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 January 31, 1996.
[ ] 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 February 29, 1996
Common Stock, par value $.25 181,602,020
INDEX
Page
Number
Part I. Financial Information
Management's Representation 3
Condensed Consolidated Statements of Earnings
for the three months ended January 31, 1996 and 1995 4
Condensed Consolidated Balance Sheets
as of January 31, 1996 and October 31, 1995 5
Condensed Consolidated Statements of Cash Flows
for the three months ended January 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
Part II. Other Information 17
Signature 17
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 the Company's
1995 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 January 31, 1996
and October 31, 1995, the results of operations for the three
months ended January 31, 1996 and 1995, and cash flows for the
three months ended January 31, 1996 and 1995. These adjustments
consisted of normal recurring adjustments. The results of
operations for such interim periods do not necessarily indicate
the results for the full year.
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In Millions Except per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1996 1995
(Unaudited)
<S> <C> <C>
Revenues $1,462.9 $ 1,300.3
Cost of sales and services (1,142.5) (1,018.8)
Gross earnings 320.4 281.5
Selling, engineering, administrative
and general expenses (237.2) (217.4)
Other income (deductions)
Interest expense, net (10.0) (4.2)
Other, net (.3) -
(10.3) (4.2)
Earnings before items below 72.9 59.9
Income taxes (24.8) (19.8)
Minority interest (1.5) (1.5)
Earnings before accounting change 46.6 38.6
Cumulative effect of accounting
change, net of tax - (16.0)
Net earnings $ 46.6 $ 22.6
Earnings per common share
Earnings before accounting change $ .26 $ .21
Cumulative effect of accounting
change - (.09)
Net earnings $ .26 $ .12
Cash dividends per common share $ .17 $ .17
Average common shares outstanding 181.8 183.8
See accompanying Notes to Condensed Consolidated Financial
Statements.
</TABLE>
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
<TABLE>
<CAPTION>
January 31, October 31,
ASSETS 1996 1995
Current Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 163.3 $ 248.7
Notes and accounts receivable, net 936.6 963.7
Inventories, net 825.1 809.4
Deferred income taxes 86.3 84.8
Other current assets 87.6 94.6
Total Current Assets 2,098.9 2,201.2
Investments in and receivables from
unconsolidated affiliates 184.7 201.9
Goodwill, net 848.1 845.2
Deferred income taxes 189.5 188.9
Other assets 152.3 143.1
Property, plant and equipment - at cost 2,618.2 2,572.9
Less accumulated depreciation 1,468.5 1,445.8
Net Property 1,149.7 1,127.1
Total Assets $4,623.2 $4,707.4
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt and current
portion of long-term debt $ 166.2 $ 131.6
Accounts payable 510.7 520.4
Contract advances 366.4 324.4
Accrued compensation and benefits 199.6 237.7
Income taxes 109.7 113.2
Other current liabilities 343.2 385.1
Total Current Liabilities 1,695.8 1,712.4
Employee retirement and postemployment
benefit obligations 686.9 689.2
Long-term debt 457.9 459.3
Deferred compensation, insurance
reserves and other liabilities 111.3 110.7
Minority interest 64.7 79.0
Shareholders' Equity
Common shares 46.1 46.1
Capital in excess of par value 450.0 451.6
Retained earnings 1,270.1 1,285.4
Cumulative translation adjustments (97.6) (76.7)
Pension liability adjustment (7.0) (7.0)
1,661.6 1,699.4
Less treasury shares, at cost 55.0 42.6
Total Shareholders' Equity 1,606.6 1,656.8
Total Liabilities and
Shareholders' Equity $4,623.2 $4,707.4
See accompanying Notes to Condensed Consolidated Financial
Statements.
</TABLE>
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1996 1995
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 46.6 $ 22.6
Adjustments to reconcile net earnings
to cash flow:
Depreciation and amortization 54.4 52.2
Cumulative effect of accounting
change, net of tax - 16.0
Equity earnings from
unconsolidated affiliates (10.4) (3.4)
Minority interest provision 1.5 1.5
Changes in working capital (56.3) (6.7)
Changes in non-current assets
and liabilities - (10.0)
Net cash provided by operating
activities 35.8 72.2
Cash flows from investing activities:
Capital expenditures (84.2) (40.5)
Business acquisitions (14.7) (34.0)
Net cash used by investing
activities (98.9) (74.5)
Cash flows from financing activities:
Dividends paid (30.8) (31.3)
Purchases of common shares for
Treasury (17.3) -
Increase(decrease) in short-term debt 34.4 (6.4)
Decrease(increase) in long-term debt (6.4) 1.7
Net cash used by financing
activities (20.1) (36.0)
Effect of translation adjustments on
cash (2.2) (2.8)
Net decrease in cash and cash
equivalents (85.4) (41.1)
Cash and cash equivalents,
beginning of period 248.7 515.0
Cash and cash equivalents,
end of period $ 163.3 $ 473.9
See accompanying Notes to Condensed Consolidated Financial
Statements.
