UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
for the quarterly period ended July 31, 1995.
[ ] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 1-4003
DRESSER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware C 75-0813641
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
P. O. Box 718
2001 Ross 75221 (P. O. Box)
Dallas, Texas 75201
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code - 214-740-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 31, 1995
Common Stock, par value $.25 182,519,076
INDEX
Page
Number
Part I. Financial Information
Management's Representation 3
Condensed Consolidated Statements of Earnings
for the three months and nine months ended
July 31, 1995 and 1994 4
Condensed Consolidated Balance Sheets
as of July 31, 1995 and October 31, 1994 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended July 31, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements 7-16
Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-24
Part II. Other Information 25
Signature 25
Exhibit Index
Exhibit 27 Financial Data Schedule
MANAGEMENT'S REPRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements, the notes to
consolidated financial statements and management's discussion and analysis
included in Amendment No. 1 on Form 10-K/A dated February 3, 1995 to the
Company's 1994 Annual Report on Form 10-K.
In the opinion of the Company, all adjustments have been included that were
necessary to present fairly the financial position of Dresser Industries,
Inc. and subsidiaries as of July 31, 1995 and October 31, 1994, the results
of operations for the three months and the nine months ended July 31, 1995
and 1994, and cash flows for the nine months ended July 31, 1995 and 1994.
These adjustments consisted of normal recurring adjustments. The results of
operations for such interim periods do not necessarily indicate the results
for the full year.
<TABLE>
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In Millions Except per Share Data)
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $1,437.4 $1,193.4 $3,998.9 $3,914.1
Cost of sales and services (1,115.3) (915.4) (3,099.6) (2,985.7)
Gross earnings 322.1 278.0 899.3 928.4
Selling, engineering, administrative
and general expenses (237.2) (216.8) (673.9) (687.6)<PAGE>
Special credit, net - - - 8.9
Other income (deductions)
Interest expense, net (8.1) (3.9) (16.4) (14.0)
Gain on sale of interest in
Western Atlas - - - 275.7
Gain on affiliate's public
offering - - - 11.0
Other, net .2 (2.4) .4 (1.8)
Earnings before items below 77.0 54.9 209.4 520.6
Income taxes (25.4) (15.8) (69.1) (215.7)
Minority interest (6.6) (1.2) (11.6) (17.1)
Earnings before accounting
change 45.0 37.9 128.7 287.8
Cumulative effect of accounting
change, net of tax - - (16.0) -
Net earnings $ 45.0 $ 37.9 $ 112.7 $ 287.8
Earnings per common share
Earnings before accounting
change $ .25 $ .21 $ .71 $ 1.58
Cumulative effect of accounting
change - - (.09) -
Net earnings $ .25 $ .21 $ .62 $ 1.58
Cash dividends per common share $ .17 $ .17 $ .51 $ .49
Average common shares outstanding 182.4 183.7 182.9 182.4
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
<CAPTION>
July 31, October 31,
ASSETS 1995 1994
Current Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 252.2 $ 515.0
Notes and accounts receivable, net 917.6 865.8
Inventories, net 787.5 673.1
Deferred income taxes 76.2 74.9
Other current assets 75.9 68.2
Total Current Assets 2,109.4 2,197.0
Investments in and receivables from
unconsolidated affiliates 258.2 240.4
Intangibles, net 841.0 657.4
Deferred income taxes 199.9 193.2
Other assets 145.6 106.0
Property, plant and equipment - at cost 2,515.1 2,245.0
Less accumulated depreciation 1,425.8 1,315.4
Net Property 1,089.3 929.6
Total Assets $ 4,643.4 $ 4,323.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt and current
