UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
for the quarterly period ended April 30, 1995.
[ ] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 1-4003
DRESSER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware C 75-0813641
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
P. O. Box 718
2001 Ross 75221 (P. O. Box)
Dallas, Texas 75201
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code - 214-740-6000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. Yes X . No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 31, 1995
Common Stock, par value $.25 182,414,545
INDEX
Page
Number
Part I. Financial Information
Management's Representation 3
Condensed Consolidated Statements of Earnings
for the three months and six months ended
April 30, 1995 and 1994 4
Condensed Consolidated Balance Sheets
as of April 30, 1995 and October 31, 1994 5
Condensed Consolidated Statements of Cash Flows
for the six months ended April 30, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements 7-15
Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-22
Part II. Other Information
Item 4: Submission of Matters to a Vote of
Security Holders 23-24
Signature 24
Exhibit Index
Exhibit 27 Financial Data Schedule
MANAGEMENT'S REPRESENTATION
The condensed consolidated financial statements included herein
have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes that
the disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements, the notes to consolidated financial statements and
management's discussion and analysis included in Amendment No. 1
on Form 10-K/A dated February 3, 1995 to the Company's 1994 Annual
Report on Form 10-K.
In the opinion of the Company, all adjustments have been included
that were necessary to present fairly the financial position of
Dresser Industries, Inc. and subsidiaries as of April 30, 1995 and
October 31, 1994, the results of operations for the three months
and the six months ended April 30, 1995 and 1994, and cash flows
for the six months ended April 30, 1995 and 1994. These
adjustments consisted of normal recurring adjustments. The
results of operations for such interim periods do not necessarily
indicate the results for the full year.
<TABLE>
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In Millions Except per Share Data)
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1995 1994 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 1,261.2 $ 1,324.5 $ 2,561.5 $ 2,720.7
Cost of sales and services (965.5) (1,009.9) (1,984.3) (2,070.3)
Gross earnings 295.7 314.6 577.2 650.4
Selling, engineering, administrative
and general expenses (219.3) (233.6) (436.7) (470.8)
Special credit, net - 18.4 - 8.9
Other income (deductions)
Interest expense, net (4.1) (2.8) (8.3) (10.1)
Gain on sale of interest in
Western Atlas - - - 275.7
Gain on affiliate's public
offering - - - 11.0
Other, net .2 1.7 .2 .6
Earnings before items below 72.5 98.3 132.4 465.7
Income taxes (23.9) (36.6) (43.7) (199.9)
Minority interest (3.5) (7.1) (5.0) (15.9)
Earnings before accounting
change 45.1 54.6 83.7 249.9
Cumulative effect of accounting
change, net of tax - - (16.0) -
Net earnings $ 45.1 $ 54.6 $ 67.7 $ 249.9
Earnings per common share
Earnings before accounting
change $ .25 $ .29 $ .46 $ 1.37
Cumulative effect of accounting
change - - (.09) -
Net earnings $ .25 $ .29 $ .37 $ 1.37
Cash dividends per
common share $ .17 $ .17 $ .34 $ .34
Average common shares
outstanding 182.5 182.6 183.1 181.8
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<TABLE>
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
<CAPTION>
April 30, October 31,
ASSETS 1995 1994
Current Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 414.9 $ 515.0
Notes and accounts receivable, net 821.4 865.8
Inventories, net 705.4 673.1
Deferred income taxes 76.1 74.9
Other current assets 79.2 68.2
Total Current Assets 2,097.0 2,197.0
Investments in and receivables from
unconsolidated affiliates 253.1 240.4
Intangibles, net 663.3 657.4
Deferred income taxes 200.9 193.2
Other assets 135.2 106.0
Property, plant and equipment - at cost 2,347.9 2,245.0
Less accumulated depreciation 1,356.0 1,315.4
Net Property 991.9 929.6
Total Assets $ 4,341.4 $ 4,323.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt and current
