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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12430
WESTERN ATLAS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3899675
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
360 NORTH CRESCENT DRIVE
BEVERLY HILLS, CALIFORNIA 90210-4867
(Address of principal executive (Zip Code)
offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 888-2500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, par value $1 per New York Stock Exchange
share Pacific Stock Exchange
Rights to Purchase Series A Junior New York Stock Exchange
Participating Preferred Stock Pacific Stock Exchange
------------------------
Securities registered pursuant to Section 12(g) of the Act: None
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes _X_ No ___
On March 1, 1997, the aggregate market value of the Registrant's voting
stock held by non-affiliates was $3.226 billion.
On March 1, 1997, there were 53,664,055 shares of Common Stock outstanding,
exclusive of treasury shares.
Part III incorporates information by reference from the definitive Proxy
Statement in connection with the Registrant's Annual Meeting of Shareholders to
be held on May 13, 1997.
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WESTERN ATLAS INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
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PART I
Item 1: Business..................................................................................... 1
Item 2: Properties................................................................................... 5
Item 3: Legal Proceedings............................................................................ 5
Item 4: Submission of Matters to a Vote of Security Holders.......................................... 5
PART II
Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters.................... 6
Item 6: Selected Financial Data...................................................................... 7
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations........ 8
Item 8: Financial Statements and Supplementary Data.................................................. 11
Item 9: Disagreements on Accounting and Financial Disclosure......................................... 11
PART III
Item 10: Directors and Executive Officers of the Registrant........................................... 12
Item 11: Executive Compensation....................................................................... 13
Item 12: Security Ownership of Certain Beneficial Owners and Management............................... 13
Item 13: Certain Relationships and Related Transactions............................................... 13
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 14
Signatures................................................................................................. 16
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
Western Atlas Inc. (the "Company" or "WAI") operates in two principal
business segments: "Oilfield Services," where the Company participates in the
high-technology information services sector as one of the largest providers
worldwide; and "Industrial Automation Systems," where the Company is a major
global supplier of integrated manufacturing systems and automated data
collection systems. For the year ended December 31, 1996, Oilfield Services
generated revenues and operating profits of $1,402.9 million and $172.9 million,
respectively, and Industrial Automation Systems produced revenues and operating
profits of $1,179.9 million and $101.1 million, respectively. See Note K to the
consolidated financial statements for financial information by industry segment
and by geographical area.
Information related to business acquisitions, investments and dispositions
is set forth in Note B to the consolidated financial statements.
OILFIELD SERVICES
Western Atlas International, Inc. ("WAII" or "Oilfield Services"), operates
in the high-technology information services sector of the oil industry. WAII
specializes in land, marine and transition-zone seismic surveys; well-logging
and completion services; and reservoir description and management.
Oilfield Services operates through three divisions: Western Geophysical,
Western Atlas Logging Services and E&P Services. These divisions are focused on
the development and application of advanced data acquisition and processing
techniques to help evaluate the oil and gas producing potential of the earth's
sedimentary basins, locate productive zones, reduce drilling costs by minimizing
the number of wells necessary to explore and develop reservoirs, and improve
production output from reservoirs for petroleum industry customers worldwide.
Increasing emphasis is being placed on the fundamental interrelationship of
seismic and well-logging data. New techniques are being applied to integrate
these data, providing a comprehensive reservoir analysis for customer
technologists, from geophysicists and geologists, to production engineers.
In June 1995, the Company acquired 50% of PetroAlliance Services, a joint
venture offering seismic, well-logging, and integrated project services to local
and international oil companies operating in the Former Soviet Union ("FSU"). In
1996 the company acquired several small technology companies to expand its
reservoir characterization capabilities in seismic and well-logging.
The nature of the industry and diverse market environments carry certain
inherent risks for any company in this business. Oilfield Services recognizes
that it must adjust to fluctuations in foreign currencies. It is conducting
field operations in regions that are politically unstable. It is obliged to
establish its own operational infrastructure in certain developing areas of the
world, and its business is necessarily capital intensive, particularly during
growth cycles.
MARKETS AND CUSTOMERS
The market for Oilfield Services' products and services is the worldwide
petroleum industry, which includes private, public and government-owned
companies. Customers number in the hundreds and range from large integrated oil
companies to small independents. No single customer represents as much as 10% of
Oilfield Services' revenues.
Activity in the oilfield services market is largely determined by oil
companies' evaluation of the market price of oil and gas, the levels of reserves
in specific geographical regions and, as it relates to government-sponsored oil
and gas exploration, the budgetary priorities of the relevant governments.
