan, a Participant who ceases to be employed by the Employer because of a joint venture creation, sale, transfer or other disposition involving all or part of the Employer's business, and who continues employment with the successor employer pursuant to the terms of such transaction, shall be considered to -99- have a Severance from Service Date on the date his employment with the Employer ceases for all purposes under the Plan except for purposes of determining entitlement to benefit commencement under the Plan. Any such Participant shall not be treated as having a Severance from Service Date for purposes of entitlement to commence benefits under the Plan until such Participant terminates employment with such successor employer (including subsequent successors thereto). -100- ARTICLE XI - COORDINATION WITH PREDECESSOR PLANS SECTION 11.01. GENERAL. Unless specifically stated otherwise in this Article XI, a Plan Participant who was a member of a Predecessor Plan that was merged into the Prior Plan shall be entitled to benefits for periods of service under the Predecessor Plan that are derived solely from the annuity purchased in respect of such Predecessor Plan service from the insurance company or companies upon the termination as of April 30, 1986, of The Dresser Industries, Inc. Retirement Income Plan Under ERISA or the termination as of April 30, 1986, of the Dresser Industries, Inc. Retirement Income Plan for Salaried Employees of Marion Power Shovel Division. SECTION 11.02. PREDECESSOR PLANS FROZEN AS OF APRIL 30, 1986. Except as otherwise provided in this section, plan Participants who as of April 30, 1986, upon termination of the Prior Plan, have annuities purchased from an insurance company or companies in respect of the following Predecessor Plans or employment periods, shall have their pension benefit in respect of such service limited to such purchased annuity: 1. B & W Employee Retirement Plan applicable to the Advanced Composites Department of Babcock and Wilcox Company 2. The Bay States Abrasives Restated Pension Plan 3. The Retirement Plan for Employees of Cardinal Chemical, Inc. and Cardinal Products, Inc. 4. Consolidated Galion Salaried Employees Pension Plan 5. Electra Motors Division Employees Pension Plan 6. Felker Manufacturing Company Pension Plan 7. Envirotech Pension Plan applicable to active employees of Fluid Ionic Systems Division -101- 8. Dresser Industries, Inc. General Abrasive Division Pension Plan for Salaried Employees 9. Pension Plan for Salaried Employees of Glasrock Products, Inc. 10. The Power Transmission Equipment Salaried Employee Pension Plan 11. The Consolidated Jeffrey Salaried Employees Pension Plan 12. Lane-Wells Retirement Plan 13. The M & H Valve Pension Plan 14. Geosource 15. Di-Chem 16. Dresser Titan Spinoff to Hughes Tool Partnership 17. Fann Operations 18. Jeffrey Chain Operations Notwithstanding the preceding, any Plan Participant whose purchased annuity with respect to periods of service under the above Predecessor Plans or employment periods is limited as of April 30, 1986, due to the provision of the Prior Plan that the maximum pension from the Prior Plan and the Predecessor Plan shall not be greater than the benefit had credited service under the Predecessor Plan been credited service under the Prior Plan may have additional benefit provided under this Plan with respect to periods of service under the Predecessor Plan. Such additional benefit shall be provided in the event that, at the time of the Participant's actual Severance from Service Date, the Prior Plan limitation referred to above results in a larger pension with service under the Predecessor Plan. Such incremental amount of pension with respect to periods of service under the Predecessor Plan shall be provided from this Plan. Further provided, however, with respect to any Plan Participant who is entitled to benefits provided by Section 11.02, B&W EMPLOYEE RETIREMENT PLAN -102- MERGER (ACD), of the Prior Plan, any benefit adjustment due to the cost of living factor which may be determined on and after May 1, 1986, shall be paid from this Plan. SECTION 11.03. MARION POWER SHOVEL. As of May 1, 1986, the Dresser Industries, Inc. Retirement Income Plan for Salaried Employees of Marion Power Shovel Division (the "MPS Plan") is treated as if it were a Predecessor Plan that has been merged into this Plan. Subject to the provisions of this Section 11.03, Pension benefits for Participants who were active employee participants of the MPS Plan as of April 30, 1986, or who were active employee participants of the Dresser Industries, Inc. Retirement Income Plan Under ERISA as of that date who had a frozen benefit after transfer out of the MPS Plan shall be comprised of the benefit components enumerated in subsections (a), (b)(l), (b)(2), (c)(l) and (c)(2), and minus subsection (d) of Section 4.01. Benefit component (c)(l) in the preceding sentence shall be applied without regard to Participants' Credited Service prior to May 1, 1986. When applying the said provisions of Section 4.01(c)(1) to former MPS Plan Participants who are active Participants of this Plan after April 30, 1989, the following special provision shall apply: This Plan in effect on April 30, 1989 provided an additional benefit component (a') which, effective May 1, 1989, shall be modified as stated below: (a') shall be a benefit commencing at Normal Retirement Date or later actual retirement date on the Life-Only form equal to 1.5% times average compensation times years of credited service in the MPS Plan to April 30, 1986, minus 50% of the Participant's Social Security Pension multiplied by the ratio of the Participant's service in the MPS Plan to April 30, 1986, to the Participant's service he would have completed had his Severance from Service Date been his Normal Retirement Date. For purposes of benefit -103- component (a'), the terms compensation, average compensation, and service shall be defined as those terms are defined in Sections 1.11, 1.05, and 1.30 of the MPS Plan as of April 30, 1986. In the calculation of (a'), average compensation and the Participant's Social Security Pension shall be calculated as of April 30, 1989. The resulting benefit amount shall be multiplied times the ratio (not less than 1 (one)) of the Participant's average compensation at Severance from Service Date divided by average compensation at April 30, 1989. The total of the Participant's pension benefit from components (a') of this Section 11.03 and from Section 4.01 shall be subject to the maximum limitations of Section 4.01. Notwithstanding those limitations, the pension benefit from this Plan when added to the pension benefit from the Prior Plan shall not be less than (a') as defined and adjusted above. Former Participants of the MPS Plan who became Participants of this Plan as of May 1, 1986, shall be eligible for Immediate or Deferred Early Retirement Benefits after the attainment of Age 55 and completion of at least 10 years of Vesting Service. In the event of early retirement, pension benefit components of subsections (a'), (b)(1), (b)(2), (c)(1) and (c)(2) of Section 4.01 shall be subject to the reductions specified in Section 4.02. Subsection (d) of Section 4.01 shall be subject to the reductions in the respective annuity contract. Benefit component (a') shall be multiplied by the appropriate percentage from the following table, depending upon the age of the Participant at Early Retirement Date: -104-
Age at Early Benefit RETIREMENT DATE PERCENTAGE 65 100% 64 93.3 63 86.7 62 80.0 61 73.3 60 66.7 59 63.3 58 60.0 57 56.7 56 53.3 55 50.0
The above percentages shall be interpolated on a straight line basis using completed months to determine a Participant's fractional age for purposes of interpolation. A Participant who was an active Participant in the MPS Plan as of April 30, 1986, who becomes "Disabled" as defined immediately below and after completing at least 15 years of Vesting Service shall be entitled to receive a pension benefit equal in amount to the benefit component in subsection (d) of Section 4.01 reduced by 50% of the disability benefit that such Participant is eligible for from Social Security. Such benefit shall be further reduced by any other statutory benefits received by reason of occupational disability pursuant to any state or federal law. Such benefit shall commence at the time the Participant first becomes Disabled and shall continue until the earliest of the following dates: (a) The date the Participant ceases to be Disabled, or -105- (b) The benefit component of subsection (d) of Section 4.01 commences to the Participant from the insurance company used to purchase annuity benefits upon the termination of the MPS Plan as of April 30, 1986. For purposes of this Section 11.03, the term "Disabled" shall mean total disability by bodily or mental injury or disease so as to be prevented thereby from engaging in any occupation or employment for remuneration or profit, provided: (a) Such total disability shall have continued for a period of at least six consecutive months and, in the opinion of a qualified physician selected by the Company, will be permanent and continuous during the remainder of the Participant's life; and (b) Such disability: (1) was not contracted, suffered, or incurred while the Participant was engaged in, or did not result from his having engaged in, a criminal enterprise, or (2) did not result from his habitual drunkenness or addiction to narcotics, or (3) did not result from an intentionally self-inflicted injury, or (4) did not result from service in the Armed Forces of any country which prevents a return to employment with the Company and for which the Participant receives a military pension. -106- Participants who are entitled to benefits under Section 4.05 shall have the component (a') of their benefit amount multiplied by the same factors specified in this Section 11.03 for Immediate Early Retirement in the event such benefits are to commence before Normal Retirement Date. Surviving Spouse benefits under this Plan in respect of active Participants who were active Participants of the MPS Plan as of April 30, 1986 shall be as provided in Section 4.07 of this Plan. The vesting provisions of Section 4.05 of this Plan shall apply. SECTION 11.04. MCGRAW-EDISON COMPANIES. The "Inflation Benefit" for Participants who became Prior Plan Participants upon the acquisition of certain operations of McGraw-Edison Company as provided in Section 11.30 of the Prior Plan shall continue to be provided under this Plan subject to the provisions of this Section 11.04. When Section 4.01(c)(1) of this Plan is applied to determine the Inflation Benefit, final average monthly earnings and the applicable Social Security pension shall be calculated as of April 30, 1989. The resulting benefit amount shall be multiplied times the ratio (not less than l(one)) of the Participant's final average monthly earnings at Severance from Service Date divided by final average monthly earnings at April 30, 1989. In the application of the formula as of April 30, 1989, the maximum offset allowed for the Social Security pension shall be 50% of the portion of the Participant's benefit based solely on his final average monthly earnings. The Participant's "final average monthly earnings" and the applicable "Social Security pension" shall be determined according to the definitions of those terms in the applicable prior McGraw-Edison plan at the respective dates of acquisition of those operations. -107- All other provisions with respect to the Inflation Benefit shall be as stated in Section 11.30 of the Prior Plan, except the vesting provisions of Section 4.05 of this Plan shall apply instead of the vesting provisions of the respective McGraw Plan, which were applicable prior to May 1, 1989. SECTION 11.05. WAUKESHA ENGINE DIVISION. Subject to the further provisions of this Section 11.05, increases in a Participant's Accrued Benefit after the termination of the Prior Plan as of April 30, 1986, in subsection 4.01(c)(1)(C) which result from increases in a Participant's final average monthly earnings after April 30, 1986, shall continue to be provided under this Plan in the same manner as