portion of long-term debt $ 31.7 $ 36.6
Accounts payable 376.9 361.6
Contract advances 306.4 265.4
Accrued compensation and benefits 225.6 230.7
Income taxes 91.6 92.7
Other current liabilities 368.5 379.8
Total Current Liabilities 1,400.7 1,366.8
Employee retirement and postemployment
benefit obligations 696.7 668.2
Long-term debt 464.1 460.6
Deferred compensation, insurance
reserves and other liabilities 103.5 112.1
Minority interest 58.3 83.6
Shareholders' Equity
Common shares 46.1 46.0
Capital in excess of par value 453.5 448.6
Retained earnings 1,218.1 1,212.6
Cumulative translation adjustments (49.5) (63.1)
Pension liability adjustment (7.5) (7.6)
1,660.7 1,636.5
Less treasury shares, at cost 42.6 4.2
Total Shareholders' Equity 1,618.1 1,632.3
Total Liabilities and
Shareholders' Equity $ 4,341.4 $ 4,323.6
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<TABLE>
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
<CAPTION>
Six Months Ended
April 30,
1995 1994
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 67.7 $ 249.9
Adjustments to reconcile net earnings
to cash flow:
Depreciation and amortization 101.4 108.1
Cumulative effect of accounting change 16.0 -
Earnings from unconsolidated affiliates
less cash received (7.1) (3.9)
Gain on sale of interest in
Western Atlas, net of tax - (146.5)
Changes in working capital (6.4) (121.6)
Changes in non-current assets and
liabilities 13.9 31.3
Net cash provided by operating
activities 185.5 117.3
Cash flows from investing activities:
Capital expenditures (120.3) (80.0)
Business acquisitions (53.1) (74.1)
Proceeds from sale of interest in -
Western Atlas, net of taxes paid - 301.8
M-I Drilling Fluids - 160.0
Net cash (used) provided by
investing activities (173.4) 307.7
Cash flows from financing activities:
Dividends paid (62.2) (55.3)
Purchase of common shares for Treasury (40.1) -
Sale of common stock - 30.0
Decrease in short-term debt (5.3) (213.6)
Decrease in long-term debt (7.2) (24.8)
Net cash used by financing activities (114.8) (263.7)
Effect of translation adjustments on cash 2.6 (1.7)
Net (decrease) increase in cash and
cash equivalents (100.1) 159.6
Cash and cash equivalents,
beginning of period 515.0 200.1
Cash and cash equivalents, end of period $ 414.9 $ 359.7
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995
(Unaudited)
Note A - Basis of Presentation and Accounting Change
Wheatley Merger
On August 5, 1994, the Company merged with Wheatley TXT Corp.
(Wheatley). The merger was accounted for as a pooling of
interests. The Condensed Consolidated Statement of Earnings for
the three months and six months ended April 30, 1994 and the
Condensed Consolidated Statement of Cash Flows for the six months
ended April 30, 1994 have been restated to reflect the results of
operations and the cash flows of the combined companies as if the
merger had occurred on November 1, 1993.
Accounting Change
Effective November 1, 1994, the Company changed its accounting for
postemployment benefits as required by Statement of Financial
Accounting Standards No. 112, Employers Accounting for
Postemployment Benefits (SFAS 112). Postemployment benefits
include salary continuation, disability and health care for former
or inactive employees who are not retired. Medical benefits for
employees on long-term disability are the most significant of
these benefits. SFAS 112 requires accrual of the cost of these
benefits currently. The Company had previously accrued the
liability for salary continuation but had expensed the other
benefits as paid. Annual expense under SFAS 112 for 1995 is not
expected to be significantly different from the actual cash
payments.
The Condensed Consolidated Statement of Earnings for the six
months ended April 30, 1995 includes a charge of $16.0 million
(net of tax of $9.0 million) or $0.09 per share for the cumulative
effect of the accounting change.
Note B - Baroid Financial Information
On January 21, 1994, Dresser merged with Baroid Corporation
(Baroid) in a transaction accounted for as a pooling of interests,
and the Company's condensed consolidated financial statements for
1994 were prepared as if the merger had occurred on November 1,
1993.