1
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ITEM 1. BUSINESS (CONTINUED)
COMPETITION
Competition in the high-technology sector of the oilfield services market
ranges from a few larger companies with a broad spectrum of services, to smaller
companies targeting narrow market segments. There are five major participants in
the market, Schlumberger, Baker Hughes, Dresser Industries, Halliburton and
WAII, each of which has annual revenues in excess of $1 billion. The Company is
the smallest of these five participants, measured by revenues, but one of the
two largest providers of oilfield information technology. The number of smaller
competitors is in the hundreds. The more significant of the smaller competitors
include Petroleum Geo Services in marine seismic, Compagnie Generale de
Geophysique and Veritas DGC in land seismic, and Computalog in well-logging.
Projects are won in the marketplace on the basis of price, quality and service.
The large oil companies, which are Oilfield Services' customers, also retain
certain in-house capabilities for various oilfield services. However, more of
such services are being outsourced and the Company believes this trend will
continue.
INDUSTRIAL AUTOMATION SYSTEMS
The Company is an international supplier of industrial automation
technologies and products, including integrated manufacturing systems and
automated data collection systems. The Company supplies machining, body and
assembly and precision grinding systems for the automotive industry, and
automated data collection systems for manufacturing, governmental, logistics and
distribution applications. Overall, customers of Industrial Automation Systems
are the automotive and off-road vehicle industries, wholesale and distribution
companies, manufacturing industries and government agencies.
During 1995, the Company acquired 49% of Honsberg, a German machine tool
maker; and Cranfield Precision Engineering, a grinding technology company
located in the United Kingdom.
The Company sold its Material Handling Systems operations in November of
1996. While the division had achieved improved performance, its activities were
not a core business of the Company.
The Company markets its systems and services primarily under the
well-established brand names: Lamb Technicon, Landis, Landis Lund, Gardner,
CITCO and Intermec.
The Company, through its Lamb Technicon operations ("Lamb"), designs and
installs integrated manufacturing systems for high-volume production, and
flexible machining systems for medium-volume applications, primarily for the
world's automotive and off-road vehicle industries. These systems are used in
the production of powertrains - primarily car engines and transmissions. Lamb is
also a supplier of welding and assembly systems for car bodies, engine and other
powertrain components.
Through its Landis, Gardner and CITCO operations, the Company develops and
produces precision grinding systems, tools and equipment for the automotive
manufacturing market. These operations concentrate primarily on the application
of precision cylindrical and disc-grinding technologies for medium-and
high-volume production of car engine and transmission parts.
The Company's automated data collection business is conducted by Intermec.
Automated data collection systems are used to gather and organize data, and then
transmit selected information from various locations to a user's central
computer or retrieval system. Such products are employed in a growing number of
applications worldwide to improve productivity, efficiency and accuracy in data
collection. Automated data collection systems are typically used to track
personnel, parts or products and transactions through manufacturing,
distribution and other processes. Technologies used for automated data
collection include bar code printers, laser scanners and other imaging methods,
as well as hand-held computers and wireless radio frequency ("RF") transmission
devices. Bar coding is currently the most widely used
2
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ITEM 1. BUSINESS (CONTINUED)
technology for automated data collection, providing a cost-effective solution
and a rapid return on investment for customers.
Subsequent to fiscal year end 1996, the Company acquired Norand Corporation
("Norand") on March 3, 1997. Norand's fiscal 1996 revenues were approximately
$235 million. Norand's leadership in mobile computing, wireless data
transmission, pen-based systems, inventory tracking and route accounting
directly complements WAI's position in the industrial, governmental and
distribution markets for automated data collection.
MARKETS AND CUSTOMERS
More than half of Industrial Automation Systems' revenues are generated by
the worldwide automotive industry, which purchases integrated manufacturing
systems, including machining, body and assembly, grinding systems and stand
alone machines to integrate into their own production process. Among customers
for such equipment, U.S. and Canadian auto producers currently account for more
than 70% of integrated manufacturing systems sales, and manufacturers in Europe
account for about 20%. The remainder of sales represents products exported from
the Company's production facilities, mostly for installation in Latin America,
India and China. Current customers include U.S. based Chrysler, Cummins, Ford,
General Motors, Detroit Diesel and Navistar; in foreign markets: Yuchai Diesel,
China; Tata (Telco), India; and major Western European auto manufacturers,
including BMW/Rover, Fiat, Mercedes Benz, Jaguar, Peugeot, Renault and
Volkswagen.
Intermec's market is extensive because automated data collection represents
a technology that can be utilized by a company of any size, and small systems
can be installed at very low costs. Intermec uses two different marketing
channels: Intermec's direct organization, which serves customers from offices
throughout North America and in several European countries; and an indirect
sales channel that includes long-time exclusive relationships with international
value-added distributors and vertical marketing affiliations with a large number
of value-added resellers in the U.S. and abroad.