portion of long-term debt $ 202.6 $ 36.6
Accounts payable 502.6 361.6
Contract advances 303.1 265.4
Accrued compensation and benefits 237.2 230.7
Income taxes 102.6 92.7
Other current liabilities 363.4 379.8
Total Current Liabilities 1,711.5 1,366.8
Employee retirement and postemployment
benefit obligations 691.2 668.2
Long-term debt 463.8 460.6
Deferred compensation, insurance
reserves and other liabilities 109.6 112.1
Minority interest 71.1 83.6
Shareholders' Equity
Common shares 46.1 46.0
Capital in excess of par value 453.2 448.6
Retained earnings 1,201.0 1,212.6
Cumulative translation adjustments (56.5) (63.1)
Pension liability adjustment (7.5) (7.6)
1,636.3 1,636.5
Less treasury shares, at cost 40.1 4.2
Total Shareholders' Equity 1,596.2 1,632.3
Total Liabilities and
Shareholders' Equity $ 4,643.4 $ 4,323.6
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
<CAPTION>
Nine Months Ended
July 31,
1995 1994
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 112.7 $ 287.8
Adjustments to reconcile net earnings
to cash flow:
Depreciation and amortization 152.2 164.2
Cumulative effect of accounting change 16.0 -
Minority interest provision 11.6 17.1
Gain on sale of interest in
Western Atlas, net of tax - (146.5)
Changes in working capital (34.6) (79.5)
Changes in non-current assets and
liabilities 4.1 2.0
Net cash provided by operating
activities 262.0 245.1
Cash flows from investing activities:
Capital expenditures (193.3) (120.5)
Business acquisitions including debt
repayments (325.7) (74.1)
Cash of acquired businesses 8.6 -
Proceeds from sale of interest in -
Western Atlas, net of taxes paid - 251.8
M-I Drilling Fluids - 160.0
Net cash (used) provided by
investing activities (510.4) 217.2
Cash flows from financing activities:
Dividends paid (93.2) (85.3)
Purchase of common shares for Treasury (40.1) -
Sale of common stock - 30.0
Increase (decrease) in short-term debt 129.9 (248.1)
Decrease in long-term debt (13.2) (10.7)
Net cash used by financing activities (16.6) (314.1)
Effect of translation adjustments on cash 2.2 1.2
Net (decrease) increase in cash and
cash equivalents (262.8) 149.4
Cash and cash equivalents,
beginning of period 515.0 200.1
Cash and cash equivalents, end of period $ 252.2 $ 349.5
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995
(Unaudited)
Note A - Basis of Presentation and Accounting Change
Wheatley Merger
On August 5, 1994, the Company merged with Wheatley TXT Corp. (Wheatley).
The merger was accounted for as a pooling of interests. The Condensed
Consolidated Statement of Earnings for the three months and nine months
ended July 31, 1994 and the Condensed Consolidated Statement of Cash Flows
for the nine months ended July 31, 1994 have been restated to reflect the<PAGE>
results of operations and the cash flows of the combined companies as if the
merger had occurred on November 1, 1993.
Accounting Change
Effective November 1, 1994, the Company changed its accounting for
postemployment benefits as required by Statement of Financial Accounting
Standards No. 112, Employers Accounting for Postemployment Benefits (SFAS
112). Postemployment benefits include salary continuation, disability and
health care for former or inactive employees who are not retired. Medical
benefits for employees on long-term disability are the most significant of
these benefits. SFAS 112 requires accrual of the cost of these benefits
currently. The Company had previously accrued the liability for salary
continuation but had expensed the other benefits as paid. Annual expense
under SFAS 112 for 1995 is not expected to be significantly different from
the actual cash payments.
The Condensed Consolidated Statement of Earnings for the nine months ended
July 31, 1995 includes a charge of $16.0 million (net of tax of $9.0
million) or $0.09 per share for the cumulative effect of the accounting
change.