the Prior Plan with respect to Participants who became Prior Plan Participants upon the merger of the Pension Plan for Salaried Employees of Waukesha Engine Division, Waukesha, Wisconsin and Clinton, Iowa (the "Waukesha Predecessor Plan") into the Prior Plan. However, when Section 4.01(c)(1)(C) of this Plan is applied to determine such increases, final average monthly earnings shall be calculated as of April 30, 1989. The resulting benefit amount shall be multiplied times the ratio (not less than l(one)) of the Participant's final average monthly earnings at Severance from Service Date divided by final average monthly earnings at April 30, 1989. In addition, Participants in the Prior Plan as of April 30, 1986, who had a frozen benefit after transfer out of the Waukesha Predecessor Plan prior to the merger of that Plan into the Prior Plan shall have such frozen benefit determined in accordance with the following two sentences. The benefits so provided under this Section 11.05 shall be included in the pension benefit component of subsection (c)(1) of Section 4.01. The Participant's final average monthly earnings shall be calculated as defined in the Waukesha Predecessor Plan as of April 30, 1989 and as of the Participant's Severance from Service Date. -108- All other provisions pertaining to the pension benefit component of subsection (c)(l)(C) of Section 4.01 with respect to Waukesha Predecessor Plan Participants shall be governed by Section 11.23 of the Prior Plan, except the vesting provisions of Section 4.05 of this Plan shall apply instead of the vesting provisions of Section 11.23 of the Prior Plan. SECTION 11.06. RELIANCE INSURANCE COMPANY. Subject to the further provisions of this Section 11.06, increases in a Participant's Accrued Benefit after the termination of the Prior Plan as of April 30, 1986 in subsection 4.01(c)(1)(C) which result from increases in a Participant's final average monthly earnings after April 30, 1986, shall continue to be provided under this Plan in the same manner as the Prior Plan with respect to Participants who became Prior Plan Participants upon the merger of the Retirement Plan of Reliance Insurance Company (the "Reliance Predecessor Plan") into the Prior Plan. However, when Section 4.01(c)(1)(C) of this Plan is applied to determine such increases, final average monthly earnings shall be calculated as of April 30, 1989. The resulting benefit amount shall be multiplied times the ratio (not less than l(one)) of the Participant's final average monthly earnings at Severance from Service Date divided by final average monthly earnings at April 30, 1989. The Participant's final average monthly earnings shall be as defined in the Reliance Predecessor Plan as of April 30, 1989, and as of the Participant's Severance from Service Date. All other provisions pertaining to the pension benefit component of subsection (c)(l)(C) of Section 4.01 with respect to the Reliance Predecessor Plan shall be governed by Section 11.19 of the Prior Plan, except the vesting provisions of Section 4.05 of this Plan shall apply instead of the vesting provisions of Section 11.19 of the Prior Plan. Article XII also contains provisions applicable to the Reliance Predecessor Plan. -109- SECTION 11.07. INTERNATIONAL-HOUGH DIVISION. Subject to the further provisions of this Section 11.07, increases in a Participant's Accrued Benefit after the termination of the Prior Plan as of April 30, 1986 in subsection 4.01(c)(1)(C), which resulted from increases in a Participant's Final Average Monthly Earnings after April 30, 1986, shall continue to be provided under this Plan in the same manner as the Prior Plan with respect to Participants who became Prior Plan Participants upon the inclusion of former International Harvester employees in the Prior Plan when such employees became employees of the International-Hough Division or related operations on or after November 1, 1982, but prior to July 1, 1983. However, Section 4.01(c)(1) shall be applied to determine such increases. All other provisions pertaining to the coordination of pension benefits between this Plan and the Predecessor Plan for former International-Hough employees shall be governed by Section 11.13 of the Prior Plan, except the vesting provisions of Section 4.05 of this Plan shall apply instead of the vesting provisions of Section 11.13 of the Prior Plan. Article XII also contains provisions applicable to former International- Hough employees. SECTION 11.08. GALION: POWER TRANSMISSION: AND ELECTRA MOTORS SERVICE COORDINATION FROZEN AS OF 5/1/86. As of May 1, 1986, the combined 30-year limitation of Section 11.07 of the Prior Plan limiting credited service under the Consolidated Galion Salaried Employees Pension Plan (the "Galion Plan") and the Prior Plan shall be frozen such that "Credited Service" in the Prior Plan shall be fixed and remain constant at the number of years credited as of April 30, 1986. As of May 1, 1986, -110- the pension benefit for service prior to May 1, 1976, for each Participant whose benefit under the Galion Plan was merged into the Prior Plan as of the latter date shall be frozen as if such Participant's Severance from Service Date occurred on the former Date. The calculation of such benefit shall be in accordance with Section 11.07 of the Prior Plan. The accrued benefit with respect to the Galion Plan shall then be fixed and remain constant on or after May 1, 1986, based on the determination of the benefit as of April 30, 1986. With respect to the pension benefit component of subsection 4.01(c)(1)(C) and for purposes of the 35-year maximum on Credited Service for the pension benefit in Section 4.01, the number of years of "Credited Service" under the Prior Plan as of April 30, 1986, shall be the number of years of Credited Service completed by the Participant in the Prior Plan over the period from May 1, 1976, through April 30, 1986. As of May 1, 1986, the combined 30-year limitation of Section 11.18 of the Prior Plan limiting credited service under the Power Transmission Equipment Salaried Employees Pension Plan (the "Power Transmission Plan") and the Prior Plan shall be frozen such that "Credited Service" in the Prior Plan shall be fixed and remain constant at the number of years credited as of April 30, 1986. As of May 1, 1986, the pension benefit for service prior to May 1, 1976, for each Participant whose benefit under the Power Transmission Plan was merged into the Prior Plan as of the latter date shall be frozen as if such Participant's Severance from Service Date occurred on the former Date. The calculation of such benefit shall be in accordance with Section 11.18 of the Prior Plan. The accrued benefit with respect to the Power Transmission Plan shall then be fixed and remain constant on or after May 1, 1986, based on the determination of the benefit as of April 30, 1986. -111- With respect to the pension benefit component of subsection 4.01(c)(1)(C) and for purposes of the 35-year maximum on Credited Service for the pension benefit in Section 4.01, the number of years of "Credited Service" under the Prior Plan as of April 30, 1986, shall be the number of years of service credited to the Participant in the Prior Plan as of April 30, 1986. As of May 1, 1986, the combined 30-year limitation of Section 11.08 of the Prior Plan limiting Credited Service under the Electra such Participant's Severance from Service Date occurred on the former date. The calculation of such benefit shall be in accordance with Section 11.14 of the Prior Plan. The accrued benefit with respect to the Jeffrey Plan shall then be fixed and remain constant on and after May 1, 1986, based on the determination of such benefit as of April 30, 1986. With respect to the pension benefit component of subsection 4.01(c)(1)(C) and for purposes of the 35-year maximum on Credited Service for the pension benefit in Section 4.01, the number of years of "Credited Service" under the Prior Plan as of April 30, 1986, shall be the number of years of Credited Service completed by the Participant in the Prior Plan over the period from May 1, 1976, through April 30, 1986. SECTION 11.09. JEFFREY BENEFIT FROZEN AS OF 5/1/86. As of May 1, 1986, the pension benefit for service prior to May 1, 1976, for each Participant whose benefit under the Consolidated Jeffrey Salaried Employees Pension Plan (the "Jeffrey Plan") was merged into the Prior Plan as of the latter date shall be frozen as if such Participant's Severance from Service Date occurred on the former date. The calculation of such benefit shall be in accordance with Section 11.14 of the Prior Plan. The accrued benefit with respect to the Jeffrey Plan shall then be fixed and remain constant on and after May 1, 1986, based on the determination of such benefit as of April 30, 1986. -112- With respect to the pension benefit component of subsection 4.01(c)(1)(C) and for purposes of the 35-year maximum on Credited Service for the pension benefit in Section 4.01, the number of years of "Credited Service" under the Prior Plan as of April 30, 1986, shall be the number of years of Credited Service completed by the Participant in the Prior Plan over the period from May 1, 1976, through April 30, 1986. SECTION 11.10. PILOT RETIREMENT PROVISIONS. Effective May 1, 1989, benefits accrued, including any special early retirement factors, under this Plan for Participants who are employed by an Employer or the Company in a capacity which includes the ability to command an aircraft while in flight on or after May 1, 1986 and who have not had a Severance from Service Date as of May 1, 1989, shall be as determined in accordance with Article IV of this Plan without adjustment or recalculation, except as follows: Such benefits accrued shall be at least equal to the benefit determined as of April 30, 1989 for such Participants according to the following provisions describing the method to determine such April 30, 1989 benefits accrued: (a) A Participant who attains Age 60, who is employed by an Employer or the Company in a capacity which includes as part thereof, the duty to, the responsibility for, or the ability to assume, command of an aircraft while in flight and who elects to retire or who is retired by the Employer or Company by reason of a physical disability for which benefits are not payable under any long term disability plan maintained by the Employer or Company or by reason of a disqualification from the Company employment position requirements respecting the command of an aircraft shall be eligible for a monthly pension benefit computed as follows: -113- For each Participant a basic monthly pension equal to the amount specified in Section 4.01. Provided, however, that for purposes of determining Social Security Pension, such amount shall be determined in accordance with the provisions of Section 1.46 applicable to a Participant with a Severance from Service Date prior to attainment of Age 65 but without the assumption that compensation will continue until attainment of Age 65. Such monthly pension shall commence on the first day of the month coincident with or next following the date on which the Participant attains Age 60. In the case of a Participant who continues in employment with the Employer or Company after he attains Age 60, such Participant's monthly pension benefit shall be equal to the greater of (1) the monthly pension benefit computed above, which would have been payable if the Participant had retired at Age 60, or (2) the monthly pension benefit computed under Section 4.01 or Section 4.02 of the Plan, whichever is applicable, considering the Participant's Age and years of Credited Service at the time of actual retirement. (b) A Participant who attains at least Age 55 but prior to Age 60 and who, except for attaining Age 60, meets the eligibility requirements described in this Section 11.10, above, shall be eligible for a monthly pension benefit computed as follows: For each Participant, a basic monthly pension equal to the amount defined in Section 4.01 with the component of such benefit in respect of Credited Service prior to May 1, 1986 reduced by 1/4th of 1% for each full month by which he is less than Age 60 on his actual retirement date and the