COMPETITION
Strong competition exists both in the domestic and international markets for
the products and services of the Industrial Automation Systems segment. Products
are sold and projects are won in the marketplace based on price, quality,
technology and service. The Company's competitors range in size from those with
capital resources comparable to or greater than WAI's, to companies that are
significantly smaller.
The market for high-volume production systems for engines and transmissions
in North America and Europe is divided among approximately 10 major competitors
and numerous smaller participants. Management estimates that the Company
commands the largest share of the U.S. market. Major participants in these
businesses include Giddings & Lewis, Inc.'s Integrated Automation Systems,
Thyssen Production Systems, Ingersoll Milling and Grob-Werke Gmbh. & Co. KG in
high-volume powertrain production systems.
The market for automated data collection systems is highly competitive and
fragmented. Based on independent market surveys, management believes that
Intermec is among the larger of the participants in this industry. Principal
competitors in the automated data collection industry include Symbol
Technologies, Inc., Telxon Corporation and Zebra Technologies Corporation, as
well as numerous systems integrators.
METHODS OF DISTRIBUTION
The Company principally markets its products and services globally through
the headquarters and branch offices of its various operations and through
independent distributors and resellers. In general,
3
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ITEM 1. BUSINESS (CONTINUED)
each of the Company's operations is responsible for selecting, implementing and
maintaining its own marketing program.
RAW MATERIALS
The Company uses a wide variety of raw materials in the manufacture of its
products and obtains such raw materials from a variety of suppliers. No single
supplier provides 10% or more of the Company's raw materials, nor do raw
materials from any one supplier generate 10% or more of the Company's
consolidated revenues. The Company has no long-term supply agreements relating
to raw materials.
WORKING CAPITAL
The working capital requirements of the Company's divisions and subsidiaries
are financed primarily from operations.
PATENTS AND TRADEMARKS
The Company owns a large number of patents, trademarks and copyrights
relating to its manufactured products, which have been secured over a period of
years. These patents, trademarks and copyrights have been of value in the growth
of the Company's business and may continue to be of value in the future.
However, the Company's business generally is not dependent upon the protection
of any patent, patent application or patent license agreement, or group thereof,
and would not be materially affected by expiration thereof.
RESEARCH AND DEVELOPMENT
Expenditures on research and development activities amounted to $88.3
million, $91.0 million, and $94.5 million, in the years ended December 31, 1996,
1995 and 1994, respectively.
SEASONALITY; BACKLOG
Oilfield Services' backlog seldom exceeds 30% of annual revenues at any
time. Sales backlog was $429 million and $359 million at December 31, 1996 and
1995, respectively.
Backlog at Industrial Automation Systems comes primarily from manufacturing
systems businesses, and was $597 million and $581 million at December 31, 1996
and 1995, respectively.
Although Oilfield Services' operations in any particular geographic area may
be affected by seasonal factors, the global nature of its operations tends to
reduce overall seasonal effects. The operations of Industrial Automation Systems
are not seasonal to any appreciable degree.
ENVIRONMENTAL MATTERS
During the fiscal year ended December 31, 1996, the amounts incurred in
compliance with federal, state and local legislation pertaining to environmental
standards did not have a material effect upon the capital expenditures or
earnings of the Company.
EMPLOYEES
As of December 31, 1996, the Company had approximately 14,000 full-time
employees, including approximately 8,900 in Oilfield Services and approximately
5,000 in Industrial Automation Systems.
4
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ITEM 2. PROPERTIES
The Company owns it's executive offices which are located at 360 North
Crescent Drive, Beverly Hills, California. Its principal plants and offices have
an aggregate floor area of approximately 5,755,000 square feet, of which
4,426,000 square feet (76.9%) are located in the United States, and 1,329,000
square feet (23.1%) are located outside of the United States, primarily in the
United Kingdom and Canada.
These properties are used by the business segments as follows:
<TABLE>
<CAPTION>
SQUARE FEET
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Industrial Automation Systems.......................................... 2,988,000
Oilfield Services...................................................... 2,434,000
Corporate Offices...................................................... 333,000
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5,755,000
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Approximately 4,779,000 square feet (83.0%) of the principal plant, office
and commercial floor area is owned by the Company, and the balance is held under
lease.
The Company's plants and offices in the United States are situated in 16
locations in 10 states as follows:
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STATE SQUARE FEET
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Texas.................................................................. 2,102,000
Michigan............................................................... 575,000
Pennsylvania........................................................... 459,000
California............................................................. 333,000
Washington............................................................. 312,000
Illinois............................................................... 273,000
Other states........................................................... 372,000
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4,426,000
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</TABLE>
The above-mentioned facilities are in satisfactory condition, suitable for
the particular purposes for which they were acquired or constructed and are
adequate for present operations.
