-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Obpw5ibNBKwRUfiUWW02CR8XNfctIGTlqVcrE1wIhhN6VUmIBel0+s6SCu9nYqqc 8w/KnGO/Avjhf1B7PfZepA== 0001047469-98-002199.txt : 19980128 0001047469-98-002199.hdr.sgml : 19980128 ACCESSION NUMBER: 0001047469-98-002199 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980127 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DRESSER INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000030099 STANDARD INDUSTRIAL CLASSIFICATION: ENGINES & TURBINES [3510] IRS NUMBER: 750813641 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04003 FILM NUMBER: 98514527 BUSINESS ADDRESS: STREET 1: 2001 ROSS AVE CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2147406000 MAIL ADDRESS: STREET 1: P O BOX 718 CITY: DALLAS STATE: TX ZIP: 75221 10-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, 1997. 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 2001 ROSS AVENUE, DALLAS, TEXAS 75221 (P.O. Box) (Address of principal executive 75201 offices) (Zip Code) (Registrant's telephone number, including area code) (214) 740-6000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED Common Stock, Par Value New York Stock Exchange, Inc. 25 cents Per Share Pacific Exchange, Inc. Baroid Corporation 8% New York Stock Exchange, Inc. Guaranteed Senior Notes due 2003 Preferred Stock Purchase New York Stock Exchange, Inc. Rights Pacific Exchange, Inc. 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. / / The aggregate market value of the voting stock (based on the closing price on the New York Stock Exchange as of January 7, 1998) held by non-affiliates of the registrant was approximately $6,887 million. As of January 7, 1998, there were 175,524,280 shares of Dresser Industries, Inc. Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Sections of Registrant's Notice of 1998 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 is 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, 1997, consolidated revenues of Registrant amounted to $7,457.9 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: Petroleum Products and Services; Engineering Services; and Energy Equipment. The Information by Industry Segment is included in Note N to Consolidated Financial Statements on page 52 and in Management's Discussion and Analysis beginning on page 15. This information includes sales and service revenues, operating profit 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. In fiscal 1996, Dresser formed a joint venture with Shaw Industries, Ltd. ("Shaw") by contributing its Bredero Price assets and Shaw contributing its Shaw Pipe Protection assets on a worldwide basis. During the fourth quarter of 1997, Dresser extended its Bredero-Shaw joint venture. In recognition of the long-term relationship of the Bredero-Shaw operations, the joint venture and related agreements were amended to eliminate Dresser's option to purchase Shaw's interest at the end of the second and fourth years. Effective July 31, 1997, Dresser sold certain assets of its SubSea operation relating to underwater construction, pipelay, pipebury, diving and related services in the Gulf of Mexico (including United States' and Mexican waters), Middle East, Southeast Asia, Australia, New Zealand and Singapore, excluding ROV and engineering services and related contracts in the Gulf of Mexico, and retained all of its operations in the North Sea. PETROLEUM PRODUCTS AND SERVICES SEGMENT Dresser's Petroleum Products and Services segment supplies products, services and project management for oil and gas exploration, drilling, production and transmission activities both onshore and offshore. Its products and services include project management and integrated well services, drilling fluids 2 systems, drill bits, measurement-while-drilling services, directional drilling services, completion and production tools, production valves and pumps, meters and measuring equipment, engineering, procurement, installation and construction contractor services for subsea and onshore projects, remotely operated vehicles, seabed equipment, flexible flowlines, riser systems and pipe coating. Demand for these products and services is directly affected by energy prices and drilling activity. DRILLING FLUIDS Baroid Drilling Fluids 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. DRILLING SERVICES AND PRODUCTS Sperry-Sun Drilling Services 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. DRILL BITS Security DBS produces and markets to oil and gas producers 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 certain types of blasthole and pilot bits for the mining market. COMPLETION AND PRODUCTION TOOLS Dresser Oil Tools consists of Axelson surface safety equipment, downhole rod pumps and sucker rods as well as a broad range of Guiberson/AVA's 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 used in the production of oil and gas. Dresser Wheatley manufactures and sells a line of oil and gas production products, including Wheatley valves, Wheatley Gaso plunger and piston pumps, Omega well-servicing pumps, and Clif Mock meters, measurement and sampling equipment. PROJECT MANAGEMENT Dresser Kellogg Energy Services provides oil and gas producers with project management capabilities and the integrated services and products required to drill and complete wells more efficiently. Its activities in this segment include well planning, project management and the procurement of wellsite drilling, completion and production services and equipment. 3 PIPE COATING PRODUCTS AND SERVICES The Bredero-Shaw joint venture provides a broad range of speciality pipe coating, insulation and related services to protect pipelines above ground, below ground and offshore in major oil and gas producing areas of the world. UNDERWATER EQUIPMENT AND SERVICES SubSea International provides production companies and offshore rig operators with underwater engineering services. SubSea equipment is used to inspect, construct, maintain and repair offshore drilling rigs and platforms, underwater pipelines and other offshore oil and gas facilities. SubSea designs, manufactures and deploys remotely operated vehicles (ROVs), which are often used to perform these services. Wellstream designs, manufactures and markets non-bonded flexible pipe for the oil and gas industry. Wellstream products include flowlines, jumpers, service lines and static and dynamic risers for both subsea and topside applications. ENGINEERING SERVICES SEGMENT The Engineering Services segment specializes in engineering, procurement, construction and project management for a comprehensive range of oil and gas facilities from offshore production through downstream processing. Formed in 1997, Dresser Kellogg Energy Services (DKES) provides a single Dresser interface for energy companies seeking integrated services and solutions for the total hydrocarbon recovery process. DKES' operations in this segment include Granherne and Paragon Engineering Services. Granherne supplies engineering consulting, project management and engineering design services for oil and gas production facilities, oil and gas terminals, gas plants, FPSOs, subsea architecture, platforms and refineries. Paragon is involved in engineering, procurement, construction and project management for oil and gas projects including onshore and offshore production facilities, offshore platforms, subsea facilities, pipelines, compressor stations and gas plants. The M.W. Kellogg Company provides engineering, procurement, construction and related services primarily to the hydrocarbon process industries. 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 Engineering Services segment were $1,927.9 million, $1,621.9 million and $1,457.6 million for 1997, 1996 and 1995, respectively. ENERGY EQUIPMENT SEGMENT Dresser's Energy Equipment 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 4 gasoline dispensing systems. Demand for these products is directly affected by global economic activity, which influences demand for transportation fuels, petrochemicals, plastics, fertilizers, chemicals and by-products of oil and gas. COMPRESSION AND PUMPING Dresser-Rand Company, a New York partnership in which Dresser has 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 a manufacturer of powerful pipeline boosters for the transmission of natural gas. The Consolidated Statements of Earnings for 1997, 1996 and 1995 include $1,205.0 million, $1,177.8 million and $1,138.3 million, respectively, of Dresser-Rand's revenues. Ingersoll-Dresser Pump Company, a partnership in which Dresser has 49% interest, develops, manufactures and markets a broad range of pump products and services on a global basis through local facilities in more than 40 countries. The company's pumps are used for critical and non-critical service in a wide variety of applications associated with power generation, chemical and petrochemical processing, oil and gas production, water distribution and water and waste water treatment. The product line includes heavy-duty process, submersible, vertical turbine, standard end-suction, horizontal split-case, centrifugal and multi-stage pumps. Dresser's wholly owned Mono Pumps 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. MEASUREMENT Wayne manufactures and markets fully integrated vehicle fueling systems for the global retail petroleum industry. Wayne's technology systems include gasoline pumps and dispensers, management control devices and point-of-sale credit and debit card machines. Dresser Instrument designs and manufactures mechanical and electronic 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, commercial, automotive and medical markets. DMD products include gas meters, pipe fittings, couplings and repair devices utilized by the gas and water utilities and other industrial markets. FLOW CONTROL Dresser Energy Valve designs, manufactures and markets valves (ball, gate, check, butterfly, plug and specialty valves such as rising stem, top entry, retractable seat ball valves or full port metal seated plug valves), actuators, chemical injection pumps, regulators and surge relievers of its Grove, TK, Tom Wheatley, Texsteam, Ledeen and Wheatley Gaso operations. This comprehensive product range is primarily used in 5 oil and gas exploration and transmission, onshore and offshore, in power generation, in water desalination and transmission and in segments of the oil and gas process industry. Dresser Valve and Controls 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. POWER SYSTEMS Waukesha Engine produces spark-ignited and gas 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 turbo machinery (centrifugal) lines. Roots products are used in natural gas processing plants, refineries, chemical plants, flue gas desulphurization facilities, vacuum swing absorption applications, waste water treatment plants and many other industrial applications. BACKLOG The backlog of unfilled orders at October 31, 1997, 1996 and 1995 is included in Management's Discussion and Analysis on pages 23-24. It is estimated that approximately 60% of the backlog existing at October 31, 1997 will be completed during fiscal 1998. The dollar amount of the backlog is not necessarily indicative of future earnings of the Company. Although backlog represents only firm orders, there can be no assurance that cancellations or scope adjustments will not occur. 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 assistance 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. 6 FOREIGN OPERATIONS Registrant maintains manufacturing, marketing or service facilities serving more than 50 foreign countries. Global distribution of products and services is accomplished through more than 290 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 Management's Discussion and Analysis on page 22. 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, 1997, 1996 and 1995, Registrant spent $120.0 million, $110.6 million and $96.5 million, respectively, for research and development activities. At December 1, 1997, Registrant and its subsidiaries and affiliates owned 1,851 patents and had pending 1,179 patent applications, covering various products and processes. The Registrant was also licensed under patents owned by other third parties. 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 Registrant's total business. EMPLOYEES As of October 31, 1997, Registrant had approximately 18,135 employees in the United States, of whom approximately 5,680 were members of 13 unions represented by 23 bargaining units. As of the same date, Registrant had approximately 13,165 employees at foreign locations of whom approximately 3,600 were members of unions. During fiscal 1997, Registrant experienced no contract negotiation strikes in the United States. Relations between Registrant and its employees are generally considered to be satisfactory. 7 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 ---------------------- --------------------------- William E. Bradford (63) Chairman of the Board of Registrant since Chairman of the Board, Chief December 1996, President March 1992 - Executive Officer and Director December 1996, Chief Executive Officer since November 1995, Chief Operating Officer March 1992 - November 1995; President and Chief Executive Officer of Dresser-Rand Company February 1988 - March 1992; Senior Vice President - Operations of Registrant March 1984 - March 1992. Donald C. Vaughn (61) President and Chief Operating Officer of President, Chief Operating Registrant since December 1996, Executive Officer and Director Vice President November 1995 - December 1996, Senior Vice President - Operations January 1992 - November 1995; Chairman, President and Chief Executive Officer of M. W. Kellogg, Inc. June 1995 - June 1996; Chairman and Chief Executive Officer of The M. W. Kellogg Company September 1986 - June 1996, President November 1983 - June 1995. George H. Juetten (50) Senior Vice President of Registrant since Senior Vice President and July 1997, Chief Financial Officer since Chief Financial Officer December 1996, Vice President December 1996 - July 1997, Vice President - Controller May 1993 - December 1996; Audit Partner, Price Waterhouse LLP, independent accountants, July 1980 - April 1993. Michael J. Kammerer (57) Senior Vice President of Registrant and Senior Vice President President of Engineered Equipment and Systems Group since July 1997, Vice President - Operations July 1996 - July 1997, President Dresser Valve and Controls 1988 - August 1996. Robert J. Menerey (53) Senior Vice President of Registrant and Senior Vice President President of Drilling and Production Group since July 1997, Vice President - Operations July 1996 - July 1997; Chairman of Baroid Drilling Fluids, Inc. August 1996 - October 1997, President March 1991 - October 1997. 8 Principal Occupation During Name, Age and Position Past Five Years ---------------------- --------------------------- Patrick M. Murray (55) Senior Vice President of Registrant and Senior Vice President President of Strategic Initiatives and Acquisition/Divestiture Group since July 1997, Vice President - Operations July 1996 - July 1997; Chairman of Sperry-Sun Drilling Services, Inc. August 1996 - October 1997, President 1988 - August 1996. A. Jack Stanley (55) Senior Vice President of Registrant and Senior Vice President President of Engineering and Construction Group since July 1997, Vice President - Operations July 1996 - July 1997; Chairman and Chief Executive Officer of The M.W. Kellogg Company since June 1996, President June 1995 - June 1996, Chief Operating Officer June 1995 - June 1996, Executive Vice President March 1991 - June 1995. G. Phillip Tevis (55) Senior Vice President of Registrant and Senior Vice President President of Dresser Marketing Group since July 1997, Vice President - Operations July 1996 - July 1997, President Waukesha Engine Division June 1994 - July 1995; Senior Vice President, Technology and Venture Operations of The M.W. Kellogg Company 1992 - June 1994, Vice President - Sales of The M.W. Kellogg Company March 1989 - 1992. Clint E. Ables (58) Vice President and General Counsel of Vice President and General Registrant since October 1993, Vice Counsel President - Corporate Development November 1992 - October 1993, Senior Counsel - Corporate Ventures July 1986 - November 1992. Paul M. Bryant (51) 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. Ardon B. Judd, Jr. (61) Vice President - Washington Counsel of Vice President - Washington Registrant since September 1986. Counsel Rebecca R. Morris (52) Vice President - Corporate Counsel of Vice President - Corporate Registrant since January 1994, Secretary Counsel and Secretary since November 1990, Corporate Counsel June 1987 - January 1994. David R. Smith (51) Vice President - Tax of Registrant since Vice President - Tax January 1994, Director of Tax October 1987 - January 1994. 9 Principal Occupation During Name, Age and Position Past Five Years ---------------------- --------------------------- William R. Bradle (47) Treasurer of Registrant since October Treasurer 1997; Vice President and Treasurer of SC International Services, Arlington, Texas, April 1996 - October 1997; Assistant Treasurer - International of Alcon Laboratories, a subsidiary of Nestle S.A., 1984 - April 1996. Kenneth J. Kotara (44) Controller of Registrant since December Controller 1996, Assistant Controller January 1994 - December 1996; Controller of Baroid Corporation March 1989 - January 1994. OTHER OFFICERS James L. Bryan (61) Senior Vice President of Registrant since Senior Vice President July 1996, Senior Vice President - Operations January 1994 - June 1996, Vice President - Operations May 1990 - January 1994. Ben R. Stuart (63) Chairman of Dresser-Rand Company January Senior Vice President - 1997 - September 1997, President and Chief Operations Executive Officer March 1992 - December 1996; Senior Vice President - Operations of Registrant since March 1992, Vice President - Operations 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 approximately 75 manufacturing plants, ranging in size from approximately 1,629 square feet to 978,000 square feet and totaling more than 11 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 1997 the Company had 21 grinding and/or other facilities for beneficiating mineral ores, containing approximately 3,400 acres in plant site property. 10 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, 1997: APPROXIMATE FLOOR AREA INDUSTRY SEGMENT AND LOCATION PRODUCT AREA (SQUARE FEET) ----------------------------- ------------ ------------- Petroleum Products and Services Nisku, Alberta, Canada (Drilling Services & Products) 76,000 Houston, Texas (Drilling Fluids, Services & Products) 596,000 Dallas, Texas (Drill Bits) 294,000 Dallas, Texas (Completion & Production Tools) 278,500 Longview, Texas (Completion & Production Tools) 235,000 Colorado Springs, Colorado (Completion & Production Tools) 97,000 Tulsa, Oklahoma (Completion & Production Tools) 64,000 Calgary, Alberta, Canada (Completion & Production Tools) 60,000 (1) Aberdeen, Scotland (Underwater Services) 325,000 Panama City, Florida (Underwater Services) 140,000 (1) Engineering Services Houston, Texas (Engineering & Construction) 440,902 (1) Sudbury, England (Engineering & Construction) 163,860 Energy Equipment Manchester, England (Compression & Pumping) 242,000 Victoria, Australia (Compression & Pumping) 145,000 Painted Post, New York (Compression & Pumping) 978,000 Broken Arrow, Oklahoma (Compression & Pumping) 129,000 Olean, New York (Compression & Pumping) 909,000 LeHavre, France (Compression & Pumping) 526,000 Kongsberg, Norway (Compression & Pumping) 140,000 (1) Wellsville, New York (Compression & Pumping) 404,000 Minneapolis, Minnesota (Compression & Pumping) 350,000 Stratford, Connecticut (Measurement) 243,312 Berea, Kentucky (Measurement) 82,592 Bradford, Pennsylvania (Measurement) 428,000 Houston, Texas (Measurement) 110,000 (1) Salisbury, Maryland (Measurement) 343,572 (1) Austin, Texas (Measurement) 103,491 Malmo, Sweden (Measurement) 343,708 (1) Einbeck, Germany (Measurement) 102,913 (1) Rio de Janeiro, Brazil (Measurement) 129,166 Bonnyrigg, Scotland (Measurement) 64,200 (1) Skelmersdale, England (Control Products) 154,000 (1) Avon, Massachusetts (Control Products) 93,000 Conde, France (Control Products) 147,363 Naples, Italy (Control Products) 63,852
11 APPROXIMATE FLOOR AREA INDUSTRY SEGMENT AND LOCATION PRODUCT AREA (SQUARE FEET) ----------------------------- ------------ ------------- Alexandria, Louisiana (Control Products) 247,000 Dunfermline, Scotland (Control Products) 170,801 Houston, Texas (Control Products) 156,000 Stafford, Texas (Control Products) 110,000 Voghera, Italy (Control Products) 417,610 Connersville, Indiana (Power Systems) 376,790 Huddersfield, England (Power Systems) 120,729 Waukesha, Wisconsin (Power Systems) 774,739 (1) Appingedam, Netherlands (Power Systems) 136,935
- ---------- (1) all or a portion of these facilities are leased. The Baroid Division has mineral rights to proven and prospective reserves of barite and bentonite. Such rights included leaseholds and mining claims and property owned in fee. 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 1997, the Company estimates its reserves, which it considers to be proven, to be sufficient for operations for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS. The Company is involved in various legal proceedings none of which are deemed material for reporting purposes. Information relating to various commitments and contingencies is described in Note J to the financial statements of this Annual Report. 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, 1997. 12 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Registrant is listed on the New York Stock Exchange and Pacific Exchange, Inc. 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 ------ ------ ----- ------ ------ 1997 High $36.25 33.875 42.00 46.125 46.125 1997 Low $30.00 27.75 29.25 37.75 27.75 1996 High $26.00 32.875 32.00 33.875 33.875 1996 Low $20.75 25.25 26.125 26.875 20.75 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 1997 and 1996 fiscal years were: First Second Third Fourth Year ------ ------ ----- ------ ------ 1997 $ .17 .17 .17 .19 .70 1996 $ .17 .17 .17 .17 .68 As of January 7, 1998, there were approximately 18,500 shareholders of record of the Registrant's Common Stock. There were no equity securities of the Company sold by the Company during the fourth quarter which were not registered under the Securities Act of 1933, as amended. 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. 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues $7,457.9 $6,561.5 $5,628.7 $5,330.7 $5,202.3 Earnings from continuing operations before accounting changes: Earnings 318.0 257.5 213.1 361.8* 133.6 Per share 1.81 1.44 1.17 1.98* .74 Earnings per share before special items 1.81 1.44 1.17 1.09 1.17 Total assets 5,098.8 5,150.2 4,707.4 4,323.6 4,445.6 Long-term debt 758.0 756.3 459.3 460.6 492.2 Cash dividends declared 123.0 122.1 124.3 116.5 100.2 Per share** .70 .68 .68 .66 .60 * Includes $146.5 million or $.80 per share from sale of interest in Western Atlas International, Inc. ** Dresser historical dividends. 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL OPERATING ENVIRONMENT Dresser is a global leader providing value-added solutions for the energy industry. The Company offers a comprehensive range of integrated and discrete products and services as well as project management for oil and natural gas activities throughout the world. Dresser's market involvement is extensive and includes serving customers in the upstream exploration, drilling, production and transmission sectors and downstream processing, conversion and marketing sectors. Company operations are organized into three business segments for financial reporting purposes: Petroleum Products and Services, Engineering Services and Energy Equipment. Note N to the Consolidated Financial Statements contains descriptions of these segments. Among the factors directly affecting the business environment for Petroleum Products and Services are the demand for oil and natural gas and the related prices, drilling activity and exploration and production spending by upstream producers. The average posted price for West Texas Intermediate crude oil of $20.33 was off 2.1% in 1997 from $20.77 a year earlier, while the average spot price of natural gas was $2.44 per million BTUs versus $2.30 per million BTUs in 1996. The global rig count was up 15.1% in fiscal 1997. The rig count in North America was up 24.7% -- 20.0% in the U.S. and 38.9% in Canada. The international rig count rose 2.7% primarily due to offshore activity, which was up 7.1%. Most major producing regions had more rigs in use, both offshore and onshore. The Engineering Services and Energy Equipment business climate is affected by market forces that influence the production, transportation and processing of oil and natural gas including oil and gas prices, global and regional economic growth rates and the resulting demand for products created from hydrocarbons (gasoline, jet fuel, ethylene, petrochemicals, fertilizers and power). Capital spending decisions, both upstream and downstream, reflect the impact of these forces on integrated oil and gas companies around the world. According to a published report from the International Monetary Fund (IMF) in December 1997, economic growth for calendar 1997 is expected to be 4.1% globally -- 3.0% in developed countries and 5.9% in developing nations. The global economic growth rate for 1998 is projected to be 3.5%, somewhat lower than 1997 due to the effects of financial difficulties in several Asian countries. Approximately 4% of the Company's 1997 revenues and 11% of total backlog at October 31, 1997 was related to Southeast Asia. While the Company continues to review the economic situation in Southeast Asia, it does not expect its revenues from the region to materially change over the short term. A majority of the reported backlog for that region is currently under construction and the Company does not expect any cancellations or delays. Despite the current economic situation in Southeast Asia, over the long term the Company believes steadily rising population and greater industrialization efforts will continue to facilitate strong global growth, particularly in developing nations, and increasing demand for oil and natural gas to feed growing needs for refined products, petrochemicals, fertilizers and power. Hydrocarbon processing projects continue to benefit from escalating capital and maintenance spending. According to the outlook published by Hydrocarbon Processing Magazine, spending is expected to increase to $76.7 billion in 1998. That would be up 7.3% from the projected $71.5 billion in 1997. In 1997, the number of total worldwide hydrocarbon processing construction projects averaged well over 3,000, the highest level since 1982, and reflected the building of new process facilities and expanding and retrofitting existing ones to satisfy consumer and industrial demand. Rising project activity outside the U.S. more than offset a slight decline domestically. 