benefit component for Credited Service from May 1, 1986 through -114- April 30, 1989 reduced to an Actuarial Equivalent amount with such Actuarial Equivalent based on no reduction on or after Age 60. Provided, however, that for purposes of determining Social Security Pension, such amount shall be determined in accordance with the provisions of Section 1.46 applicable to Participant with a Severance from Service Date prior to attainment of Age 65 but assuming that compensation will continue until attainment of Age 60. Such monthly pension shall commence on the first day of the month coincident with or next following the Participant's actual retirement date. In the case of a Participant whose employment terminates and who retires after attaining Age 55 and prior to attaining Age 65 and a time when he was not employed in a capacity described in this Section 11.10, but was employed in such capacity at the time he attained Age 55, such Participant's monthly pension shall be equal to the greater of: (1) the monthly pension computed above, which would have been payable if the Participant had retired on the last date he was employed in such capacity, or (2) the monthly pension computed under Section 4.02 considering the Participant's Age and years of Credited Service at the time of actual retirement. (c) A Participant whose employment terminates prior to attaining Age 55 and at a time when he was employed in a capacity described in this Section 11.10, above, or who was not employed in such capacity on or after attaining Age 55, shall have his monthly pension, if any, determined under Article IV of the Plan and shall not be eligible for any benefits described in this Section. -115- SECTION 11.11. BAY STATE ABRASIVES. Section 11.03 of the Prior Plan provides the formula for determining the Accrued Benefit as of April 30, 1986 related to subsection (c)(l)(C) of Section 4.01 of this Plan. In subsection (a)(2) of Section 11.03 of the Prior Plan, a minimum monthly benefit is provided for each full year of credited service as defined in The Bay States Abrasives Restated Pension Plan (the "Predecessor Plan") as of June 30, 1974. For any active Participant or transferred Participant with frozen benefits in this Plan who is entitled to such minimum monthly benefits and who has an Hour of Service on or after November 1, 1987 and whose Severance from Service Date occurs on or after November 1, 1987, the minimum monthly benefit multiplier shall be $14.00. This $14.00 benefit multiplier so provided hereunder shall be included in the pension benefit component of subsection 4.01(c)(1)(C) and shall continue to be reduced as provided in subsection (d). All other provisions pertaining to the pension benefit component of subsection 4.01(c)(1)(C) with respect to Predecessor Plan participants shall be governed by Section 11.03 of the Prior Plan, except the vesting provisions of Section 4.05 of this Plan shall apply instead of the vesting provisions of Section 11.03 of the Prior SECTION 11.12. DRESSER-RAND COMPANY, ACQUISITION OF MACHINERY REPAIR DIVISION, BOSTON, MASSACHUSETTS. Following are provisions describing the benefits payable from the Plan for employees of the Dresser-Rand Company's (DR) Machinery Repair Division in Boston, Massachusetts, who accepted employment with the Company as of July 1, 1989. Any such employee who joined DR effective January 1, 1987 or a later date of transfer prior to July 1, 1989 with periods of Continuous Service with the Company prior to January 1, 1987 or a later date of direct transfer from the Company to DR, shall have such periods aggregated with periods of Continuous Service subsequent to July 1, 1989 for all purposes under this Plan. Section -116- 12.03 explains the benefits earned under this Plan for such periods of employment with the Company. Each such employee who accepted employment with the Company shall become an active Participant of this Plan as of July 1, 1989, subject to the eligibility provisions of Section 2.01. The benefits for each such Participant under this Plan for all periods of Credited Service shall be determined according to all terms of this Plan as amended effective May 1, 1989. Benefits provided in Section 12.03 shall no longer be applicable to such Participants. Benefits under this Plan shall be determined solely under this Section 11.12 and the applicable sections of Article IV. Employment with DR between January 1, 1987 and July 1, 1989 shall be counted as Continuous Service under this Plan but shall not be counted as Credited Service under this Plan. Continuous Service shall be counted toward Vesting Service which determines eligibility for retirement benefits, participation in the Plan and appropriate early retirement factors. SECTION 11.13. ACQUISITION OF NORRIS CITY OPERATION. Following are provisions describing the benefits payable from the Plan for Participants who are former employees of The Norris City Products Corporation, (NCPC), a subsidiary of Ajax Engineering Corporation, who accepted employment with the Predecessor Company as of March 1, 1990. Each such Employee became an active Participant of this Plan as of March 1, 1990, subject to the eligibility provisions of Section 2.01. The benefits for each such Participant under this Plan shall be based only on Credited Service after March 1, 1990 and shall be determined according to the terms of the DIICSR Plan as amended effective May 1, 1989 and only on the formula stated in Plan Sections 4.01(a), (b)(1), and (b)(2). Employment with NCPC shall be counted as Continuous Service under this Plan -117- but shall not be counted as Credited Service under this Plan. Continuous Service shall be counted toward Vesting Service which determines eligibility for retirement benefits and participation in the Plan. SECTION 11.14. ACQUISITION OF BAKER HUGHES TOOL DIAMOND PRODUCTS COMPANY. Following are provisions describing the benefits payable from the Plan for Participants who are former employees of the Baker Hughes Tool Diamond Products Company (BHTDPC) who accepted employment with the Predecessor Company as of August 1, 1990. Each such Employee became an active Participant of the DIISCR Plan as of August 1, 1990 subject to the eligibility provisions of Section 2.01. The benefits for each such Participant under this Plan shall be based only on Credited Service after August 1, 1990 and shall be determined solely according to the terms of this Plan only on the formula stated in Plan Sections 4.01 (a), (b)(1) and (b)(2). Employment with BHTDPC prior to August 1, 1990 shall be counted as Continuous Service under this Plan but shall not be counted as Credited Service under this Plan. Continuous Service shall be counted toward Vesting Service which determines eligibility for retirement benefits and participation in the Plan. SECTION 11.15. EARLY RETIREMENT FACTORS FOR PREDECESSOR PLAN BENEFIT COMPONENTS. The early retirement factors for Predecessor Plan Participants whose Predecessor Plan benefits are determined under Section 4.02 shall be determined from subparagraph (a) below. Early retirement factors for Participants for benefits which are based on Section 4.05 shall be determined from subparagraph (b) below. -118- (a) The applicable pension benefit component of subsection 4.01(c)(1)(C) shall be reduced by multiplying such component by the applicable early retirement factor in the event that the Participant's Severance from Service Date occurs after Age 55 and such benefits commence prior to the Participant's Normal Retirement Date. Such factors shall be applied in accordance with the respective section of Article XI of the Prior Plan. The following Table A provides a summary of the factors. The Table A shall be a summary only. The specific provisions that govern determination of benefits shall be the respective section of Article XI of the Prior Plan. (b) The applicable pension benefit component of Section 4.01 (c)(l)(C) shall be reduced by multiplying such component by the applicable early retirement factor in the event that the Participant's Severance from Service Date occurs before the Participant's Age 55. These factors shall be applied in accordance with the respective section of Article XI of the Prior Plan. The following Table B provides a summary of the factors. The Table B shall be a summary only. The specific provisions that govern determination of benefits shall be the respective section of Article XI of the Prior Plan. TABLE A
Age at Commencement of Benefits A B C D E F G H I J K - ------------------------------------------------------------------------------------------------------------------------ 55 .5000 .5000 .5000 .7900 .4310 .5500 .6500 .4641 .4000 .6000 .3333 56 .5333 .5330 .5333 .820 .4720 .5800 .7000 .4973 .4600 .6400 .4000 57 .5667 .5670 .5667 .8500 .5160 .6100 .7500 .5336 .5200 .6800 .4667 58 .6000 .6000 .6000 .8800 .5580 .6400 .8000 .5735 .5800 .7200 .5333 59 .6333 .6330 .6400 .9100 .6000 .6700 .8500 .6173 .6400 .7600 .6000 60 .6667 .6670 .7000 .9400 .6460 .7000 .9000 .8500 .7000 .8000 .6667 61 .7333 .7330 .7600 .9700 .7180 .7600 .9200 .8800 .7600 .8400 .7333 62 .8000 .8000 .8200 1.0000 .7900 .8200 .9400 .9100 .8200 .8800 .8000 63 .8667 .8670 .8800 1.0000 .8620 .8800 .9600 .9400 .8800 .9200 .8667 64 .9333 .9330 .9400 1.0000 .9340 .9400 .9800 .9700 .9400 .9600 .9333 65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
-119- The above factor sets shall apply to the respective Predecessor Plan as follows: SET PREDECESSOR PLAN (S) - -------------------------------------------------------------------------------- A MIC/MMIC Employees (Turbodyne, Electric Machinery, Worthington Pump & Compressor & Masoneilan, and Service Division) B Marion Power Shovel C Bay States Abrasives D International-Hough (offset to Prior Plan benefit if retirement eligible and satisfied the age requirement at acquisition date) E International-Hough (offset to Prior Plan benefit if not retirement eligible or did not meet age requirement at acquisition date) F Reliance Insurance Company, other than rule of 85 G Reliance Insurance Company rule of 85 H Waukesha I Turbodyne (Wellsville) J B&W (less than 15 years service or does not meet rule of 75, factor is 1.0 if both requirements are met) K Electric Machinery; Worthington Pump and Compressor; Masoneilan Division; McGraw Edison Service Division -120- TABLE B
Age at Commencement of Benefits A B C D E F - ---------------------------------------------------------------------- 55 .4199 .5000 .5000 .4310 .4000 .3333 56 .4538 .5333 .5330 .4720 .4600 .4000 57 .4912 .5667 .5670 .5160 .5200 .4667 58 .5327 .6000 .6000 .5580 .5800 .5333 59 .5788 .6333 .6330 .6000 .6400 .6000 60 .6302 .6667 .6670 .6460 .7000 .6667 61 .6877 .7333 .7330 .7180 .7600 .7333 62 .7522 .8000 .8000 .7900 .8200 .8000 63 .8248 .8667 .8670 .8620 .8800 .8667 64 .9069 .9333 .9330 .9340 .9400 .9333 65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