Baroid has ceased filing periodic reports with the Securities and
Exchange Commission. Baroid's 8% Senior Notes remain outstanding
and are fully guaranteed by Dresser. As long as the Notes remain
outstanding, summarized financial information of Baroid is
required as follows (in millions):
<TABLE>
<CAPTION>
April 30, October 31,
Baroid Corporation 1995 1994
<S> <C> <C>
Current assets $ 667.3 $ 468.9
Noncurrent assets 461.1 362.0
Total $1,128.4 $ 830.9
Current liabilities $ 387.2 $ 229.5
Noncurrent liabilities 327.4 281.7
Shareholders' equity 413.8 319.7
Total $1,128.4 $ 830.9
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 303.0 $ 213.0 $ 592.0 $ 439.8
Gross earnings $ 82.0 $ 58.6 $ 159.9 $ 124.8
Earnings from operations $ 28.9 $ 13.6 $ 53.0 $ 39.7
Other income (deductions) (7.9) (5.6) (11.4) (8.2)
Earnings before taxes
and minority interests 21.0 8.0 41.6 31.5
Income taxes (6.9) (3.6) (13.7) (11.6)
Minority interest (.5) .3 (.5) 1.4
Net earnings $ 13.6 $ 4.7 $ 27.4 $ 21.3
</TABLE>
Note C - Acquisitions and Divestitures
During November 1994, the Company completed the acquisition of a
business in the underwater technology services market for $34.0
million. The proforma effect of the acquisition is not
significant.
In April 1995, the Company announced that a preliminary agreement
had been reached to acquire Grove S.p.A., a manufacturer of valves
and regulators for natural gas and crude oil pipelines, petroleum
products and power generation. The transaction closed in June at
a purchase price of approximately $160.0 million.
During May 1995, subsequent to the end of the second quarter, the
Company completed the acquisition of two additional businesses in
the underwater technology services market and one business in the
pipe coating market for a combined purchase price of $73.5
million.
On January 28, 1994, the Company sold its 29.5% interest in
Western Atlas International, Inc. to a wholly-owned subsidiary of
Litton Industries for $358 million in cash and $200 million in
7.5% notes. The 7.5% notes were paid in full in September, 1994.
The Company recognized a gain of $275.7 million ($146.5 million
net of tax) on the sale.
Following the Baroid merger and in accordance with an agreement
reached with the Antitrust Division of United States Department of
Justice, the Company sold its 64% interest in M-I Drilling Fluids
Company to Smith International, Inc. for $160 million in cash
effective February 28, 1994. The Company recognized a $2.6
million pre-tax gain on the sale.
Note D - Unconsolidated Affiliated Companies
The Company has several investments in less than majority owned
affiliates. A summary of the impact of these investments on the
condensed consolidated financial statements follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1995 1994 1995 1994
Share of earnings of unconsolidated
affiliates
Ingersoll-Dresser Pump (49%
<S> <C> <C> <C> <C>
owned) $ 3.7 $ 1.1 $ 7.8 $ 6.4
Other affiliates 4.0 3.8 3.3 7.3
$ 7.7 $ 4.9 $ 11.1 $ 13.7
</TABLE>
<TABLE>
<CAPTION>
April 30, October 31,
1995 1994
Investments in and receivables from
unconsolidated affiliates
Ingersoll-Dresser Pump (49%
<S> <C> <C> <C>
owned) $ 167.4 $ 155.1
Other affiliates 85.7 85.3
$ 253.1 $ 240.4
</TABLE>
Summarized earnings statement information for Ingersoll-Dresser Pump Company
is as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 195.4 $ 185.1 $ 404.2 $ 382.1
Gross profit $ 44.9 $ 37.8 $ 103.2 $ 87.3
Earnings before taxes $ 8.8 $ 4.6 $ 18.4 $ 16.8
</TABLE>
Note E - Inventories
The determination of inventory values and cost of sales under the
LIFO method for interim financial results is based on management's
estimates of expected year-end inventories.
Inventories include the following (in millions):
<TABLE>
<CAPTION>
April 30, October 31,
1995 1994
Finished products and work in
<S> <C> <C>
process $ 555.7 $ 529.9
Raw materials and supplies 149.7 143.2
$ 705.4 $ 673.1
</TABLE>
Note F - Special Credit and Charge
In the second quarter of 1994, the Company recognized a $18.4
million pre-tax gain from the settlement of a coverage dispute
with certain insurance carriers regarding the 1993 settlement of
the Parker & Parsley litigation. In the first quarter of 1994,
the Company recorded a special charge of $9.5 million for the
settlement of Drill Bit pricing litigation.
Note G - Dividends
On May 16, 1995, the Company declared a quarterly dividend of $.17
per share of common stock payable on June 20, 1995 to shareholders
of record on June 1, 1995.