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996
(Unaudited)
</TABLE>
NOTE A - INFORMATION BY INDUSTRY SEGMENT (IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1996 1995
Revenues
Petroleum Products and Services
<S> <C> <C>
Drilling and Production Operations $ 353.4 $ 301.6
Kellogg Oil and Gas Services 112.8 56.4
466.2 358.0
Engineering Services
M. W. Kellogg Operations 392.0 318.4
Energy Equipment
Compression and Pumping 275.5 309.3
Measurement 147.7 144.9
Flow Control 145.8 100.3
Power Systems 64.5 71.5
633.5 626.0
Eliminations (28.8) (2.1)
Total revenues $1,462.9 $1,300.3
Operating profit
Petroleum Products and Services
Drilling and Production Operations $ 50.3 $ 31.3
Kellogg Oil and Gas Services 2.6 (.2)
52.9 31.1
Engineering Services 19.1 11.4
Energy Equipment
Compression and Pumping 14.1 11.3
Measurement 9.4 17.9
Flow Control 12.4 7.7
Power Systems 3.2 9.6
39.1 46.5
Total segment operating profit 111.1 89.0
Amortization of acquisition intangibles (8.4) (7.0)
General corporate expenses (19.8) (17.9)
Interest expense, net (10.0) (4.2)
Earnings before taxes, minority
interest and accounting change $ 72.9 $ 59.9
</TABLE>
NOTE B - 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 accounted for the other
benefits as benefits were paid. The Condensed Consolidated
Statement of Earnings for the three months ended January 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 C - 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
January 31,
1996 1995
Share of earnings of unconsolidated
affiliates
Ingersoll-Dresser Pump (49%
<S> <C> <C> <C>
owned) $ 9.2 $ 4.1
Other affiliates 1.2 (.7)
$ 10.4 $ 3.4
January 31, October 31,
1996 1995
Investments in and receivables from
unconsolidated affiliates
Ingersoll-Dresser Pump (49%
owned) $ 131.4 $ 143.0
Other affiliates 53.3 58.9
$ 184.7 $ 201.9
</TABLE>
NOTE D - 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>
January 31, October 31,
1996 1995
Finished products and work in
<S> <C> <C>
process $ 636.8 $ 617.7
Raw materials and supplies 188.3 191.7
$ 825.1 $ 809.4
</TABLE>
NOTE E - DIVIDENDS
On November 16, 1995, the Company declared a quarterly dividend of
$.17 per share of common stock payable on December 20, 1995 to
shareholders of record on December 1, 1995.
On January 19, 1996, the Company declared a quarterly dividend of
$.17 per share of common stock payable on March 20, 1996 to
shareholders of record on March 1, 1996.
NOTE F - LITIGATION AND CONTINGENCIES
The Company is involved in certain legal actions and claims
arising in the ordinary course of business. See Note J -
Commitments and Contingencies - in the Company's 1995 Annual
Report on Form 10-K for a complete discussion of these matters.
A discussion of significant changes subsequent to October 31, 1995
follows.
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"), seeking $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 Quantum's claim was barred by the
statute of limitations and that Quantum is liable for damages for
breach of contract, damages for theft of trade secrets and
Kellogg's legal fees. The Court entered a judgment on the verdict
on February 5, 1996 which awarded Kellogg $13.7 million. The
Company believes that Quantum will file a motion for a new trial
and probably will appeal the judgement. The Company has not
recognized any income from the judgment.
Asbestosis Litigation
The Company has approximately 68,000 pending claims at January 31,
1996, with approximately 4,000 new claims filed and approximately
5,000 claims settled during the first quarter. Subsequent to
January 31, 1996, the Company entered into a settlement agreement
covering approximately 4,400 claims in New York. The Company had
previously provided for the settlement amounts.