The above factor sets shall apply to the respective Predecessor Plan as follows: SET PREDECESSOR PLAN (S) - -------------------------------------------------------------------------------- A Bay State Abrasives, Reliance Insurance Company, B&W, and Waukesha B MIC/MMIC Employees (Turbodyne, Electric Machinery, Worthington Pump & Compressor & Masonelian, and Service Division) C Marion Power Shovel D International-Hough (offset to Prior Plan benefit) E Turbodyne (Wellsville) F Electric Machinery; Worthington Pump and Compressor; Masoneilan Division; McGraw Edison Service Division -121- ARTICLE XII - JOINT VENTURES AND SALES SECTION 12.01. IDECO JOINT VENTURE. Increases in a Participant's accrued benefit under the Prior Plan that would have taken place after the termination of the Prior Plan as of April 30, 1986 in accordance with subsection 11.29(b)(3)(B) of the Prior Plan had the Prior Plan not terminated shall be provided under this Plan with respect to Participants who became "Eligible Retained Employees" as defined in Section 11.29 of the Prior Plan upon the incorporation of IRI International Corporation by Ingersoll-Rand Company and the Company pursuant to the Stockholder Agreement among Ingersoll-Rand Company, Ingersoll-Rand Oilfield Products Company, and the Company dated as of July 30, 1985. There shall be no benefits under Section 4.01 of this Plan for such Participants. An Eligible Retained Employees' benefits under this Plan and the Prior Plan shall be determined solely by reference to this Section 12.01 and Section 11.29 of the Prior Plan. Further provided that for the purposes of calculating the increases in a Participant's accrued benefit that shall be payable under this Plan, (i) "Average Annual Compensation" and "Compensation" shall be as defined in Section 11.29 of the Prior Plan, Social Security Pension shall be as defined in Section 1.46 of this Plan. Average Annual Compensation and the Social Security Pension shall be calculated as of April 30, 1989 and the formula in subsection 11.29(b)(3)(B) of the Prior Plan shall be applied. The resulting benefit amount shall be multiplied times the ratio (not less than l(one)) of the Participant's Average Annual Compensation at Severance from Service Date divided by the Participant's Average Annual -122- Compensation at April 30, 1989. In application of this formula as of April 30, 1989, the maximum offset allowed for the Social Security Pension shall be 50% of the Participant's benefit based solely on his Average Annual Compensation (ii) when calculating the benefit in accordance with subsection 11.29(b)(3)(A) of the Prior Plan, the sum of the benefit amount as determined (i) under the vesting schedule provisions of Section 4.05 of this Plan plus (ii) the vested benefit provided by the Prior Plan, and when calculating the benefit in accordance with subsection 11.29(b)(3)(B) of the Prior Plan, the benefit amount shall be the vested benefit amount based on 100% vesting after completion of ten (10) years of Vesting Service as defined in Section 11.29 of the Prior Plan. Effective May 1, 1989 for Participants who complete an Hour of Service on or after May 1, 1989, the 10 years is reduced to five (5) years. Notwithstanding any other provision of the plan, the accrued benefit of any Participant who was an "Eligible Retained Employee" as defined in Section 11.29 of the Prior Plan shall be frozen effective January 1, 1995. Provided, further, that any such Participant shall have his Continuous Service under the Plan frozen on January 1, 1995 and shall not be eligible to receive benefits from this Plan until such Participant terminates employment with IRI International, Inc., or any successor thereof. SECTION 12.02. M-I DRILLING FLUIDS CO. Following are provisions describing the benefits payable from the Plan for Employees of the Company as of December 11, 1986 who become employees of the M-I Drilling Fluids Co. ("M-I") on December 12, 1986, or thereafter, pursuant to the Organizational Agreement between the Company -123- and Halliburton Company which established the M-I Drilling Fluids Co., effective December 12, 1986. M-I is a general partnership organized under the laws of the State of Texas. Each formerly active Plan Participant shall be considered an inactive Plan Participant and the benefit amount payable from the Plan shall be computed according to the provisions of the appropriate Section of Article IV as in effect on January 1, 1987 in the case of a Plan Participant who transfers employment directly from the Company to M-I before January 1, 1987, considering the date of transfer as the Severance from Service Date for the purpose of computing Credited Service, but considering December 31, 1986 as the date of transfer for the purpose of measuring Final Average Monthly Earnings. For any Plan Participant who transfers employment directly from the Company to M-I after December 31, 1986, the date of such transfer shall be considered the Severance from Service Date for purposes of computing Credited Service and Final Average Monthly Earnings in Article IV. Provided, further, that each such former Employee's service with M-I commencing on such Employee's first day of employment with M-I shall be counted as Continuous Service under this Plan for the purpose of determining Vesting Service (which determines eligibility for retirement benefits) and eligibility for Plan participation and no participant shall be eligible to commence benefits under this Plan until such participant terminates employment with M-I, or any successor thereof. For those transferred Plan Participants who transfer on and after December 12, 1986 but not later than April 1, 1987 and whose combined age and Vesting Service as of December 12, 1986 equals or exceeds seventy-five (75), an additional benefit shall be payable from this Plan based on Credited Service accrued as of December 11, 1986. This -124- benefit shall be called the "75 Benefit". The amount of the 75 Benefit shall be the excess of (ii) over (i) as follows: (i) the benefit accrued as of December 31, 1986 under this Plan, utilizing Compensation prior to January 1, 1987 for purposes of computing Final Average Monthly Earnings and the Social Security Pension (ii) the benefit accrued as of December 31, 1986 under this Plan considering compensation (as defined in Section 1.12 of this Plan) with M-I on and after December 31, 1986 and up to April 30, 1989 to be Plan Compensation, plus, where necessary, Plan Compensation prior to January 1, 1987 for purposes of computing Final Average Monthly Earnings and the Social Security Pension. For any Participant to whom this 75 Benefit applies, the provisions of subsection (c)(l) of Section 4.01 of this Plan shall apply to the calculation in subparagraph (ii) above. The adjustments to the monthly Social Security Pension offsets in Section 4.01(c)(1)(A) and (B) shall apply. The adjustments shall also apply to the calculation of the benefit amount stated in the second paragraph of this Section 12.02 for Participants who are covered by this 75 Benefit. This 75 Benefit shall be vested in the manner prescribed in Section 4.05 for all other benefits payable from this Plan. The respective last paragraphs of Sections 4.01 and 4.02 shall apply to the benefit determined under this Section 12.02. SECTION 12.03. DRESSER-RAND COMPANY. Following are provisions describing the benefits payable from the Plan for Employees of the Company as of December 31, 1986 who became employees of the Dresser-Rand Company ("DR") on January 1, 1987, pursuant to the Organizational Agreement between the Company and -125- Ingersoll-Rand which established the Dresser-Rand Company effective January 1, 1987. DR is a general partnership organized under the laws of the State of New York. Each formerly active Plan Participant shall be considered an inactive Plan Participant and the benefit amount payable from the Plan shall be computed according to the provisions of the appropriate Section of Article IV as in effect on January 1, 1987 but considering December 31, 1986 as the Severance from Service Date for the purpose of computing Credited Service and Final Average Monthly Earnings. For any Plan Participant who transfers employment directly from the Company to DR after January 1, 1987, the date of such transfer shall be considered the Severance from Service Date for purposes of computing Credited Service and Final Average Monthly Earnings in Article IV. Provided, further, that each such former Employee's service with DR commencing on such Employee's first day of employment with DR shall be counted as Continuous Service under this Plan for the purpose of determining Vesting Service (which determines eligibility for retirement benefits) and eligibility for Plan participation and no participant shall be eligible to commence benefits under this Plan until such participant terminates employment with DR, or any successor thereof. For any Plan Participant who has a Retirement Date prior to April 1, 1987 but who has transferred employment to DR effective January 1, 1987, the retirement benefit (including benefits accrued from January 1, 1987 to Retirement Date, or March 31, 1987, if later) shall be paid from this Plan. However, the benefit accruals from January 1, 1987 to Retirement Date (with no accruals after March 31, 1987) shall be computed according to the benefit formula in accordance with provisions of this Plan. The plan established by DR for salaried employees shall transfer, as soon as practicable, to this Plan an aggregate single sum present value of the benefits accrued -126- from January 1, 1987 through the respective Retirement Dates for such retired participants calculated using the principles of Financial Accounting Standards Board Statement 87 and calculated in the same manner and under the same actuarial assumptions as provided in the latest applicable valuation report for the Plan with an interest rate of 8.75% per annum. The transfer of assets and liabilities provided above shall be subject to the provisions of Plan Section 10.08. SECTION 12.04. KONGSBERG DRESSER POWER. INC. Effective June 21, 1985, certain Employees of the Company who were Participants in the Dresser Industries, Inc. Retirement Income Plan Under ERISA (the "Prior Plan") were transferred to employment with Kongsberg Dresser Power, Inc. Each active Employee of the Company who was covered by the Prior Plan and who on or after June 21, 1985 was transferred to covered employment with Kongsberg Dresser Power, Inc. continued to be an "Employee" as defined in Section 1.16 of the Prior Plan and continued to be an active Participant in the Prior Plan. Each such Employee continued to accrue Continuous Service and Credited Service according to the provisions of the Prior Plan with respect to service with Kongsberg Dresser Power, Inc. Compensation from Kongsberg Dresser Power, Inc. was considered Plan Compensation in the Prior Plan, and each such Employee continued to make contributions to the Prior Plan in accordance with Section 3.01 of the Prior Plan. When the Prior Plan was terminated as of April 30, 1986, Employees who were Participants of the Prior Plan automatically became Participants of this Plan effective May 1, 1986 if such Participants met the other requirements of Section 2.01. Effective -127- January 1, 1987, Employees of Kongsberg Dresser Power, Inc. became employees of the Dresser-Rand Company (DR) pursuant to the Organizational Agreement between the Company and Ingersoll-Rand which established the Dresser-Rand Company, effective January 1, 1987. At that time, Kongsberg Employees who were Plan Participants were allowed a one-time option to participate in the defined contribution plan sponsored by Kongsberg Dresser Power, Inc. or to participate in the plan established by DR for salaried employees. For those Employees who elected to participate in such DR Plan, the provisions of Section 12.02 shall apply. SECTION 12.05. WESTERN ATLAS. Following are provisions describing the benefits payable from the Plan for Employees of the Company as of April 30, 1987 who become employees of Western Atlas International, Inc. ("W-A") on May 1, 1987, or thereafter, pursuant to the Amalgamation Agreement between the Company and Litton Industries, Inc. which established Western Atlas, Inc., effective May 1, 1987. Each formerly active Plan Participant shall be considered an inactive Plan Participant and the benefit amount payable from the Plan shall be computed according to the provisions of the appropriate Section of Article IV as in effect on April 30, 1987 in the case of a Plan Participant who transfers employment directly from the Company to W-A on May 1, 1987 considering the date of transfer as the Severance from Service Date for purposes of computing Credited Service and Final Average Monthly Earnings. For any Plan Participant who transfers employment directly from the Company to W-A after May 1, 1987, the date of such transfer shall be considered the Severance from Service Date for purposes of computing Credited Service and Final Average Monthly Earnings in Article IV. Provided, further, that each such former Employee's service with W-A commencing on such Employee's first day of employment with W-A shall be counted as Continuous Service under this Plan for the purpose of determining Vesting -128- Service (which determines eligibility for Plan participation, eligibility for retirement benefits, and eligibility for appropriate early retirement reduction factors), and no inactive Plan Participant