15 CONSOLIDATED RESULTS OF OPERATIONS 1997 COMPARED TO 1996 Earnings per share of $1.81 and net earnings of $318.0 million for 1997 were 26% and 23% higher than the $1.44 and $257.5 million, respectively, in 1996. Revenues for 1997 increased 14% to $7.5 billion over $6.6 billion in 1996. Operating profit increased 23% to $724.8 million over $589.5 million in 1996. Each of the Company's industry segments had higher revenues and operating profits in 1997 than in 1996 with the Petroleum Products and Services segment having the largest increases. At October 31, 1997, total backlog of $5.8 billion was 17% higher than a year ago. See Industry Segment Analysis for discussion by operation. In 1997, the Company had certain nonrecurring items resulting from asset sales and business restructurings intended to improve the future operating performance of several units. In the aggregate, these items had essentially no net impact on the results for 1997. Profit improvement initiatives at the Dresser-Rand and Ingersoll-Dresser Pump joint ventures include the closure of a Dresser-Rand European plant, personnel reductions in administration and sales support, consolidation of repair and service operations and the discontinuance of certain product lines. The Company's share of the after-tax costs to implement these initiatives totaled approximately $19 million. Of this amount, $7.5 million ($.04 per share) was recorded in the fourth quarter of 1997, with an additional $11.5 million ($.07 per share) expected to be incurred in fiscal 1998 to complete the initiatives. Also, the Company recorded an after-tax charge of $14.0 million ($.08 per share) to write down certain assets whose carrying value has been impaired and to provide for early retirement incentives. The Company sold certain assets of the SubSea operations at an after-tax loss of $6.3 million or $.03 per share. The nonrecurring charges and loss on SubSea assets were offset by a one-time after-tax gain of $27.1 million ($.15 per share) resulting from the extension of the pipecoating joint venture with Shaw Industries. General corporate expenses of $80.8 million were down slightly from $83.6 million in 1996 primarily due to lower foreign exchange losses. Interest expense rose to $68.6 million from $60.5 million in 1996 primarily due to a full year's interest on $300.0 million of long-term debentures issued in August 1996 at a higher interest rate than the previous short-term debt. The effective income tax rate for 1997 was 35% compared to 34% in 1996. 1996 COMPARED TO 1995 Earnings per share and net earnings of $1.44 and $257.5 million for 1996 were up 23% and 21%, respectively, from $1.17 and $213.1 million in 1995 before an accounting change. The earnings improvement reflects the substantial growth seen in the global market for oil and gas and their by-products. The Company recorded a charge of $16.0 million (net of tax of $9.0 million) or $.09 per share in the first quarter of 1995, for the cumulative effect of changing its accounting for postemployment benefits as required by Statement of Financial Accounting Standards No. 112, EMPLOYER'S ACCOUNTING FOR POSTEMPLOYMENT BENEFITS. (See Note A to Consolidated Financial Statements.) Revenues for 1996 were $6.6 billion, an increase of 17% over the $5.6 billion in 1995. Segment operating profit was $589.5 million in 1996 compared to $473.1 million in 1995 for a 25% increase. 16 CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED) 1996 COMPARED TO 1995 (continued) All three industry segments had higher revenues and operating profit. Within the segments, all operations had higher revenues with virtually all operations showing earnings improvement. See the Industry Segment Analysis for discussion of results by operation. General corporate expenses of $83.6 million were $8.4 million higher than in 1995. The higher level of expenses in 1996 was primarily due to (i) foreign exchange losses on devaluations of the Venezuelan currency in December 1995 and April 1996 and (ii) costs of hedging foreign exchange exposure related to an Italian subsidiary. Higher benefit-related expenses in 1996 also contributed to the increase. Interest expense increased to $60.5 million in 1996 from $47.4 million in 1995 due to an increase in total borrowings and to the higher interest rate on new long-term debt versus the previously issued commercial paper. Interest income decreased to $12.7 million in 1996 from $21.6 million in 1995 due to a lower level of short-term investment of excess funds. The effective income tax rate for 1996 was 34% compared to 32% for 1995. The increased rate reflects a lower level of utilization of foreign net operating losses. INDUSTRY SEGMENT ANALYSIS See details of financial information by Industry Segment and Geographic Area on pages 21 through 23. PETROLEUM PRODUCTS AND SERVICES Revenues of $2.67 billion in 1997 were 24% higher than 1996, and operating profit of $330.6 million was up 43% over the prior year. Baroid Drilling Fluids had a very strong year with revenues and earnings up 24% and 45%, respectively, over 1996. The strong performance was driven by market share gains, price increases and improvement in quality of wells awarded. Sperry-Sun revenues were 24% higher than 1996 while earnings were up 7%. Earnings did not increase in line with revenues due to a sales mix shift to lower margin directional drilling services and increased costs to support higher activity levels, training and new product development initiatives. Security DBS revenues were up 25% and earnings improved 65% over 1996 fueled by increased volume and margins on fixed cutter bits and increased volume of roller cone bits. Sales to customers outside the U.S. were 68% of total sales, up from 62% in 1996. For total drilling and production operations, the ratio of operating profit to sales grew to 13.9% in fiscal 1997 compared to 12.9% last year. Bredero-Shaw revenues were up 34% and earnings were up 82% over last year due to higher activity levels in the Far East, Middle East and U.S. SubSea earnings were twice the 1996 level. The North Sea produced good results attributed mainly to the Schiehallion project and higher utilization of ROVs partially offset by low utilization of shallow water equipment in the Gulf prior to the sale of the equipment. Wellstream revenues were up 84%, and earnings were almost eight times 1996. The growth in Wellstream's flexible pipe business reflected offshore development in the North Sea and Brazil. Wellstream's new plant in the United Kingdom began commercial operation in December 1997. Revenues of $2.16 billion in 1996 were 32% higher than 1995, and operating profit of $231.3 million was up 43% over 1995. 17 INDUSTRY SEGMENT ANALYSIS (CONTINUED) PETROLEUM PRODUCTS AND SERVICES (CONTINUED) Particularly strong gains were experienced by Baroid Drilling Fluids, Sperry-Sun Drilling Services and Security DBS in 1996. Baroid's revenues increased 28% over 1995 as it capitalized on the growth of higher quality wells being drilled, particularly offshore deep water wells. Market share gains in the Gulf of Mexico, Latin America and West Africa also contributed to the growth over 1995. Sperry-Sun revenues were 20% higher than 1995 with key growth areas including the Gulf of Mexico, the North Sea and Latin America. Increases in capital spending for measurement-while-drilling tools and a continuation of high utilization rates were seen during the year. Security DBS revenues and operating profit increased in 1996 over 1995 as the result of increased sales of higher margin fixed cutter bits, combined with cost improvements obtained from manufacturing efficiencies in its U.S. plants. For total drilling and production operations, the ratio of operating profit to sales was 12.9% compared to 11.3% last year. Sales to customers outside the U.S. accounted for 62% of total sales, slightly higher than 1995, with strong growth in Latin America, Europe and Africa. The Bredero-Shaw pipecoating operations saw substantial increases during 1996, primarily from a large contract in the Norwegian sector of the North Sea awarded in the latter part of 1995. Activity also increased in U.S. markets as the result of an acquisition made in 1995. Although SubSea revenues grew 18% in 1996 compared to 1995, earnings declined as the result of poor lay barge utilization and day rates in the Gulf of Mexico and soft market conditions in the Middle East. ENGINEERING SERVICES M.W. Kellogg 1997 revenues of $1.93 billion and earnings of $111.1 million were up 19% and 13%, respectively, over 1996. Current year earnings improvements were driven by LNG activities and oil recovery work in Africa and fertilizer activities in Latin America, together with the substantial completion of several other large projects. Bid and proposal activity levels in 1997 were substantially higher than in 1996. Backlog of $3.7 billion at October 31, 1997 was 28% above the year-ago level of $2.9 billion. M.W. Kellogg 1996 revenues of $1.62 billion were 11% higher than 1995, and operating profit of $98.1 million was 24% higher. These gains resulted from higher activity on projects in the U.K., Uzbekistan, Africa and the U.S. The successful completion of significant milestones on several large contracts also contributed to the higher profit levels. A number of significant projects commenced during the year for LNG, fertilizer and petrochemical production. 18 INDUSTRY SEGMENT ANALYSIS (CONTINUED) ENERGY EQUIPMENT COMPRESSION AND PUMPING Compression and Pumping revenues in 1997 were $1.31 billion, up 3% from $1.27 billion in 1996. Operating profit of $108.8 million was up 7% from $101.7 million last year. Dresser-Rand's 1997 revenues and earnings were slightly higher than last year. Earnings were negatively impacted during 1997 by performance problems related to certain contracts and lower margin shipments earlier in the year. Earnings from the 49%-owned Ingersoll-Dresser Pump (IDP) joint venture were $29.4 million in 1997 and $22.1 million in 1996 as profit improvement initiatives implemented in fiscal years 1996 and 1997 continue to show good results, especially in the Engineered Products Group. Compression and Pumping 1996 revenues of $1.27 billion were 4% higher than 1995. Operating profit of $101.7 million was 23% higher than in 1995. Dresser-Rand's 1996 earnings of $71.5 million were up 14% from 1995 on approximately 3% higher sales. The increase in earnings reflects higher complete machine, aftermarket and contract compression sales and reduced sales of lower margin purchased equipment. Lower manufacturing overhead and selling, general and administrative expenses also aided the earnings improvement. Earnings from the IDP joint venture were $22.1 million in 1996 and $13.2 million in 1995. The improvement in 1996 over 1995 was driven by margin improvements and continuing improvements to the cost structure since the formation of the joint venture. MEASUREMENT In 1997, earnings of $68.8 million were 24% higher than 1996 on revenues of $663.8 million that were up 4%. The earnings improvement was led by the Wayne Division which had a 41% earnings increase that was driven by successes with new computer technology products. Instrument Division had a slight increase in revenues and essentially the same earnings as last year, with a good performance by its transducer product line. DMD saw increases in revenues and earnings as a result of volume improvements in most of its operations. Revenues of $637.0 million in 1996 were $18.3 million or 3% higher than in 1995; however, 1996 operating profit of $55.7 million was $15.7 million or 22% lower than in 1995. The operating profit decrease occurred in the Wayne (fuel dispensing) Division due to pricing pressures in the U.S. and increased software development costs. The improvement in the Instrument Division primarily reflected the contribution of an acquisition in early 1996. 19 INDUSTRY SEGMENT ANALYSIS (CONTINUED) ENERGY EQUIPMENT (CONTINUED) FLOW CONTROL Earnings in 1997 of $66.7 million were up 3% from 1996 even though revenues of $597.1 million were down slightly. The Energy Valve operations had a 29% increase in earnings on a 3% increase in revenues due to improved margins and better product mix. The Valve and Controls operations had lower revenues and earnings primarily from poor project business margins. In 1996, revenues of $611.1 million and operating profit of $64.6 million were up from 1995 by $152.7 million or 33% and $22.8 million or 55%, respectively. The increases were primarily attributable to the inclusion in the Energy Valve Division of a full year's results for Grove S.p.A., which was acquired in June 1995, as well as the beneficial impact of higher activity in its U.S. operations. The Valve and Controls Division showed improvement with volume growth associated with increased activity in the refining, chemical and power sectors as well as the ongoing benefits associated with the restructuring of its European operations. POWER SYSTEMS Revenues of $318.6 million in 1997 were 4% higher than last year while earnings of $38.8 million were essentially flat. Waukesha Engine Division's results were impacted by lower original equipment shipments that were offset by higher service parts activity. Roots revenues were down slightly due to lower volume that was partially offset by improved product mix. Revenues of $306.0 million in 1996 showed a $29.1 million or 11% increase over 1995 while 1996 operating profit of $38.1 million increased $2.2 million or 6% over 1995. Both the Waukesha and Roots divisions had volume increases. Roots contributed most of the operating profit improvement. Price discounting and early-year softness in gas compression markets pressured Waukesha's operating profit in the first half of the year. A pick up in U.S. and international activity contributed to a modest recovery in the second half of fiscal 1996. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION During 1997, the Company used approximately $69.6 million more cash than the operations generated. Major uses included $303.0 million for capital expenditures and $123.0 million for dividends. Furthermore, during 1997, the Company purchased 1.4 million shares of Company stock at a purchase price of $41.9 million (compared to 8.2 million shares at a purchase price of $228.1 million in 1996). In addition, $208.5 million of cash was used to finance working capital increases in accounts receivable and inventories, primarily in the Petroleum Products and Services segment, as well as a decrease in accrued expenses. Decreases in contract advances in the current year, primarily at M. W. Kellogg, resulted in a use of cash of $115.7 million. The Company also decreased its net borrowings by $36.2 million. Shareholders' equity increased $150.0 million as earnings more than offset dividends and stock repurchases. The Company's liquidity and overall financial condition are strong. Total debt was $806.1 million as of October 31, 1997, compared with $842.3 million at October 31, 1996. Total debt was 32% of total book capitalization as of October 31, 1997, compared with 35% as of October 31, 1996. Net debt to net book capitalization was 27% at October 31, 1997, compared with 28% at October 31, 1996. 20 LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION (CONTINUED) Management believes that the cash on hand of $162.8 million and $643.8 million of existing unused lines of credit, combined with cash that will be provided by future operations, will be adequate to finance known requirements. The Company's long-term debt is rated A1 by Standard and Poors, Aa3 by Moody's and A+ by Duff and Phelps. 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. Capital expenditures for fiscal year 1998 are not expected to be materially different than the Company's historical level of expenditures, which have averaged approximately $310 million per year for the last three years. LEGAL AND ENVIRONMENTAL MATTERS The Company is currently involved in a number of lawsuits. See Note J 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 J to Consolidated Financial Statements includes a review and evaluation of the claims. FORWARD-LOOKING INFORMATION In accordance with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company notes that the statements in this Form 10-K and elsewhere, which are forward-looking and which provide other than historical information, involve risks and uncertainties that may impact the Company's results of operations. These forward-looking statements include, among others, statements concerning the Company's general business strategies, financing decisions, corporate structure, backlog, operating trends, industry trends, cost reduction strategies and their results, expectations for funding capital expenditures and operations in future periods. The Company also continues to face many risks and uncertainties including: litigation, environmental laws, operations in high risk countries, technological and structural changes in the industries served by the Company, changes in the price of oil and natural gas, changes in capital spending by customers in the hydrocarbon industry for exploration, development, production, processing and refining and pipeline delivery networks. The risks and uncertainties inherent in these forward-looking statements could cause actual results to differ materially from those expressed in or implied by these statements. YEAR 2000 ISSUE The Company is reviewing its computer programs and systems worldwide and has developed a task force at each of the Company's business units to ensure that the programs and systems will function properly and be Year 2000 compliant. In this process, the Company expects to replace some existing systems and upgrade others. The Company presently believes that, with modifications to existing software and converting to new software, the Year 2000 problem will not pose significant operational problems for the Company's computer systems. The estimated cost of these efforts are not expected to be material to the Company's financial position or any year's results of operations. 21 GEOGRAPHIC AREA AND INDUSTRY SEGMENT FINANCIAL INFORMATION - COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS The following financial information by Geographic Area and Industry Segment for the years ended October 31, 1997, 1996 and 1995 is an integral part of Note N to Consolidated Financial Statements. Total revenues include sales and services to unaffiliated customers. 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 the Company's 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. GEOGRAPHIC AREA FINANCIAL INFORMATION- COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS (IN MILLIONS OF DOLLARS) Mid East/ United Latin Far East States Canada America Europe & Africa Eliminations Total ------ ------ ------- ------ --------- ------------ ----- 1997 Revenues by point of origin 4,061.3 280.3 514.7 1,831.8 1,224.8 (455.0) 7,457.9 Revenues by point of destination 2,499.0 344.4 1,051.8 1,503.0 2,059.7 - 7,457.9 U.S. exports - 64.7 528.3 98.8 442.0 - 1,133.8 Operating profit 260.0 67.6 84.5 151.3 161.4 - 724.8 Identifiable assets 2,211.2 123.1 326.1 1,068.2 178.5 (64.7) 3,842.4 1996 Revenues by point of origin 3,736.3 221.9 482.4 1,854.5 655.4 (389.0) 6,561.5 Revenues by point of destination 2,407.8 268.0 829.9 1,658.0 1,397.8 - 6,561.5 U.S. exports - 82.1 350.0 193.6 546.9 - 1,172.6 Operating profit 216.0 44.9 71.5 141.4 115.7 - 589.5 Identifiable assets 2,151.4 114.8 223.4 1,065.2 329.8 (125.8) 3,758.8 1995 Revenues by point of origin 3,288.0 192.9 560.4 1,558.8 558.5 (529.9) 5,628.7 Revenues by point of destination 2,058.8 215.3 811.9 1,342.1 1,200.6 - 5,628.7 U.S. exports - 63.2 333.5 98.8 472.6 - 968.1 Operating profit 173.7 37.8 74.1 70.0 117.5 - 473.1 Identifiable assets 1,906.4 90.0 246.6 996.7 303.5 (231.0) 3,312.2
22 INDUSTRY SEGMENT FINANCIAL INFORMATION- COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS (IN MILLIONS OF DOLLARS) Petroleum Products and Services Engineering Services ------------------ -------------------- M. W. Kellogg Operations ------------- 1997 Revenues 2,673.3 1,927.9 ------- ------- Operating profit 330.6 111.1 Amortization of acquisition intangibles (10.8) (10.7) General corporate expenses - - Interest expense, net - - Nonrecurring items (9.7) - ------- ------- Earnings before taxes 310.1 100.4 ------- ------- Identifiable assets 1,711.0 265.7 Acquisition intangibles 295.9 210.7 Corporate assets - - ------- ------- Total assets 2,006.9 476.4 ------- ------- Capital expenditures 210.2 9.2 Depreciation & amortization 123.9 22.6 Backlog (unaudited) 485.6 3,702.5 1996 Revenues 2,160.5 1,621.9 ------- ------- Operating profit 231.3 98.1 Amortization of acquisition intangibles (11.9) (10.2) General corporate expenses - - Interest expense, net - - ------- ------- Earnings before taxes 219.4 87.9 ------- ------- Identifiable assets 1,664.6 229.6 Acquisition intangibles 338.9 216.5 Corporate assets - - ------- ------- Total assets 2,003.5 446.1 ------- ------- Capital expenditures 175.6 35.1 Depreciation & amortization 107.0 20.5 Backlog (unaudited) 572.2 2,897.2 1995 Revenues 1,635.6 1,457.6 ------- ------- Operating profit 162.0 79.3 Amortization of acquisition intangibles (12.5) (10.2) General corporate expenses - - Interest expense, net - - ------- ------- Earnings before taxes 149.5 69.1 ------- ------- Identifiable assets 1,364.2 212.8 Acquisition intangibles 345.9 210.5 Corporate assets - - ------- ------- Total assets 1,710.1 423.3 ------- ------- Capital expenditures 157.3 7.1 Depreciation & amortization 90.4 17.6 Backlog (unaudited) 527.8 1,400.0
23 Energy Equipment - ----------------------------------------------------------------------- Compression Corporate and Flow Power and Pumping Measurement Control Systems Total Eliminations Total - ----------- ----------- ------- ------- ------- ------------ ------- 1,314.9 663.8 597.1 318.6 2,894.4 (37.7) 7,457.9 ------- ----- ----- ----- ------- ------ ------- 108.8 68.8 66.7 38.8 283.1 - 724.8 (1.8) (1.6) (6.1) (.2) (9.7) - (31.2) - - - - - (80.8) (80.8) - - - - - (58.4) (58.4) (18.0) - - (6.4) (24.4) 26.5 (7.6) ------- ----- ----- ----- ------- ------ ------- 89.0 67.2 60.6 32.2 249.0 (112.7) 546.8 ------- ----- ----- ----- ------- ------ ------- 1,039.3 266.0 401.2 169.5 1,876.0 (10.3) 3,842.4 60.4 23.7 218.2 - 302.3 - 808.9 - - - - - 447.5 447.5 ------- ----- ----- ----- ------- ------ ------- 1,099.7 289.7 619.4 169.5 2,178.3 437.2 5,098.8 ------- ----- ----- ----- ------- ------ ------- 37.6 14.0 12.5 18.3 82.4 1.2 303.0 50.5 14.9 25.3 11.4 102.1 6.2 254.8 1,202.2 122.0 233.9 76.4 1,634.5 (2.9) 5,819.7 1,273.5 637.0 611.1 306.0 2,827.6 (48.5) 6,561.5 ------- ----- ----- ----- ------- ------ ------- 101.7 55.7 64.6 38.1 260.1 - 589.5 (1.6) (1.5) (5.9) (.2) (9.2) - (31.3) - - - - - (83.6) (83.6) - - - - - (47.8) (47.8) ------- ----- ----- ----- ------- ------ ------- 100.1 54.2 58.7 37.9 250.9 (131.4) 426.8 ------- ----- ----- ----- ------- ------ ------- 1,024.9 257.4 424.4 162.4 1,869.1 (4.5) 3,758.8 63.2 25.0 225.9 6.6 320.7 - 876.1 - - - - - 515.3 515.3 ------- ----- ----- ----- ------- ------ ------- 1,088.1 282.4 650.3 169.0 2,189.8 510.8 5,150.2 ------- ----- ----- ----- ------- ------ ------- 75.2 14.4 16.1 17.8 123.5 1.2 335.4 44.6 14.8 25.8 10.7 95.9 6.4 229.8 1,130.3 112.5 199.0 75.1 1,516.9 (6.6) 4,979.7 1,220.4 618.7 458.4 276.9 2,574.4 (38.9) 5,628.7 ------- ----- ----- ----- ------- ------ ------- 82.7 71.4 41.8 35.9 231.8 - 473.1 (1.9) (1.3) (3.8) (.2) (7.2) - (29.9) - - - - - (75.2) (75.2) - - - - - (25.8) (25.8) ------- ----- ----- ----- ------- ------ ------- 80.8 70.1 38.0 35.7 224.6 (101.0) 342.2 ------- ----- ----- ----- ------- ------ ------- 954.7 248.0 409.6 160.6 1,772.9 (37.7) 3,312.2 65.4 19.1 204.4 6.8 295.7 - 852.1 - - - - - 543.1 543.1 ------- ----- ----- ----- ------- ------ ------- 1,020.1 267.1 614.0 167.4 2,068.6 505.4 4,707.4 ------- ----- ----- ----- ------- ------ ------- 85.4 15.3 11.3 10.0 122.0 1.8 288.2 44.7 13.9 20.2 10.3 89.1 9.5 206.6 1,076.4 115.9 234.0 91.2 1,517.5 (9.1) 3,436.2