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 G - BAROID FINANCIAL INFORMATION
Dresser Industries, Inc. (Dresser) merged with Baroid Corporation
(Baroid) on January 21, 1994. 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. Since the Notes remain outstanding, summarized financial
information of Baroid is presented as follows (in millions):
<TABLE>
<CAPTION>
January 31, October 31,
Baroid Corporation 1996 1995
<S> <C> <C>
Current assets $ 686.1 $ 680.0
Noncurrent assets 540.7 532.8
Total $1,226.8 $1,212.8
Current liabilities $ 321.1 $ 345.1
Noncurrent liabilities 427.4 408.2
Shareholders' equity 478.3 459.5
Total $1,226.8 $1,212.8
Three Months Ended
January 31,
1996 1995
Revenues $ 357.9 $ 288.7
Gross earnings $ 105.0 $ 87.0
Earnings from operations $ 46.8 $ 24.1
Other income (deductions) (7.1) (3.5)
Earnings before taxes
and minority interests 39.7 20.6
Income taxes (13.5) (6.8)
Minority interest. (.2) -
Net earnings $ 26.0 $ 13.8
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULT OF OPERATIONS
Three Months Ended January 31, 1996 Compared to 1995
In the first quarter of 1996, net earnings and earnings per share
were $46.6 million and $.26 compared to $38.6 million and $.21 in
1995 before the effect of an accounting change for postemployment
benefits.
First quarter revenues of $1,462.9 million were up $162.6 million
or 12.5%, and gross earnings of $320.4 million were up $38.9
million or 14% from the 1995 quarter. These increases reflect
strong performances by the Drilling and Production Operations and
the M. W. Kellogg Operations. See the Industry Segment Analysis
for a detailed discussion.
Selling, engineering, administrative and general expense were
$237.2 million in the current quarter versus $217.4 million a year
ago, an increase of 9%. The increase was mostly due to the
expenses of operations acquired in later months of 1995 and to
increased expenses associated with increased business activity.
General Corporate expenses of $19.8 million (see Note A) were $1.9
million higher than a year ago primarily due to higher foreign
exchange losses - mainly from the currency devaluation in
Venezuela.
The quarter's net interest expense of $10.0 million was up $5.8
million from last year due to $4.0 million lower interest income
on a lower level of short-term investments and due to $1.8 million
higher interest expense mostly attributable to U.S. commercial
paper borrowings this year.
The estimated income tax rate for 1996 is currently 34% compared
to an estimated 1995 rate of 33% a year ago and the final 1995 tax
rate of 32%. The higher 1996 rate reflects a lower projected
utilization of foreign tax credits in 1996 than in 1995.
INDUSTRY SEGMENT ANALYSIS
See Note A to Condensed Consolidated Financial Statements for
details of financial information by Industry Segment. Changes in
Segment Revenue and Operating Profit for the three months ended
January 31, 1996 versus 1995 are summarized as follows (in
millions):
<TABLE>
<CAPTION>
Increase(Decrease)
Operating
Revenue Profit
<S> <C> <C>
Drilling and Production Operations $ 51.8 $ 19.0
Kellogg Oil and Gas Services 56.4 2.8
Total Petroleum Products
and Services 108.2 21.8
Engineering Services
M. W. Kellogg 73.6 7.7
Compression and Pumping (33.8) 2.8
Measurement 2.8 (8.5)
Flow Control 45.5 4.7
Power Systems (7.0) (6.4)
Total Energy Equipment 7.5 (7.4)
Eliminations (26.7) -
Total Operating Units $162.6 $ 22.1
</TABLE>
Petroleum Products and Services Segment
Drilling and Production Operations
Revenues of $353.4 million and operating profit of $50.3 million
were higher than the prior year quarter by 17% and 61%,
respectively. Strong activity levels offshore and in
international markets helped offset rig count declines in the U.S.
and Canada. Sperry-Sun's revenues increased 23% as it benefitted
from high utilization rates and the impact of approximately $80
million in new capacity investment during the past two years. The
most significant revenue increases by Sperry-Sun were in Latin
America, the Middle East, continental Europe, the U.K. and Canada.
Baroid Drilling Fluids had a 22% revenue increase reflecting
higher volumes in Alaska, Canada, the North Sea, Venezuela and
Nigeria. Security DBS also contributed to the improvement in
revenues and operating profit.
Operating margin of 14.2% was well ahead of the 10.4% margin
achieved in the first quarter last year, and the overall margin
for fiscal 1996 is expected to be higher than the 11.25% for
fiscal 1995.