shall be eligible to commence benefits under this Plan until such inactive Plan Participant terminates employment with W-A, or any successor thereof. For those transferred Plan Participants who transfer on May 1, 1987 and whose combined age and service as of May 1, 1987 equals or exceeds seventy-five (75), an additional benefit shall be payable from this Plan based on Credited Service accrued as of April 30, 1987. This benefit shall be called the "75 Benefit". The amount of the 75 Benefit shall be the excess of (ii) over (i) as follows: (i) the benefit accrued as of April 30, 1987 under this Plan, utilizing Compensation prior to May 1, 1987 for purposes of computing Final Average Monthly Earnings and the Social Security Pension; (ii) the benefit accrued as of April 30, 1987 under this Plan considering compensation (as defined in Section 1.12 of this Plan) with W-A on and after April 30, 1987 and up to April 30, 1989 to be Plan Compensation for purposes of computing Final Average Monthly Earnings and the Social Security Pension. For any Participant to whom this 75 Benefit applies, the provisions of subsection (c)(1) of Section 4.01 of this Plan shall apply to the calculation in subparagraph (ii) above. The adjustments to the monthly Social Security Pension offsets in Section 4.01(c)(1)(A) and (B) shall apply. The adjustments shall also apply to the calculation of the benefit amount stated in the second paragraph of this Section 12.05 for Participants who are covered by this 75 Benefit. This 75 Benefit shall be vested in the manner -129- prescribed in Section 4.05 for all other benefits payable from this Plan. The respective last paragraphs of Sections 4.01 and 4.02 shall apply to the benefit determined under this Section 12.05. SECTION 12.06. SWACO GEOLOGRAPH. Following are provisions describing the benefits payable from the Plan for Employees of the Company as of August 31, 1987 who became employees of the SWACO Geolograph Company (SGC) on September 1, 1987, pursuant to the Organization Agreement between the Company and Geolograph- Pioneer, Inc. which established the SWACO Geolograph Company effective September 1, 1987. SGC was a general partnership organized under the laws of the State of Texas. Each formerly active Plan Participant shall be considered an inactive Plan Participant and the benefit amount payable from the Plan shall be computed according to the provisions of the appropriate Section of Article IV as in effect on August 31, 1987 in the case of a Plan Participant who transferred employment directly from the Company to SGC on September 1, 1987, considering August 31, 1987 as the Severance from Service Date for the purpose of computing Credited Service in Article IV. Final Average Monthly Earnings shall consider earnings with SGC through December 31, 1987, for purposes of Article IV. For any Plan Participant who transferred employment directly from the Company to SGC after September 1, 1987, and before November 1, 1989 the date of such transfer shall be considered the Severance from Service Date for purposes of computing Credited Service and Final Average Monthly Earnings in Article IV. Provided, further, that each such former Employee's service with SGC commencing on such Employee's first day of employment with SGC shall be counted as Continuous Service under this Plan for the purpose of determining Vesting Service (which determines eligibility for Plan participation, eligibility for retirement benefits, and -130- eligibility for appropriate early retirement reduction factors), and no inactive Plan Participant shall be eligible to commence benefits under this Plan until such inactive Plan Participant terminates employment with SGC, or any successor thereof. For those transferred Plan Participants who transferred on September 1, 1987, whose severance from service from SGC occurs on or after the 61st day following August 31, 1987, and whose combined age and Vesting Service as of September 1, 1987 equaled or exceeded seventy-five (75), an additional benefit shall be payable from this Plan based on Credited Service accrued as of August 31, 1987. This benefit shall be called the "75 Benefit". The amount of the 75 Benefit shall be the excess of (ii) over (i) as follows: (i) the benefit accrued as of August 31, 1987 provided in accordance with the paragraph immediately preceding; (ii) the benefit accrued as of August 31, 1987 under this Plan considering compensation (as defined in Section 1.12 of this Plan) with SGC on and after September 1, 1987 and up to April 30, 1989 to be Plan Compensation for purposes of computing Final Average Monthly Earnings and the Social Security Pension. For any Participant to whom this 75 Benefit applies, the provisions of subsection (c)(1) of section 4.01 of this Plan shall apply to the calculation in subparagraph (ii) above. The adjustments to the monthly Social Security offsets in Section 4.01(c)(1)(A) and (B) shall apply. The adjustments shall also apply to the calculation of the benefit amount stated in the second paragraph of this Section 12.06 for Participants who are covered by this 75 Benefit. This 75 Benefit shall be vested in the manner prescribed in -131- Section 4.05 for all other benefits payable from this Plan. The respective last paragraphs of Sections 4.01 and 4.02 shall apply to the benefit determined under this Section 12.06. Effective November 1, 1989, the Company acquired SGC and all employees of SGC became Employees of the Company. The SWACO Division of the Company was formed. Each employee of SGC as of October 31, 1989 became an active Plan Participant of this Plan, subject to the eligibility provisions of Section 2.01. The benefits for each such Participant under this Plan for any Credited Service attributable to Periods of Service from November 1, 1989 to May 7, 1990 shall be determined according to all terms of this Plan as amended effective May 1, 1989. Employment from September 1, 1987 through October 31, 1989 with SGC shall be counted as Continuous Service under this Plan but shall not be counted as Credited Service under this Plan. Effective May 7, 1990, for all pension purposes, employees of the SWACO Division of the Company became employees of M-I (as defined in Section 12.02) on May 7, 1990 pursuant to the Organization Agreement between the Company and Halliburton Company effective May 1, 1990. As of May 7, 1990, each formerly active Plan Participant is considered an inactive Plan Participant and the benefit amount payable shall be computed according to the provisions of the appropriate Section of Article IV as in effect on May 7, 1990 in the case of a Plan Participant who transfers employment directly from the Company to M-I on May 7, 1990, considering May 7, 1990 as the Severance from Service Date for the purpose of computing Credited Service in Article IV. Final Average Monthly Earnings shall consider earnings with the Company through May 7, 1990, for purposes of Article IV. For any Plan Participant who transfers employment directly from the Company to M-I after May 7, 1990, the date of such transfer shall be considered the Severance from -132- Service Date for purposes of computing Credited Service and Final Average Monthly Earnings in Article IV. Provided, further, that each such former Employee's service with M-I commencing on such Employee's first day of employment with M-I shall be counted as Continuous Service under this Plan for the purpose of determining Vesting Service (which determines eligibility for Plan participation, eligibility for retirement benefits, and eligibility for appropriate early retirement reduction factors), and no inactive Plan Participant shall be eligible to commence benefits under this Plan until such inactive Plan Participant terminates employment with M-I, or any successor thereof. The 75 Benefit of this Section 12.06 shall continue to apply to Participants originally covered by it on September 1, 1987, with respect to their service to that date. SECTION 12.07. B-J TITAN. As of April 1, 1985, the BJ-Titan Services Company ("BJ-Titan") was established. Section 11.27 of the Prior Plan contains provisions describing the benefits payable from the Prior Plan for former employees of the Company as of March 31, 1985 who became employees of BJ-Titan on April 1, 1985, or thereafter, pursuant to a business venture agreement between the Company and Hughes Tool Company ("Hughes") and certain Hughes affiliates. B-J Titan was organized as a general partnership under the laws of the State of Texas. Between April 1, 1985, and July 21, 1988 employees who were transferred both to and from BJ-Titan by the Company and Hughes and certain Hughes' affiliates, in accordance with the written agreement between BJ-Titan, the Company and Hughes, shall be credited for vesting and retirement plan eligibility purposes with all service with each employer as if each employer was a member of the same controlled group. Therefore, for any Employee or former Employee who was directly transferred to B-J Titan from the Company or Hughes (or the affiliates of either), or directly from B-J Titan -133- to the Company or Hughes (or the affiliates of either) between April 1, 1985, and July 21, 1988 service with B-J Titan, Hughes, or the affiliates of either shall be counted as Continuous Service under this Plan and the Prior Plan for the purpose of determining Vesting Service (which determines eligibility for Plan participation, eligibility for retirement benefits, and eligibility for appropriate early retirement reduction factors). No such former Employee shall be eligible to commence any benefits under this Plan until such former Employee terminates employment with B-J Titan, the Company, Hughes, or their affiliates, or any successor thereof. On July 21, 1988, B-J Titan became a part of Baker Hughes. The respective employees who were accruing vesting and retirement plan eligibility service with B-J Titan immediately before July 21, 1988 shall continue to accrue such service under this Section 12.07 as Baker Hughes employees. SECTION 12.08. DRESSER LEASING SALE. Following are provisions describing the benefits payable from the Plan for Employees of the Company as of October 31, 1987 who accepted employment with the Sovran Financial Corporation (the "Buyer") on November 1, 1987 pursuant to the August 13, 1987 Agreement between the Company and the Buyer, effective November 1, 1987. The Buyer is a Virginia Corporation. Each former Employee who accepts such employment shall be referred to as a Transferred Employee. For a Transferred Employee, October 31, 1987 shall be considered the Severance from Service Date for the purpose of computing Credited Service, Final Average Monthly Earnings and the Social Security Pension and, hence, determining the Accrued Benefit as of October 31, 1987, under the Plan under the terms of the Plan as in effect on October 31, 1987. Provided, further, that each such former -134- Employee's service with the Buyer commencing on such Employee's first day of employment with the Buyer shall be counted as Continuous Service under this Plan for the purpose of determining Vesting Service (which determines eligibility for retirement benefits, determination of early retirement factors, and eligibility for Plan participation) and no such Participant shall be eligible to commence benefits under this Plan until such Participant terminates employment with Sovran Financial Corporation, or any successor thereof. SECTION 12.09. RELIANCE STANDARD LIFE. Following are provisions describing the benefits payable from the Plan for Employees of the Company as of November 6, 1987 who accepted employment with the RSL Holding Company, Inc. (the "Buyer") on November 7, 1987 pursuant to the May 29, 1987 Agreement between the Company and the Buyer, effective November 7, 1987. The Buyer is a Delaware Corporation. Each former Employee who accepts such employment shall be referred to as a Transferred Employee. For a Transferred Employee, November 6, 1987 shall be considered the Severance from Service Date for the purpose of computing Credited Service, Final Average Monthly Earnings and the Social Security Pension and, hence, determining the Accrued Benefit as of November 6, 1987 