Note B - Baroid Financial Information
On January 21, 1994, Dresser merged with Baroid Corporation. Subsequent to
the merger, Baroid has ceased filing periodic reports with the Securities
and Exchange Commission. Baroid's 8% Senior Notes remain outstanding and
are fully guaranteed by Dresser. As long as the Notes remain outstanding,
summarized financial information of Baroid is required as follows (in
millions):
<TABLE>
<CAPTION>
July 31, October 31,
Baroid Corporation 1995 1994
<S> <C> <C>
Current assets $ 665.5 $ 468.9
Noncurrent assets 516.9 362.0
Total $1,182.4 $ 830.9
Current liabilities $ 389.7 $ 229.5
Noncurrent liabilities 359.1 281.7
Shareholders' equity 433.6 319.7
Total $1,182.4 $ 830.9
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 355.8 $ 225.6 $ 947.8 $ 662.6
Gross earnings $ 95.6 $ 66.2 $ 255.5 $ 182.9
Earnings from operations $ 34.8 $ 17.6 $ 87.8 $ 56.0
Other income (deductions) (4.9) (5.6) (13.6) (11.7)
Earnings before taxes
and minority interests 29.9 12.0 74.2 44.3
Income taxes (9.9) (3.6) (24.5) (15.5)
Minority interest .1 (.6) (.4) .9 <PAGE>
Net earnings $ 20.1 $ 7.8 $ 49.3 $ 29.7
</TABLE>
Note C - Acquisitions and Divestitures
Effective June 8, 1995, the Company acquired all the outstanding shares of
Grove S.p.A. (Grove), an Italian corporation, for a consideration of $157.7
million in cash. Grove is a multinational company engaged in the production
of oilfield valves and regulators.
On November 15, 1994, the Company acquired Subtec Asia Ltd. (Subtec), a
Sharjah, United Arab Emirates company, which provides underwater technology
services primarily to the offshore oil and gas industry, for approximately
$34.0 million in cash. On May 2, 1995, the Company acquired the North Sea
remotely operated vehicle business of NSA/HMB Group (North Sea Assets) for
approximately $30.4 million in cash. On May 5, 1995, the Company acquired
Wellstream Company L.P. (Wellstream), a partnership engaged in the
production of high pressure flexible pipe and riser systems for $33.0
million in cash. Also, the Company acquired Energy Coatings Company (Energy
Coatings) on May 5, 1995 and Pipeline Coating, Inc. (Pipeline Coating) on
July 1, 1995 for a total of approximately $13.6 million in cash. These last
two companies perform pipe coating services.
The above acquisitions were accounted for as purchases, and their results of
operations are included in the Condensed Consolidated Statement of Earnings
from the acquisition dates. The purchase prices exceeded the value of the
net assets acquired by approximately $192.0 million. The excess is included
in intangibles in the Condensed Consolidated Balance Sheet and is being
amortized on a straight-line basis over 40 years. The pro forma effect of
these acquisitions is not material.
On January 28, 1994, the Company sold its 29.5% interest in Western Atlas
International, Inc. to a wholly-owned subsidiary of Litton Industries for
$358 million in cash and $200 million in 7.5% notes. The 7.5% notes were
paid in full in September, 1994. The Company recognized a gain of $275.7
million ($146.5 million net of tax) on the sale.
Following the Baroid merger and in accordance with an agreement reached with
the Antitrust Division of United States Department of Justice, the Company
sold its 64% interest in M-I Drilling Fluids Company to Smith International,
Inc. for $160 million in cash effective February 28, 1994. The Company
recognized a $2.6 million pre-tax gain on the sale.
Note D - Unconsolidated Affiliated Companies
The Company has several investments in less than majority owned affiliates.
A summary of the impact of these investments on the condensed consolidated
financial statements follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
Share of earnings of
unconsolidated affiliates
Ingersoll-Dresser Pump (49%
<S> <C> <C> <C> <C>
owned) $ 3.0 $ .4 $ 10.8 $ 6.8
Other affiliates (1.5) 4.2 1.8 11.5
$ 1.5 $ 4.6 $ 12.6 $ 18.3
</TABLE>
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
Investments in and receivables from
unconsolidated affiliates
Ingersoll-Dresser Pump (49%
<S> <C> <C>
owned) $ 175.0 $ 155.1
Other affiliates 83.2 85.3
$ 258.2 $ 240.4
</TABLE>
Summarized earnings statement information for Ingersoll-Dresser Pump Company
is as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 196.7 $ 190.4 $ 600.9 $ 572.5
Gross profit $ 44.7 $ 40.7 $ 147.9 $ 128.0
Earnings before taxes $ 7.3 $ 3.3 $ 25.7 $ 20.1
</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 under the LIFO method are
approximately 15% of total inventories.