24 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company hedges exposures to potential foreign exchange gains and losses arising on future changes in currency exchange rates. None of these hedging activities are considered material. Information relating to financial instruments is included in Note M to the financial statements of this Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Management Report of Independent Accountants - Price Waterhouse LLP Consolidated Statements of Earnings - Years Ended October 31, 1997, 1996 and 1995 Consolidated Balance Sheets - October 31, 1997 and 1996 Consolidated Statements of Shareholders' Equity - Years Ended October 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows - Years Ended October 31, 1997, 1996 and 1995 Note A - Basis of Presentation, Summary of Significant Accounting Policies and Accounting Change Note B - Joint Ventures, Acquisitions and Asset Sale Note C - Unconsolidated Affiliated Companies Note D - Cash Flow Data Note E - Income Taxes Note F - Short-Term Debt Note G - Long-Term Debt Note H - Employee Incentive Plans Note I - Capital Shares Note J - Commitments and Contingencies Note K - Postretirement Benefits Note L - Supplementary Information, Special Charges and Credits Note M - Financial Instruments Note N - Information by Industry Segment and Geographic Area (Information is included in Item 7. of this report.) Note O - Baroid Financial Information Note P - Quarterly Financial Data (Unaudited) 25 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 fulfills 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, the independent accountants 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. G. H. Juetten, Senior Vice President and K. J. Kotara, Controller Chief Financial Officer 26 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1997, 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 Note A to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS, effective as of November 1, 1994. PRICE WATERHOUSE LLP Dallas, Texas November 26, 1997 27 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED OCTOBER 31, ----------------------------------- IN MILLIONS, EXCEPT PER SHARE DATA 1997 1996 1995 --------- --------- --------- Sales $ 4,245.6 $ 3,867.9 $ 3,428.6 Service revenues 3,173.5 2,665.3 2,184.0 Share of earnings of unconsolidated affiliates 38.8 28.3 16.1 --------- --------- --------- Total revenues 7,457.9 6,561.5 5,628.7 --------- --------- --------- Cost of sales 2,948.3 2,754.7 2,431.6 Cost of services 2,813.5 2,333.4 1,926.3 --------- --------- --------- Total costs of sales and services 5,761.8 5,088.1 4,357.9 --------- --------- --------- Gross earnings 1,696.1 1,473.4 1,270.8 Selling, engineering, administrative and general expenses (1,087.9) (988.1) (909.1) Special charges and credits (7.6) - - Other income (deductions) Interest expense (68.6) (60.5) (47.4) Interest earned 10.2 12.7 21.6 Other, net 4.6 (10.7) 6.3 --------- --------- --------- Earnings before income taxes and other items below 546.8 426.8 342.2 Income taxes (191.4) (145.1) (109.3) Minority interest (37.4) (24.2) (19.8) --------- --------- --------- Earnings before accounting change 318.0 257.5 213.1 Cumulative effect of accounting change - - (16.0) --------- --------- --------- Net earnings $ 318.0 $ 257.5 $ 197.1 --------- --------- --------- --------- --------- --------- Earnings per common share Earnings before accounting change $ 1.81 $ 1.44 $ 1.17 Cumulative effect of accounting change - - (.09) --------- --------- --------- Net earnings $ 1.81 $ 1.44 $ 1.08 --------- --------- --------- --------- --------- --------- Average common shares outstanding 175.7 179.3 182.8
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 28 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, -------------------- IN MILLIONS 1997 1996 ASSETS -------- -------- Current Assets Cash and cash equivalents $ 162.8 $ 232.4 Notes and accounts receivable 1,202.0 1,173.8 Less allowance for doubtful receivables 20.2 21.7 -------- -------- 1,181.8 1,152.1 Inventories Finished products and work in process 783.2 699.4 Raw materials and supplies 189.1 214.2 -------- -------- 972.3 913.6 Deferred income taxes 96.0 83.8 Prepaid expenses 58.7 87.6 -------- -------- Total Current Assets 2,471.6 2,469.5 -------- -------- Investments in and receivables from unconsolidated affiliates 320.3 182.5 Goodwill less accumulated amortization of $151.4 in 1997 and $141.7 in 1996 803.7 870.6 Deferred income taxes 181.7 184.0 Other assets 217.8 181.2 Property, Plant and Equipment, at cost Land and land improvements 73.3 98.4 Buildings 431.9 473.5 Machinery and equipment 2,152.8 2,264.8 -------- -------- 2,658.0 2,836.7 Less accumulated depreciation 1,554.3 1,574.3 -------- -------- Total Properties, net 1,103.7 1,262.4 -------- -------- Total Assets $5,098.8 $5,150.2 -------- -------- -------- -------- SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 29 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, --------------------- IN MILLIONS 1997 1996 LIABILITIES AND SHAREHOLDERS' EQUITY -------- -------- Current Liabilities Short-term debt and current portion of long-term debt $ 48.1 $ 86.0 Accounts payable 566.0 570.6 Contract advances 334.6 459.8 Accrued compensation and benefits 253.8 250.4 Accrued warranty costs 56.6 51.4 Income taxes 122.1 111.3 Other accrued liabilities 306.2 332.3 -------- -------- Total Current Liabilities 1,687.4 1,861.8 -------- -------- Long-Term Debt 758.0 756.3 Employee Retirement Benefit Obligations 622.3 676.3 Deferred Compensation, Insurance Reserves and Other Liabilities 155.2 118.0 Minority Interest 143.7 155.6 Commitments and Contingencies Shareholders' Equity Preferred shares, 10 million authorized - - Common shares, $0.25 par value Authorized: 400 million Issued: 184.9 million 46.2 46.2 Capital in excess of par value 452.8 454.8 Retained earnings 1,615.8 1,420.8 Cumulative translation adjustment (112.2) (81.5) Pension liability adjustment (3.9) (6.9) -------- -------- 1,998.7 1,833.4 Less treasury shares, at cost 266.5 251.2 -------- -------- Total Shareholders' Equity, net 1,732.2 1,582.2 -------- -------- Total Liabilities and Shareholders' Equity $5,098.8 $5,150.2 -------- -------- -------- -------- SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 30 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED OCTOBER 31, --------------------------------- IN MILLIONS, EXCEPT PER SHARE DATA 1997 1996 1995 -------- -------- -------- COMMON SHARES, PAR VALUE Beginning of year $ 46.2 $ 46.1 $ 46.0 Shares issued pursuant to stock warrant agreement - .1 - Shares issued under benefit and dividend reinvestment plans - - .1 -------- -------- -------- End of year $ 46.2 $ 46.2 $ 46.1 -------- -------- -------- -------- -------- -------- CAPITAL IN EXCESS OF PAR VALUE Beginning of year $ 454.8 $ 451.6 $ 448.6 Shares issued pursuant to stock warrant agreement - 7.8 - Shares issued under benefit and dividend reinvestment plans (2.0) (4.6) 3.0 -------- -------- -------- End of year $ 452.8 $ 454.8 $ 451.6 -------- -------- -------- -------- -------- -------- RETAINED EARNINGS Beginning of year $1,420.8 $1,285.4 $1,212.6 Net earnings 318.0 257.5 197.1 Dividends on common shares (123.0) (122.1) (124.3) -------- -------- -------- End of year $1,615.8 $1,420.8 $1,285.4 -------- -------- -------- -------- -------- -------- CUMULATIVE TRANSLATION ADJUSTMENTS Beginning of year $ (81.5) $ (76.7) $ (63.1) Translation rate changes (30.7) (4.8) (13.6) -------- -------- -------- End of year $ (112.2) $ (81.5) $ (76.7) -------- -------- -------- -------- -------- -------- PENSION LIABILITY ADJUSTMENT Beginning of year $ (6.9) $ (7.0) $ (7.6) Current year adjustment 3.0 .1 .6 -------- -------- -------- End of year $ (3.9) $ (6.9) $ (7.0) -------- -------- -------- -------- -------- -------- TREASURY SHARES, AT COST Beginning of year $ (251.2) $ (42.6) $ (4.2) Shares purchased (41.9) (228.1) (46.8) Shares issued under benefit and dividend reinvestment plans 26.6 19.5 8.4 -------- -------- -------- End of year $ (266.5) $ (251.2) $ (42.6) -------- -------- -------- -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY, END OF YEAR $1,732.2 $1,582.2 $1,656.8 -------- -------- -------- -------- -------- -------- SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 31 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, --------------------------------- IN MILLIONS 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 318.0 $ 257.5 $ 197.1 ------- ------- ------- Adjustments to reconcile net earnings to cash flow provided by operating activities: Depreciation and amortization 254.8 229.8 206.6 Cumulative effect of accounting change - - 16.0 Earnings from unconsolidated affiliates (38.8) (28.3) (16.1) Dividends and advances from unconsolidated affiliates 18.9 37.0 23.0 Minority interest provision 37.4 24.2 19.8 Changes in contract advances (115.7) 131.3 56.3 Changes in working capital (208.5) (239.5) (83.6) Other, net 18.8 0.2 8.1 ------- ------- ------- Total adjustments (33.1) 154.7 230.1 ------- ------- ------- Net cash provided by operating activities 284.9 412.2 427.2 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (303.0) (335.4) (288.2) Business acquisitions (3.6) (32.2) (325.7) Cash of acquired businesses - 3.3 8.6 Proceeds from Sub Sea assets sale 102.0 - Other (primarily proceeds from disposal of assets) 18.0 14.6 35.6 ------- ------- ------- Net cash used by investing activities (186.6) (349.7) (569.7) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt - 295.5 - Purchase of common shares for Treasury (41.9) (228.1) (46.8) Dividends paid (123.0) (122.1) (124.3) Increase (decrease) in short-term debt (31.2) (45.6) 58.2 Increase (decrease) in long-term debt 1.7 (3.0) (16.8) Sale/issuance of common shares 22.2 20.7 7.3 ------- ------- ------- Net cash used by financing activities (172.2) (82.6) (122.4) ------- ------- ------- EFFECT OF TRANSLATION ADJUSTMENTS ON CASH 4.3 3.8 (1.4) ------- ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (69.6) (16.3) (266.3) CASH AND CASH EQUIVALENTS: Beginning of year 232.4 248.7 515.0 ------- ------- ------- End of year $ 162.8 $ 232.4 $ 248.7 ------- ------- ------- ------- ------- ------- SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 32 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING CHANGE 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 accounted for on the equity method and investments in less than 20% owned affiliates are accounted for on the cost method. REVENUE RECOGNITION Revenues and earnings from long-term engineering and construction contracts are recognized on the percentage-of-completion method, measured generally on the 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. 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 $155.8 million, $239.6 million and $138.3 million for the years ended October 31, 1997, 1996 and 1995, respectively. Amounts billed in excess of revenues recognized or costs incurred are included in current liabilities under contract advances. 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. Inventories on the LIFO method were $146.2 million and $118.4 million at October 31, 1997 and 1996, respectively. Under the average cost method, inventories would have increased by $97.4 million and $99.0 million at October 31, 1997 and 1996, respectively. Inventories are stated net of progress payments received on contracts of $121.2 million and $118.5 million at October 31, 1997 and 1996, respectively. 33 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING CHANGE (CONTINUED) 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. GOODWILL The difference between purchase price and the fair values of net assets at date of acquisition of businesses acquired is amortized on a straight-line basis over the estimated periods benefited, not exceeding 40 years. Goodwill that is identified with impaired assets, if any, will be evaluated using undiscounted future cash flows as the basis for determining if impairment exists under the provisions of Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121"). To the extent impairment is indicated to exist, an impairment loss will be recognized under SFAS 121 based on fair value. Otherwise, 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 Financial statements of foreign subsidiaries are translated into U.S. dollars based on the functional currency of each business unit. For units whose local currency is the functional currency, 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 units which have the U.S. dollar as the functional currency, 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. ACCOUNTING CHANGE Effective November 1, 1994, the Company changed its accounting for postemployment benefits as required by Statement of Financial Accounting Standards No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS (SFAS 112). Postemployment benefits include salary continuation, disability, and health care for former or inactive employees who are not retired. Medical benefits for employees on long-term disability are the most significant of the benefits. SFAS 112 requires accrual of the cost of these benefits currently. The Company had previously accrued the liability for salary continuation but had expensed the other benefits as paid. The Consolidated Statement of Earnings for 1995 includes a charge of $16.0 million (net of tax of $9.0 million) or $0.09 per share for the cumulative effect of the accounting change. 34 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING CHANGE (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates, but management does not believe such differences will materially affect the Company's financial position, results of operations or cash flows. NEW ACCOUNTING PRONOUNCEMENT In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION (SFAS 123). The Company has elected not to adopt the accounting recognition provisions of SFAS No. 123 and, as permitted, will continue to use the accounting method established by Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, (APB 25) to account for its stock-based compensation programs. The Company has adopted SFAS No. 123 by making the required pro forma disclosures of net earnings and net earnings per share as if the fair value method of accounting under SFAS No. 123 has been applied. (See Note H - Employee Incentive Plans.) FUTURE REPORTING REQUIREMENTS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS 128), Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS 130), and Statement of Financial Accounting Standards No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS 131). The Company must adopt the provisions of SFAS 128 beginning in fiscal year 1998 and the provisions of SFAS 130 and SFAS 131 in fiscal year 1999. SFAS 128 establishes standards for computing and presenting earnings per share by simplifying the existing standards found in APB Opinion No. 15, EARNINGS PER SHARE. SFAS 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share. The Company does not expect the adoption of SFAS 128 to have a material effect on the computation and presentation of earnings per share from the method currently followed by the Company. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Company expects to comply with the standards of SFAS 130 in the Consolidated Statements of Shareholders' Equity, when adopted. SFAS 131 requires segment information to be reported on a basis consistent with that used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company is evaluating the impact of adopting SFAS 131 on the way it currently reports segment information. 35 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B - JOINT VENTURES, ACQUISITIONS AND ASSET SALE JOINT VENTURES Effective February 29, 1996, the Company entered into an agreement to form a joint venture with Shaw Industries Ltd. (Shaw) by contributing its Bredero Price assets and Shaw contributing its Shaw Pipe Protection assets on a worldwide basis. During the fourth quarter of 1997, the Company and Shaw agreed to a long-term extension of their strategic pipe coating alliance, Bredero-Shaw. In connection with the new agreement, Shaw agreed to pay the Company $50 million over a four-year period. This transaction resulted in a fourth quarter pretax gain of $41.7 million which is reported in the Statement of Earnings in the caption "Special Charges and Credits". For balance sheet purposes, as of October 31, 1997 the Company deconsolidated Bredero-Shaw and accounted for its 50% interest in the joint venture as an equity investment. The Company will include its share of equity earnings in the results of operations beginning November 1, 1998 under the equity method. ACQUISITIONS The Company acquired several small businesses during 1997 and 1996 for $3.6 million and $32.2 million, respectively. These businesses did not have a significant effect on revenues or earnings. During fiscal 1995, the Company acquired Subtec Asia Ltd., a Sharjah, United Arab Emirates company, which provides underwater technology services primarily to the offshore oil and gas industry, for $37.6 million in cash including repayment of debt. On May 2, 1995, the Company acquired North Sea Assets P.L.C., the remotely operated vehicle business of NSA/HMB Group, for approximately $30.4 million in cash. On May 1, 1995, the Company acquired the assets of Wellstream Company L.P., which was engaged in the production of high pressure flexible pipe and riser systems, for $62.4 million in cash, including repayment of debt. Also, the Company acquired the assets of Energy Coatings Company on May 5, 1995, and Pipeline Coating, Inc. on July 1, 1995, for a total of approximately $13.6 million in cash. These last two companies perform pipe coating services. Effective May 31, 1995, the Company acquired all the outstanding shares of Grove S.p.A. (Grove), an Italian corporation, for $162.7 million in cash, including repayment of debt. Grove is a multinational company engaged in the production of oilfield valves and regulators. The above acquisitions were accounted for as purchases, and their results of operations are included in the Consolidated Statements of Earnings from the acquisition dates. The purchase prices exceeded the value of the net assets acquired by $244.1 million. The excess is included in goodwill in the Consolidated Balance Sheets and is being amortized on a straight-line basis over 40 years. The pro forma effect of these acquisitions is not material. ASSET SALE In June 1997, the Company sold certain assets of its SubSea operations to Global Industries, Ltd. for $102.0 million cash. The Company recognized a loss of $6.3 million (net of tax of $3.4 million) on the sale. 36 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C - 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): 1997 1996 1995 ------ ------ ----- Share of earnings of unconsolidated affiliates Ingersoll-Dresser Pump Company $ 29.4 $ 22.1 $13.2 Bufete Industriale, S.A. de C.V. - - (5.2) Other affiliates 9.4 6.2 8.1 ------ ------ ----- $ 38.8 $ 28.3 $16.1 ------ ------ ----- ------ ------ ----- Dividends received $ 7.3 $ 8.2 $ 7.4 ------ ------ ----- ------ ------ ----- Advances received $ 11.6 $ 28.8 $15.6 ------ ------ ----- ------ ------ ----- OCTOBER 31, ----------------- 1997 1996 ------ ------ Investments in and receivables from unconsolidated affiliates Ingersoll-Dresser Pump Company $133.2 $132.5 Bredero-Shaw 139.0 - Other affiliates 48.1 50.0 ------ ------ $320.3 $182.5 ------ ------ ------ ------ The Company's share of earnings for Ingersoll-Dresser Pump Company is before income taxes and includes adjustments made by the Company for differences in the timing of adoption of an accounting change and for expenses retained by the Company. In the fourth quarter of 1995, The M. W. Kellogg Company (a wholly-owned subsidiary) sold a portion of its interest in its Mexican affiliate, Bufete Industriale, S.A. de C.V., and recognized a gain of $7.5 million. As a result of the sale, Kellogg's ownership interest fell below 20%. Thereafter, Kellogg accounted for its investment on the cost method rather than the equity method used before the sale. Separately, Kellogg entered into a derivative transaction with the purchasers of the Bufete shares. The derivative agreement is based on the $20.4 million price of the shares sold. On the settlement date of October 30, 1998, the Company will receive or make a cash payment equal to the increase or decrease, respectively, in the value of the shares sold. The estimated effect of the agreement will be accrued during the term of the agreement. As of October 31, 1997, the carrying value of the derivative was not significant and the fair value approximated the carrying value. The counterparties to the derivative are high quality institutions, and the Company believes that they are not significant credit risks. Kellogg has the right of first refusal should the purchasers want to sell the shares. 37 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE D - 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 is as follows (in millions): 1997 1996 1995 ------- ------- ------ Cash payments for income taxes $ 142.2 $ 155.6 $ 82.6 ------- ------- ------ ------- ------- ------ Cash payments for interest on debt $ 70.9 $ 51.2 $ 46.1 ------- ------- ------ ------- ------- ------ Working capital changes on the Consolidated Statements of Cash Flows were as follows (in millions): 1997 1996 1995 ------- ------- ------ (Increase) in receivables $(107.9) $(145.3) $(71.2) (Increase) in inventories (103.0) (101.5) (89.2) (Increase) decrease in deferred taxes and prepaid expenses 1.2 5.4 (33.3) Increase (decrease) in accrued liabilities and accounts payable (13.1) 19.2 95.0 Increase (decrease) in income taxes payable 14.3 (17.3) 15.1 ------- ------- ------ $(208.5) $(239.5) $(83.6) ------- ------- ------ ------- ------- ------ 38 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E - INCOME TAXES The domestic and foreign components of earnings before income taxes consist of the following (in millions): 1997 1996 1995 ------ ------ ------ Domestic $241.6 $267.0 $177.8 Foreign 305.2 159.8 164.4 ------ ------ ------ Total earnings before income taxes $546.8 $426.8 $342.2 ------ ------ ------ ------ ------ ------ The components of the provision for income taxes are as follows (in millions): 1997 1996 1995 ------ ------ ------ Current U.S. Federal $ 80.7 $ 84.3 $ 52.1 State 8.3 7.1 3.7 Foreign 109.2 43.3 48.3 ------ ------ ------ 198.2 134.7 104.1 ------ ------ ------ Deferred U.S. Federal (6.7) (3.0) (5.7) Foreign (.1) 13.4 10.9 ------ ------ ------ (6.8) 10.4 5.2 ------ ------ ------ Total income tax provision $191.4 $145.1 $109.3 ------ ------ ------ ------ ------ ------ The Company has not provided U.S. federal income and foreign withholding taxes on $805 million of non-U.S. subsidiaries' undistributed earnings as of October 31, 1997, because such earnings are intended to be reinvested indefinitely to finance foreign operations and expansion. If these earnings were distributed, foreign tax credits should become available under current law to reduce or eliminate the resulting U.S. income tax liability. When the Company identifies exceptions to the general reinvestment policy, additional taxes are provided. The following is a reconciliation of income taxes at the U.S. Federal income tax rate of 35% to the effective provision for income taxes reflected in the Consolidated Statements of Earnings (in millions): 1997 1996 1995 ------ ------ ------ Provision for income taxes at statutory rates $191.4 $149.4 $119.8 Net tax benefits of foreign dividends and foreign tax credit carry forwards (.8) (10.1) (5.3) Foreign losses not benefited 3.9 9.6 5.6 Foreign taxes less than U.S. rate on foreign earnings (6.5) (7.4) (6.9) Non-deductible goodwill amortization 11.1 8.3 7.1 Book/tax basis differential of acquired property - (5.4) - Change in valuation allowance attributable to: Foreign net operating losses (5.5) (3.5) (6.3) Utilization of capital losses - - (2.8) State and local income taxes, net of U.S. Federal income tax benefit 5.4 4.1 2.4 Other (7.6) .1 (4.3) ------ ------ ------ Provision for income taxes $191.4 $145.1 $109.3 ------ ------ ------ ------ ------ ------ 39 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E - INCOME TAXES (CONTINUED) Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The deferred income tax provisions (credits) relate to the following (in millions): 1997 1996 1995 ------ ------ ------ Postretirement benefits $ 7.7 $ 4.1 $ 4.6 Increase (decrease) in valuation allowance on temporary differences (11.5) 4.6 (9.1) Other items including warranty, insurance and similar accruals (3.0) 1.7 9.7 ------ ------ ------ Total deferred taxes $ (6.8) $ 10.4 $ 5.2 ------ ------ ------ ------ ------ ------ The components of the net deferred tax asset as of October 31, were as follows (in millions): 1997 1996 ------ ------ Deferred tax asset: Postretirement and postemployment benefits $193.6 $201.3 Long-term contracts 18.9 18.2 Warranty reserves 8.4 9.7 Inventory 23.0 21.6 Insurance reserves 33.1 33.7 Deferred compensation 24.0 19.4 Net operating loss carryforwards 10.9 24.6 Other items 20.1 27.0 Valuation allowance (5.9) (17.4) ------ ------ Total deferred tax asset 326.1 338.1 ------ ------ Deferred tax liability: Depreciation and amortization (48.4) (64.6) Other items - (5.7) ------ ------ Total deferred tax liability (48.4) (70.3) ------ ------ Net deferred tax asset $277.7 $267.8 ------ ------ ------ ------ At October 31, 1997, the Company had foreign operating loss carryforwards of approximately $20 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 liabilities of their respective foreign entities. Approximately $10 million of these losses will carry forward indefinitely while the remaining losses expire at various dates from 1998 to 2007. The net change of $11.5 million in 1997 in the valuation allowance for deferred tax assets relates to decreases in the valuation allowance for foreign losses. 