under the Plan under the terms of the Plan as in effect on November 6, 1987. Provided, further, that each such former Employee's service with the Buyer commencing on such Employee's first day of employment with the Buyer shall be counted as Continuous Service under this Plan for the purpose of determining Vesting Service (which determines eligibility for retirement benefits, determination of early retirement factors, and eligibility for Plan participation) and no such Participant shall be eligible to commence benefits under this Plan until such -135- Participant terminates employment with RSL Holding Company, Inc., or any successor thereof. SECTION 12.10. BAY STATE ABRASIVES/GENERAL ABRASIVE DIVESTITURE. Following are provisions describing the benefits payable from the Plan for Employees of the Company as of June 30, 1988 who accept employment with Abrasive Industries Inc. (the "Buyer") as of July 1, 1988 pursuant to the May 20, 1988 Agreement between the Company and the Buyer, effective July 1, 1988. Each Employee of the Company as of June 30, 1988 who accepts such employment shall be a "Transferred Participant". For a Transferred Participant, June 30, 1988 shall be considered the Severance from Service Date for the purpose of computing Credited Service, Final Average Monthly Earnings and the Social Security Pension and, hence, determining the Accrued Benefit as of June 30, 1988 under the Plan under the terms of the Plan as then in effect. Provided, further, that each such Transferred Participant's service with the Buyer commencing on such Participant's first day of employment with the Buyer shall be counted as Continuous Service under this Plan for the purpose of determining Vesting Service (which determines eligibility for retirement benefits, determination of early retirement factors, and eligibility for Plan participation) and no such Participant shall be eligible to receive benefits under this Plan until such Participant terminates employment with Abrasive Industries Inc., or any successor thereof. SECTION 12.11. KOMATSU DRESSER COMPANY. Following are provisions describing the benefits payable from the Plan for Employees of the Company as of August 31, 1988 who became employees of Komatsu Dresser Company ("KDC") on September 1, 1988 or thereafter, pursuant to the Joint Venture Agreement between -136- Dresser Finance Corporation and Komatsu America Corp. which established the Komatsu Company effective September 1, 1988. KDC is a general partnership organized under the laws of the State of Illinois. Each formerly active Plan Participant shall be considered an inactive Plan Participant and the benefit amount payable from the Plan shall be computed according to the provisions of the appropriate Section of Article IV as in effect on August 31, 1988 in the case of a Plan Participant who transfers employment directly from the Company to KDC on September 1, 1988, but considering August 31, 1988 as the Severance from Service Date for the purpose of computing Credited Service, Final Average Monthly Earnings and the Social Security Pension and, hence, determining the Accrued Benefit as of August 31, 1988 under the Plan. For any Plan Participant who transfers employment directly from the Company to KDC after September 1, 1988, the date of such transfer shall be considered the Severance from Service Date for purposes of computing Credited Service, Final Average Monthly Earnings and the Social Security Pension, and hence, determining the Accrued Benefit as of the date of transfer from the Plan. Provided, further, that each such former Employee's service with KDC commencing on such Employee's first day of employment with KDC shall be counted as Continuous Service under this Plan for the purpose of determining Vesting Service (which determines eligibility for retirement benefits, Plan participation and appropriate early retirement factors) and no such Participant shall be eligible to receive benefits under this Plan until such Participant terminates employment with KDC, or any successor thereof. Further provided, the early retirement factors applied to the Accrued Benefit as of the date of transfer, when such Accrued Benefit is paid, shall not be less than the appropriate factors in the Plan as in effect on such date of transfer. -137- For authorized leaves of absence from KDC that occur prior to December 1, 1991, the provisions of Section 1.45(a)(6) of this Plan shall be applicable for purpose of determining the Participant's Vesting Service as if such authorized leave of absence had been from the Company. If such authorized leave of absence from KDC exceeds one year, the monthly retirement income benefit shall be subject to the provisions of Section 4.05 at the expiration of such authorized leave of absence. SECTION 12.12. LEROI SALE. Following are provisions describing the benefits payable from the Plan for Employees of the Company as of October 10, 1991 who became employees of Compressor Technologies, Inc. ("CTI") on October 11, 1991 pursuant to the October 11, 1991 sale agreement between Dresser Industries, Inc. and CTI. Each formerly active Plan Participant shall be considered an inactive Plan Participant and the benefit amount payable from the Plan shall be computed according to the provisions of the appropriate Section of Article IV as in effect on October 10, 1991 in the case of a Plan Participant who accepts employment with CTI on October 11, 1991, but considering October 10, 1991 as the Severance from Service Date for the purpose of computing Credited Service, Final Average Monthly Earnings and the Covered Compensation and, hence, determining the Accrued Benefit as of October 10, 1991 under the Plan. Provided, further, that each such former Employee's service with CTI commencing on such Employee's first day of employment with CTI shall be counted as Continuous Service under this Plan for the purpose of determining Vesting Service (which determines eligibility for retirement benefits, Plan participation and appropriate early retirement factors) and no such Participant shall be eligible to receive benefits -138- under this Plan until such Participant terminates employment with CTI, or any successor thereof. SECTION 12.13. ENVIRONMENTAL PRODUCTS SALE. Following are provisions describing the benefits payable from the Plan for Employees of the Company as of August 31, 1994, who became employees of BEC Finance Corporation ("BEC") on September 1, 1994. Each formerly active Plan Participant shall be considered an inactive Plan Participant and the benefit amount payable from the Plan shall be computed according to the provisions of the appropriate Section of Article IV as in effect on August 31, 1994 in the case of a Plan Participant who accepts employment with BEC on September 1, 1994, but considering August 31, 1994 as the Severance from Service Date for the purpose of computing Continuous Service, Credited Service, Final Average Monthly Earnings and the Covered Compensation and, hence, determining the Accrued Benefit as of August 31, 1994 under the Plan. Provided, further, that such Participant shall not be eligible to receive benefits under this Plan until such Participant terminates employment with BEC, or any successor thereof. -139- EXHIBIT A LIST OF CURRENT EMPLOYER CORPORATIONS UNDER SECTION 7.01 (As of May 1, 1994) Dresser Industries, Inc. -140- EX-10.26 3 EXHIBIT 10.26 EXHIBIT 10.26 M. W. KELLOGG EXECUTIVE BENEFITS PROGRAM PLAN PURPOSE The Company recognized that certain benefits and perquisites, not currently provided to a broad group of employees, should be made available to selected key executives by means of a flexible perquisite program. The purposes of this program are to: - Provide unique and competitive perquisites to program participants. - Permit a certain amount of individual preference in the selection of these perquisites. - Limit the perquisites to those generally related to business. - Provide the perquisites in a tax-effective and cost effective manner. - Provide a basis group of perquisites that is sufficiently comprehensive so that a reasonable level of personal security is provided. The executive can, therefore, focus on his business responsibilities rather than be distracted by personal financial concerns. PLAN CONCEPT The overall perquisite program consists of two separate and distinct perquisite lists; a basic (non-choice) list and an optional (choice-related) list. The basic list consists of the perquisites which the company would like to provide to all plan participants. Under the choice list, participants have the opportunity to choose, within specified limits, among a predetermined set of available perquisites. Each participant will be assigned an individual flexible perquisite account which may be used to select choice-related perquisites. At the beginning of each plan year (January 1), each flexible perquisite account will be credited with an amount equal to a specified percent of the participant's base salary in effect at the beginning of the plan year. CHOICE RELATED In addition to basic (non-choice) perquisites, executive may choose from among certain perquisites which are, by their nature, included in the participant's personal taxable income. The amounts in a participant's flexible perquisite account actually expended during a year will be included by the company in reporting taxable income for the participant. - INDIVIDUAL INCOME TAX PREPARATION AND FINANCIAL COUNSELING Description: : The Company will reimburse the participant for the cost of securing professional assistance in the review and planning of his/her personal financial planning services which may include: - Estate planning - Preparation of wills and trusts, - Investment counseling, - Financial seminars, - Tax planning, - Preparation of tax returns The full cost of these services is charged against the participant's flexible perquisite account. Tax Consequences : Employee : The total financial and tax counseling fees are includable in the executive's gross income. However some of these fees may be deductible by the executive. DATE ADDRESS Dear: The M. W. Kellogg Company has adopted an executive perquisite plan which is extended to key executives. I am pleased to inform you that you will be a participant in this program, and the attached position paper should summarize the plan highlights for you. Briefly, the plan consists of two sets of benefits - a basic program which applies to all participant, and an optional program which may be tailored to fit you individual needs. The basic benefits program consists of the following items and generally represents non-taxable perquisites to the executive: - Insured excess Medical Executive Reimbursement Plan (MERP) - see attached booklet. This coverage includes reimbursement for your annual executive physical. - Supplemental long-term disability - Business luncheon club or athletic club membership - International first-class air travel The optional program of perquisites may be "purchased" with flexible perquisite dollars which amount to four (4) percent of your base salary. To the extent that you spend these perquisite dollars, they become taxable income to you, although it is obvious that there is more leverage in perquisite dollars than there is in ordinary income. Perquisite dollars in addition to your base salary, and you may "shop" among the following items: - Individual income tax preparation & financial counseling - Personal liability insurance - Supplemental life insurance - Educational aid for dependent children Accounting for these procedures will be done via a modified expense procedure. Attached is a copy of the form which should be used to submit expenses to my office for approval. The financial department will accumulate your expenditures and report them as income on your W-2 . You need to coordinate the provisions of this program with your elections under Flexplan, and questions should be directed to my office. This plan supersedes any executive medical and life coverages previously provided. D. L. Bartlett Attachments EX-21 4 EXHIBIT 21 EXHIBIT 21. PARENTS AND SUBSIDIARIES There is furnished a list of subsidiaries of Dresser Industries, Inc. as of October 31, 1994. See Note (a).