Note H - Litigation and Contingencies
General Litigation
The Company continues to be involved in a lawsuit brought by
parties who purchased a construction equipment dealership from a
third party in 1988. In April, 1994, the jury returned a verdict
awarding the plaintiffs compensatory damages of $6.5 million and
punitive damages of $4.0 million. This case has been appealed.
The purchasers of the Company's former hand tool division sued the
Company for fraud in connection with the October, 1983
transaction. In May, 1994, the jury returned a verdict awarding
the plaintiffs $4 million in compensatory damages and $50 million
in punitive damages. On October 13, 1994, the Court ordered a
reduction of damages from $54 million to $12 million. This case
has been appealed.
Based on a review of the current facts and circumstances,
management has provided for what is believed to be a reasonable
estimate of the exposure to loss associated with these matters.
While acknowledging the uncertainties of litigation, management
believes that these matters will be resolved without a material
effect on the Company's financial position or results of
operations.
Asbestosis Litigation
The Company has a large number of pending claims in which it is
alleged that third parties sustained injuries and damages
resulting from inhalation of asbestos fibers used in products
manufactured by the Company and its predecessor companies.
Approximately half of the pending claims allege injury as a result
of exposure to asbestos contained in refractory products with the
other half alleging injury as a result of exposure to asbestos
gaskets and packings and other materials used in products
manufactured by the Company.
Refractory product claims filed subsequent to July 31, 1992, are
the responsibility of INDRESCO Inc. pursuant to an agreement
entered into at the time of the spin-off. The Company has
provided for the estimated exposure, based on past experience, for
the open cases involving refractory products. The Company has
also provided for estimated exposure relating to non-refractory
product claims. However, the Company has less experience in
settling such claims. Generally when settlements have been made,
the amounts involved are substantially lower than the claims
involving refractory products.
In 1993, the Company sustained an adverse judgment in cases filed
by employees of Ingalls Shipyard in Pascagoula, Mississippi. The
Company's share of damages awarded in six cases amounted to $3.8
million plus 10% add on for punitive damages. The judgment does
not conform to the Company's past experience and was not in
accordance with the evidence. The case currently is on appeal to
the Mississippi Supreme Court. In December 1994, a jury in
Baltimore, Maryland returned a verdict on the liability portion of
a consolidated asbestos case and awarded compensatory damages for
five trial plaintiffs, including two against the Company's former
Refractory Division. On February 9, 1995, the jury returned its
verdict in the punitive damages portion of the case, applying a
200% punitive damage multiplier. While the amounts returned by
the jury for the two trial plaintiffs are the financial
responsibility of INDRESCO Inc. pursuant to the agreement under
which it was spun off from the Company, the findings, if sustained
on appeal, will apply to individuals in the consolidated case
whose claims are the responsibility of the Company. These claims,
which number approximately 530, will be tried in subsequent mini-trials
that will not take place until after the Company has
appealed this verdict. The Company believes that it has
meritorious arguments on appeal, and intends to proceed vigorously
to have the verdict set aside. Management believes that any
ultimate losses from either the Mississippi or Maryland cases
would be covered by its agreements with insurance carriers
described in Note M to Consolidated Financial Statements in
Amendment No. 1 on Form 10-K/A dated February 3, 1995 to the
Company's 1994 Annual Report on Form 10-K. Based upon recent
experience, the Company has increased its estimated insurance
recovery percentage from 67% to 80% of legal fees and any
settlements or awards related to refractory products cases.
Management recognizes the uncertainties of litigation and the
possibility that a series of adverse rulings could materially
impact operating results. However, based upon the Company's
historical experience with similar claims, the time elapsed since
the Company discontinued sale of products containing asbestos, and
management's understanding of the facts and circumstances which
gave rise to such claims, management believes that the pending
asbestos claims will be resolved without material effect on the
Company's financial position or results of operations.
Quantum Chemical Litigation
In October 1992, Quantum Chemical Corporation ("Quantum") brought
suit against the Company's wholly owned subsidiary, The M. W.
Kellogg Company ("Kellogg"), alleging that Kellogg negligently
failed to provide an adequate design for an ethylene facility
which Kellogg designed and constructed for Quantum and
fraudulently misrepresented the state of development of its
Millisecond Furnace technology to be used in the facility.