40 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F - SHORT-TERM DEBT Short-term debt at October 31, 1997, consists of $47.8 million of foreign bank loans including amounts drawn against overdraft facilities. The foreign bank loans are primarily in foreign currencies and are at negotiated interest rates. As of October 31, 1997, the Company had $280.0 million unused and available short-term committed U.S. bank lines of credit. Such lines provide for borrowings at negotiated interest rates for a high quality industrial company. The lines of credit may be terminated at the option of the banks or the Company. As of October 31, 1997, loan arrangements had 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, 1997, the amount unused and available under these arrangements aggregated $363.8 million. NOTE G - LONG-TERM DEBT Long-term debt is summarized as follows (in millions): OCTOBER 31, -------------------- 1997 1996 ------ ------ Notes, 6.25%, due 2000 $ 300.0 $ 300.0 Debentures, 7.60%, due 2096 300.0 300.0 Senior notes, 8%, due 2003 149.5 149.3 Other loan agreements 8.8 8.6 ------- ------- 758.3 757.9 Less portion due within one year .3 1.6 ------- ------- $ 758.0 $ 756.3 ------- ------- ------- ------- NOTE H - 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 option price for 550,391 shares granted from 1993 through 1995 and still outstanding include prices that increase on the annual anniversary dates of grants. 41 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE H - EMPLOYEE INCENTIVE PLANS (CONTINUED) STOCK COMPENSATION PLAN (CONTINUED) Changes in outstanding options under the Stock Option Program during the three years ended October 31, 1997 and options exercisable at October 31, 1997 are as follows: Outstanding at October 31, 1994 3,052,952 Granted at $19.313 to $23.00 474,737 Exercised at $3.57 to $23.04 (414,082) Canceled or expired (29,470) ----------- Outstanding at October 31, 1995 3,084,137 Granted at $21.75 to $28.375 768,423 Exercised at $3.57 to $23.88 (730,458) ----------- Outstanding at October 31, 1996 3,122,102 Granted at $30.6875 to $45.4063 1,049,799 Exercised at $3.57 to $28.437 (1,020,154) Canceled or expired (70,260) ----------- Outstanding at October 31, 1997 3,081,487 ----------- ----------- Exercisable at October 31, 1997 at $3.57 to $35.875 2,061,245 ----------- ----------- At October 31, 1997 a total of 6.3 million Dresser common shares were reserved for granting of future options under the 1992 plan. The Company applies APB 25 in accounting for its Stock Option Program described above. The option price under the Stock Option Program equals or exceeds the fair market value of the common shares on the date of grant and, accordingly, no compensation cost has been recognized under the provisions of APB 25 for stock options. Under SFAS 123, compensation cost is measured at the grant date based on the value of the award and is recognized over the service (or vesting) period. Had compensation cost for the Company's Stock Option Program been determined under SFAS 123, based on the fair market value at the grant dates, the Company's pro forma net earnings and net earnings per share would have been reflected as follows: (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1997 1996 ------- ------- Net earnings As reported $ 318.0 $ 257.5 Pro forma $ 312.7 $ 254.7 Net earnings per share As reported $ 1.81 $ 1.44 Pro forma $ 1.78 $ 1.42 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumption used for those options granted in 1997 and 1996, respectively: dividend yield of 2.72%, expected volatility of 22.8% and 23.1%, risk-free interest rates of 6.38% and 5.84%, and expected lives of 6.5 years. 42 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE I - CAPITAL SHARES Changes in issued common shares during the three years ended October 31, 1997 are as follows (in thousands): Shares at October 31, 1994 184,048 Issued under benefit and dividend reinvestment plans 418 ------- Shares at October 31, 1995 184,466 Issued pursuant to stock warrant agreement 400 ------- Shares at October 31, 1996 184,866 ------- Shares at October 31, 1997 184,866 ------- ------- Changes in common shares held in treasury during the three years ended October 31, 1997 are as follows (in thousands): Treasury shares at October 31, 1994 196 Shares purchased 2,327 Issued under benefit and dividend reinvestment plans (413) ------- Treasury shares at October 31, 1995 2,110 Shares purchased 8,163 Issued under benefit and dividend reinvestment plans (1,026) ------- Treasury shares at October 31, 1996 9,247 Shares purchased 1,399 Issued under benefit and dividend reinvestment plans (1,363) ------- Treasury shares at October 31, 1997 9,283 ------- ------- 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. 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 $0.01 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. 43 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J - COMMITMENTS AND CONTINGENCIES GENERAL LITIGATION On August 28, 1997, the Eleventh Circuit Federal Court of Appeals issued its decision in favor of the Company by reversing the trial court's decision in a lawsuit brought by parties who purchased a construction equipment dealership from a third party in 1988. The Court held that the trial court judge should have granted the Company's motion for summary judgment and reversed the plaintiff's awarded judgment of $6.5 million for compensatory damages and $4.0 million for punitive damages. The purchasers of the Company's former hand tool division sued the Company for fraud in connection with the October 1983 transaction. In May 1994, the jury returned a verdict awarding the plaintiffs $4.0 million in compensatory damages and $50.0 million in punitive damages. On October 13, 1994, the Court ordered a reduction of damages from $54.0 million to $12.0 million. On October 15, 1996, the Court of Appeals issued its decision reversing the trial court's decision as to compensatory and punitive damages and remanding the case for a new trial on damages. On remand, the trial court ordered that the new trial contemplated by the appellate decision be limited to compensatory damages only, despite the express statement that punitive damages were also reversed, and decided that the court would review the original punitive damages verdict after the retrial on compensatory damages. Dresser disagrees with this interpretation of the appellate decision and believes that the trial court erred as a matter of law. Nevertheless, Dresser is preparing to defend itself vigorously at the new trial on compensatory damages which is set for April 20, 1998, and throughout the post-trial review process. 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 66,000 pending claims, reflecting approximately 22,000 new claims opened in fiscal 1997 and 25,000 claims closed in fiscal 1997, in which it is alleged that third parties sustained injuries and damages resulting from the inhalation of asbestos fibers in products manufactured by the Company. Of the pending claims, approximately 10,000 allege injury as a result of exposure to asbestos contained in refractory products. The Company has entered into an agreement with its insurance carriers on these claims that currently covers 71% of its fees, expenses and indemnity payments. A lawsuit has been filed against certain of the Company's excess carriers, which, if successful, would raise the amount to 82%. During the fiscal year, there were approximately 1,200 new claims filed or identified and approximately 6,500 claims were tried, settled or summarily disposed for a gross cost of $14.4 million ($4.2 million after insurance recoveries), including legal fees, expenses and indemnity payments. Since 1976, the Company has tried, settled or summarily disposed of approximately 24,000 claims for a gross cost of $53.5 million ($15.5 million after insurance recoveries), including legal fees, expenses and indemnity payments. Management has no reason to believe the carriers will not be able to meet their share of the obligations under the agreement. The Company has provided for the estimated exposure, based upon past experience, of the open claims. Refractory product claims subsequent to July 31, 1992, are the responsibility of Harbison-Walker Refractories Company (formerly INDRESCO Inc.) pursuant to an agreement entered into at the time of the spin-off of INDRESCO by the Company. Of the 56,000 non-refractory claims, substantially all are covered, in whole or in part, by various agreements with insurance carriers. Because these agreements for claims are governed by exposure dates and payment types, the covered amount varies by individual claim. During the fiscal year, there were approximately 20,500 new claims filed, and approximately 18,400 claims were tried, settled or summarily disposed for a gross cost of $5.5 million ($4.2 million after insurance recoveries from signed agreements), including legal fees, expenses and indemnity 44 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J - COMMITMENTS AND CONTINGENCIES (CONTINUED) ASBESTOSIS LITIGATION (CONTINUED) payments. Since 1976, the Company has tried, settled or summarily disposed of approximately 63,800 claims for a gross cost of $20.8 million ($12.6 million after insurance recoveries from signed agreements), including legal fees, expenses and indemnity payments. A lawsuit has been filed against a group of insurance carriers seeking to recover indemnity costs for a portion of these claims, and the Company is in negotiation with those carriers. The Company expects to recover additional amounts from those carriers which will further reduce the amounts incurred. There is no guarantee that the amount covered by insurance under any future agreements will be similar to prior agreements. Included in the 66,000 pending claims at October 31, 1997, are approximately 24,400 settlements that are still carried as pending until all releases are signed. Resolution of these claims will reduce the number of pending claims at October 31, 1997, by approximately 16% for refractory product claims and 41% for non-refractory product claims. 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. 45 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J - COMMITMENTS AND CONTINGENCIES (CONTINUED) 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 sought $200 million in actual damages and twice that amount in punitive damages. Kellogg answered denying the claim and filed a counterclaim against Quantum alleging libel, slander, breach of contract and fraud. The case was tried during 1995. On November 30, 1995, the jury returned a verdict finding that there was no fraud on the part of Kellogg, that Quantum's claim was barred by the statute of limitations, that Quantum is liable for $4.3 million in breach of contract damages, that Quantum is liable for $4.1 million in damages for theft of trade secrets, and that Quantum is liable for $3.0 million of Kellogg's legal fees. Quantum appealed the judgment. The parties have argued the case before the State Intermediate Court of Appeals and were awaiting the Court's decision. While the case was being reviewed by the State Intermediate Court of Appeals, the parties involved agreed to a settlement. ENVIRONMENTAL MATTERS The Company has been preliminarily identified as a potentially responsible party in 100 Superfund sites. Primary responsibility for nine of these sites was assumed by Global Industrial Technologies Inc. and there is joint responsibility at three sites. The Company has entered into settlements at 36 sites at a total cost of less than $2 million. Upon evaluation of the information concerning the sites, the Company determined that it is not a responsible party and had no liability at 26 sites. Based on the Company's historical experience with similar claims and management's understanding of the facts and circumstances, management determined that the resolution of liability at the 29 remaining sites will be reached without material effect on the Company's financial position or results of operations. OTHER LITIGATION The Company is involved in certain other legal actions and claims arising in the ordinary course of business. Management recognizes the uncertainties of litigation and the possibility that one or more adverse rulings could materially impact operating results. However, based upon the nature of and management's understanding of the facts and circumstances which gave rise to such actions and claims, management believes that such litigation and claims will be resolved without material effect on the Company's financial position or results of operations. OTHER COMMITMENTS Total rental and lease expense charged to earnings was $124.3 million in 1997, $107.0 million in 1996 and $103.4 million in 1995. At October 31, 1997, the aggregate minimum annual obligations under noncancelable leases were: $75.6 million for 1998; $49.1 million for 1999; $36.3 million for 2000; $27.7 million for 2001; $22.5 million for 2002 and $57.1 million for all subsequent years. The lease obligations related primarily to general and sales office space and warehouses. 46 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K - POSTRETIREMENT BENEFITS HEALTH CARE AND LIFE INSURANCE BENEFITS The Company has health care and life insurance plans for eligible retired U.S. union and non-union employees. Although certain plans are contributory, the Company generally absorbs the majority of the costs. The Company funds the benefit plans as claims and premiums are paid. During 1997, the Company adopted amendments to eliminate certain postretirement medical benefit programs. These amendments resulted in a curtailment gain of $11.2 million, including $8.4 million at Dresser-Rand Company. The net periodic postretirement benefit expense and the actual benefits paid were as follows (in millions): 1997 1996 1995 ------ ------ ------ Service cost for benefits earned $ 3.9 $ 4.2 $ 4.2 Interest cost on accumulated postretirement benefit obligation 27.8 29.3 29.7 Net amortization of unrecognized gain, including curtailment gain (28.8) (19.2) (18.5) ------ ------ ------ Net periodic postretirement benefit expense $ 2.9 $ 14.3 $ 15.4 ------ ------ ------ ------ ------ ------ Actual benefits paid $ 24.9 $ 24.6 $ 25.3 ------ ------ ------ ------ ------ ------ The liability of the plans at October 31 was as follows (in millions): 1997 1996 ------ ------ Actuarial present value of accumulated postretirement benefit obligation: Retirees $243.5 $253.3 Fully eligible active plan participants 53.6 53.8 Other active plan participants 53.5 65.8 ------ ------ Total accumulated postretirement benefit obligation 350.6 372.9 Unamortized gains from plan amendments 155.5 158.8 Unrecognized net gain 91.3 92.0 ------ ------ Accrued postretirement benefit liability $597.4 $623.7 ------ ------ ------ ------ Accrued compensation and benefits on the Consolidated Balance Sheets include the current portion of the accrued liability of $20.0 million. Assumptions used to calculate the accumulated postretirement benefit obligation as of October 31 were as follows: Discount rate - 8.0% for 1997 and 1996, and 8.25% for 1995 Health care trend rate (weighted based on participant count) - 9.0% for 1997 and 10.0% for 1996 and 1995, declining to 5.5% in 2002 and level thereafter A one percentage-point increase in the assumed health care cost trend rate for each year would increase the net postretirement benefit expense for 1997 by approximately $3.1 million and would increase the accumulated postretirement benefit obligation as of October 31, 1997, by approximately $26.2 million. 47 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K - POSTRETIREMENT BENEFITS (CONTINUED) PENSION PLANS AND RETIREMENT SAVINGS PLANS The Company has numerous defined benefit pension plans covering certain employees in the United States. The benefits under the U.S. plans are based primarily on years of service and employees' qualifying compensation during the final years of employment for salaried employees and are based primarily on years of service for hourly employees. 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, 1997. 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 has defined contribution 401(k) plans for most of its U.S. salaried employees and certain U.S. union hourly employees. Under these plans, eligible employees may contribute amounts through payroll deductions. The employee contributions and employer contributions are invested in funds available under the plans. Expense for all defined contribution plans was $46.5 million, $41.8 million and $24.4 million in 1997, 1996 and 1995, respectively. The 1997 expense increase versus 1996 resulted from the investment earnings on the non-qualified plans, additional participants and increase in salaries. The 1996 expense increase versus 1995 resulted from a full year's cost of the new retirement savings plan compared with five months in 1995. Expense for all defined benefit plans and cash contributions to the plans were as follows (in millions): 1997 1996 1995 ------ ------ ------ Service cost for benefits earned $ 17.4 $ 15.5 $ 17.4 Interest cost on projected benefit obligation 46.7 43.6 41.0 Return on plan assets (59.5) (48.8) (44.6) Net amortization and deferral 2.8 (3.7) (1.2) ------ ------ ------ Net pension expense $ 7.4 $ 6.6 $ 12.6 ------ ------ ------ ------ ------ ------ Cash contributions $ 25.1 $ 18.8 $ 23.5 ------ ------ ------ ------ ------ ------ 48 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K - POSTRETIREMENT BENEFITS (CONTINUED) PENSION PLANS AND RETIREMENT SAVINGS PLANS (CONTINUED) The funded status of the defined benefit plans on the measurement dates of October 31 was as follows (in millions): Plans with Assets Exceeding Benefits 1997 1996 -------- -------- Actuarial present value of benefit obligations: Vested benefit obligation $ 469.9 $ 251.6 ------- ------- ------- ------- Accumulated benefit obligation $ 482.8 $ 256.0 ------- ------- ------- ------- Projected benefit obligation $ 513.4 $ 277.8 Plan assets at fair value 664.5 384.3 ------- ------- Plan assets over projected benefit obligation 151.1 106.5 Unrecognized net (gain)/loss (41.4) 1.3 Prior service cost not yet recognized in net periodic pension expense (20.5) (24.1) Unrecognized transition net asset (9.7) (16.2) ------- ------- Prepaid pension costs $ 79.5 $ 67.5 ------- ------- ------- ------- Plans with Benefits Exceeding Assets 1997 1996 ------- ------- Actuarial present value of benefit obligations: Vested benefit obligation $ 83.0 $ 246.1 ------- ------- ------- ------- Accumulated benefit obligation $ 90.0 $ 260.9 ------- ------- ------- ------- Projected benefit obligation $ 95.2 $ 297.2 Plan assets at fair value 50.7 217.6 ------- ------- Projected benefit obligation over plan assets (44.5) (79.6) Unrecognized net (gain)/loss (2.1) 1.4 Prior service cost not yet recognized in net periodic pension expense 5.3 24.3 Unrecognized transition obligation 2.8 7.8 Adjustment required to recognize additional minimum liability (11.1) (32.5) ------- ------- Pension liability $ (49.6) $ (78.6) ------- ------- ------- ------- On the Consolidated Balance Sheets, "Other assets" include prepaid pension costs and "Accrued compensation and benefits" include the current portion of the pension liabilities. The Company recognized an additional minimum pension liability for underfunded defined benefit plans. The additional minimum liability is equal to the excess of the accumulated benefit obligation over plan assets and accrued liabilities. A corresponding amount is recognized as either an intangible asset or a reduction of shareholders' equity. As of October 31, 1997 and 1996, the Company had recorded additional minimum liabilities of $11.1 million and $32.5 million, intangible assets of $5.0 million and $20.9 million, and adjustments to shareholders' equity, (net of income taxes and minority interest) of $3.9 million and $6.9 million, respectively. 49 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K - POSTRETIREMENT BENEFITS (CONTINUED) PENSION PLANS AND RETIREMENT SAVINGS PLANS (CONTINUED) The actuarial assumptions used in determining funded status of the plans were as follows: 1997 1996 ------------ ------------ U. S. Plans Discount rate 8.0% 8.0% Expected long-term rate of return on assets 8.5% to 9.0% 8.5% to 9.0% Rate of increase in compensation levels 4.0% to 5.5% 4.0% to 5.5% Foreign Plans Discount rate 7.0% to 12.5% 7.0% to 12.5% Expected long-term rate of return on assets 7.0% to 13.5% 7.0% to 13.5% Rate of increase in compensation levels 4.0% to 11.0% 4.0% to 11.0% NOTE L - SUPPLEMENTARY INFORMATION, SPECIAL CHARGES AND CREDITS Depreciation of property, plant and equipment charged to earnings amounted to $219.0 million in 1997, $193.4 million in 1996 and $174.4 million in 1995. Amortization of intangibles was $35.8 million in 1997, $36.4 million in 1996 and $32.2 million in 1995 and is included in selling, engineering, administrative and general expenses. Research and development costs charged to earnings were $120.0 million in 1997, $110.6 million in 1996, and $96.5 million in 1995. The components of other income (deductions), net on the Consolidated Statements of Earnings are as follows (in millions): 1997 1996 1995 ------ -------- ------- Foreign exchange gain (loss) $ .2 $ (15.2) $ (1.2) Gains on sales of assets 4.4 4.5 7.5 ------ -------- ------- $ 4.6 $ (10.7) $ 6.3 ------ -------- ------- ------ -------- ------- Special charges and credits consist of the following (in millions): 1997 ------- Gain on extension of Bredero-Shaw joint venture agreement (See Note B) $ 41.7 Write-down of assets with impaired values and early retirement incentives (21.6) Restructuring charges applicable to Dresser-Rand & Ingersoll-Dresser Pump joint ventures (18.0) Loss on sale of certain SubSea assets (See Note B) (9.7) ------- $ (7.6) ------- ------- 50 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE L - SUPPLEMENTARY INFORMATION, SPECIAL CHARGES AND CREDITS (CONTINUED) Prior to October 31, 1997, the Company, along with its joint venture partner Ingersoll-Rand Company, approved profit improvement initiatives at Dresser-Rand Company and Ingersoll-Dresser Pump Company. Profit improvement initiatives at the Dresser-Rand and Ingersoll-Dresser Pump joint ventures will include the closure of a Dresser-Rand European plant, personnel reductions in administrative and sales support, consolidation of repair and service operations and the discontinuance of certain product lines. The Company's share of the total pretax costs to implement these initiatives is $48.2 million. Of this amount, $18.0 million (or $7.5 million after tax and minority interest) was recorded in the fourth quarter of fiscal 1997. The remaining $30.2 million (or $12.0 million after tax and minority interest) will be recorded in fiscal 1998 upon notification of employee terminations. During 1997, the Company recorded a pretax charge of $21.6 million to write-down certain assets whose carrying value has been impaired and to provide for early retirement incentives. NOTE M - FINANCIAL INSTRUMENTS The Company does not hold or issue financial instruments for purposes of trading. The carrying amounts of cash and short-term investments, accounts receivable, accounts payable and short-term debt approximate fair value because of the short maturity of these instruments. The carrying amounts of long-term debt, including the current portion, were lower than fair value by $22.5 million at October 31, 1997, and $1.6 million at October 31, 1996. Fair values of the debt were determined by reference to market interest rates. The Company has cash and cash equivalents, receivables and payables denominated in currencies other than functional currencies. These financial assets and liabilities create exposure to potential foreign exchange gains and losses arising on future changes in currency exchange rates. The Company hedges such risks by entering into forward exchange contracts. A forward exchange contract is an agreement to exchange different currencies at a specified future date and forward rate. The Company does not enter into forward contracts to engage in speculation, nor does the Company hedge investments in foreign entities. The Company had $365.4 million and $282.9 million, notional amounts, of forward exchange contracts outstanding at October 31, 1997 and 1996, respectively. The notional amounts are used to express the volume of these transactions and do not represent exposure to loss. At October 31, 1997, 93% of these contracts were in, or related to, European currencies. The carrying value of the contracts was not significant. The fair value of the contracts, based on year-end quoted rates for purchasing contracts with similar terms and maturity dates, approximated carrying value and was also not significant. See Note C for information about a derivative financial instrument that the Company entered into with the purchasers of part of the Company's investment in an unconsolidated affiliate. The Company's financial instruments do not represent significant credit risks at October 31, 1997, because they are either with high quality financial institutions or widely dispersed across many customers and financial institutions. 