% of Voting State or Other Securities Sovereign Power owned by Under the Laws of Immediate Name Which Organized Parent - ---------------------------------------------- ------------------- ----------- AVA Italiana S.r.L. Italy 100% AVA Norway A/S Norway 100% AVA S.A.R.L. France 100% Baroid Corporation Delaware 100% Baroid Drilling Fluids, Inc. Delaware 100% American Thai Barite Limited Thailand 100% Atlantic Minerals and Products Corporation Florida 100% Sperry Sun International, Inc. Delaware 78.26% (2) Grape Holding B.V. Netherlands 100% NL do Brazil Ltda. Brazil 100% Sperry Sun Drilling Services (Cyprus) Ltd. Cyprus 100% Sperry-Sun Saudia Company Limited Saudi Arabia 75% (1) Baroid Industrial Minerals, Inc. Delaware 100% Bentonite Corporation Delaware 100% Petrotech Environmental Services, Inc. Delaware 100% Baroid Drilling Chemical Products Limited Nigeria 60% (1) Baroid International Inc. Delaware 100% Baroid, S.A. de C.V. Mexico 51% NL Baroid (Cameroon) S.A.R.L. Cameroun 100% Baroid of Nigeria Limited Nigeria 60% (1) Baroid Rus Energy Services Russia 100% Baroid Sales Export Corporation Delaware 100% Baroid Trading International, Inc. Nevada 100% Baroid de Venezuela, S.A. Venezuela 97.4% (3) Basin Surveys, Inc. West Virginia 100% Compania Transandina de Exportacion, Inc. Delaware 100% Industrial Reactor Laboratories, Inc. New York 100% Baroid Equipment, Inc. California 100% Baroid Equipment Canada, Inc. California 100% SW Servicing, Inc. Delaware 100% Baroid International Trading Corporation Delaware 100% Baroid Australia Pty. Limited Australia 90% Baroid Corporation A/S Norway 100% Baroid Corporation of Canada, Ltd. Canada 100% Baroid Group (Partnership) Canada 54% (4) DB Stratabit (Canada) Ltd. Canada 100% Baroid (Far East) Pte. Ltd. Singapore 100% EXHIBIT 21 - OCTOBER 31, 1994 Page 2 % of Voting State or Other Securities Sovereign Power owned by Under the Laws of Immediate Name Which Organized Parent - ---------------------------------------------- ------------------- ----------- Baroid International, S.p.A. Italy 100% DB Stratabit Italia S.r.l. Italy 100% Baroid Pigmina Industrial e Comercial Ltda. Brazil 100% Baroid S.A.R.L. Tunisia 100% Pacific Petroleum Products, Inc. Delaware 92.6% Minerales Andinos, S.A. Peru 100% Petroleum Information & Equipment Services Pte. Ltd. Singapore 100% Societe de Developpement de Barytine Morocco 100% Sperry-Sun de Ecuador S.A. Ecuador 100% Baroid Management Company Delaware 100% Baroid Technology, Inc. Delaware 100% Canadian Baroid Sales Ltd. Canada 100% DB Stratabit, Inc. Delaware 100% DB Stratabit B.V. Netherlands 100% DB Stratabit GmbH Germany 100% DB Stratabit (M.E.) E.C. Bahrain 100% DB Stratabit Pte. Ltd. Singapore 100% DB Stratabit S.A. Belgium 100% DB Stratabit S.A. France 100% DBS-Tunisie Tunisia 100% DB Stratabit S.A.R.L. Tunisia 100% DB Stratabit (USA) Inc. Delaware 100% Industrias DB Stratabit, C.A. Venezuela 100% Xinjiang DB Stratabit Bit and Tool Company Ltd. China 60% Sperry-Sun Drilling Services, Inc. Delaware 100% Cochran-Dean Company Texas 100% Drilling Services International, Inc. Delaware 100% NL Acme Tool, Inc. Delaware 100% Baroid GmbH Germany 100% Sperry-Sun de Venezuela, S.A. Venezuela 100% Tre-Tech, Inc. Delaware 100% Sub Sea International Inc. Delaware 100% Sub Sea do Brasil-Servicos Submarinos Ltda. Brazil 90% (5) Sub Sea International Australia, Inc. Delaware 100% Sub Sea International New Zealand Inc. Delaware 100% Sub Sea Offshore (B) Berhad Brunei 70% Sub Sea Offshore Espana, S.A. Spain 100% Sub Sea Offshore (Holdings) Limited United Kingdom 100% Camera Alive United Kingdom 100% Sub Sea Offshore Limited United Kingdom 100% Sub Sea Norge A.S. Norway 100% SubSea Offshore Pte. Ltd. Singapore 100% EXHIBIT 21 - OCTOBER 31, 1994 Page 3 % of Voting State or Other Securities Sovereign Power owned by Under the Laws of Immediate Name Which Organized Parent - ---------------------------------------------- ------------------- ----------- Sub Sea Survey Limited Scotland 50% (6) Sub Sea Offshore, Inc. Delaware 100% Sub Sea Offshore (Nigeria) Limited Nigeria 75% (7) Sub Sea Overseas, Inc. Panama 100% Sub Sea Underwater Associates, Inc. Delaware 51% Sub Sea Worldwide, Inc. Panama 100% Bredero Price Holding B.V. Netherlands 100% Bredero Price Coaters (Thailand) Limited Thailand 100% Bredero Price Coatings Pty. Ltd. Australia 100% Bredero Price Colombia B.V. Netherlands 100% Bredero Price GmbH Germany 100% Bredero Price International B.V. Netherlands 100% Zhanjiang Zhonghai Bredero Price Coasters Inc. China 60% Bredero Price International, Inc. Texas 100% Bredero Price (Middle East) Limited Cyprus 100% Bredero Price (Nigeria) Limited Nigeria 60% Bredero Price Services Limited England 100% Bredero Price (West Africa) Limited Cyprus 60% Bredero Norway B.V. Netherlands 100% Bredero Price Norway A/S Norway 100% Chalfont Limited Cyprus 100% (8) Kapeq Trading Limited Cyprus 100% (9) P.T. Bredero Price Indonesia Indonesia 75% SIF-Isopipe S.A. France 100% SIF Overseas Trading Limited Cyprus 100% (8) Uniglobe Engineering Limited Cyprus 100% Vosnoc Limited Cyprus 100% (8) Dresser AG Liechtenstein 100% Dresser Anstalt Liechtenstein 100% Dresser Australia Pty. Ltd. Australia 100% Dresser Singapore Pte. Ltd. Singapore 100% Magcobar Manufacturing Nigeria Limited Nigeria 60% P.T. Dresser Magcobar Indonesia Indonesia 60% Dresser Argentina S.A. Argentina 100% Dresser Canada, Inc. Canada 100% Dresser Congo S.A.R.L. Congo 100% Dresser Corporation Nevada 100% Dresser Far East, Inc. Delaware 100% Dresser Foreign Sales Corporation Limited Guam 100% Dresser Holding, Inc. Delaware 100% Dresser (Holdings) Limited England 100% (10) AVA (U.K.) Limited England 100% EXHIBIT 21 - OCTOBER 31, 1994 Page 4 % of Voting State or Other Securities Sovereign Power owned by Under the Laws of Immediate Name Which Organized Parent - ---------------------------------------------- ------------------- ----------- Baroid Corporation Limited United Kingdom 100% Baroid Limited United Kingdom 100% DB Stratabit Limited United Kingdom 100% Strata Bit Limited Scotland 100% Dresser Drilling and Production Services Limited United Kingdom 100% Sperry-Sun (U.K.) Limited United Kingdom 100% Dresser Holmes Limited England 100% George Street Parade Limited England 100% Dresser U.K. Limited England 100% Dresser U.K. Pensions Limited England 100% Mono Group Limited Scotland 100% Mono Pumps Limited England 100% Mono Pumps (Australia) Pty. Limited Australia 100% Mono Pumps (New Zealand) Limited New Zealand 100% M. W. Kellogg (Eastern Hemisphere) Limited England 100% M. W. Kellogg Limited England 55% KESA Limited England 100% K.R.S.A. Limited England 100% Kellogg Construction Limited England 100% Kellogg Offshore Limited England 100% Kellogg Plant Services Limited England 100% M. W. Kellogg International Limited England 100% M. W. Kellogg (Pensions) Limited England 100% MWKL Field Services Limited Cayman Islands 100% MWKL Middle East Limited England 100% T K Valve Holdings Limited England 100% T K Valve Limited England 100% T K Valve (Abu Dhabi) Limited Scotland 100% T K Valve (Europe) Limited Scotland 100% T K Valve (Borneo) Limited Scotland 100% T K Valve (Singapore) Pte. Ltd. Singapore 100% Dresser Industria e Comercio Ltda. Brazil 100% Wayne Compressores Ltda. Brazil 100% Dresser International, Ltd. Delaware 100% Dresser Investments N.V. Netherlands Antilles 100% Dresser Korea, Inc. Korea 100% Dresser Minerals International, Inc. Texas 100% Dresser-Nagano, Inc. Delaware 71.4% Dresser Norge A/S Norway 100% Dresser Oilfield Gabon S.a.r.L. Gabon 95% (11) EXHIBIT 21 - OCTOBER 31, 1994 Page 5 % of Voting State or Other Securities Sovereign Power owned by Under the Laws of Immediate Name Which Organized Parent - ---------------------------------------------- ------------------- ----------- Dresser-Rand Company (Partnership) New York 51% Dresser-Rand Argentina S.A. Argentina 100% Dresser-Rand Canada, Inc. Canada 100% Dresser-Rand Compression Services, S.A. Switzerland 100% Dresser-Rand Holding Company Delaware 100% Dresser-Rand B.V. Netherlands 100% Dresser-Rand GmbH Germany 100% Dresser-Rand Japan Ltd. Japan 100% Dresser-Rand Overseas Sales Company Delaware 100% Dresser-Rand (U.K.) Ltd. England 100% Dresser-Rand Sales Company, S.A. Switzerland 100% Dresser-Rand Services, S.a.r.L. Switzerland 100% Dresser-Rand de Venezuela S.A. Venezuela 