The foregoing information excludes Company-held properties leased to others
and also excludes plants or offices which, when added to all other Company
plants and offices in the same city, have a total floor area of less than 50,000
square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently, and is from time to time, subject to claims and
suits arising in the ordinary course of its business. Although the results of
litigation proceedings cannot be predicted with certainty, it is the opinion of
the Company's General Counsel that the ultimate resolution of these proceedings
will not have a material adverse effect on the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1996.
5
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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Dividend Information....................................................................................... F-11
Quarterly Market Information............................................................................... F-19
</TABLE>
6
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ITEM 6. SELECTED FINANCIAL DATA
WESTERN ATLAS INC.
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED JULY 31,
------------------------------- DECEMBER 31, --------------------
1996 1995 1994 1993 1993 1992
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(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating Results
Sales and Service Revenues............ $ 2,582.8 $ 2,225.8 $ 2,165.7 $ 856.1 $ 2,006.0 $ 1,981.8
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Earnings (Loss) Before Cumulative
Effect of a Change in Accounting
Principle........................... $ 125.7 $ 99.8 $ 77.7 $ (183.3) $ 83.2 $ 75.2
Cumulative Effect of a Change in
Accounting Principle (d)............ (10.4)
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Net Earnings (Loss)..................... $ 125.7 $ 99.8 $ 77.7 $ (183.3) $ 72.8 $ 75.2
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Financial Position at Period End
Total Assets.......................... $ 2,782.9 $ 2,489.2 $ 2,404.1 $ 2,194.0 $ 1,989.6 $ 1,985.6
Long-term Obligations................. 489.5 535.0 522.3 626.0 104.8 153.2
Allocated Portion of Litton Debt...... 100.0 100.0 100.0
Working Capital....................... 467.6 494.1 400.0 370.5 430.9 371.6
Current Ratio......................... 1.64 1.91 1.67 1.76 2.23 1.92
Common Share Data (a)
Earnings (Loss) per Share Before
Cumulative Effect of a Change in
Accounting Principle................ $ 2.31 $ 1.85 $ 1.60 $ (4.02) $ 1.77 $ 1.60
Cumulative Effect of a Change in
Accounting Principle (d)............ (.22)
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Net Earnings (Loss) per Share........... $ 2.31 $ 1.85 $ 1.60 $ (4.02) $ 1.55 $ 1.60
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Shares Used to Compute Earnings (Loss)
per Share (b)......................... 54.5 53.9 48.6 45.6 47.0 47.0
Other Selected Financial Information
Return on Average Shareholders'
Investment (c)...................... 8.8% 7.7% 7.3% 3.8% 7.0% 7.7%
Capital Expenditures.................. $ 303.6 $ 195.9 $ 170.1 $ 120.2 $ 150.4 $ 308.4
Depreciation and Amortization
Expense............................. $ 230.7 $ 206.8 $ 190.1 $ 83.2 $ 167.7 $ 142.8
Research & Development Expenditures... $ 88.3 $ 91.0 $ 94.5 $ 46.0 $ 94.3 $ 104.6
Number of Employees at Period End..... 14,000 13,900 14,200 12,900 14,100 14,600
</TABLE>
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Western Atlas Inc. became an independent public company on March 17, 1994,
upon the distribution of its common stock to the stockholders of Litton
Industries, Inc. ("Litton"). The Company's fiscal year-end was changed from July
31 to December 31 in 1994. Interest expense, income taxes and certain general
and administrative corporate costs incurred by Litton have been allocated to the
Company for all periods presented prior to January 1, 1994.
(a) The Company has not declared dividends on its common stock during these
periods.
(b) In millions. The number of common shares outstanding prior to 1994 was based
on the weighted-average number of shares of Litton common stock outstanding
for fiscal 1993.
(c) The five months ended December 31, 1993 excludes provision for loss on sale
of a division and other special charges of $179 million, after tax.
(d) The Company adopted the provisions of SFAS No. 106, Employer's Accounting
for Postretirement Benefits Other Than Pensions, in fiscal year 1993. The
Company elected immediate recognition of the transition liability.
7
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ITEM 7. FINANCIAL REVIEW AND ANALYSIS
RESULTS OF OPERATIONS
Sales and service revenues and segment operating profit for each of the
three years ended December 31, were as follows:
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<CAPTION>
1996 1995 1994
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(MILLIONS OF DOLLARS)
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SALES AND SERVICE REVENUES
Oilfield Services................................................ $ 1,403 $ 1,268 $ 1,182
Industrial Automation Systems.................................... 1,180 958 984
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Total Sales and Service Revenues................................. $ 2,583 $ 2,226 $ 2,166
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SEGMENT OPERATING PROFIT
Oilfield Services................................................ $ 173 $ 158 $ 141
Industrial Automation Systems.................................... 101 76 81
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Total Segment Operating Profit................................... $ 274 $ 234 $ 222
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YEAR ENDED DECEMBER 31, 1996 COMPARED TO 1995
Total sales and service revenues and segment operating profit increased by
16% and 17%, respectively, and consolidated net earnings increased 26% compared
with prior year results.