Quantum is seeking $200 million in actual damages and punitive
damages equal to twice the actual damages claimed. Kellogg has
answered denying the claim and has filed a counterclaim against
Quantum alleging libel, slander, breach of contract and fraud.
Discovery has been completed, and a trial date has been set for
September 25, 1995. Management believes the Quantum lawsuit is
totally without merit and will be resolved without material
adverse effect on the Company's financial position or results of
operations.
Environmental Matters
The Company has been identified as a potentially responsible party
in 88 Superfund sites. Primary responsibility for nine of these
sites was assumed by INDRESCO Inc. The Company previously has
entered into settlements in respect of eighteen Superfund sites at
a total cost of $.4 million. Based upon the Company's historical
experience with similar claims and management's understanding of
the facts and circumstances, management believes that the
situations at the remaining sites will be resolved without
material effect on the Company's financial position or results of
operations.
Other Litigation
The Company is involved in certain other legal actions and claims
arising in the ordinary course of business. Management recognizes
the uncertainties of litigation and the possibility that one or
more adverse rulings could materially impact operating results.
However, based upon the nature of and management's understanding
of the facts and circumstances which gave rise to such actions and
claims, management believes that such litigation and claims will
be resolved without material effect on the Company's financial
position or results of operations.
Note I - Information by Industry Segment (In Millions)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1995 1994 1995 1994
Revenues
<S> <C> <C> <C> <C>
Oilfield Services $ 394.7 $ 407.7 $ 777.3 $ 890.5
Hydrocarbon Processing Industry
Dresser-Rand 209.3 284.0 499.5 627.5
Ingersoll-Dresser Pump equity
earnings 3.7 1.1 7.8 6.4
Other Operations 311.8 294.3 617.1 563.3
524.8 579.4 1,124.4 1,197.2
Engineering Services 343.1 338.8 661.5 634.8
Eliminations (1.4) (1.4) (1.7) (1.8)
Total revenues $1,261.2 $1,324.5 $2,561.5 $2,720.7
Operating profit
Oilfield Services $ 34.2 $ 35.6 $ 67.4 $ 93.5
Hydrocarbon Processing Industry
Dresser-Rand 6.5 15.7 12.5 30.0
Ingersoll-Dresser Pump 3.7 1.1 7.8 6.4
Other Operations 35.6 35.6 69.9 61.1
45.8 52.4 90.2 97.5
Engineering Services
Operations 21.5 17.9 32.9 35.8
Gain on Mexican affiliate's
public offering - - - 11.0
21.5 17.9 32.9 46.8
Total segment operating
profit 101.5 105.9 190.5 237.8
Amortization of acquisition
intangibles (6.8) (7.5) (13.8) (13.8)
General corporate expenses (18.1) (15.7) (36.0) (32.8)
Special credit, net - 18.4 - 8.9
Gain on sale of interest in
Western Atlas - - - 275.7
Interest expense, net (4.1) (2.8) (8.3) (10.1)
Earnings before taxes, minority
interest and accounting
change $ 72.5 $ 98.3 $ 132.4 $ 465.7
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
On January 21, 1994, Dresser merged with Baroid Corporation
(Baroid). On August 5, 1994, Dresser merged with Wheatley TXT
Corp. (Wheatley). The "Company" as used in this discussion refers
to Dresser and its subsidiaries including Baroid and Wheatley.
The mergers were accounted for as poolings of interests.
Financial data, statistical data, financial statements and
discussion of financial information included in this report have
been prepared as if the mergers had occurred on November 1, 1993.
Results of Operations - Three Months and Six Months Ended April
30, 1995 Compared to 1994
ACCOUNTING CHANGE
Effective November 1, 1994, the Company changed its accounting for
postemployment benefits as required by Statement of Financial
Accounting Standards No. 112, Employers Accounting for
Postemployment Benefits (SFAS 112). Postemployment benefits
include salary continuation, disability and health care for former
or inactive employees who are not retired. Medical benefits for
employees on long-term disability are the most significant of
these benefits. SFAS 112 requires accrual of the cost of these
benefits currently. The Company had previously accrued the
liability for salary continuation but had expensed the other
benefits as paid. Annual expense under SFAS 112 for 1995 is not
expected to be significantly different from the actual cash
payments. The Company recorded a charge of $16.0 million (net of
tax of $9.0 million) or $0.09 per share in the first quarter of
1995 for the cumulative effect of the accounting change.