100% Turbodyne Electric Power Corporation Delaware 100% Dresser-Rand International B.V. Netherlands 100% Dresser-Rand Italia S.r.L. Italy 100% Dresser-Rand Machinery Repair Belgie N.V. Belgium 100% Dresser Rand de Mexico, S.A. de C.V. Mexico 100% Dresser-Rand Power, Inc. Delaware 100% Dresser-Rand Comercio e Industria Ltda. Brazil 100% Dresser-Rand A/S Norway 100% Dresser-Rand (SEA) Pte. Ltd. Singapore 100% Dresser-Rand S.A. France 100% Dresser-Rand Services B.V. Netherlands 100% Dresser Services, Inc. Delaware 100% Dresser de Venezuela, C.A. Venezuela 100% Dresser Venn Co., Ltd. Japan 65% Fann Instrument Company Delaware 100% M. W. Kellogg Company, The Delaware 100% Kellogg Capital Corporation Delaware 100% Kellogg Pan American Corporation C.A. Venezuela 100% M. W. Kellogg Holdings, Inc. Delaware 100% Aromatics Plant Services Limited Delaware 100% Intercontinental Services Limited Virgin Islands 100% KCI Constructors, Inc. Delaware 100% KRW Energy Systems Inc. Delaware 80% Kellogg Cardon, C.A. Venezuela 100% Kellogg China Consultants Inc. Delaware 100% Kellogg China Inc. Delaware 100% Kellogg Development Corporation Delaware 100% Kellogg Far East, Inc. Delaware 100% Kellogg ISL Limited Cayman Islands 100% Kellogg India Limited Delaware 100% EXHIBIT 21 - OCTOBER 31, 1994 Page 6 % of Voting State or Other Securities Sovereign Power owned by Under the Laws of Immediate Name Which Organized Parent - ---------------------------------------------- ------------------- ----------- Kellogg Indonesia, Inc. Delaware 100% Kellogg International Corporation Delaware 100% Kellogg International Services Corporation Delaware 100% Kellogg International Services Limited Cayman Islands 100% Kellogg Iran, Inc. Delaware 100% Kellogg Iraq Limited Delaware 100% Kellogg Italy, Inc. Delaware 100% Kellogg Korea, Inc. Delaware 100% Kellogg Malaysia, Inc. Delaware 100% Kellogg (Malaysia) Sdn. Bhd. Malaysia 100% Kellogg Mexico, Inc. Delaware 100% Kellogg Middle East Limited Delaware 100% Kellogg Middle East Services Inc. Delaware 100% Kellogg Nigeria Inc. Delaware 100% Kellogg Overseas Construction Corporation Delaware 100% Kellogg Overseas Corporation Delaware 100% Kellogg Overseas Services Corporation Panama 100% Kellogg Pan American Corporation Delaware 100% Kellogg Plant Services Inc. Delaware 100% Kellogg Rust Services Inc. Delaware 100% Kellogg Rust Synfuels, Inc. Delaware 100% Kellogg Saudi Arabia Limited Delaware 100% Kellogg Services, Inc. Delaware 100% Kuwait Kellogg Ltd. Delaware 100% M. W. Kellogg Company Limited Canada 100% M. W. Kellogg Constructors Inc. Delaware 100% Pullman Incorporated Capital Corporation Delaware 100% Pullman Kellogg Algeria Inc. Delaware 100% Pullman Kellogg Plant Services Algeria, Inc. Delaware 100% Subtec Middle East Limited Delaware 100% Societe Kellogg Delaware 100% Masoneilan International, Inc. Delaware 100% Colville Trading Pte. Ltd. Singapore 100% (12) Dresser B.V. Netherlands 100% (13) Dresser Europe S.A. Belgium 100% Ebro-Electronic GmbH Germany 100% (14) Dresser Industrial Products B.V. Netherlands 100% AVA Netherlands B.V. Netherlands 100% Dresser Japan Ltd. Japan 100% Dresser Netherlands B.V. Netherlands 100% Dresser Wayne AB Sweden 100% Dresser Produits Industriels France 100% Kellogg France, S.A. France 100% Masoneilan S.p.A. Italy 100% EXHIBIT 21 - OCTOBER 31, 1994 Page 7 % of Voting State or Other Securities Sovereign Power owned by Under the Laws of Immediate Name Which Organized Parent - ---------------------------------------------- ------------------- ----------- Masoneilan HP + HP GmbH Germany 100% Masoneilan Internacional, S.A. de C.V. Mexico 100% Masoneilan S.A. Spain 75% (15) Masoneilan (S.E.A.) Pte. Ltd. Singapore 100% P.T. Security Mulia Indonesia Indonesia 70% Property and Casualty Insurance, Limited Bermuda 100% Property and Casualty Insurance Ltd. - U.S. Vermont 100% T K Valve & Manufacturing, Inc. Texas 100% T K Valve (Canada) Ltd. Canada 100% T K Valve, Inc. Texas 100% Triconos Mineros S.A. Chile 100% Wheatley TXT Corp. Delaware 100% Axelson Canada, Inc. Delaware 100% Axelson, Inc. Delaware 100% Axelson Pump Company Delaware 100% Clif Mock Company Delaware 100% Mock Limited United Kingdom 100% Texsteam Inc. Delaware 100% Tom Wheatley Valve Company Delaware 100% Wheatley Corporation Delaware 100% Wheatley Gaso Inc. Delaware 100% Wheatley Canada Ltd. Canada 100% Wheatley Pump Incorporated Delaware 100% Worthington Corporation Delaware 100% Worthington do Brasil, Inc. Delaware 100% Worthington Pump Inc. Delaware 100% Ingersoll-Dresser Pumps de Colombia, S.A. Colombia 93% (16) ( a) The names of certain subsidiaries of Registrant have been omitted since the unnamed subsidiaries considered in the aggregate as a single subsidiary would not constitute a significant subsidiary. ( 1) Shares held in trust by NL Industries, Inc. ( 2) Remaining 21.74% owned by Sperry-Sun Drilling Services Inc. ( 3) Remaining 2.7% held by various individuals. ( 4) Remaining owned by Canadian Branch of Baroid Equipment Canada, Inc. (30.7%) and by DB Stratabit (Canada) Ltd. (15.3%). EXHIBIT 21 - OCTOBER 31, 1994 Page 8 ( 5) Remaining 10% owned by Sub Sea International Australia Inc. ( 6) Remaining 50% owned by Sub Sea Offshore (Holdings) Limited. ( 7) Shares held in trust by Seun Oyefess (99%) and Mrs. Olympia Abeka Oyefess (1%). ( 8) Shares held in trust by Abacus (Nominees) Limited (99.9%) and Abacus (Cyprus) Limited (.1%). ( 9) Shares held in trust by Abacus (Cyprus) Limited (50%) and Abacus (Nominees) Limited (50%). (10) Represented by common voting shares. 100% of issued preferred voting shares are owned by Dresser Canada, Inc. (11) Remaining 5% owned by Dresser Minerals International, Inc. (12) Remaining 50% held by Worthington Corporation. (13) 100% of issued voting preference shares held by Dresser Anstalt. (14) Shareholding interest actually held by German Branch of Dresser Europe S.A. (15) Remaining 25% owned by Dresser Produits Industriels. (16) Remaining 7% owned by Dresser Minerals International, Inc. (1.8%); Dresser International, Ltd. (1.8%); Dresser Industries, Inc. (1.7%); Worthington Corporation (1%); and Dresser Holding, Inc.(.7%).
EX-23 5 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (Nos. 2-91309, 33- 47832, 33-59562 and 33-50563) and the Registration Statements on Form S-8 (Nos. 2-76847, 2-81536, 33-26099, 33-30821, 33-48165, 33-52067, 33-52989, 33-50563, and 33-54099) of Dresser Industries, Inc. of our report dated December 2, 1994 appearing on page 34 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Dallas, Texas January 25, 1995 EX-24 6 EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ W. E. Bradford W. E. Bradford Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ Samuel B. Casey Samuel B. Casey, Jr. Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ Lawrence S. Eagleburger Lawrence S. Eagleburger Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ Rawles Fulgham Rawles Fulgham Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ John A. Gavin John A. Gavin Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ Ray L. Hunt Ray L. Hunt Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ J. Landis Martin J. Landis Martin Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ John J. Murphy John J. Murphy, Chairman of the Board and Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ Lionel H. Olmer Lionel H. Olmer Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ Jay A. Precourt Jay A. Precourt Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ B. D. St. John B. D. St. John Vice Chairman and Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA MORRIS and STANLEY E. MCGLOTHLIN and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 19th day of January, 1995. /s/ Richard W. Vieser Richard W. Vieser Director EX-27 7 EXHIBIT 27
5 This Schedule contains summary financial information extracted from the Dresser Industries, Inc. and Subsidiaries Consolidated Statements of Earnings (Loss) and Consolidated Balance Sheets and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS OCT-31-1994 OCT-31-1994 515,000 0 896,200 30,400 673,100 2,197,000 2,245,000 1,315,400 4,323,600 1,366,800 460,600 46,000 0 0 1,586,300 4,323,600 5,307,300 5,330,700 4,071,700 4,968,400 8,000 0 49,300 619,400 224,700 361,800 0 0 0 361,800 1.98 1.98
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