Inventories include the following (in millions):
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
Finished products and work in
<S> <C> <C>
process $ 622.3 $ 529.9
Raw materials and supplies 165.2 143.2
$ 787.5 $ 673.1
</TABLE>
Note F - Special Credit and Charge
In 1993, the Company settled litigation brought by Parker & Parsley
Petroleum Company. In the second quarter of 1994, the Company recognized a
$18.4 million pre-tax gain from the settlement of a coverage dispute with
certain insurance carriers regarding the litigation settlement. In the
first quarter of 1994, the Company recorded a special charge of $9.5 million
for the settlement of Drill Bit pricing litigation.
Note G - Dividends
On July 20, 1995, the Company declared a quarterly dividend of $.17 per
share of common stock payable on September 20, 1995 to shareholders of
record on September 1, 1995.
Note H - Litigation and Contingencies
General Litigation
The Company continues to be involved in a lawsuit brought by parties who
purchased a construction equipment dealership from a third party in 1988.
In April, 1994, the jury returned a verdict awarding the plaintiffs
compensatory damages of $6.5 million and punitive damages of $4.0 million.
This case has been appealed.
The purchasers of the Company's former hand tool division sued the Company
for fraud in connection with the October, 1983 transaction. In May, 1994,
the jury returned a verdict awarding the plaintiffs $4 million in
compensatory damages and $50 million in punitive damages. On October 13,
1994, the Court ordered a reduction of damages from $54 million to $12
million. This case has been appealed.
Based on a review of the current facts and circumstances, management has
provided for what is believed to be a reasonable estimate of the exposure to
loss associated with these matters. While acknowledging the uncertainties
of litigation, management believes that these matters will be resolved
without a material effect on the Company's financial position or results of
operations.
Asbestosis Litigation
The Company has a large number of pending claims in which it is alleged that
third parties sustained injuries and damages resulting from inhalation of
asbestos fibers used in products manufactured by the Company and its
predecessor companies. Approximately half of the pending claims allege
injury as a result of exposure to asbestos contained in refractory products
with the other half alleging injury as a result of exposure to asbestos
gaskets and packings and other materials used in products manufactured by
the Company.
Refractory product claims filed subsequent to July 31, 1992, are the
responsibility of INDRESCO Inc. pursuant to an agreement entered into at the
time of the spin-off of refractory product operations to Dresser
shareholders. The Company has provided for the estimated exposure, based on
past experience, for the open cases involving refractory products. The
Company has also provided for estimated exposure relating to non-refractory
product claims. However, the Company has less experience in settling such
claims. Generally when settlements have been made, the amounts involved are
substantially lower than the claims involving refractory products.
In 1993, the Company sustained an adverse judgment in cases filed by
employees of Ingalls Shipyard in Pascagoula, Mississippi. The Company's
share of damages awarded in six cases amounted to $3.8 million plus 10% add
on for punitive damages. The judgment does not conform to the Company's
past experience and was not in accordance with the evidence. The case
currently is on appeal to the Mississippi Supreme Court.
In December 1994, a jury in Baltimore, Maryland returned a verdict on the
liability portion of a consolidated asbestos case and awarded compensatory
damages for five trial plaintiffs, including two against the Company's
former Refractory Division. On February 9, 1995, the jury returned its
verdict in the punitive damages portion of the case, applying a 200%
punitive damage multiplier.
During the current quarter, the Baltimore Court overturned the jury's
verdict both as to any Company responsibility for the asbestos illnesses of
the two individual trial plaintiffs and the punitive damage multiplier for
the two plaintiffs and future claimants. Plaintiffs have appealed the
Courts' ruling. The Court did sustain the jury's findings that the Company
was negligent in using asbestos in its products and in addition is
responsible for any injury caused by exposure to those products on a strict
liability basis. These findings, which the Company has appealed, would
apply to additional claimants, each of whom would have to establish in a
future mini-trial both the existence of an asbestos-related disease and that
the Company's products were a substantial cause of that disease.