51 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA Descriptions of the Company's industry segments are as follows: PETROLEUM PRODUCTS AND SERVICES This segment provides services and project management for oil and gas exploration, drilling, completion, production and transmission activities. Principal products and services include integrated well services and project management, drilling fluids systems, drill bits, measurement-while-drilling services, directional drilling services, completion and production tools, production valves and pumps, meters and measuring equipment. The segment is also an EPIC contractor (engineering, procurement, installation and construction) for subsea and onshore projects, and it supplies ROVs (remotely operated vehicles), seabed equipment, flexible flowlines, riser systems and pipe coating, pipe laying and pipe burying services. ENGINEERING SERVICES This segment consists of The M. W. Kellogg Company, which provides engineering, construction and related services primarily for the hydrocarbon processing industries. M. W. Kellogg has its own proprietary technologies and utilizes the advanced technologies of others to facilitate the environmentally acceptable conversion of raw hydrocarbons and their chemicals into value-added end products. The Company participates in projects involving liquefied natural gas (LNG) plants and receiving terminals, refining and petrochemical activities and ammonia/fertilizer facilities. This includes grassroots activity as well as the modernizing and retrofitting of energy-related complexes for efficiency and environmental control purposes. ENERGY EQUIPMENT This segment designs, manufactures and markets engineered products for oil and gas producers, transporters and processors, petroleum marketers and the power industry. Compression and Pumping Operations include the Dresser-Rand joint venture, which produces compressors, turbines, generators and electric motors, as well as the Ingersoll-Dresser Pump unconsolidated joint venture and the Mono Pumps unit. Measurement Operations supply gasoline dispensing systems, instruments, meters and piping specialties. Flow Control Operations manufacture a broad range of valves (including control, safety, safety relief, ball, check, gate/plug, butterfly and industrial valves) as well as fluid-powered, linear and electric actuators. Power Systems Operations produce engines, generators and blowers. The Financial Information by Industry Segment and Geographic Area for the years ended October 31, 1997, 1996 and 1995 is included on pages 22 through 24 of Management's Discussion and Analysis included elsewhere in this report and is an integral part of this Note to Consolidated Financial Statements. 52 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE O - BAROID FINANCIAL INFORMATION Baroid has ceased filing periodic reports with the Securities and Exchange Commission. Baroid's 8% Senior Notes remain outstanding (See Note G), and the Notes are fully guaranteed by Dresser. As long as the Notes remain outstanding, summarized financial information of Baroid is required to be presented as follows (in millions): OCTOBER 31, ----------------------- BAROID CORPORATION 1997 1996 -------- -------- Current assets $ 919.9 $ 796.2 Noncurrent assets 447.4 578.9 -------- -------- Total $1,367.3 $1,375.1 -------- -------- -------- -------- Current liabilities 441.8 $ 377.7 Noncurrent liabilities 300.9 429.2 Shareholders' equity 624.6 568.2 -------- -------- Total $1,367.3 $1,375.1 -------- -------- -------- -------- YEARS ENDED OCTOBER 31, ----------------------------------- 1997 1996 1995 -------- -------- -------- Revenues $1,943.9 $1,606.8 $1,323.3 -------- -------- -------- -------- -------- -------- Gross earnings $ 538.2 $ 443.7 $ 358.8 -------- -------- -------- -------- -------- -------- Earnings from operations $ 232.8 $ 185.2 $ 133.1 Other income (deductions) (14.4) (21.0) (18.5) -------- -------- -------- Earnings before taxes and minority interests 218.4 164.2 114.6 Income taxes (76.4) (55.8) (37.8) Minority interest (1.6) (.4) .4 -------- -------- -------- Net earnings $ 140.4 $ 108.0 $ 77.2 -------- -------- -------- -------- -------- -------- NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED) QUARTERS ENDED ------------------------------------------- IN MILLIONS, EXCEPT PER SHARE DATA JANUARY 31 APRIL 30 JULY 31 OCTOBER 31 ----------- -------- -------- ---------- 1997 Net revenues $1,704.5 $1,771.3 $1,872.3 $2,109.8 -------- -------- -------- -------- -------- -------- -------- -------- Gross earnings 361.8 406.7 437.2 490.4 -------- -------- -------- -------- -------- -------- -------- -------- Net earnings 52.1 74.8 81.5 109.6 -------- -------- -------- -------- -------- -------- -------- -------- Earnings per common share $ .30 $ .42 $ .47 $ .62 -------- -------- -------- -------- -------- -------- -------- -------- 1996 Net revenues $1,462.9 $1,629.6 $1,638.0 $1,831.0 -------- -------- -------- -------- -------- -------- -------- -------- Gross earnings 320.4 349.8 369.6 433.6 -------- -------- -------- -------- -------- -------- -------- -------- Net earnings 46.6 57.2 68.3 85.4 -------- -------- -------- -------- -------- -------- -------- -------- Earnings per common share $ .26 $ .31 $ .38 $ .49 -------- -------- -------- -------- -------- -------- -------- -------- 53 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. (d) Financial Statement Schedules - The response to this portion of Item 14 is submitted as a separate section of this report. 54 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), 33-52989 (filed April 6, 1994), 333-39931 (filed November 12, 1997), 333-39945 (filed November 12, 1997) and 333-40829 (filed November 21, 1997) and to the Post-Effective Amendments on Form S-8 to Registration Statement on Form S-4 Nos. 33-50563 (filed January 28, 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. 55 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, 1998. DRESSER INDUSTRIES, INC. By: /s/ Kenneth J. Kotara ----------------------------- Kenneth J. Kotara 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, 1998. SIGNATURE TITLE --------- ----- *WILLIAM E. BRADFORD Chairman of the Board, Chief - ----------------------------------- Executive Officer and Director (William E. Bradford, Director) (Principal Executive Officer) *GEORGE H. JUETTEN Senior Vice President and Chief - ----------------------------------- Financial Officer (Principal (George H. Juetten) Financial Officer) /s/ KENNETH J. KOTARA Controller - ----------------------------------- (Principal Accounting Officer) (Kenneth J. Kotara) *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) *SYLVIA A. EARLE, PH.D. *JAY A. PRECOURT - ----------------------------------- ----------------------------------- (Sylvia A. Earle, Ph.D., Director) (Jay A. Precourt, Director) *RAWLES FULGHAM *DONALD C. VAUGHN - ----------------------------------- ----------------------------------- (Rawles Fulgham, Director) (Donald C. Vaughn, Director) *JOHN A. GAVIN *RICHARD W. VIESER - ----------------------------------- ----------------------------------- (John A. Gavin, Director) (Richard W. Vieser, Director) *RAY L. HUNT - ----------------------------------- (Ray L. Hunt, Director) *By: /s/ ALICE A. HINDS ------------------------------- Alice A. Hinds (Attorney-In-Fact) FORM 10-K ITEM 14(a)(1) AND (2) AND ITEM 14(d) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE YEAR ENDED OCTOBER 31, 1997 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 27 Consolidated Statements of Earnings-- Years ended October 31, 1997, 1996, and 1995 28 Consolidated Balance Sheets-- October 31, 1997 and 1996 29 Consolidated Statements of Shareholders' Equity-- Years ended October 31, 1997, 1996 and 1995 31 Consolidated Statements of Cash Flows-- Years ended October 31, 1997, 1996, and 1995 32 Notes to Consolidated Financial Statements 33 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. 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, 1997 For doubtful receivables classified as current assets $21.7 $5.0 $ - $ 6.5(A) $20.2 ----- ---- ---- ----- ----- ----- ---- ---- ----- ----- For deferred tax asset valuation allowance classified as noncurrent assets $17.4 $ - $ - $11.5(B) $ 5.9 ----- ---- ---- ----- ----- ----- ---- ---- ----- ----- Year ended October 31, 1996 For doubtful receivables classified as current assets $24.6 $3.2 $ - $ 6.1(A) $21.7 ----- ---- ---- ----- ----- ----- ---- ---- ----- ----- For deferred tax asset valuation allowance classified as noncurrent assets $15.0 $ - $2.4 $ - $17.4 ----- ---- ---- ----- ----- ----- ---- ---- ----- ----- Year ended October 31, 1995 For doubtful receivables classified as current assets $30.4 $3.7 $ .7 $10.2(A) $24.6 ----- ---- ---- ----- ----- ----- ---- ---- ----- ----- For deferred tax asset valuation allowance classified as noncurrent assets $21.9 $ - $ - $ 6.9 $15.0 ----- ---- ---- ----- ----- ----- ---- ---- ----- -----
Notes: (A) Receivable write-offs and reclassifications, net of recoveries. (B) Primarily utilization of foreign net operating loss carry forwards. F-3 INDEX TO EXHIBITS EXHIBIT DESCRIPTION - ------- ----------- 3.1 Restated Certificate of Incorporation of Registrant and amendments thereto. (Incorporated by reference to Exhibit 3(I) to Registrant's Form 10-Q/A for the quarter ended April 30, 1996). *3.2 By-Laws, as amended, of Registrant. 4.1 Rights Agreement dated August 16, 1990, between Registrant and Bank of New York as successors to 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, Registration No. 33-60174). 4.4 Form of Supplemental Indenture, between Dresser Industries, Inc., Baroid Corporation and Texas Commerce Bank N.A. 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). 4.5 Form of Indenture, between Dresser Industries, Inc. and Texas Commerce Bank National Association, Trustee, for 7.60% Debentures due 2096. (Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-3 as amended, Registration No. 333-01303). 4.6 Form of Supplemental Indenture, between Dresser Industries, Inc. and Texas Commerce Bank National Association, Trustee, for 7.60% Debentures due 2096. (Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K filed on August 9, 1996). 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-Q/A for the year ended October 31, 1992). - ------- * Filed Herewith INDEX TO EXHIBITS (CON'T.) EXHIBIT DESCRIPTION - ------- ----------- 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. (Incorporated by reference to Exhibit 10.4 to Registrant's Form 10-K for the year ended October 31, 1994). 10.5 Amendments No. 1 and 2 to the Dresser Industries, Inc. Consolidated Salaried Retirement Plan, as amended and restated effective May 1, 1994. (Incorporated by reference to Exhibit 10.5 to Registrant's Form 10-K for the year ended October 31, 1995). 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 Dresser Industries, Inc. as amended and restated effective June 1, 1995. (Incorporated by reference to Exhibit 10.7 to Registrant's Form 10-K for the year ended October 31, 1995). 10.8 ERISA Compensation Limit Benefit Plan for Dresser Industries, Inc., as amended and restated effective June 1, 1995. (Incorporated by reference to Exhibit 10.8 to Registrant's Form 10-K for the year ended October 31, 1995). *10.9 Supplemental Executive Retirement Plan of Dresser Industries, Inc., as amended and restated effective January 1, 1998. 10.10 Dresser Industries, Inc. Deferred Compensation Plan for Non-employee Directors, as restated and amended effective November 1, 1997. (Incorporated by reference to Exhibit 4.5 to Registration Statement on Form S-8, Registration No. 333-40829. 10.11 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). 10.12 The M. W. Kellogg Company Retirement Plan, as amended and restated effective January 1, 1989. (Incorporated by reference to Exhibit 10.15 to Registrant's Form 10-K for the year ended October 31, 1995). 10.13 Long Term Performance Plan for Selected Employees of The M. W. Kellogg Company. (Incorporated by reference to Exhibit 10(r) to Registrant's Form 10-K for the year ended October 31, 1991). - -------- * Filed Herewith INDEX TO EXHIBITS (CON'T.) EXHIBIT DESCRIPTION - ------- ----------- 10.14 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). 10.15 Amendments No.1 and 2 to Dresser Industries, Inc. 1992 Stock Compensation Plan. (Incorporated by reference to Exhibit A to Registrant's Proxy Statement dated February 6, 1995, filed pursuant to Regulation 14A, File No. 1-4003). 10.16 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). 10.17 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). 10.18 Dresser Industries, Inc. 1995 Executive Incentive Compensation Plan. (Incorporated by reference to Exhibit B to Registrant's Proxy Statement dated February 6, 1995, filed pursuant to Regulation 14A, File No. 1-4003). 10.19 Dresser Industries, Inc. Retirement Savings Plan - A as adopted effective June 1, 1995. (Incorporated by reference to Exhibit 10.24 to Registrant's Form 10-K for the year ended October 31, 1995). 10.20 Agreement with John Gavin for the period February 1, 1997 - January 31, 1998. (Incorporated by reference to Registrant's Form 10-Q for the period ended January 31, 1997). 10.21 Special 1997 Restricted Incentive Stock Grant. (Incorporated by reference to Registrant's Form 10-K for the year ended October 31, 1996). *10.22 Form of Executive Life Insurance Agreement (individual as beneficiary). *10.23 Form of Executive Life Insurance Agreement (trust as beneficiary). 10.24 Dresser Industries, Inc. Restricted Stock Grant Plan for 1997. (Incorporated by reference to Registrant's Form 10-Q for the period ended July 31, 1997). *10.25 Amendment No. 3 to the Dresser Industries, Inc. 1992 Stock Compensation Plan. - ------- * Filed Herewith INDEX TO EXHIBITS (CON'T.) EXHIBIT DESCRIPTION - ------- ----------- 10.26 Dresser Industries, Inc. Long-Term Incentive and Retention 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). 10.27 The Dresser Industries, Inc. 1998 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, 1997. *23 Consent of Price Waterhouse LLP. *24 Powers of Attorney. *27 Financial Data Schedule. - ------- * Filed Herewith EX-3.2 2 BYLAWS BY-LAWS As amended effective 3/19/98 OF DRESSER INDUSTRIES, INC. ARTICLE I SECTION 1. PRINCIPAL OFFICE IN DELAWARE. The principal office shall be in the City of Wilmington, County of New Castle, and the name of the resident agent in charge thereof is the Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805. SECTION 2. OTHER OFFICES. The Company may also have offices at such other places, either within or without the State of Delaware, as the Board of Directors may from time to time appoint or as the business of the Company may require. ARTICLE II SECTION 1. ANNUAL MEETING OF SHAREHOLDERS. The Annual Meeting of Shareholders of the Company shall be held at the principal office of the Company, Dallas, Texas, or at such other place within or without the State of Texas at such time and on such date in the months of March, April or May of each year as the Directors may determine. In the absence of a determination by the Directors, the Annual Meeting of Shareholders shall be held at the principal office of the Company, Dallas, Texas at 10:00 a.m. on the third Thursday in March of each year, if not a legal holiday or, if a legal holiday, then on the next succeeding business day. The Directors shall be elected at the Annual Meeting and such other business transacted as may properly be brought before the meeting. SECTION 2. SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of the shareholders for any purpose or purposes may be called at any time by the Chairman of the Board, the Vice Chairman or the President or a majority of the Board of Directors, and each such special meeting unless another place is designated by a resolution of the Board of Directors, shall be held at the office of the Company in Dallas, Texas. At any time, upon written request of any person entitled to call a special meeting, it shall be the duty of the Secretary to call such special meeting of the shareholders to be held at such time as the Secretary may fix. The call of said special meeting shall state the time and place of said meeting if said 1 meeting is to be held at some place other than the office of the Company, and the purpose or purposes of the proposed meeting. SECTION 3. NOTICE OF MEETINGS OF SHAREHOLDERS. Written or printed notice of the time, place and purpose or purposes of the Annual Meetings and of each special meeting of the shareholders shall be given by or at the direction of the person authorized to call the meeting to each shareholder of record entitled to vote at the meeting, at his last known address as the same appears upon the books of the Company, not more than sixty (60) days prior to the date of the meeting. It shall also be the duty of the Secretary to provide for any further or additional notice that may be required by law. When a meeting is adjourned, it shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. SECTION 4. QUORUM. At any meeting of the shareholders, the presence in person or by proxy of the holders of a majority of the outstanding shares entitled to vote at such meeting shall constitute a quorum for all purposes, unless otherwise provided by these By-Laws, the Certificate of Incorporation or by law. The shareholders present at a duly organized meeting can continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. If a meeting cannot be organized because a quorum has not attended, those present may, except as otherwise provided by law, adjourn the meeting to such time and place, without further notice, as they may determine, but in the case of any meeting called for the election of Directors, those who attend the second of such adjourned meetings, although less than a quorum as fixed in this section of the By-Laws or in the Certificate of Incorporation, shall nevertheless constitute a quorum for the purpose of electing Directors. SECTION 5. ORGANIZATION. Meetings of the shareholders shall be called to order by the Chairman of the Board or in his absence by the Vice Chairman or in the absence of both by the President of the Company. Such person shall act as Chairman of the meeting or, in the absence of the Chairman of the Board, the Vice Chairman and the President or with the consent of each of them if present in person, the meeting may elect any shareholder present or the duly authorized proxy of any shareholder to act as Chairman of the meeting. The Secretary of the Company or, in his absence, any Assistant Secretary in attendance, shall act as Secretary of all meetings of shareholders, but if neither the Secretary nor any Assistant Secretary be present thereat the presiding officer may appoint any person to act as Secretary of the meeting and to keep the record of the proceedings. 2 SECTION 6. INSPECTORS OF ELECTION. One or more Inspectors of Election may be appointed by the Board of Directors before or at each meeting of the shareholders of the Company at which an election of Directors shall take place. If no such appointment shall have been made, or if the Inspector(s) appointed by the Board of Directors shall refuse to act or fail to attend, then the appointment shall be made by the presiding officer at the meeting. The Inspector(s) shall receive and take in charge all proxies and ballots, and shall decide all questions concerning the qualification of voters, the validity of proxies, the acceptance and rejection of votes, and shall count the votes cast and shall make a report of the results thereof to the meeting and make such reports to the presiding officer with respect to the foregoing as he may request. SECTION 7. ORDER OF BUSINESS. The order of business at all meetings of shareholders, unless otherwise determined by a vote of the holders of a majority of the shares entitled to vote at said meeting present in person or represented by proxy, shall be determined by the presiding officer. SECTION 8. VOTING. Except as otherwise provided in the Certificate of Incorporation, every shareholder of record shall have the right at every shareholders' meeting to one (1) vote for every share standing in his name on the books of the Company. Every shareholder may vote either in person or by proxy. Every proxy shall be executed in writing by the shareholder or by his duly authorized attorney-in-fact and filed with the Secretary of the Company. The proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of the proxy shall not be effective until written notice thereof has been given to the Secretary of the Company. No unrevoked proxy may be voted on after three (3) years from the date of its execution unless the proxy provides for a longer period. A proxy shall not be revoked by the death or incapacity of the maker unless before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the Secretary of the Company. A shareholder shall not sell his vote or execute a proxy to any person for any sum of money or anything of value. The stock transfer books of the Company shall be the evidence of the ownership of the shares of stock for the purpose of voting. All elections shall be held and all questions shall be decided by a plurality vote, except as otherwise required by these By-Laws, the Certificate of Incorporation or by law. 3 SECTION 9. VOTING LISTS. The agent having charge of the transfer books for the shares of this Company shall make, at least ten (10) days before each election of Directors, a complete list of the shareholders entitled to vote at said election, arranged in alphabetical order, with the address of, and the number of shares held by each, which list shall be open at the place where said election is to be held for ten (10) days and shall be subject to inspection by any shareholder of the Company during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the Meeting. The original share ledger or transfer book or duplicates thereof shall be the only evidence as to who are shareholders entitled to examine such list or share ledger or transfer book or to vote in person or by proxy at any meeting of the shareholders. ARTICLE III DIRECTORS SECTION 1. NUMBER AND TERM OF OFFICE. The business and affairs of the Company shall be managed by or under the direction of a Board of Directors, nine (9) in number, which number may be altered from time to time by amendment of these By-Laws, but the said number shall never be less than three (3). Said Directors need not be shareholders. Section 2. ELECTION OF DIRECTORS. The Directors shall be elected by the shareholders at the annual meeting of said shareholders and shall hold their offices until their successors are elected and qualified in their stead. Vacancies in the Board of Directors, from any cause whatsoever, including any increase in the number of Directors, shall be filled by a majority of the remaining members of the Board, though less than a quorum, and each person so elected shall be a Director until his successor is elected by the shareholders, who may make such selection at the next annual meeting of the shareholders or at any special meeting called for that purpose and held prior thereto. All elections of Directors shall be by ballot. SECTION 3. PLACE OF MEETINGS. The meetings of the Board of Directors shall be at such place, within or without the State of Delaware, as the majority of the Directors may from time to time appoint or as may be designated in the notice calling the meeting. 4 SECTION 4. ORGANIZATION MEETING OF THE BOARD. After each annual election of Directors, the newly elected Directors shall meet for the purpose of organization, the election and appointment of officers, and the transaction of such other business at such time and place as shall be fixed by the written consent of a majority of the Directors or as shall be specified in the notice given hereinafter provided for special meetings of the Board of Directors. SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors shall from time to time designate, and the Board in fixing the time and place of such meetings may provide that no notice thereof shall be necessary. SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or the Vice Chairman or the President or by a majority of the Directors or a majority of the Executive Committee for the time being in office. Special meetings of the Board of Directors shall be held at such times and places as shall be set forth in the call of the meeting. SECTION 7. NOTICE OF DIRECTORS' MEETINGS. The Secretary of the Company shall give notice to each Director of each regular or special meeting by mailing the same at least two (2) days before the meeting to his last known address, or by telegraphing or telephoning the same not less than one (1) day before the meeting, which notice shall state the time and place and general purpose or purposes of the meeting. No notice of any meeting shall be necessary if every Director shall be either present or shall have consented thereto by letter, cablegram, radiogram or telegram. If at any meeting there is less than a quorum, a majority of those present at such meeting may adjourn the same. When a meeting is adjourned, it shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting other than by an announcement at the meeting at which such adjournment is taken. SECTION 8. QUORUM. One-Third (1/3) of the Directors in office shall constitute a quorum for the transaction of business, and the acts of a majority of the Directors present at a meeting at which a quorum is present shall be the acts of the Board of Directors. 