Sales and service revenues and operating profit for the Oilfield Services
segment increased by 11% and 10%, respectively, when compared to the prior
fiscal year. The fastest growth in Oilfield Services came from the Company's
seismic operations, where revenues grew by 15% in 1996. Western Geophysical, the
world's leading seismic services company, benefited from a number of highly
successful non-exclusive surveys, the expansion of its ocean-bottom cable
acquisition and processing technology, and its ongoing growth in the global land
market. Segment operating profits were impacted by continuing investments in the
E&P Services division and the PetroAlliance Services joint venture in the Former
Soviet Union ("FSU").
Sales and service revenues and operating profit for the Industrial
Automation Systems segment increased by 23% and 33%, respectively, when compared
to the prior year results. Sales and operating profit of the Company's
Manufacturing Systems Group were improved over the prior year results, as
contracts with lower margins which affected 1995 results were completed and
replaced with contracts that yielded higher profit margins. Intermec, the
Company's automated data collection division, benefited from the success of new
product introductions and higher sales and service revenues under its five-year
purchasing agreement with the U.S. Government. Sales backlog for the Industrial
Automation Segment was $597 million at December 31, 1996, compared with $581
million at December 31, 1995.
The Company sold its Material Handling Systems operations in November of
1996 and received cash proceeds of approximately $31 million. The activities of
the division were not considered a core business of the Company.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO 1994
Total sales and service revenues and segment operating profit increased by
3% and 5%, respectively, and consolidated net earnings increased by 28% compared
with prior year results.
Sales and service revenues and operating profit for the Oilfield Services
segment increased by 7% and 12%, respectively, when compared to the prior fiscal
year. Operating margins benefited from the improved profitability of seismic
services. The improvement in operating margins was partially offset by startup
costs
8
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ITEM 7. FINANCIAL REVIEW AND ANALYSIS (CONTINUED)
of the new E&P Services division, which is building its infrastructure in
response to developing customer projects in the U.S. and internationally.
The assets of the seismic equipment manufacturing operations of the
Company's Oilfield Services segment were sold during the second quarter of 1995
for approximately $122 million cash. In June 1995, the Company formed a joint
venture to offer seismic, well-logging and integrated project services to local
and international oil companies operating in the FSU. The Company paid $21
million cash for 50% of the common equity of the venture, and has contributed
other assets in exchange for debt obligations and preferred shares of the
venture.
Sales and service revenues and operating profit for the Industrial
Automation Systems segment decreased compared with prior year results. Backlog
for this segment was $581 million at December 31, 1995, compared with $415
million at December 31, 1994. The decrease in sales and service revenues from
the prior 12-month period resulted from several large programs with automobile
customers being completed and shipped near the end of 1994. The automated data
collection systems operations increased sales as markets for these products
continued to show growth.
SUBSEQUENT EVENT
On March 3, 1997, subsequent to fiscal year end 1996, the Company acquired
Norand Corporation ("Norand") in a transaction that is being accounted for as a
purchase. The preliminary purchase price of approximately $285 million
significantly exceeds the estimated net book value of the net assets acquired.
The allocation of the estimated purchase price to the net assets of Norand has
not been finalized. Norand's fiscal 1996 revenues were approximately $235
million. Norand's leadership in mobile computing, wireless data transmission,
pen-based systems, inventory tracking and route accounting activities directly
complement WAI's position in the industrial, governmental and distribution
markets for automated data collection.
FOREIGN CURRENCY TRANSACTIONS
The Company is subject to the effects of international currency fluctuations
due to the global nature of its operations. Currency fluctuations did not have a
significant impact on operations during fiscal years 1996, 1995 and 1994. It is
not possible to predict the Company's exposure to foreign currency fluctuations
beyond the near term because revenues generated from particular foreign
jurisdictions vary widely over time. The Company hedges transactions from time
to time, but the amount and volume of such transactions are not material.
For fiscal year 1996, the Company derived approximately 46% of its revenues
and approximately 51% of its operating profits from non-U.S. operations.
However, at December 31, 1996, identifiable assets attributable to foreign
operations comprised 33% of total assets (of which the largest components were
attributable to European operations). Additionally, most of Oilfield Services'
identifiable assets used in generating foreign revenues are not stationary due
to the nature of its operations. Therefore, exposure of identifiable assets to
foreign currency fluctuations or expropriations is not significant.