Management believes that any ultimate losses from either the Mississippi or
Maryland cases would be covered by its agreements with insurance carriers
described in Note M to Consolidated Financial Statements in Amendment No. 1
on Form 10-K/A dated February 3, 1995 to the Company's 1994 Annual Report on
Form 10-K. Based upon recent experience, the Company has increased its
estimated insurance recovery percentage from 67% to 80% of legal fees and
any settlements or awards related to refractory products cases.
Management recognizes the uncertainties of litigation and the possibility
that a series of adverse rulings could materially impact operating results.
However, based upon the Company's historical experience with similar claims,
the time elapsed since the Company discontinued sale of products containing
asbestos, and management's understanding of the facts and circumstances
which gave rise to such claims, management believes that the pending
asbestos claims will be resolved without material effect on the Company's
financial position or results of operations.
Quantum Chemical Litigation
In October 1992, Quantum Chemical Corporation ("Quantum") brought suit
against the Company's wholly owned subsidiary, The M. W. Kellogg Company
("Kellogg"), alleging that Kellogg negligently failed to provide an adequate
design for an ethylene facility which Kellogg designed and constructed for
Quantum and fraudulently misrepresented the state of development of its
Millisecond Furnace technology to be used in the facility. Quantum is
seeking $200 million in actual damages and punitive damages equal to twice
the actual damages claimed. Kellogg has answered denying the claim and has
filed a counterclaim against Quantum alleging libel, slander, breach of
contract and fraud. Discovery has been completed, and a trial date has been
set for October 2, 1995. Management believes the Quantum lawsuit is totally
without merit and will be resolved without material adverse effect on the
Company's financial position or results of operations.
Environmental Matters
The Company has been identified as a potentially responsible party in 88
Superfund sites. Primary responsibility for nine of these sites was assumed
by INDRESCO Inc. The Company has entered into settlements in respect of 25
Superfund sites at a total cost of $1.4 million. Based upon the Company's
historical experience with similar claims and management's understanding of
the facts and circumstances, management believes that the situations at the
54 remaining sites will be resolved without material effect on the Company's<PAGE>
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 Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
Revenues
Oilfield Services Industry
Drilling and Production
<S> <C> <C> <C> <C>
Operations $ 371.7 $ 286.7 $1,026.0 $ 981.9
Kellogg Oil and Gas Services 102.6 96.9 225.6 292.2
474.3 383.6 1,251.6 1,274.1
Hydrocarbon Processing Industry
Dresser-Rand 262.5 260.5 762.0 888.0
Ingersoll-Dresser Pump
Equity Earnings 3.0 .4 10.8 6.8
Other Operations 312.6 282.0 929.7 845.3
578.1 542.9 1,702.5 1,740.1
Engineering Services
M. W. Kellogg Operations 393.9 268.0 1,055.4 902.8
Eliminations (8.9) (1.1) (10.6) (2.9)
Total revenues $1,437.4 $1,193.4 $3,998.9 $3,914.1
Operating Profit
Oilfield Services Industry
Drilling and Production
Operations $ 40.2 $ 20.4 $ 107.1 $ 78.8
Kellogg Oil and Gas Services 6.3 10.9 6.8 46.0
46.5 31.3 113.9 124.8
Hydrocarbon Processing Industry
Dresser-Rand 17.4 4.4 29.9 34.4
Ingersoll-Dresser Pump 3.0 .4 10.8 6.8
Other Operations 29.5 32.8 99.4 93.9
49.9 37.6 140.1 135.1
Engineering Services
M. W. Kellogg Operations 15.8 15.9 48.7 51.7
Gain on Mexican affiliate's
public offering - - - 11.0
15.8 15.9 48.7 62.7
Total segment operating profit 112.2 84.8 302.7 322.6 <PAGE>
Amortization of acquisition
intangibles (7.5) (7.0) (21.3) (20.8)
General corporate expenses (19.6) (19.0) (55.6) (51.8)
Special credit, net - - - 8.9
Gain on sale of interest in
Western Atlas - - - 275.7
Interest expense, net (8.1) (3.9) (16.4) (14.0)
Earnings before taxes,
minority interest and
accounting change $ 77.0 $ 54.9 $ 209.4 $ 520.6
</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 Nine Months Ended July 31, 1995
Compared to 1994
ACCOUNTING CHANGE
The Company recorded a charge of $16.0 million (net of tax of $9.0 million)
or $0.09 per share in the first quarter of 1995 for the cumulative effect of
changing its accounting for postemployment benefits as required by Statement
of Financial Accounting Standards No. 112, Employers Accounting for
Postemployment Benefits. See Note A to Condensed Consolidated Financial
Statements for more information.