IMPACT OF UNUSUAL OR NONRECURRING ITEMS
Results of operations for the second quarter and the first six
months of 1995 were favorable in comparison to the 1994 periods
when several unusual or nonrecurring items are excluded from 1994.
A reconciliation and discussion of these items follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1995 1994 1995 1994
(In millions except per share amounts)
Reported earnings before
<S> <C> <C> <C> <C>>
accounting change $ 45.1 $ 54.6 $ 83.7 $ 249.9
Unusual or nonrecurring items,
net of tax:
Insurance recovery of
litigation loss - 11.6 - 11.6
Gain on affiliate's stock
offering - - - 10.0
M-I Drilling Fluids
earnings - - - 6.3
Drill Bit pricing
litigation settlement - - - (6.0)
Gain on sale of interest
in Western Atlas - (.5) - 146.5
- 11.1 - 168.4
Earnings from operations $ 45.1 $ 43.5 $ 83.7 $ 81.5
Earnings Per Share
Reported earnings before
accounting change $ .25 $ .29 $ .46 $ 1.37
Unusual or nonrecurring items,
net of tax:
Insurance recovery of
litigation loss - .06 - .06
Gain on affiliate's stock
offering - - - .06
M-I Drilling Fluids
earnings - - - .03
Drill Bit pricing
litigation settlement - - - (.02)
Gain on sale of interest
In Western Atlas - - - .80
- .06 - .93
Earnings from operations $ .25 $ .23 $ .46 $ .44
</TABLE>
In 1993, the Company settled litigation brought by Parker &
Parsley Petroleum Company. In the second quarter of 1994, the
Company settled a coverage dispute with certain insurance carriers
regarding the Parker & Parsley settlement and recognized a $18.4
million pre-tax gain which was reported as a "Special Credit".
The M. W. Kellogg Company, a wholly-owned subsidiary of the
Company, recognized a pre-tax gain of $11.0 million on a public
stock offering by an affiliated company in Mexico.
The Company sold its interest in M-I Drilling Fluids Company in
February, 1994 following the merger with Baroid Corporation.
The Company settled litigation concerning Drill Bit pricing and
recorded a pre-tax "Special Charge" of $9.5 million in the first
quarter of 1994.
The Company sold its interest in Western Atlas International, Inc.
in January, 1994 and recognized a pre-tax gain of $275.7 million.
CONSOLIDATED RESULTS
Revenues of $1,261.2 million for the three months and $2,561.5
million were down $63 million or 5% and $159 million or 6%
respectively from the 1994 periods. Revenues from M-I Drilling
Fluids in 1994 were $38 million in the three months and $147
million in the six months accounting for most of the decreases.
Various offsetting revenue changes, which will be covered in the
segment discussion, made up the remainder of the net decreases.
Consolidated gross earnings as a percentage of revenues for the
second quarters of 1995 and 1994 were essentially the same at
23.4% and 23.8%, respectively. However, the percentage for the
six months of 1995 was 22.5% down from 23.9% for the six months in
1994. The decrease primarily reflects the impact in 1994 of M-I
Drilling Fluids and the impact in 1995 of lower volume in the
pipecoating business, which is higher margin business, and lower
margins in Engineering Services. See the Industry Segment
Analysis for discussion under each segment.
Selling, engineering, administrative and general expenses were
down $14.3 million in the quarter and $34.1 million in the six
months primarily due to the expenses of M-I Drilling Fluids in
1994.
The effective income tax rate was 33% for both the three months
and the six months of 1995 compared to 37% for the three months
and 43% for the six months of 1994. The lower effective rate in
1995 approximates the effective rate the Company experienced for
fiscal year 1994, after adjusting for nonrecurring items, and is
the Company's current estimate of the annual rate for 1995. In
1994, a lower tax basis on the investment in Western Atlas,
compared to the book basis, resulted in a tax charge of $129.7
million or 47% on the gain on sale. The Western Atlas transaction
increased the overall rate for the six months of 1994 from 37% to
43%.
Minority interest expense was down $3.6 million for the quarter
and $10.9 million for the six months compared to the 1994 periods.