Oilfield Services derived approximately 70% of its revenues from non-U.S.
operations in fiscal year 1996. However, a significant amount of such revenues
is dollar-denominated. In addition, Oilfield Services has a policy of
structuring its contracts, whenever possible, so that revenues denominated in
foreign currencies do not exceed planned in-country costs of performing such
contracts. Cash in excess of operating requirements is maintained in the U.S.
9
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ITEM 7. FINANCIAL REVIEW AND ANALYSIS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $165.8 million at December 31,
1996, compared with $116.7 million at December 31, 1995. The increase in capital
expenditures in 1996 to $303.6 million compared to $195.9 million in 1995 and
$170.1 million in 1994 is a result of ongoing business expansion in the Oilfield
Services segment. The Company expects that cash flow from operations, along with
available borrowing capacity, will provide the flexibility to meet strategic
objectives and the ability to meet working capital requirements. The Company
currently has unused credit facilities with a group of banks which permit the
Company to borrow up to $400 million. The purchase of Norand was funded using
short-term uncommitted borrowing lines and excess cash.
On September 29, 1994, the Company sold an additional 6.9 million shares of
its common stock through an underwritten public offering. Proceeds to the
Company of $286.3 million were used to repay $200 million of notes issued in
connection with the repurchase of Dresser Industries' minority interest in the
Company's Oilfield Services operations, and a portion of the outstanding $130
million principal amount of the four-year term loan.
The Company conducted a public offering of its debt securities during June,
1994 in the principal amount of $400 million. The proceeds were used to repay
previously outstanding credit facilities: a one-year $350 million bank loan, a
portion of the remaining bank loans and to pay certain expenses of the offering.
Net interest expense for fiscal year 1996 was $38.0 million, compared with
$41.0 million and $56.2 million for fiscal years 1995 and 1994, respectively.
Decreased interest expense in 1996 and 1995 is primarily attributable to the
proceeds from the common stock offering mentioned above being used to reduce the
Company's debt.
INFLATION
In the opinion of management, inflation has not been a significant factor in
the markets in which the Company operates and has not had a significant impact
on the results of its operations.
10
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
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---------
<S> <C>
Management's Responsibility for Financial Reporting........................................................ F-1
Independent Auditors' Report............................................................................... F-2
Consolidated Statements of Income.......................................................................... F-3
Consolidated Balance Sheets................................................................................ F-4
Consolidated Statements of Cash Flows...................................................................... F-5
Notes to Consolidated Financial Statements................................................................. F-6
Quarterly Financial Information (unaudited)................................................................ F-19
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information relating to directors of the Company under the caption
"The Election of Directors" in the Company's definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held on May 13, 1997, which is
hereby incorporated by reference.
The executive officers of the Company are elected each year by the Board of
Directors at its first meeting following the Annual Meeting of Shareholders to
serve during the ensuing year and until their respective successors are elected
and qualify. There are no family relationships between any of the executive
officers of the Company. The following information indicates the positions and
ages of the Company's executive officers at February 13, 1997 and their business
experience during the prior five years:
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL BUSINESS AFFILIATIONS DURING PAST FIVE
NAME AGE YEARS
- ------------------- --- --------------------------------------------------------------------------------
<S> <C> <C>
Alton J. Brann 55 Director, Chairman of the Board and Chief Executive Officer of the Company since
1994. Prior thereto, Chief Executive Officer of Litton from 1992 to 1994 and
President from 1990 to 1994.
John R. Russell 58 Executive Vice President and Chief Operating Officer, Oilfield Services, of the
Company since 1994. President of WAII since 1991. Prior thereto, Senior Vice
President of Litton and Group Executive of Litton's Resource Exploration
Services Group from 1991 to 1994. Chief Executive Officer of WAII from 1991 to
1994.
Orval F. Brannan 57 Senior Vice President of the Company since 1994 and President of E & P Services
division of WAII since 1995. Senior Vice President of WAII since 1992. Prior
thereto, President of WAII's Western Geophysical division from 1991 to 1995.
Michael E. Keane 41 Senior Vice President and Chief Financial Officer since October 1, 1996. Prior
thereto, Vice President and Treasurer of the Company from 1994 to September 30,
1996. Director of Pensions and Insurance of Litton from 1991 to 1994.
Norman L. Roberts 62 Senior Vice President and General Counsel of the Company since 1994. Prior
thereto, Senior Vice President and General Counsel of Litton from 1990 to 1994.
Damir S. Skerl 57 Senior Vice President of the Company since 1994 and President of Western Atlas
Logging Services (formerly known as Atlas Wireline) of WAII since 1992. Senior
Vice President of WAII since 1992.