IMPACT OF UNUSUAL OR NONRECURRING ITEMS
Results of operations for the first nine months of 1995 were favorable in
comparison to the 1994 period when several unusual or nonrecurring items
that occurred in the first six months of 1994 are excluded from 1994. A
reconciliation and discussion of these items follows:
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
1995 1994
(In millions except per share amounts)
<S> <C> <C> <C>
Reported earnings before accounting change $ 128.7 $ 287.8
Unusual or nonrecurring items, net of tax:
Insurance recovery of litigation loss - 11.6
Gain on affiliate's stock offering - 10.0
M-I Drilling Fluids earnings - 6.3
Drill Bit pricing litigation settlement - (6.0)
Gain on sale of interest in Western Atlas - 146.5
- 168.4
Earnings from operations $ 128.7 $ 119.4
Earnings Per Share
Reported earnings before accounting change $ .71 $ 1.58
Unusual or nonrecurring items, net of tax:
Insurance recovery of litigation loss - .06
Gain on affiliate's stock offering - .06
M-I Drilling Fluids earnings - .03
Drill Bit pricing litigation settlement - (.02)
Gain on sale of interest in Western Atlas - .80
- .93
Earnings from operations $ .71 $ .65
</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 litigation
settlement and recognized a $18.4 million pre-tax gain which was reported as
a " Special Credit".
The M. W. Kellogg Company, a wholly-owned subsidiary of the Company,
recognized a pre-tax gain of $11.0 million on a public stock offering by an
affiliated company in Mexico.
The Company sold its interest in M-I Drilling Fluids Company in February,
1994 following the merger with Baroid Corporation.
The Company settled litigation concerning Drill Bit pricing and recorded a
pre-tax "Special Charge" of $9.5 million in the first quarter of 1994.
The Company sold its interest in Western Atlas International, Inc. in
January, 1994 and recognized a pre-tax gain of $275.7 million.
CONSOLIDATED RESULTS
Net earnings for the three months increased 19% to $45.0 million, or $.25
per share, from $37.9 million, or $.21 per share, a year ago. As noted
above, nine month net earnings before an accounting change were $128.7
million or $.71 per share in 1995, up 8% from $119.4 million, or $.65 per
share excluding unusual or nonrecurring items from 1994.
Revenues of $1,437.4 million for the three months were up $244.0 million or
20% from a year ago. Revenues for the nine months of 1995 of $3,998.9
million were up $231.8 million or 6% from 1994 excluding $147.0 million of
M-I Drilling Fluids revenues for the four months ended February 1994. The
revenue increases in the three months were primarily attributable to M. W.
Kellogg engineering services, Baroid Drilling Fluids, Sperry-Sun Drilling
Services and Sub Sea underwater engineering operations. In the nine months,
revenue increases by M. W. Kellogg, Baroid Drilling Fluids, Sperry-Sun
Drilling Services, Sub Sea, Valve and Controls, Wayne and Instrument<PAGE>
divisions more than offset large decreases by Dresser-Rand and Bredero
Price.
Consolidated gross earnings as a percentage of revenues were 22.4% and 22.5%
for the three months and nine months ended July 31, 1995, respectively, and
were down approximately 1% from the 1994 periods. The decreases for the
quarter and the nine months reflect lower margins in the M. W. Kellogg
engineering services business. See discussion under Industry Segment
Analysis for more information. The decrease for the nine months also
reflects the impact in 1994 of M-I Drilling Fluids.
Selling, engineering, administrative and general expenses were up $20.4
million in the quarter but were down $13.7 million in the nine months. The
increase for the quarter reflects the expenses of acquired businesses and
increased expenses by M. W. Kellogg in connection with increased bid
activity. The nine month decrease is primarily attributable to the 1994
expenses of M-I Drilling Fluids offset by the 1995 expenses of acquired
businesses.