Kellogg Oil and Gas Services
Kellogg Oil and Gas Services improved from depressed levels in the
prior year generating revenues of $112.8 million, double last
year's level, and an operating profit of $2.6 million versus a
prior year loss.
Bredero Price's revenues and earnings more than doubled compared
to the prior year due to new projects in Colombia and the U.S.
and the effect of new work for Statoil in Norway. Sub Sea's
revenues were 52% higher than last year reflecting the impact of
acquisitions made during 1995. Wellstream, a flexible pipe
manufacturer acquired in May 1995, also contributed to the
improvement.
Engineering Services Segment
M. W. Kellogg Operations
Revenues of $392.0 million and operating profit of $19.1 million
rose 23% and 68%, respectively, from last year's quarter. The
gains reflected higher activity on a major gas project in
Uzbekistan, liquid natural gas projects in the Far East and an
ammonia/fertilizer project in the U.S., combined with the earnings
associated with the substantial completion of major contracts.
Prior year operating profit was adversely affected by the equity
losses of a Mexican affiliate.
Energy Equipment Segment
Compression and Pumping
Dresser-Rand's revenues of $251.9 were down 13% from last year
reflecting a seasonally soft first quarter combined with the
impact of a major project in Venezuela that was completed in the
first quarter of 1995. An increase in the Company's share of
Ingersoll-Dresser Pump earnings more than offset the lower quarter
for Dresser-Rand.
Measurement
Wayne Division's revenues were essentially the same as last year,
but earnings were down versus last year due to lower margins
caused by pricing pressures. Instrument Division had higher
revenues on higher volume but earnings were level with the prior
year.
Flow Control
Energy Valve's revenues and earnings were higher than a year ago
primarily from the inclusion of Grove S.p.A. in the current year.
Grove, acquired in June 1995, contributed $43.4 million of
revenues and $3.7 million of earnings. An improved performance at
the Valve and Controls Division also contributed to the overall
higher revenues and earnings.
Power Systems
Waukesha had lower revenues and earnings than the prior year
resulting from decreased volumes of original equipment shipments.
Waukesha's backlog was down 10% from a year ago. Roots had a small
operating profit but both revenues and earnings were below last
year's levels. However, Roots' backlog is up 75% from a year ago.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
The Company's overall financial condition remained strong at
January 31, 1996. Total debt was 28% of total capitalization as
of January 31, 1996 compared to 26% as of October 31, 1995. The
Cash Flow Statement shows that cash and cash equivalents decreased
$85 million during the quarter. Major expenditures included $84
million for capital expenditures, $31 million for dividend
payments, $17 million for common share repurchases and $15 million
for business acquisitions. In addition, $56 million of cash was
used for working capital primarily to fund increases in
inventories and decreases in payables and accrued liabilities.
Domestic commercial paper borrowings and foreign bank loans
increased $34 million during the quarter making total debt $617
million as of January 31, 1996.
Shareholders' equity decreased $57 million during the quarter as
charges for dividend declarations (two declared, one paid), share
repurchases and translation adjustments were more than earnings.
On February 29, 1996, the company filed a Form S-3 with Securities
and Exchange Commission for the shelf registration of $400 million
of debt securities. An additional $100 million of debt securities
remains from a similar filing in June 1993. The timing of sale of
the debt securities will depend on the Company's capital
requirements, market conditions and cost of other funds.
LEGAL AND ENVIRONMENTAL MATTERS
The Company is currently involved in a number of lawsuits, and has
also been identified as a potentially responsible party in a
number of Superfund sites. Note F to Condensed Consolidated
Financial Statements includes significant changes subsequent to
October 31, 1995.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule
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
Dated: March 15, 1996
EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule. (Pursuant to Item 601(c)(iv)
of Regulation S-K, 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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 163300
<SECURITIES> 0
<RECEIVABLES> 936600
<ALLOWANCES> 0
<INVENTORY> 825100
<CURRENT-ASSETS> 2098900
<PP&E> 2618200
<DEPRECIATION> 1468500
<TOTAL-ASSETS> 4623200
<CURRENT-LIABILITIES> 1695800
<BONDS> 457900
0
0
<COMMON> 46100
<OTHER-SE> 1560500
<TOTAL-LIABILITY-AND-EQUITY> 4623200
<SALES> 1452500
<TOTAL-REVENUES> 1462900
<CGS> 1152400
<TOTAL-COSTS> 1379700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10000
<INCOME-PRETAX> 72900
<INCOME-TAX> 24800
<INCOME-CONTINUING> 46600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46000
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