Richard C. White 41 Senior Vice President of the Company since May 7, 1996 and President of Western
Geophysical division of WAII since 1995. Prior thereto, Vice President of the
Company from 1995 to 1996. Chief Operating Officer for the global activities of
Western Geophysical from 1994 to 1995, Senior Vice President of its North and
South American Operations during 1993 and Vice President of North American
Operations in 1992.
Clayton A. Williams 63 Senior Vice President of the Company since May 7, 1996 and Group Executive of
the Company's Manufacturing Systems Group since 1995. Prior thereto, Vice
President of the Company from December 9, 1995 to May 7, 1996. Vice President of
Litton from 1992 to 1995 and President of its Applied Technology division from
1990 to 1995.
</TABLE>
12
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL BUSINESS AFFILIATIONS DURING PAST FIVE
NAME AGE YEARS
- ------------------- --- --------------------------------------------------------------------------------
<S> <C> <C>
Charles A. Cusumano 50 Vice President, Finance, of the Company since October 1, 1996. Prior thereto,
Vice President and Controller from 1994 to September 30, 1996. Vice President,
Finance, of Litton's Industrial Automation Systems Group from 1988 to 1994.
Michael Ohanian 64 Vice President of the Company since May 7, 1996 and President of Intermec
Corporation (Intermec) since 1995. Prior thereto, an independent consultant from
1994 to 1995 and Vice President, Strategic and Government Programs, of Intermec
from 1988 to 1994.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
See the information relating to executive compensation under the captions
"Executive Compensation," "Employment and Change in Control Arrangements" and
"Retirement Benefits" of the Company's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on May 13, 1997, which is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information with respect to beneficial ownership of the Company's
voting securities by each director, certain executive officers and all executive
officers and directors as a group, and by any person known to beneficially own
more than 5% of any class of voting security of the Company, under the caption
"Security Ownership of Certain Beneficial Owners of Common Stock" of the
Company's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 13, 1997, which is hereby incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information with respect to certain relationships and related
transactions, under the captions "Information Regarding Indebtedness of
Management to the Company" and "Certain Transactions" of the Company's
definitive Proxy Statement relating to the Annual Meeting of Shareholders to be
held on May 13, 1997, which is hereby incorporated by reference.
13
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
(a)(1) Financial Statements
See Part II
(a)(2) Financial Statement Schedules *
(a)(3) Executive Compensation Plans and Arrangements 15
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter ended December 31, 1996.
(c) Index to Exhibits E1
</TABLE>
- ------------------------
* All schedules and notes specified under Regulation S-X are omitted because
they are either not applicable, not required or the information called for
therein appears in the consolidated financial statements or notes thereto.
14
<PAGE>
WESTERN ATLAS INC.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
<TABLE>
<CAPTION>
REPORT WITH WHICH
DESCRIPTION EXHIBIT NO. EXHIBIT WAS FILED
- ------------------------------------------------------------------------ ----------- ----------------------
<S> <C> <C>
Employee Benefits Agreement dated as of March 17, 1994, between Litton 10.3 March 31, 1994
Industries, Inc., and Western Atlas Inc. Form 10-Q
Change in Control Employment Agreements dated as of March 17, 1994, 10.7 March 31, 1994
between Western Atlas Inc., and each of Alton J. Brann, John R. Russell Form 10-Q
and Norman L. Roberts.
Change in Control Employment Agreements dated as of November 16, 1995, 10.8 December 31, 1995
between Western Atlas Inc., and each of Orval F. Brannan and Damir S. Form 10-K
Skerl.
Western Atlas International, Inc. Benefit Restoration Plan. 10.10 Form 10
Amendment No. 2
Western Atlas International, Inc., Supplemental Retirement Plan. 10.11 Form 10
Amendment No. 1
Supplemental Retirement Agreement between Western Atlas Inc. and Alton 10.12 March 31, 1994
J. Brann dated March 17, 1994. Form 10-Q
Western Atlas Inc. Restoration Plan. 10.13 Form 10
Amendment No. 2
Resolutions adopted by Board of Directors of Western Atlas Inc. on March 10.14 March 31, 1994
17, 1994 with respect to the Incentive Loan Program and form of Form 10-Q
promissory note to evidence loans made thereunder.
Western Atlas Inc. Individual Performance Award Plan. 10.16 December 31, 1994
Form 10-K
Western Atlas Inc. 1995 Incentive Compensation Plan. 10.17 December 31, 1994
Form 10-K
Western Atlas Inc. Supplemental Executive Retirement Plan. 10.18 December 31, 1995
Form 10-K
Employment Agreement dated as of December 9, 1995, between Western Atlas 10.19 December 31, 1995
Inc., and Clayton A. Williams. Form 10-K
Western Atlas Inc. 1993 Stock Incentive Plan, as amended on February 13, 10.20 December 31, 1995
1996. Form 10-K
</TABLE>
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WESTERN ATLAS INC.