The effective income tax rate was 33% for both the three months and the nine
months of 1995 compared to 29% for the three months and 41% for the nine
months of 1994. The lower effective rate in 1995 approximates the effective
rate the Company experienced for fiscal year 1994, after adjusting for
nonrecurring items, and is the Company's current estimate of the annual rate
for 1995. In 1994, a lower tax basis on the investment in Western Atlas,
compared to the book basis, resulted in a tax charge of $129.7 million or
47% on the gain on sale. The Western Atlas transaction increased the
overall rate for the nine months of 1994 from 37% to 41%.
Minority interest was up $5.4 million for the quarter but down $5.5 million
for the nine months compared to the 1994 periods. The increase for the
quarter was mostly due to higher 1995 earnings of Dresser-Rand (49% minority
owned). The decrease for the nine months was due to lower 1995 earnings of
Dresser-Rand and the 36% minority interest in M-I Drilling Fluids in 1994.
INDUSTRY SEGMENT ANALYSIS
See Note I to Condensed Consolidated Financial Statements for details of
financial information by industry segment.
Oilfield Services
During the third quarter, the Company reorganized its Oilfield Services
businesses into two groups. The divisions that provide basic oilfield
products and services became known as Drilling and Production Operations.
The Company formed Kellogg Oil and Gas Services consisting of the Bredero
Price pipecoating and Sub Sea underwater engineering operations. The new
Kellogg Oil and Gas Services organization represents an important new
strategy to benefit from anticipated growth in subsea completion and
transmission markets.
In the three months, the Drilling and Production Operations had operating
profits of $40.2 million and revenues of $371.7 million, up 97% and 30%,
respectively, from the 1994 quarter. Excluding M-I Drilling Fluids
operating profit of $10.0 million and revenues of $147.0 million in the
first four months of 1994, the Drilling and Production Operations' nine
month operating profits of $107.1 million and revenues of $1,026.0 million
were up 56% and 23%, respectively, from 1994. The largest gains came from
Baroid Drilling Fluids and Sperry-Sun Drilling Services, both of which
achieved record results reflecting increased volume in most major markets,
particularly in the Gulf of Mexico, Latin America and the North Sea.
Security DBS and Dresser Oil Tools also showed improvements over the 1994
periods reflecting the benefits of major restructuring programs. All these
gains were achieved despite a small decline in the worldwide rig count.
During the quarter, the Company acquired Grove S.p.A., a multinational
Italian company that manufactures oilfield valves and regulators. Grove,
which has annual revenues of approximately $150 million, has been combined
with the Company's Wheatley Valve and TK Valve businesses to form the
Dresser Energy Valve Division which is now one of the world's largest
manufacturers of valves for oilfield and pipeline applications.
The Bredero Price pipecoating division experienced significantly lower
operating profits and revenues in both the quarter and nine months. Bredero
Price has been experiencing a cyclical downturn in business. Bredero
Price's current backlog of $426 million is up from $78 million at October
31, 1994. The increase is principally due to a $300 million contract for a
pipecoating project in the North Sea. The contract will be performed over
the next three or four years.
The Sub Sea underwater engineering operations had higher operating profits
and revenues in both the quarter and the nine months than in 1994. Sub Sea
was favorably impacted by conditions in the Gulf of Mexico as well as the
North Sea and by three business acquisitions. The acquisitions have annual
revenues of approximately $100 million.
Hydrocarbon Processing Industry
Dresser-Rand - Operating profits of $17.4 million for the three months
increased $13.0 million from the 1994 quarter reflecting a return to more
normal margin levels. Revenues for the three months were slightly higher
than in 1994. Nine month operating profits of $29.9 million and revenues of
$762.0 million were down 13% and 14%, respectively, from 1994 due to lower
volumes of complete units and repair parts during the first half of the year
attributable to a cyclical slow down in the industry. Backlog rose to $1.0
billion, up 53% from a year ago, considerably improving the outlook for
1996. Recent orders came from a broad base of industries including oil and
gas production and transmission as well as downstream processing operations.