5 SECTION 9. ORDER OF BUSINESS. The order of business at all meetings of the Board of Directors, unless otherwise determined by the affirmative vote of a majority of the members present at any meeting, shall be determined by the presiding officer. SECTION 10. COMPENSATION OF THE DIRECTORS. The Directors may receive a stated compensation for their services as Directors, and by resolution of the Board a fixed fee and the expenses incident to attendance at each meeting of the Board or any Committee thereof may be determined. Nothing herein contained shall be construed to preclude any Director from serving the Company in any other capacity as an officer, agent or otherwise and receiving compensation therefor. SECTION 11. ACTION WITHOUT A MEETING. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any Committee thereof may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board or of such Committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or Committee. ARTICLE IV EXECUTIVE COMMITTEE SECTION 1. NUMBER. The Company may have an Executive Committee appointed by the Board of Directors which shall consist of at least three (3) members and shall be made up of members of the Board of Directors. The Board of Directors may designate one of the members thereof as Chairman of the Executive Committee. SECTION 2. VACANCIES. Vacancies occurring in the Executive Committee for any cause may be filled at any meeting of the Board of Directors. SECTION 3. EXECUTIVE COMMITTEE TO REPORT TO BOARD. All actions by the Executive Committee shall be reported to the Board at its meeting next succeeding such action and shall be subject to revision or alteration by the Board; provided, however, that rights of third parties shall not be affected by any revision or alteration. 6 SECTION 4. PROCEDURE. The Executive Committee shall fix its own rules of procedure and shall meet where and as provided by such rules or by resolution of the Board. The presence of a majority shall be necessary to constitute a quorum for the transaction of business and in every case an affirmative vote by a majority of all of the members of the Committee present shall be necessary. SECTION 5. POWERS. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise the power and authority to declare dividends and all other powers of the Board in the management and direction of the business and the conduct of the affairs of the Company in such manner as the Executive Committee shall deem for the best interests of the Company in all cases where specific direction shall not have been given by the Board, and shall have power to authorize the seal of the Company to be affixed to all instruments and documents which may require it. ARTICLE V OTHER COMMITTEES From time to time the Board of Directors may appoint any other committee or committees for any lawful purposes whatsoever, which shall have such powers as shall be specified in the resolution of appointment. ARTICLE VI OFFICERS SECTION 1. EXECUTIVE AND OTHER OFFICERS. The officers of the Company shall include a Chairman of the Board, a President, a Treasurer and a Secretary, all of whom shall be elected by the Board of Directors. The Board may also elect a Vice Chairman. Other than the Chairman of the Board, the Vice Chairman and the President, it shall not be necessary for officers of the Company to be Directors. The Board of Directors shall have authority from time to time to elect or appoint one or more Vice Presidents, any one or more of whom may be designated Executive Vice Presidents or Senior Vice Presidents, a General Counsel, a Controller, one or more Assistant Secretaries and one or more Assistant Treasurers. Any person may fill one or more offices, except the offices of President and Secretary. The Board of Directors may appoint such other agents of the Company as it may deem necessary for the transaction of the business of the Company and prescribe their several duties, or may by resolution authorize the Chairman of the Board or the President or any Vice President to appoint agents of the Company and to prescribe the duties of agents so appointed by them. All 7 agents appointed pursuant to such authorization may be removed by any of the persons so designated. All officers and agents elected or appointed by the Board of Directors shall be subject to removal by the Board at any time, with or without cause. The Board of Directors shall fix the compensation to be paid to the officers and agents of the Company elected or appointed by the Board and take from them such bonds with security for the discharge of their duties and responsibilities as the Directors may see fit. All vacancies among the officers from any cause whatsoever shall be filled by the Board of Directors. SECTION 2. ELECTION OF OFFICERS. A Chairman of the Board of Directors, a President, a Secretary and a Treasurer shall be elected by the Directors of the Company at their first meeting after the annual meeting of the Shareholders. SECTION 3. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the Chief Executive Officer of the Company. He shall preside at all meetings of the shareholders and of the Board of Directors. He shall also preside at all meetings of the Executive Committee if the position of Chairman of the Committee shall be vacant or at any such meetings from which the Chairman of the Executive Committee is absent. Subject to the direction of the Board of Directors and the Executive Committee, the Chairman of the Board shall have general charge of the business and affairs of the Company. He shall also do and perform such other duties as from time to time may be assigned to him by the Board of Directors or by the Executive Committee. SECTION 4. THE VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if there be one, shall preside at meetings of shareholders and of the Board of Directors from which the Chairman of the Board is absent. He shall also do and perform such other duties as from time to time may be assigned to him by the Board of Directors, by the Executive Committee or by the Chairman of the Board. SECTION 5. THE PRESIDENT. The President shall preside at all meetings of the Board of Directors and of the shareholders if the offices of Chairman of the Board and Vice Chairman shall be vacant or at any such meetings from which the Chairman of the Board and the Vice Chairman are absent. Subject to the direction of the Board of Directors, the Executive Committee and the Chairman of the Board, he shall have general charge of those operations of the Company as assigned by the Chairman of the Board. He shall also do and perform such other duties as from time to time may be assigned to him by the Board of Directors, the Executive Committee or the Chairman of the Board. 8 SECTION 6. VICE PRESIDENT. The Vice President or Vice Presidents, in the event there is more than one, shall do and perform such duties as from time to time may be assigned to him or them by the Board of Directors, the Executive Committee, the Chairman of the Board or the Vice Chairman or the President. SECTION 7. SECRETARY. The Secretary shall keep minutes of all proceedings of the Board and of the Executive Committee and the minutes of all meetings of shareholders in books provided for that purpose. He shall attend to the giving and serving of all notices for the Company; he shall have charge of such books and papers as the Board may direct; he shall have custody of the seal of the Company and shall affix the same to any instrument or document which requires the seal of the Company, and he shall in general perform all duties incident to the office of Secretary, subject to the control of the Board. He shall also perform such other duties as may be assigned to him by the Board. SECTION 8. TREASURER. Subject to the direction of the Vice President and Chief Financial Officer, the Treasurer shall have custody and control of all of the funds and securities of the Company, shall be responsible for all moneys and other property of the Company in his custody and shall perform all duties incident to the office of Treasurer. He shall do and perform such other duties as may from time to time be assigned to him by the Vice President - Chief Financial Officer. If required by the Board, he shall give a bond for the faithful discharge of his duties in such sum as the Board may require. SECTION 9. GENERAL COUNSEL. The General Counsel shall do and perform such duties as from time to time may be assigned to him by the Board of Directors, the Executive Committee, the Chairman of the Board, the Vice Chairman or the President. SECTION 10. CONTROLLER Subject to the direction of the Vice President and Chief Financial Officer, the Controller, if there be one, shall serve as Chief Accounting Officer of the Company and shall perform all duties incident to the office of Contoller. He shall do and perform such other duties as may from time to time be assigned to him by the Vice President and Chief Financial Officer. 9 ARTICLE VII CAPITAL STOCK SECTION 1. SHARE CERTIFICATES. Every holder of stock of this Company shall be entitled to have a certificate signed by or in the name of the Company by the Chairman or Vice Chairman of the Board of Directors or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company and sealed with the corporate seal, which seal may be facsimile engraved or printed, certifying the number of shares owned by such holder in the Company. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he or she were such officer, transfer agent, or registrar at the date of issue. The certificates of stock of the Company shall be in such form as shall be approved by the Board. Such certificates shall be successive in number and the names and addresses of all persons owning shares of capital stock of the Company with the number of shares owned by each and the date or dates of issue of the shares of stock held by each, shall be entered on the books kept for that purpose by the proper agents of the Company. The Company shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has actual or other notice thereof. SECTION 2. OLD CERTIFICATES TO BE CANCELLED. Except in case of lost, stolen or destroyed certificates, and in that case only after conforming to the requirements hereinafter provided, no new certificates shall be issued until the former certificate for the shares represented thereby shall have been surrendered and cancelled. Any person claiming a certificate of stock to be lost, stolen or destroyed shall make an affidavit of that fact and shall furnish to the Company and/or its Transfer Agent or Agents, Registrar or Registrars, a Bond of Indemnity with one (1) or more sureties in an amount satisfactory to the Board of Directors. The affidavit and Bond of Indemnity shall be in such form and said Bond shall have such surety or sureties as the Board of Directors may require; provided, however, that the Board of Directors may authorize officers of the Company to approve the form of the affidavit and Bond of Indemnity and the sufficiency of the surety or sureties thereon. Upon the furnishing and approval of said affidavit and Bond of Indemnity, a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost, stolen 10 or destroyed. In the event such lost, stolen or destroyed certificate shall represent five (5) or less shares of the Common Stock of the Company, the Board of Directors may, in its discretion, accept a personal indemnity bond in a form satisfactory to the Board of Directors, in lieu of the Bond of Indemnity hereinabove referred to. If required by the Board, a final order or decree of a court of competent jurisdiction of the right of any such person to receive a new certificate shall be procured. SECTION 3. TRANSFER OF SHARES OF STOCK. Shares of stock shall be transferred only on the books of the Company by the holder thereof or by his attorney thereunto duly authorized upon the surrender and cancellation of certificates for a like number of shares, subject, however, to all payments due or to become due thereon. SECTION 4. REGULATIONS. The Board of Directors may make such regulations as it may deem expedient concerning the issue, transfer and registration of stock. SECTION 5. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint a Transfer Agent or Transfer Agents to make, and a Registrar or Registrars to record, transfers of shares. SECTION 6. FIXING CLOSING DATES. The Board of Directors may fix in advance a date not exceeding sixty (60) days preceding the date of any meeting of shareholders, or the date fixed for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or go into effect, as a record date for the determination of the shareholders entitled to notice of, and to vote at, any such meeting, or any adjournment thereof, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect to any such change, conversion, or exchange of shares, or in connection with the obtaining of the count of the shareholders for any purpose. In such case, only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to notice of, and to vote at, such meeting, or any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights or give such consents, as the case may be, notwithstanding any transfer of any shares on the books of the Company after any record date fixed, as aforesaid. The Board of Directors may close the books of the Company against transfer of shares during the whole or any part of such period, and, in such case, written or printed notice thereof shall be mailed at least ten (10) days before the closing thereof to each shareholder of record at the address appearing on the records of the Company or supplied by him to the Company 11 for the purpose of notice. While the stock transfer books of the Company are closed, no transfer of shares shall be made thereon. In the event that the Board of Directors shall not in advance of a meeting of shareholders have closed the transfer books, or have fixed a record date for the determination of the shareholders entitled to notice of or to vote at any meeting of the shareholders, no shares of stock, which have been transferred on the books of the Company within twenty (20) days next preceding such meeting, shall be entitled to notice or shall be voted at any such meeting. ARTICLE VIII BOARD TO DECLARE DIVIDENDS Subject to the provisions of the Certificate of Incorporation and of the laws of the State of Delaware, the Board of Directors, in its discretion, from time to time may declare stock dividends and cash dividends out of any fund legally available therefor as shall appear advisable to the Directors. Such dividends shall be paid at such time after the declaration as the Directors may fix. ARTICLE IX EXECUTION AND SIGNING OF DOCUMENTS Except as otherwise provided by the Board of Directors, deeds, contracts, leases, agreements and other documents shall be signed by the Chairman of the Board, or the Vice Chairman, or the President, or any Vice President and, when a seal is required, sealed with the Company's seal and attested by the Secretary, or any Assistant Secretary, or the Treasurer, or any Assistant Treasurer. Except as otherwise provided by the Board of Directors, promissory notes, debentures and bonds shall be signed by the Chairman of the Board, or the Vice Chairman, or the President, or any Vice President, together with the Treasurer, or any Assistant Treasurer, or Secretary, or any Assistant Secretary. Checks on the Company's bank accounts may be signed by such officer or officers or other agents as the Board of Directors may from time to time authorize or designate, or the Board of Directors may by resolution authorize officers of the Company to designate the agents who may sign checks on the Company's bank accounts. In any case where the signatures of two officers are required on any document or other instrument executed on behalf of the Company, such signatures must be those of two different persons. 12 ARTICLE X MISCELLANEOUS SECTION 1. SEAL. The corporate seal of this Company shall be circular in form and shall bear the name of the corporation and the words "Corporate Seal, Delaware". SECTION 2. INSPECTION OF BOOKS. The Board of Directors shall determine from time to time whether the accounts and books of the Company, or any of them shall be open to the inspection of shareholders, and if permitted, when and under what conditions and regulations the accounts and books of the Company or any of them shall be open to the inspection of shareholders, and the shareholders' rights in this respect shall be restricted and limited accordingly. SECTION 3. NOTICES. Whenever the provisions of the law, the Certificate of Incorporation or these By-Laws require notice to be given to any Director, officer or shareholder, such provision shall not be construed as requiring personal notice, and such notice may be given in writing by depositing the same in a post office or letter box in a post-paid, sealed wrapper addressed to such Director, officer or shareholder at his or her address as the same appears in the books of the Company, and the time when the same shall be mailed shall be deemed to be the time of the giving of such notice. A waiver of any notice in writing signed by a shareholder, Director or officer, whether before or after the time stated in said waiver, shall be deemed equivalent to such notice. ARTICLE XI AMENDMENT The Board of Directors is expressly authorized to make, alter or repeal By-Laws of the corporation, provided, however, that alterations, amendments or repeals of the By-Laws may be made by the holders of a majority of the shares outstanding and entitled to vote at any meeting, if the notice of such meeting contains a statement of the proposed alteration, amendment or repeal. 13 EX-10.9 3 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN OF DRESSER INDUSTRIES, INC. RESTATEMENT EFFECTIVE JANUARY 1, 1998 TABLE OF CONTENTS Page ARTICLE 1 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 - PURPOSE OF PLAN. . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE 3 - ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE 4 - BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 5 - VESTING AND FORFEITURE . . . . . . . . . . . . . . . . . . 6 ARTICLE 6 - ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 7 - CLAIMS AND APPEAL PROCEDURES . . . . . . . . . . . . . . . 7 ARTICLE 8 - AMENDMENT AND TERMINATION. . . . . . . . . . . . . . . . . 9 ARTICLE 9 - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . .10 APPENDIX A - SPECIAL PROVISIONS i SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN OF DRESSER INDUSTRIES, INC. Dresser Industries, Inc. hereby amends by restatement the Supplemental Executive Retirement Plan of Dresser Industries, Inc., effective January 1, 1998, upon the following terms and conditions: ARTICLE I DEFINITIONS The words and phrases defined hereinafter shall have the following meaning: SECTION 1.1. ACTUARIAL EQUIVALENT. An amount of equal value determined on the basis of the 1983 Group Mortality Table (blended - 50% male and 50% female) and using whichever of the following sets of interest rate factors (as more completely set forth in the Pension Plan) yields the greatest lump sum amount: 1) "Old" PBGC immediate rate, or 2) "New" PBGC graded rate. SECTION 1.2. BENEFITS COMMITTEE. The Employee Benefits Committee of Dresser Industries, Inc. SECTION 1.3. BOARD. The Board of Directors of Dresser Industries, Inc. SECTION 1.4. FOR CAUSE. Means gross, willful or intentional misconduct which causes harm to the Company. SECTION 1.5. CHANGE OF CONTROL. Means: (1) The sale of all or a majority of Dresser's assets; (2) Dresser's liquidation or dissolution; (3) The purchase of beneficial ownership of at least 30% of Dresser's common stock by any persons or entities acting in concert (or 30% of the combined voting power of Dresser's then outstanding voting securities entitled to vote generally in the election of directors); or 1 (4) The approval by Dresser's stockholders of a reorganization, merger, or consolidation, the result of which is that the persons or entities which were stockholders immediately before the transaction do not own more than 50% of the combined voting power of the surviving entity's then outstanding voting securities entitled to vote generally in the election of directors. SECTION 1.6. COMPANY. Dresser Industries, Inc., or an entity partially or wholly owned by Dresser Industries, Inc. if so designated by the Compensation Committee. SECTION 1.7. COMPENSATION COMMITTEE. The Executive Compensation Committee of the Board of Dresser Industries, Inc. SECTION 1.8. DB PLANS. The Pension Plan as defined in Section 1.14 and the Related Plans as defined in Section 1.16, and corresponding non-qualified DB plan accruals in the Dresser Industries, Inc. ERISA Excess Benefit and Excess Compensation Plans. SECTION 1.9. DC PLAN. The Dresser Industries, Inc. Retirement Savings Plan-A and corresponding non-qualified DC plan balances in the Dresser Industries, Inc. ERISA Excess Benefit and Excess Compensation Plans. SECTION 1.10. EARNED BONUS. The amount of bonus awarded to an Executive pursuant to the Company's annual bonus program/s regardless of whether that bonus is paid, "carried over" or deferred. SECTION 1.11. EXECUTIVE. An individual designated by the Benefits Committee who is employed by the Company and has attained the position of Corporate Vice President or any higher position, Division President, or equivalent title as approved by the Benefits Committee. The term "Executive" also shall include any individual found by the Compensation Committee to have been employed by the Company or an entity partially or wholly owned by the Company in an equivalent position and declared eligible for this Plan. SECTION 1.12. ERISA. The Employee Retirement Income Security Act of 1974, as amended. SECTION 1.13. FINAL AVERAGE SALARY. The average of the five highest consecutive bonus payments made during the ten most recent calendar years including the year during which the 2 Employee's retirement, death, or disability occurs, plus the Employee's annualized base rate of pay in effect immediately prior to the date of determination. SECTION 1.14. PENSION PLAN. The Dresser Industries, Inc. Consolidated Salaried Retirement Plan, as frozen May 31, 1995. SECTION 1.15. PLAN. The "Supplemental Executive Retirement Plan of Dresser Industries, Inc.", as set forth herein. SECTION 1.16. RELATED PLAN. Any Company sponsored qualified or non- qualified defined benefit or defined contribution pension plan (which may or may not be terminated) for nonunion salaried employees, other than the Pension Plan or the DC Plan. SECTION 1.17. YEARS OF SERVICE. For the purposes of this Plan, Years of Service shall begin on the date of first employment by Dresser Industries, Inc. and shall end upon severance from service, or such other dates as determined by the Benefits Committee. ARTICLE II PURPOSE OF PLAN SECTION 2.1. PURPOSE. The purpose of the Plan is to provide a consistent benefit structure for eligible Executives which assures that eligible Executives do not suffer a diminution of retirement benefits as a consequence of having diverse and divergent participation in related Company, joint venture or predecessor employer retirement plans. This is an unfunded plan described in sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. ARTICLE III ELIGIBILITY SECTION 3.1. GENERAL ELIGIBILITY. An Executive shall be covered by this Plan if he/she is an Executive and meets the requirements of Section 3.2 below. SECTION 3.2. ELIGIBILITY FOR BENEFIT. An Executive or former Executive (or his spouse or beneficiary) shall be eligible for a benefit determined under Section 4.1, under the following circumstances: 3 (a) The Executive dies while employed, or becomes disabled under circumstances that would entitle him to Disability Benefits under the qualified Pension Plan (or similar disability provisions of a qualified Related Plan or the qualified DC Plan that are applicable to him/her); or (b) The Executive or former Executive voluntarily terminates and the Executive has earned five (5) years of service as an Executive during the ten (10) year period ending on his/her termination date, and terminates after Age Fifty Five (55) with ten (10) years of service; or (c) The Executive or former Executive is involuntarily terminated and has earned five (5) years of service as an Executive during the ten (10) year period ending on his/her termination date; or (d) If the Executive's eligibility has been established and approved by the Compensation Committee. SECTION 3.3. SPOUSES AND BENEFICIARIES. The extent of a surviving spouse's or beneficiary's eligibility to receive benefits after an Executive's death is determined by the eligibility of the Executive for Plan coverage under Section 3.1 and Section 3.2(a). Where eligibility is established, the surviving spouse or beneficiary shall be entitled to the Executive's entire benefit consistent with the terms of this Plan. Priority, as between a spouse or named beneficiary, shall be as established under the qualified DC Plan. ARTICLE IV BENEFITS SECTION 4.1. AMOUNT OF BENEFITS. Determined as of the Executive's termination date, the amount of the benefit payable under this Section 4.1, if any, shall be determined as follows: STEP (1) DETERMINATION OF TARGET RETIREMENT INCOME AMOUNT. At age 65, an Executive shall be entitled to receive 2% of his/her Final Average Salary, multiplied by the Executive's Years of Service (up to a maximum of Thirty (30) Years of Service). If termination occurs prior to age 65, a reduction of .2% from the above formula will be assumed for each month necessary after termination that is necessary to attain age 65. 