The decrease for the quarter was mostly due to lower 1995 earnings
of Dresser-Rand (49% minority owned). The decrease for the six
months was due to lower 1995 earnings of Dresser-Rand and the 36%
minority interest in M-I Drilling Fluids in 1994.
INDUSTRY SEGMENT ANALYSIS
See Note I to Condensed Consolidated Financial Statements for
details of financial information by industry segment.
Oilfield Services
Revenues and operating profit for the Oilfield Services segment
were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Six Months
1995 1994 1995 1994
Revenues -
<S> <C> <C> <C> <C>
Current operations 394.7 369.9 777.3 743.5
M-I Drilling Fluids* - 37.8 - 147.0
Total 394.7 407.7 777.3 890.5
Operating profit -
Current operations 34.2 37.5 67.4 83.5
M-I Drilling Fluids* - (1.9) - 10.0
Total 34.2 35.6 67.4 93.5
</TABLE>
*Sold in February, 1994.
As shown above, current or ongoing operations had higher revenues
but lower operating profits in both the 1995 quarter and six
months in comparison to 1994. The divisions providing oilfield
products and services, led by the Baroid Drilling Fluids and
Sperry-Sun Drilling Services divisions, had significantly higher
revenues and operating profits in both periods despite a slight
decline in global rig count. Baroid Drilling Fluids benefited
from strong volume and market share gains in key North American
and international markets. Sperry-Sun achieved higher volumes in
the U.S. Gulf Coast area, in Canada and in the United Kingdom.
The Bredero Price pipecoating division experienced significantly
lower revenues and operating profits in both the quarter and six
months. The lower operating profits more than offset the gains by
the products and services divisions. Bredero Price has been
experiencing a cyclical downturn in business. However, Bredero
Price was awarded a $300 million contract in March for a
pipecoating project in the North Sea which is encouraging for
future years' earnings.
The Sub Sea underwater engineering operations had higher revenues
in both the current quarter and six months than in 1994. Sub Sea
had higher profits in the current quarter than in 1994 but is
still down from 1994 on a year-to-date basis. The six months of
1994 included profits on a significant international contract
which was completed in 1994 and a gain on the sale of a Norwegian
affiliate.
Hydrocarbon Processing Industry
Dresser-Rand - Revenues and operating profits were down from both
the 1994 quarter and six months. The decreases were due to lower
sales volumes of complete units and repair parts attributable to
a cyclical slow-down in the industry. The backlog of orders rose
to $812.8 million at April 30, 1995 which was an increase of 23%
from October 31, 1994.
Ingersoll-Dresser Pump - The Company's equity in earnings of this
49% owned joint venture was higher in both the quarter and the six
months compared to 1994. IDP is benefiting from internal
efficiencies reflecting cost reduction and restructuring programs.
Other Operations - Revenues for both the three months and six
months of 1995 were higher than in the 1994 periods. The revenue
increases were primarily from the Wayne, Waukesha Engine and
Instrument divisions. All divisions in these operations were
profitable in the current quarter, and the combined profit was the
same as in the 1994 quarter. Operating profit for the six months
of 1995 is ahead of 1994 due to the favorable first quarter 1995
results of the Wayne, Waukesha Engine, Instrument and Valve
and Controls divisions.
Engineering Services (The M. W. Kellogg Company)
Operating profit for the current quarter was higher than the
comparable quarter in 1994 and the first quarter of this year
primarily because certain milestones were successfully met on
large international contracts which resulted in the recognition of
higher profit than previously anticipated. Although revenues were
up 4%, operating profit for the six months was down slightly
compared to the prior year because certain large, turnkey projects
with higher margins represent a smaller percentage of M. W.
Kellogg's total revenue this year. This situation will continue
for the short term until the benefits of recent orders received
are reflected in earnings in 1996 and beyond.
Kellogg's backlog at April 30, 1995 was $1.9 billion, up $.3
billion from October 31, 1994. The increase was primarily due to
major new awards in the United States and Uzbekistan.
Liquidity, Capital Resources and Financial Condition
The Company's liquidity and overall financial condition remain
strong with no significant changes during the six months. As
shown on the statements of cash flows, cash provided by operating
activities of $185.5 million was more than adequate to cover
capital expenditures and dividends. Cash and cash equivalents
decreased $100.1 million during the six months primarily due to
$53.1 million used for business acquisitions and $40.1 million to
purchase two million shares of the Company's common stock. As
noted in Note C to the Condensed Consolidated Financial
Statements, the Company completed three acquisitions in May
totaling $73.5 million and completed the Grove acquisition in
June for approximately $160.0 million. These acquisitions were
funded primarily from cash on hand.