Ingersoll-Dresser Pump - The Company's equity in earnings of this 49% owned
joint venture was higher in both the quarter and the nine months compared to
1994. IDP continues to benefit from internal efficiencies reflecting cost
reduction and restructuring programs. Backlog of $400 million was up
approximately 4% from a year ago.
Other Operations - Operating profits for the three months were $29.5
million, 10% lower than the 1994 quarter. Three month revenues of $312.6
million were 11% higher than in 1994. All operations were profitable in the<PAGE>
quarter, but lower earnings by the Waukesha Engine and Wayne operations more
than offset increases by the Valve and Controls, Instrument and Roots
operations. Valve and Controls is benefiting from restructuring programs.
For the nine months, operating profits of $99.4 million and revenues of
$929.7 million were up 6% and 10%, respectively, from 1994. All operations
were profitable in the nine months and all had increases over 1994 except
Wayne and Mono Pump. Valve and Controls and Instrument accounted for most
of the earnings increase. All operations reported revenue increases for the
nine months except Roots which was essentially the same as 1994.
Engineering Services (The M. W. Kellogg Company)
M. W. Kellogg's operating profit in the quarter of $15.8 million was
essentially the same as in the 1994 quarter while operating profit for the
nine months of $48.7 million was down 6% from 1994. However, revenues were
up 47% to $393.9 million in the quarter and 17% to $1,055.4 million in the
nine months. Profits have not followed the revenue increases because
certain large turnkey projects with higher margins represent a smaller
percentage of Kellogg's revenue in 1995 than in 1994. Earnings were
adversely affected by higher bid and proposal costs reflecting increased
activity. The financial crisis in Mexico resulted in M. W. Kellogg s 25%
owned Mexican affiliate reporting a substantial loss for the nine months.
M. W. Kellogg's share of that loss was $4.0 million compared to earnings of
$2.9 million in 1994.
Kellogg's backlog declined slightly in the quarter to $1.6 billion, but it
does not yet include a large Nigerian LNG project for which financial
support is expected to be finalized by year-end.
Liquidity, Capital Resources and Financial Condition
The Company's liquidity and overall financial condition remain strong. As
shown on the statement of cash flows, cash provided by operating activities
of $262.0 million substantially covered capital expenditures and dividends
which totaled $286.6 million. Increased working capital required to finance
growth in the Oilfield Service businesses reduced the amount of cash
provided by operating activities in the current year. Cash and cash
equivalents decreased $262.8 million during the nine months primarily due to
$325.7 million used for business acquisitions (see Note C to Consolidated
Condensed Financial Statements) and $40.1 million to purchase two million
shares of the Company's common stock. The acquisitions were funded from
cash on hand and from short-term borrowings of $127.0 million.
Shareholders' equity declined $36.1 million in the nine months as dividends
and stock repurchases more than offset earnings. The Company's ratio of
total debt to total debt and shareholders' equity was 29/71 at July 31,
1995, compared to 23/77 at October 31, 1994.
Management believes that the cash on hand, cash that will be provided by
future operations and existing lines of credit will be adequate to finance
known requirements. Management also believes that the Company's strong
financial condition and favorable credit ratings will allow the Company to
borrow additional funds should the need arise.
Legal and Environmental Matters
The Company is currently involved in a number of lawsuits. See Note H to
Condensed Consolidated Financial Statements for information on these
lawsuits and evaluation of the Company's exposure. The Company has been
identified as a potentially responsible party in a number of Superfund
sites. Note H to Consolidated Financial Statements also includes a review
and evaluation of the claims.
PART II. OTHER INFORMATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DRESSER INDUSTRIES, INC.
By: /s/George H. Juetten
George H. Juetten
Vice President - Controller
(Principal Accounting Officer)
Dated: September 13, 1995
EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule. (Pursuant to Item 601(c)(iv) of Regulation
S-X, the Financial Data Schedule is not deemed to be "filed" for
purposes of Section 11 of the Securities Act of 1933, as amended, or
Section 18 of the Securities Exchange Act of 1934, as amended.)<PAGE>
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<PERIOD-END> JUL-31-1995
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