4 STEP (2) DETERMINATION OF RETIREMENT INCOME AMOUNT. Determined as of the Executive's termination date, with respect to the Executive, determine the sum of: (a) the Executive's monthly pension computed under the Pension Plan, any Related Plan, and/or any predecessor DB plan, or joint venture employer DB plans, (b) the Actuarial Equivalent of the Executive's employer contribution accounts under the DC Plan, any similar DC plan, and/or any predecessor DC plan, or joint venture employer DC plans, (except that, should an executive not contribute at a rate which yields the maximum employer contribution, a minimum employee contribution rate which yields the maximum employer contribution will be assumed and hypothetically calculated), (c) the Actuarial Equivalent of the Executive's "pension equivalent annuity credits" (for both DB and DC Plan components, as determined and recorded under the Dresser Industries, Inc. Deferred Compensation Plan); and To the extent that balances or amounts reflected in (a), (b), and/or (c) above are distributed prior to the Executive's termination date, the Company will recognize these amounts for offset purposes and will assume an appropriate rate of return from the date of distribution until the calculation of the benefit provided by this Plan. STEP (3) DETERMINATION OF THE BENEFIT (IF ANY) PAYABLE UNDER THIS SECTION 4.1. If the amount determined in Step (1) exceeds the amount determined in Step (2), the annual difference will be paid under this Plan. The Actuarial Equivalent of such annual benefit shall be converted to, and paid in, a lump sum in accordance with 4.3 below. If the amount determined in Step (1) does not exceed the amount determined in Step (2), no benefit is payable under this Plan. Notwithstanding the provisions of this Section, for Executives participating in the Plan on December 31, 1997, it is explicitly understood that, if the Executive's projected benefit due under the Plan prior to this Restatement provides a target retirement income under its Step (1) of Section 4.1 which exceeds the maximum benefit provided in Step (1) of Section 4.1 of this Restatement, then the greater of the two actual target retirement incomes will be paid to the Executive. SECTION 4.2. FUNDING OF BENEFITS UPON CHANGE OF CONTROL. Upon a Change of Control, the Company shall, as soon as possible, but in no event longer than ninety (90) days following such Change of Control, make an irrevocable contribution of additional cash to the Trust in an amount sufficient to pay each Executive's and Executive's beneficiary 120% of the value of accrued benefits which may become payable thereafter pursuant to the terms of the Plan as in effect on the date of the Change of Control. Upon a Change of Control, all funded amounts will be immediately vested irrespective of the terms of Section 5.1 below. 5 SECTION 4.3. FORM OF BENEFIT. Benefits under this Plan shall be payable in a lump sum to the Executive, or to the Executive's DC Plan Beneficiary in the event of the Executive's death as soon as practicable following the Executive's termination. With the approval of the Benefits Committee, the Executive may elect that Plan benefits be paid in a different form authorized under the DC Plan. SECTION 4.4. TIME OF BENEFIT PAYMENTS. Benefits due under this Plan shall be determined by the Benefits Committee at the time of the Executive's termination of employment. Except in the case of a lump-sum payment, such benefits shall be paid by the Company monthly in advance. In the case of a lump-sum payment, such payment shall be made as closely as practicable to the time such payment would be made if it were paid from the Pension Plan. Such payments shall be made by the Company out of its general assets and shall not be funded in any manner, expect as provided in Section 4.2 above. ARTICLE V VESTING AND FORFEITURE SECTION 5.1. VESTING. An Executive shall vest in benefits under this Plan at the time such person terminates and is eligible under Section 3.2. No Executive (nor the beneficiary of such person) whose employment is terminated For Cause, as determined by the Compensation Committee, shall vest in any benefits under this Plan, even if such termination is deemed a retirement under provisions of the Pension Plan, a Related Plan or the DC Plan. SECTION 5.2. FORFEITURE. The Compensation Committee may declare forfeited any or all future benefits of an Executive (and/or his/her beneficiary) if the Compensation Committee in its sole discretion determines that such person has taken or allowed any action that is a violation of the Dresser Code of Conduct, has engaged in serious and willful misconduct in connection with his/her employment, or competes with or assists others to compete with the Company, without written consent of the Company. ARTICLE VI ADMINISTRATION SECTION 6.1. DUTIES OF BENEFITS COMMITTEE. This Plan shall be administered by the Benefits Committee in accordance with its terms and purposes. The Benefits Committee shall 6 have the sole discretionary duty and authority to interpret the provisions of this Plan (and any private letter agreement affecting an Executive's benefits under the Plan) and determine the amount and manner of payments of the benefits due to or on behalf of each Executive from this Plan and shall cause them to be paid accordingly. SECTION 6.2. FINALITY OF DECISIONS. The decisions made and the actions taken by the Benefits Committee in the administration of this Plan shall be final and conclusive on all persons, and the members of the Benefits Committee shall not be subject to individual liability with respect to this Plan. ARTICLE VII CLAIMS AND APPEAL PROCEDURES SECTION 7.1. PURPOSE. The purpose of the claims and appeal provisions set forth in Sections 7.1 through 7.11 is to secure the speedy, inexpensive resolution of all disputes over Plan benefits and rights granted by the Plan. These provisions shall be liberally construed so as to avoid litigation and its attendant expenses. SECTION 7.2. CLAIMS PROCEDURE. Each Executive who claims entitlement to any right or benefit under the Plan ("claimant") may submit a claim with respect to that benefit or right under the procedure set forth in the Dresser Industries, Inc. Retirement Savings Plan-A. SECTION 7.3 APPEAL PROCEDURE. When a claim has been or is deemed denied, the claimant (hereinafter referred to as appellant) shall have the right within 60 days after receipt of written notice thereof or the date the claim is deemed denied to file an appeal with the Benefits Committee and to go through the appeal procedure herein set forth. All appeals shall be in writing, and shall set forth the reasons why the appellant believes the decision denying his/her claim is erroneous. The Benefits Committee shall render a decision on the appeal in writing not later than 60 days after receipt of the written appeal. The decision of the Benefits Committee shall be final and shall be binding upon the appellant, his/her beneficiaries, heirs, and assigns and all other persons claiming by, through or under him. 7 A failure to file a claim and an appeal in the manner and within the time limits set forth herein shall be deemed a failure by the aggrieved party to exhaust his/her administrative remedies and shall constitute a waiver of the rights or benefits sought to be established under the Plan. SECTION 7.4. EXHAUSTION OF ADMINISTRATIVE REMEDIES. No legal action to recover Plan benefits or to enforce or to clarify rights under the Plan shall be commenced under section 502(a)(1)(B) of ERISA, or under any other provisions of law, whether or not statutory, unless and until the claimant first shall have exhausted the claims and appeal procedures available to him hereunder in Sections 7.1-7.3. A claimant must raise all issues and present all theories relating to the Executive's claim to the Benefits Committee at one time. Otherwise, the claimant shall be deemed to have abandoned forever all issues and theories not raised and presented to the Benefits Committee. SECTION 7.5. LIMITATION ON ACTIONS. Any suit brought to contest a decision of the Benefits Committee shall be filed in a court of competent jurisdiction within 1 year from receipt of written notice of the Benefits Committee's final decision or from the date the appeal is deemed denied, and any suit not filed within this 1-year limitation period shall be dismissed by the court. Service of legal process shall be made upon the Plan by service upon the Benefits Committee. SECTION 7.6. FEDERAL PREEMPTION. All state law causes of action that arise out of or relate to this Plan or to entitlement to rights or benefits under the Plan shall be deemed to have been preempted by section 514 of ERISA. SECTION 7.7. NO RIGHT TO JURY TRIAL; EVIDENCE. In any suit contesting a decision of the Benefits Committee, all issues of fact shall be tried by the court and not by a jury. No evidence may be introduced in court which was not previously presented to the Benefits Committee and no evidence may be introduced to modify or contradict the terms of the Plan document. SECTION 7.8. SCOPE OF REVIEW. The Benefits Committee shall have full discretionary authority to interpret and apply the terms of this Plan document and other relevant documents and relevant provisions of law, and deference shall be afforded the Benefits Committee's decisions. This grant of authority shall be broadly construed and shall include the authority to find facts, to reach conclusions of law, to interpret and apply ambiguous terms, and to supply missing terms reasonably necessary to resolution of claims and appeals. No finding of fact by the Benefits Committee shall be set aside by a court unless the party contesting the finding shall prove by clear and convincing evidence that the finding is arbitrary and capricious. No conclusion of law 8 reached by the Benefits Committee shall be reversed by a court unless the party contesting the conclusion shall demonstrate that the Benefits Committee is guilty of manifest disregard of law. SECTION 7.9. LIMITATION ON DAMAGES. In any suit over Plan benefits or rights, recovery shall be limited to the amount of benefits found due, without interest, or to specific enforcement of rights established under the Plan, and shall not include any other damages whether denominated incidental, special, consequential, collateral, compensatory, exemplary, punitive or whatever. SECTION 7.10. PARTICIPANT PLAN DATA. The Benefits Committee may issue, or cause to be issued, from time to time statements to Executives, retirees or beneficiaries indicating eligibility, service or other data regarding their Plan benefits. If any such person wishes to challenge the accuracy of such data, the person shall do so in the manner and within the time limits set forth above in Sections 7.1-7.9. SECTION 7.11. FINAL DETERMINATION OF RIGHTS AND BENEFITS. After termination of the Plan, the Benefits Committee may direct a final determination of the rights and benefits of some or all Executives having an interest in the Plan. The determination with respect to any person may be mailed to that person at the Executive's last known address and that person may be given 90 days within which to challenge the determination through the claims and appeal procedures set forth in Sections 7.1-7.10. The mailing of a copy of a determination to a person at his/her last known address shall be deemed constructive receipt by that person of a copy of the determination. Any determination not challenged through the claims and appeals procedures shall govern an Executive's rights under the Plan, and the rights of any person claiming by, through or under him. ARTICLE VIII AMENDMENT AND TERMINATION SECTION 8.1. AMENDMENT AND TERMINATION. The Company intends to maintain this Plan as long as it is appropriate. However, the Company reserves the right to amend and/or terminate it at any time without the consent of any Executive, (a) by the Board of Directors of the Company, or (b) in the case of amendments which do not materially modify the provisions hereof, the Benefits Committee; provided, however, that no such amendment or termination shall reduce any benefits accrued under the terms of this Program prior to the date of termination or amendment. 9 ARTICLE IX MISCELLANEOUS SECTION 9.1. NO EMPLOYMENT RIGHTS. Nothing contained in this Plan shall be construed as a contract of employment between the Company or any subsidiary or joint venture company and any employee, or as a right of any employee to be continued in the employment of the Company, or as a limitation of the right of the Company to discharge any of its employees with or without cause. SECTION 9.2. ENTIRE AGREEMENT; SUCCESSORS. This Plan, including any subsequently adopted amendments, shall constitute the entire agreement or contract between the Company and any Executive regarding this Program. There are no covenants, promises, agreements, conditions or understandings, either oral or written, between an Executive and the Company relating to the subject matter hereof, other than those set forth herein. This Plan and any amendments hereof shall be binding on the Company and the Executives and their respective heirs, administrators, trustees, successors and assigns, including but not limited to, any successors of the Company by merger, consolidation or otherwise by operation of law, and on all designated beneficiaries of the Executive. SECTION 9.3. GOVERNING LAW. The laws of the State of Texas shall govern this Plan. SECTION 9.4. NONASSIGNABILITY. To the extent permitted by law, the right of any Executive or any beneficiary in any benefit hereunder shall not be subject to attachment or any other legal process for the debts of such Executive or beneficiary; nor shall any such benefit be subject to anticipation, alienation, sale, transfer, assignment or encumbrance. Dated: --------------------------------- DRESSER INDUSTRIES, INC. By: ------------------------------------ Title: --------------------------------- 10 APPENDIX A SPECIAL PROVISIONS On November 19, 1997, the Board of Directors of Dresser Industries, Inc. approved a pension benefit enhancement for Ben Stuart which is to be provided through this Plan. Therefore, for benefit calculation purposes under the provisions of this Plan, Ben Stuart will be deemed to have retired at age 65 regardless of his actual age on the date of his retirement. EX-10.22 4 EXECUTIVE LIFE INSURANCE AGMT. (IND. AS TRUSTEE) (Individual as beneficiary) DRESSER INDUSTRIES, INC. EXECUTIVE LIFE INSURANCE AGREEMENT THIS AGREEMENT is made as of this 18th day of December, 1997 between Dresser Industries, Inc. ("DII") and _________________________________ (the "Participant"). DII has established the Dresser Industries, Inc. Executive Life Insurance Program (the "Program"), effective as of February 1, 1998; and The Participant is an employee of DII and has been selected to participate in the Program by the Employee Benefits Committee (or in the case of Corporate Officers, the Executive Compensation Committee of the Board) of DII (collectively, the "Committee"); and The owner of life insurance policy number ________________ (the "Insurance Contract") issued by ITT Hartford Life and Annuity Insurance Company (the "Insurance Company") on the Participant's life shall be DII; and DII is willing to assist in the payment of premiums under the Insurance Contract as provided in this Agreement; and DII is endorsing an interest in the death benefit proceeds of the Insurance Contract to the Participant; In consideration of the mutual covenants and in this Agreement, DII and the Participant agree as follows: 1. INCORPORATION OF PROGRAM. The Participant agrees to participate in the Program (as it may be amended from time to time) in accordance with its provisions. The terms and conditions of the Program (as it may be amended from time to time) are incorporated into this Agreement in their entirety. The terms and conditions of the Insurance Contract are incorporated into this 1 Agreement in their entirety and the Program shall be subject to the terms of the Insurance Contract in all respects. 2. PAYMENT OF PREMIUMS. (a) BY DII. DII shall pay to the Insurance Company the total annual premium rate required to maintain the Insurance Contract until the date this Agreement terminates under Section 6. A portion of each such payment may be reported as imputed income includable as compensation in the Participant's gross income in accordance with federal, state, or local income tax laws. (b) BY THE PARTICIPANT. The Participant shall not be required to pay any of the annual premiums on the Insurance Contract. 3. INSURANCE CONTRACT BENEFICIARY DESIGNATION. The right to designate and change the beneficiary of the Insurance Contract and to elect an optional mode of settlement is reserved to the Participant. The Participant shall have the right to designate and change the beneficiaries and contingent beneficiaries and to elect an optional mode of settlement in writing subject to the interest of DII under Section 4, and DII will make the Insurance Contract available to the Participant if required for endorsement, assignment, or a change of beneficiary. 4. PAYMENT OF INSURANCE CONTRACT PROCEEDS IN EVENT OF DEATH. DII is required to maintain a total life insurance benefit at least equal to the sum of: (i) the Recovery Amount; and (ii) 2 times the sum of base pay (annual rate as of January 1 of the Program Year) and the annual gross incentive earned in the prior fiscal year, whether paid, deferred, or reserved (the "Participant Benefit"). 2 If the Participant dies while the Insurance Contract and this Agreement are in force, the proceeds of the Insurance Contract will be payable as follows: (a) DII shall be entitled to the amount of the life insurance benefit proceeds equal to the aggregate amount of premium paid by DII pursuant to this Agreement, less any outstanding Insurance Contract loans received by DII prior to the death of the Participant and any interest accrued thereon (the "Recovery Amount"). (b) The beneficiary designated by the Participant shall be entitled to the Participant Benefit. However, in no event shall the amount of (ii) above ever be reduced, except for the occurrence of one of the following events, and then the amount of (ii) above shall be one half of its amount the day prior to the occurrence of the event: - Participant becomes totally disabled as determined or approved by the Committee, - Participant voluntarily terminates employment after participating in this Program for at least five (5) Program Years, during the ten (10) Program Year period ending on his/her termination date, and terminates after age fifty-five (55) with ten (10) years of Dresser Industries, Inc. (or Dresser-Joint Venture Company) service, or - Any other situation as determined or approved by the Committee. 5. DII'S EXERCISE OF RIGHTS AS OWNER. During the lifetime of the Participant and prior to the termination of this Agreement, DII may exercise any of its rights as Owner of the Insurance Contract without the consent of the Participant. If an Insurance Contract loan is made by DII, DII shall be responsible for the interest thereon and shall pay such interest as it becomes due. The Insurance Contract shall be held by DII until the termination of this Agreement. 3 6. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the first to occur of the following: (a) the termination date specified in written notice given by DII pursuant to Section 7(c); (b) the termination date specified in written notice given by the Participant pursuant to Section 7(c); (c) the date Participant terminates employment voluntarily; (d) the date of surrender of the Insurance Contract; (e) the date of the termination of Participant's employment "for cause" (gross, willful or intentional misconduct which causes harm to DII); (f) the date an employee does not maintain an eligible position within DII; or (g) the date of death of the Participant. If this Agreement terminates under 6(b), (c) or (f) above, the Participant may elect to have DII transfer the Insurance Contract to the Participant simultaneous to the occurrence of payment to DII by the Participant of the greater of the aggregate amount of the premium payments made by DII pursuant to this Agreement or the Insurance Contract cash surrender value. If this Agreement terminates under 6(a) or (d) above, DII will immediately transfer ownership of the Insurance Contract to the Participant. 7. AMENDMENT AND ASSIGNMENT OF AGREEMENT. (a) This Agreement shall not be modified or amended except in writing, signed by the Program Administrator and the Participant. (b) This Agreement is binding upon DII, its successors, the Participant (and the Participant's heirs, executors, administrators, and transferees) and any Insurance Contract beneficiary. (c) This Agreement may be terminated by either the Participant or DII by 30 days written notice to the other. 4 8. TAXES. DII makes no guarantees and assumes no obligation or responsibility with respect to the Participant's federal, state, or local income, estate, inheritance, or gift tax obligations, if any, under the Program, this Executive Life Insurance Agreement, or any Agreement or Insurance Contract entered into in connection with the Program. DII may deduct from the amount of any benefits payable pursuant to this Executive Life Insurance Agreement any tax required to be withheld by any federal, state or local government. 9. PROGRAM YEAR. For purposes of this Agreement, each Program Year shall begin on January 1 (except for the first Program Year which shall begin on February 1) of each calendar year and end on December 31 of the same calendar year. 10. PROGRAM ADMINISTRATOR. The Committee shall be responsible for the interpretation, control and administration of the Program. The Committee can delegate its responsibilities to the Vice President, Human Resources of DII. 11. MISCELLANEOUS. Nothing contained in this Agreement shall be construed as giving the Participant the right to be retained in the employment of DII, or to limit the power of DII to assign the Participant to other duties or responsibilities or to terminate the Program at any time. 12. CHANGE OF CONTROL. Upon Change of Control of DII, the Program shall continue for a period of at least five (5) years from the date of such event as if the Change of Control had not occurred. Further, if a Participant's employment is terminated by reason of such event or is Constructively Terminated (reduction in the authority, duties, responsibilities of his position within five (5) years of the Change of Control), the Participant's Benefit shall continue for the remainder of the five (5) year period without reduction. If a Participant becomes eligible for a reduced benefit under Section 4 any time during this five (5) year period (or would have become eligible 5 if the Participant's employment had continued during this five (5) year period), then the Program shall continue for the life of the Participant at the reduced level described in Section 4. Change of Control is defined as: (a) The sale of all or a majority of DII's assets; (b) DII's liquidation or dissolution; (c) The purchase by any persons or entities of beneficial ownership of at least 30% of DII's common stock (or 30% of the combined voting power of DII's then outstanding voting securities entitled to vote generally in the election of directors);or, (d) The approval by DII's stockholders of a reorganization, merger, or consolidation, the result of which is that the persons or entities which were stockholders immediately before the transaction do not own more than 50% of the combined voting power of the surviving entity's then outstanding voting securities entitled to vote generally in the election of directors. 13. STATE LAW. This Agreement shall be subject to and construed in accordance with the laws of the State of Texas. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. By: ----------------------------- - ----------------------------- --------------------------------- WITNESS PARTICIPANT 6 EX-10.23 5 EXECUTIVE LIFE INSURANCE AGMT. (TRUST AS BENEF) (TRUST AS BENEFICIARY) DRESSER INDUSTRIES, INC. EXECUTIVE LIFE INSURANCE AGREEMENT THIS AGREEMENT is made as of this 18th day of December, 1997 between Dresser Industries, Inc. ("DII") and __________________________________ Bank N.A. (the "Trustee"), as trustee of the ________________________Trust (the "Trust") dated ________________. DII has established the Dresser Industries, Inc. Executive Life Insurance Program (the "Program"), effective as of February 1, 1998; and The Participant is an employee of DII and has been selected to participate in the Program by the Employee Benefits Committee (or in the case of Corporate Officers, the Executive Compensation Committee of the Board) of DII (collectively, the "Committee"); (the "Participant") has irrevocably assigned all rights and benefits under the Program to the Trustee; and The owner of life insurance policy number _________________ (the "Insurance Contract") issued by ITT Hartford Life and Annuity Insurance Company (the "Insurance Company") on the Participant's life shall be DII; and DII is willing to assist in the payment of premiums under the Insurance Contract as provided in this Agreement; and DII is endorsing an interest in the death benefit proceeds of the Insurance Contract to the Trustee; In consideration of the mutual covenants and in this Agreement, DII and the Trustee agree as follows: 1. INCORPORATION OF PROGRAM. The Participant agrees to participate in the Program (as it may be amended from time to time) in accordance with its provisions. The terms and conditions of the Program (as it may be amended from time to time) are incorporated into this Agreement in their entirety. The terms and conditions of the Insurance Contract are incorporated into this Agreement 1 in their entirety and the Program shall be subject to the terms of the Insurance Contract in all respects. 2. PAYMENT OF PREMIUMS. (a) BY DII. DII shall pay to the Insurance Company the total annual premium rate required to maintain the Insurance Contract until the date this Agreement terminates under Section 6. A portion of each such payment may be reported as imputed income includable as compensation in the Participant's gross income in accordance with federal, state, or local income tax laws. (b) BY THE PARTICIPANT. The Participant nor the Trustee shall not be required to pay any of the annual premiums on the Insurance Contract. 3. INSURANCE CONTRACT BENEFICIARY DESIGNATION. The right to designate and change the beneficiary of the Insurance Contract and to elect an optional mode of settlement is reserved to the Trustee. The Trustee shall have the right to designate and change the beneficiaries and contingent beneficiaries and to elect an optional mode of settlement in writing subject to the interest of DII under Section 4, and DII will make the Insurance Contract available to the Trustee if required for endorsement, assignment, or a change of beneficiary. 4. PAYMENT OF INSURANCE CONTRACT PROCEEDS IN EVENT OF DEATH. DII is required to maintain a total life insurance benefit at least equal to the sum of: (i) the Recovery Amount; and (ii) 2 times the sum of base pay (annual rate as of January 1 of the Program Year) and the annual incentive earned in the prior fiscal year, without regard for the bonus reserve (the "Participant Benefit"). If the Participant dies while the Insurance Contract and this Agreement are in force, the proceeds of the Insurance Contract will be payable as follows: 2 (a) DII shall be entitled to the amount of the life insurance benefit proceeds equal to the aggregate amount of premium paid by DII pursuant to this Agreement, less any outstanding Insurance Contract loans received by DII prior to the death of the Participant and any interest accrued thereon (the "Recovery Amount"). (b) The beneficiary designated by the Trustee shall be entitled to the Participant Benefit. However, in no event shall the amount of (ii) above ever be reduced, except for the occurrence of one of the following events, and then the amount of (ii) above shall be one half of its amount the day prior to the occurrence of the event: - Participant becomes totally disabled as determined or approved by the Committee, - Participant voluntarily terminates employment after participating in this Program for at least five (5) Program Years, during the ten (10) Program Year period ending on his/her termination date, and terminates after age fifty-five (55) with ten (10) years of Dresser Industries, Inc. (or Dresser Joint Venture Company) service. - Any other situation as determined or approved by the Committee. 5. DII'S EXERCISE OF RIGHTS AS OWNER. During the lifetime of the Participant and prior to the termination of this Agreement, DII may exercise any of its rights as Owner of the Insurance Contract without the consent of the Trustee. If an Insurance Contract loan is made by DII, DII shall be responsible for the interest thereon and shall pay such interest as it becomes due. The Insurance Contract shall be held by DII until the termination of this Agreement. 6. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the first to occur of the following: (a) the termination date specified in written notice given by DII pursuant to Section 7(c); (b) the termination date specified in written notice given by the Participant pursuant to Section 7(c); (c) the date Participant terminates employment voluntarily; 3 (d) the date of surrender of the Insurance Contract; (e) the date of the termination of Participants employment "for cause" (gross, willful or intentional misconduct which causes harm to DII); (f) the date an employee does not maintain an eligible position within DII; or (g) the date of death of the Participant. If this Agreement terminates under 6(b), (c) or (f) above, the Participant may elect to have DII transfer the Insurance Contract to the Participant simultaneous to the occurrence of payment to DII by the Participant of the greater of the aggregate amount of the premium payments made by DII pursuant to this Agreement or the Insurance Contract cash surrender value. If this Agreement terminates under 6(a) or (d) above, DII will immediately transfer ownership of the Insurance Contract to the Participant. 7. AMENDMENT AND ASSIGNMENT OF AGREEMENT. (a) This Agreement shall not be modified or amended except in writing, signed by the Program Administrator and the Trustee. (b) This Agreement is binding upon DII, its successors, the Participant (and the Participant's heirs, executors, administrators, and transferees), the Trustee and any Insurance Contract beneficiary. (c) This Agreement may be terminated by either the Trustee or DII by 30 days written notice to the other. 8. TAXES. DII makes no guarantees and assumes no obligation or responsibility with respect to the Participant's or Trustee's federal, state, or local income, estate, inheritance, or gift tax obligations, if any, under the Program, this Executive Life Insurance Agreement, or any Agreement or Insurance Contract entered into in connection with the Program. DII may deduct from the amount of any 4 benefits payable pursuant to this Executive Life Insurance Agreement any tax required to be withheld by any federal, state or local government. 9. PROGRAM YEAR. For purposes of this agreement, each Program Year shall begin on January 1 (except for the first Program Year which shall begin on February 1) of each calendar year and end on December 31 of the same calendar year. 10. PROGRAM ADMINISTRATOR. The Committee shall be responsible for the interpretation, control and administration of the Program. The Committee can delegate its responsibilities to the Vice President, Human Resources of DII. 11. MISCELLANEOUS. Nothing contained in this Agreement shall be construed as giving the Participant the right to be retained in the employment of DII, or to limit the power of DII to assign the Participant to other duties or responsibilities or to terminate the Program at any time. 12. CHANGE OF CONTROL. Upon Change of Control of DII, the Program shall continue for a period of at least five (5) years from the date of such event as if the Change of Control had not occurred. Further, if a Participant's employment is terminated by reason of such event or is Constructively Terminated (reduction in the authority, duties, responsibilities of his position within five (5) years of the Change of Control), the Participant's Benefit shall continue for the remainder of the five (5) year period without reduction. If a Participant becomes eligible for a reduced benefit under Section 4 any time during this five (5) year period (or would have become eligible if the Participant's employment had continued during this five (5) year period), then the Program shall continue for the life of the Participant at the reduced level described in Section 4. Change of Control is defined as: (a) The sale of all or a majority of DII's assets; (b) DII's liquidation or dissolution; 5 (c) The purchase by any persons or entities of beneficial ownership of at least 30% of DII's common stock (or 30% of the combined voting power of DII's then outstanding voting securities entitled to vote generally in the election of directors);or, (d) The approval by DII's stockholders of a reorganization, merger, or consolidation, the result of which is that the persons or entities which were stockholders immediately before the transaction do not own more than 50% of the combined voting power of the surviving entity's then outstanding voting securities entitled to vote generally in the election of directors. 13. STATE LAW. This Agreement shall be subject to and construed in accordance with the laws of the State of Texas. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. By: ------------------------------- - ------------------------------ ----------------------------------- WITNESS PARTICIPANT 6 EX-10.25 6 AMEND. #3 TO 1992 STOCK COMPENSATION PLAN AMENDMENT NO. 3 TO THE DRESSER INDUSTRIES, INC. 1992 STOCK COMPENSATION PLAN Effective September 18, 1997, the first two sentences of Section 3(a) of Part C of the Dresser Industries, Inc. 1992 Stock Compensation Plan is amended to read as follows: "In January of any even-numbered calendar year beginning with 1998, the Committee may select Officers and key employees to participate in an Award Cycle that began the last preceding November and the number of Stock Units in the Award to be granted to each. In such event, at the meeting held in that same January, the Board will establish the Objective for that same Award Cycle." EX-21 7 SUBSIDIARY LIST Exhibit 21. There is furnished a list of subsidiaries of Dresser Industries, Inc. as of October 31, 1997. See Note (a). STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES OWNED UNDER THE LAWS OF BY IMMEDIATE NAME WHICH ORGANIZED PARENT - ------------------------------------------------------ ----------------- ---------------- American Thai Barite Limited Thailand 100% Atlantic Minerals and Products Corporation Florida 100% Sperry-Sun International, Inc. Delaware 78.26% (1) NL do Brazil Ltda. Brazil 100% Sperry-Sun Drilling Services (Cyprus) Ltd. Cyprus 100% Sperry-Sun Saudia Company Limited Saudi Arabia 75% (2) AVA S.A.R.L. France 100% Axelson, Inc. Delaware 100% Axelson Pump Company Delaware 100% Axelson Kuban Russia 44.55% Baroid Caribbean Limited Cayman Islands 50% Baroid de Venezuela, S.A. Venezuela 99.73% (3) Baroid Equipment, Inc. California 100% Baroid Equipment Canada, Inc. California 100% Baroid GmbH Germany 100% Baroid International Inc. Delaware 100% Baroid, S.A. de C.V. Mexico 51% NL Baroid (Cameroon) S.A.R.L. Cameroun 100% Baroid International Trading Corporation Delaware 100% Baroid Australia Pty. Limited Australia 90% Dresser AS 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% Baroid International, S.p.A. Italy 100% Security DBS Italia S.r.L. Italy 100% Baroid Pigmina Industrial e Comercial Ltda. Brazil 100% Dresser Industries RUS Russia 100% Baroid S.A.R.L. Tunisia 100% Pacific Petroleum Products, Inc. Delaware 100% 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% WeCem AS Norway 50.67% Baroid Middle East, Inc. Delaware 100% (5) Baroid Nigeria, Inc. Delaware 100% Baroid Drilling Chemical Products Limited Nigeria 60% Baroid of Nigeria Limited Nigeria 60% Baroid Sales Export Corporation Delaware 100% Baroid Technology, Inc. Delaware 100% Basin Surveys, Inc. West Virginia 100% Canadian Baroid Sales Ltd. Canada 100%
STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES OWNED UNDER THE LAWS OF BY IMMEDIATE NAME WHICH ORGANIZED PARENT - ------------------------------------------------------ ----------------- ---------------- CEBO International B.V. Netherlands 50% CEBO Bohrmaterialien GmbH Germany 100% CEBO Holland B.V. Netherlands 100% CEBO Marine B.V. Netherlands 100% CEBO U.K. Ltd. Scotland 100% Compania Transandina de Exportacion, Inc. Delaware 100% DB Stratabit GmbH Germany 100% The M.W. Kellogg GmbH Germany 99% (6) DB Stratabit Pte. Ltd. Singapore 100% DB Stratabit Sdn. Bhd. Malaysia 49% DB Stratabit S.A. Belgium 100% DB Stratabit S.A. France 100% DBS-Tunisie Tunisia 100% DB Stratabit S. A. R. L. Tunisia 100% Dresser Russia, Inc. Delaware 100% Dressbi, L.L.C. Texas 100% Dresser AG Liechtenstein 100% Dresser Anstalt Liechtenstein 100% Dresser Australia Pty. Ltd. Australia 100% Dresser Cameroun S.a.r.L. Cameroun 90% (7) International Oil Field Engineering Ltd. Cayman Islands 51% Dresser (Algeria) Inc. Delaware 100% Dresser Argentina S.A. Argentina 100% Dresser Canada, Inc. Canada 85% (8) Dresser Ireland Finance Company Ireland 78% (9) Dresser Caspian, Inc. Delaware 100% Dresser Corporation Nevada 100% Dresser de Venezuela, C.A. Venezuela 100% Dresser Far East, Inc. Delaware 100% Dresser Oil Services Vietnam Limited Vietnam 100% Dresser Foreign Sales Corporation Limited Guam 100% Dresser Holding, Inc. Delaware 100% Dresser International Sales Corporation Delaware 100% Dresser (Holdings) Limited England 66.85% (10) AVA (U.K.) Limited England 100% Sub Sea Offshore (Holdings) Limited England 100% Sub Sea Offshore Limited England 100% Sub Sea Offshore Holdings Norge A/S Norway 100% Sub Sea Offshore Pte Ltd Singapore 100% Baroid Corporation England 99% (11) Baroid Limited England 100% DB Stratabit Limited Scotland 100% Strata Bit Limited Scotland 100% NL Overseas Service Company, Ltd. England 100% Dresser Drilling and Production Services Limited England 100% Russell Attitude Systems, Ltd. England 100%
STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES OWNED UNDER THE LAWS OF BY IMMEDIATE NAME WHICH ORGANIZED PARENT - ------------------------------------------------------ ----------------- ---------------- Sperry-Sun (U.K.) Limited England 100% Dresser Acquisitions Limited England 100% North Sea Assets Limited Scotland 100% British Underwater Engineering Limited England 100% Bue Ships Ltd. England 100% SubSea HMB Ltd. Scotland 100% HMB Subwork Limited England 100% Sub Sea Norge A/S Norway 100% Dresser Group Pension Trustee Limited England 100% Dresser Holmes Limited England 100% B. Thornton Limited England 100% George Street Parade Limited England 100% Holmes Blowers Limited England 100% Vactor Industrial Pollution (U.K.) Limited England 100% Dresser U. K. Limited England 100% British Pleuger Submersible Pumps Limited England 100% LCL Knightsbridge Limited England 100% Studebaker-Worthington (U.K.) Limited England 100% Worthington Pumping Systems Limited England 100% Worthington-Simpson Ltd. England 100% Dresser U.K. Pensions Limited England 100% Granherne (Holdings) Ltd. England 100% Granherne International (Holdings) Ltd. England 65% (12) Granherne Limited England 100% Granherne Information Systems Limited England 100% Granherne International Limited England 100% Granherne Inc. Texas 100% Granherne (NZ) Limited New Zealand 100% Granherne Pty. Ltd. Australia 100% Granherne Sdn. Bhd. Malaysia 100% Dresser Kellogg Energy Services Limited England 100% M.W. Kellogg (Eastern Hemisphere) Limited England 100% M.W. Kellogg Group Limited England 100% M.W. Kellogg Limited England 55% (13) Kellogg Construction Limited England 100% Kellogg Offshore Limited England 100% Kellogg Plant Services Limited England 100% KESA Limited England 100% K.R.S.A. 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% Mono Group Scotland 99% (14) Mono Group Pension Trustees Limited Scotland 100% Mono Pumps Limited England 100%
STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES OWNED UNDER THE LAWS OF BY IMMEDIATE NAME WHICH ORGANIZED PARENT - ------------------------------------------------------ ----------------- ---------------- Mono Pumps (Australia) Pty. Limited Australia 100% Mono Pumps (Engineering) Limited England 100% Mono Pumps (Manufacturing) Limited England 100% Mono Pumps (New Zealand) Limited New Zealand 100% Mono Pumps (U.K.) Limited England 100% W. T. Limited England 100% T. K. Valve Holdings England 99% (15) TK Valve Limited England 100% T K Valve (Abu Dhabi) Limited Scotland 100% T K Valve (Europe) Limited Scotland 100% TK Valve (Singapore) Pte. Ltd. Singapore 100% Dresser Industria e Comercio 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 71.04% Dresser Oil Tools, Inc. Delaware 100% Dresser Oilfield Gabon S.a.r.L. Gabon 95% (16) Dresser Oilfield Operations (Nigeria) Inc. Delaware 100% Dresser Oilfield Operations (Nigeria) Limited Nigeria 100% Dresser Oilfield Services, Inc. Delaware 100% Dresser-Rand Canada, Inc. Canada 51% Dresser-Rand Company (Partnership) New York 51% DRSS Company (Partnership) New York 100% Dresser-Rand Argentina S.A. Argentina 100% Dresser-Rand C.I. Limited Cayman Islands 100% Dresser-Rand Compression Services, S.A. Switzerland 100% Dresser-Rand Holding Company Delaware 100% Dresser-Rand B.V. Netherlands 100% Turboservice Sp. z o.o Poland 70% Dresser-Rand GmbH Germany 100% Dresser-Rand Japan Ltd. Japan 100% Dresser-Rand (Nigeria) Ltd. Nigeria 60% Dresser-Rand Overseas Sales Company Delaware 100% Dresser-Rand Company Ltd. England 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% Southwest Industries, Inc. Delaware 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%
STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES OWNED UNDER THE LAWS OF BY IMMEDIATE NAME WHICH ORGANIZED PARENT - ------------------------------------------------------ ----------------- ---------------- 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-Rand Czech Spol. S R. O. Czechoslovakia 100% Dresser Services, Inc. Delaware 100% Dresser South Africa (Pty.) Ltd. South Africa 100% Fann Instrument Company Delaware 100% GAZDMD Avtomatika Russia 100% Grove Foreign Sales Corporation Barbados 100% M. W. Kellogg-Delaware Inc. Delaware 100% Dresser Kellogg Energy Services Inc. Delaware 100% Wellstream International, Inc. Delaware 100% The M. W. Kellogg Company Delaware 100% Kellogg Cardon, C.A Venezuela 100% Kellogg Foreign Sales Corporation Barbados 100% Kellogg Pan American, C.A. Venezuela 100% M. W. Kellogg Technology Company Delaware 100% TSKJ II Construcoes Internacionais Sociedade Unipessoal Limitada Portugal 100% TSKJ Nigeria, Limited Nigeria 100% M. W. Kellogg Holdings, Inc. Delaware 100% Conkel, S. de R.L. de C.V. Mexico 100% Intercontinental Services Limited Virgin Islands 100% KCI Constructors, Inc. Delaware 100% KRW Energy Systems, Inc. Delaware 80% 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% 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 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%
STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES OWNED UNDER THE LAWS OF BY IMMEDIATE NAME WHICH ORGANIZED PARENT - ------------------------------------------------------ ----------------- ---------------- 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% KPA, S.A. de C.V. Mexico 100% Kuwait Kellogg Ltd. Delaware 100% Middle East Technologies, Inc. Delaware 100% M. W. Kellogg Company Limited Canada 100% M. W. Kellogg Constructors Inc. Delaware 100% Pullman Incorporated Capital Corporation Delaware 100% Kellogg Holland B.V. Netherlands 100% Kellogg Continental B.V. Netherlands 75% Kellogg Continental Construction B.V. Netherlands 100% Kellogg Intercontinental Limited Cyprus 100% Kellogg Algeria Inc. Delaware 100% Pullman Kellogg Plant Services Algeria, Inc. Delaware 100% Societe Kellogg Delaware 100% Malaysian Barite Sdn. Bhd. Malaysia 100% Masoneilan International, Inc. Delaware 100% Dresser B.V. Netherlands 85% (17) Security DBS B.V. Netherlands 100% Dresser Europe S.A. Belgium 100% ebro Electronic GmbH Germany 100% (18) 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 Polska Sp. z o. o Poland 100% Dresser Produits Industriels France 100% Dresser Congo S.A.R.L. Congo 100% Kellogg France, S.A. France 100% Dresser Oilfield Services B.V. Netherlands 100% Dresser Italia S.p.A. Italy 99% (19) Dresser Latvia Limited Latvia 100% Dresser Masoneilan Valves Private Limited India 51% (20) Masoneilan HP + HP GmbH Germany 100% Masoneilan Internacional, S.A. de C.V. Mexico 100% Masoneilan S.A. Spain 75% (21) Masoneilan (S.E.A.) Private Limited Singapore 100% Dresser Singapore Pte. Ltd. Singapore 95% (22) Monoflo, Inc. Delaware 100%
STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES OWNED UNDER THE LAWS OF BY IMMEDIATE NAME WHICH ORGANIZED PARENT - ------------------------------------------------------ ----------------- ---------------- Nile Oilfield Engineering Limited Sudan 51% P. T. Security Mulia Indonesia Indonesia 70% Property and Casualty Insurance, Limited Bermuda 100% Property and Casualty Insurance Ltd. - U.S. Vermont 100% Saber Technologies, L.L.C. Texas 100% Security DBS (MEM) E.C. Bahrain 100% Servicios Industrials Worthington, S.A. Venezuela 100% Sociedad Espanola de Bombas y Maquinaria S.A. Spain 100% Sub Sea International Inc. Delaware 100% 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, Inc. Delaware 100% P.T. SubSea Tritek Indonesia 90% Sub Sea Overseas, Inc. Panama 100% Sub Sea Worldwide, Inc. Panama 100% Wellstream, Inc. Delaware 100% Symington Wayne Overseas, Ltd. Canada 100% Wayne Pump Company South Africa (Pty.) Ltd. South Africa 100% Triconos Mineros S.A. Chile 100% Xinjiang DB Stratabit Bit and Tool Company Ltd. China 60% Wheatley Pump Incorporated Delaware 100%
NOTES (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. Remaining 21.74% owned by Dresser Industries, Inc. 2. Shares held in trust by NL Industries, Inc. 3. Remaining .27% 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%). 5. Shares held for the benefit of Dresser Industries, Inc. However shares have not been subscribed. 6. Remaining 1% held by The M.W. Kellogg Company. 7. Remaining 10% owned by Dresser Netherlands B.V. 8. Remaining 15% owned by Wheatley Gaso Inc. 9. Remaining 22% held by Baroid Corporation of Canada, Ltd. 10. Remaining 23.15% held by Sub Sea International, Inc. (18.53%), Baroid International Trading Corporation (14.32%) and Dresser AG (.3%). 11. Remaining 1% owned by Dresser Acquisitions Limited. 12. Remaining 35% held by Dresser (Holdings) Limited. 13. Remaining 45% held by JGC Corporation. 14. Remaining 1% owned by Dresser Acquisitions Limited. 15. Remaining 1% owned by Dresser Acquisitions Limited. 16. Remaining 5% owned by Dresser Minerals International, Inc. 17. Remaining 15% owned by Dresser Industries, Inc. 100% issued Class B Shares held by Dresser Anstalt. 18. Shareholding interest actually held by German Branch of Dresser Europe S.A. 19. Remaining 1% owned by Dresser B.V. 20. Remaining 49% held by India Valve Investment Co., Inc. 21. Remaining 25% held by Dresser Produits Industriels. 22. Remaining 5% held by Masoneilan International, Inc. EX-23 8 CONSENT OF PRICE WATERHOUSE 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, 333-01871 and 333-01303) 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, 33-54099, 333-39945, 333-39931 and 333-40829) of Dresser Industries, Inc. of our report dated November 26, 1997 appearing on page 27 of this Form 10-K. /s/ Price Waterhouse LLP Price Waterhouse LLP Dallas, Texas January 27, 1998 EX-24 9 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ William E. Bradford ----------------------------------------- William E. Bradford Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ Samuel B. Casey, Jr. ----------------------------------------- Samuel B. Casey, Jr. Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ Lawrence S. Eagleburger ----------------------------------------- Lawrence S. Eagleburger Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for her and in her 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, 1997, 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 her hand this 15th day of January, 1998. /s/ Sylvia A. Earle ----------------------------------------- Sylvia A. Earle, Ph.D. Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ Rawles Fulgham ----------------------------------------- Rawles Fulgham Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ John A. Gavin ----------------------------------------- John A. Gavin Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ Ray L. Hunt ----------------------------------------- Ray L. Hunt Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ George H. Juetten ----------------------------------------- George H. Juetten Senior Vice President (Principal Financial Officer) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ J. Landis Martin ----------------------------------------- J. Landis Martin Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ Lionel H. Olmer ----------------------------------------- Lionel H. Olmer Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ Jay A. Precourt ----------------------------------------- Jay A. Precourt Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ Donald C. Vaughn ----------------------------------------- Donald C. Vaughn Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS 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, 1997, 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 15th day of January, 1998. /s/ Richard W. Vieser ----------------------------------------- Richard W. Vieser Director EX-27 10 EXHIBIT 27
5 YEAR OCT-31-1997 OCT-31-1997 162,800 0 1,181,800 0 972,300 2,471,600 2,658,000 1,554,300 5,098,800 1,687,400 758,000 0 0 46,200 1,686,000 5,098,800 7,419,100 7,457,900 5,757,400 6,845,300 0 0 68,600 546,800 191,400 318,000 0 0 0 318,000 1.81 1.81
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