The Company's ratio of total debt to total debt and shareholders'
equity was 23/77 at April 30, 1995, the same as at October 31,
1994.
Management believes that the cash on hand, cash that will be
provided by future operations and existing lines of credit will be
adequate to finance known requirements. Management also believes
that the Company's strong financial condition and favorable credit
ratings will allow the Company to borrow additional funds should
the need arise.
Legal and Environmental Matters
The Company is currently involved in a number of lawsuits. See
Note H to Condensed Consolidated Financial Statements for
information on these lawsuits and evaluation of the Company's
exposure. The Company has been identified as a potentially
responsible party in a number of Superfund sites. Note H to
Consolidated Financial Statements also includes a review and
evaluation of the claims.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of Registrant was held
on March 16, 1995.
(c) At the Annual Meeting, the shareholders:
(i) voted to elect, in an uncontested election, thirteen
directors of the Company. Each nominee for Director
was elected by a vote of the shareholders as follows:
Votes
Votes For Withheld
William E. Bradford 156,800,397 693,160
Samuel B. Casey, Jr. 156,765,949 727,608
Sylvia A. Earle 153,079,309 4,414,248
Lawrence S. Eagleburger 156,697,528 796,029
Rawles Fulgham 156,736,372 757,185
John Gavin 156,793,248 700,309
Ray L. Hunt 156,807,043 686,514
J. Landis Martin 156,778,737 714,820
John J. Murphy 156,786,082 707,475
Lionel H. Olmer 156,392,303 1,101,254
Jay A. Precourt 156,806,685 686,872
Bill D. St. John 156,804,315 689,242
Richard W. Vieser 156,765,118 728,439
(ii) voted upon a proposal to approve amendments to the
Dresser Industries, Inc. 1992 Stock Compensation
Plan. The proposal was approved by a vote of the
shareholders as follows:
Votes for 146,897,937
Votes against 7,772,332
Abstentions 2,823,288
Broker nonvotes 0
(iii) voted upon a proposal to approve the 1995 Executive
Incentive Compensation Plan. The proposal was
approved by a vote of the shareholders as follows:
Votes for 140,566,933
Votes against 14,503,156
Abstentions 2,423,468
Broker nonvotes 0
(iv) voted upon a shareholder proposal requesting the
Board of Directors commit to uphold the Code of
Conduct for Business Operating in South Africa
and report to shareholders on its implementation.
The proposal was defeated by a vote of the
shareholders as follows:
Votes for 10,081,544
Votes against 117,124,521
Abstentions 9,795,731
Broker nonvotes 20,491,761
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DRESSER INDUSTRIES, INC.
By: /s/George H. Juetten
George H. Juetten
Vice President - Controller
(Principal Accounting Officer)
Dated: June 13, 1995
EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule. (Pursuant to Item 601(c)(iv) of
Regulation S-X, the Financial Data Schedule is not deemed
to be "filed" for purposes of Section 11 of the Securities
Act of 1933, as amended, or Section 18 of the Securities
Exchange Act of 1934, as amended.)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<CASH> 414,900
<SECURITIES> 0
<RECEIVABLES> 821,400
<ALLOWANCES> 0
<INVENTORY> 705,400
<CURRENT-ASSETS> 2,097,000
<PP&E> 2,347,900
<DEPRECIATION> 1,356,000
<TOTAL-ASSETS> 4,341,400
<CURRENT-LIABILITIES> 1,400,700
<BONDS> 464,100
<COMMON> 46,100
0
0
<OTHER-SE> 1,572,000
<TOTAL-LIABILITY-AND-EQUITY> 4,341,400
<SALES> 1,647,200
<TOTAL-REVENUES> 2,561,500
<CGS> 1,186,600
<TOTAL-COSTS> 1,984,300
<OTHER-EXPENSES> 436,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,300
<INCOME-PRETAX> 132,400
<INCOME-TAX> 43,700
<INCOME-CONTINUING> 83,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 16,000
<NET-INCOME> 67,000
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