/s/ MICHAEL E. KEANE
--------------------------------------
Michael E. Keane
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
March 18, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ PAUL BANCROFT, III
- ----------------------------------- Director March 18, 1997
Paul Bancroft, III,
/s/ ALTON J. BRANN Director, Chairman of
- ----------------------------------- the Board and Chief March 18, 1997
Alton J. Brann, Executive Officer
/s/ JOSEPH T. CASEY
- ----------------------------------- Director March 18, 1997
Joseph T. Casey,
/s/ WILLIAM C. EDWARDS
- ----------------------------------- Director March 18, 1997
William C. Edwards,
/s/ CLAIRE W. GARGALLI
- ----------------------------------- Director March 18, 1997
Claire W. Gargalli,
/s/ ORION L. HOCH
- ----------------------------------- Director March 18, 1997
Orion L. Hoch,
/s/ STEVEN B. SAMPLE
- ----------------------------------- Director March 18, 1997
Steven B. Sample,
/s/ CHARLES A. CUSUMANO Vice President, Finance
- ----------------------------------- (Chief Accounting March 18, 1997
Charles A. Cusumano, Officer)
16
<PAGE>
WESTERN ATLAS INC.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of Western Atlas Inc. and subsidiaries
and related financial information included in this Annual Report, have been
prepared by the Company, whose management is responsible for their integrity.
These statements, which necessarily reflect estimates and judgments, have been
prepared in conformity with generally accepted accounting principles.
The Company maintains a system of internal controls to provide reasonable
assurance that assets are safeguarded and transactions are properly executed and
recorded. As part of this system, the Company has an internal audit staff to
monitor the compliance with and the effectiveness of established procedures.
The consolidated financial statements have been audited by Deloitte & Touche
LLP, independent certified public accountants, whose report appears on page F-2.
The Audit and Compliance Committee of the Board of Directors, which consists
solely of directors who are not employees of the Company, meets periodically
with management, the independent auditors and the Company's internal auditors to
review the scope of their activities and reports relating to internal controls
and financial reporting matters. The independent and internal auditors have full
and free access to the Audit and Compliance Committee and meet with the
Committee both with and without the presence of Company management.
/s/ MICHAEL E. KEANE
Michael E. Keane
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
February 13, 1997
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Western Atlas Inc.
Beverly Hills, California
We have audited the accompanying consolidated balance sheets of Western
Atlas Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income and cash flows for each of the years in the
three year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Western Atlas Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Los Angeles, California
February 13, 1997
F-2
<PAGE>
WESTERN ATLAS INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Sales and Service Revenues........................ $ 2,582,790 $ 2,225,779 $ 2,165,682
----------- ----------- -----------
Costs and Expenses
Cost of sales (exclusive of depreciation and
amortization shown below)..................... 1,788,729 1,524,239 1,496,837
Selling, general and administrative............. 315,941 285,877 289,231
Depreciation and amortization................... 230,658 206,824 190,148
Interest -- net................................. 38,020 41,042 56,182
----------- ----------- -----------
Total Costs and Expenses.......................... 2,373,348 2,057,982 2,032,398
----------- ----------- -----------
Earnings before Taxes on Income................... 209,442 167,797 133,284
Taxes on Income................................... (83,777) (67,958) (55,543)
----------- ----------- -----------
Net Earnings...................................... $ 125,665 $ 99,839 $ 77,741
----------- ----------- -----------
----------- ----------- -----------
Net Earnings per Share............................ $2.31 $1.85 $1.60
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WESTERN ATLAS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents........................................................... $ 165,763 $ 116,715
Accounts receivable less allowance for doubtful accounts of $24,955 (1996)
and $18,488 (1995)................................................................ 755,507 612,336
Inventories less progress billings.................................................. 137,158 150,855
Deferred tax assets................................................................. 96,685 117,189
Other prepaid expenses.............................................................. 38,822 39,385
------------ ------------
Total Current Assets.................................................................. 1,193,935 1,036,480
Property, Plant and Equipment, Net.................................................... 824,760 723,648
Goodwill and Other Intangibles, Net of Amortization of $68,931 (1996)
and $61,466 (1995).................................................................. 454,914 462,873
Geophysical Data and Other Assets..................................................... 309,267 266,211
------------ ------------
Total Assets.......................................................................... $ 2,782,876 $ 2,489,212
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable.................................................................... $ 498,145 $ 380,569
Payrolls and related expenses....................................................... 147,714 137,739
Notes payable and current portion of long-term obligations.......................... 80,516 24,106
------------ ------------
Total Current Liabilities............................................................. 726,375 542,414
------------ ------------
Long-term Obligations................................................................. 489,461 535,034
------------ ------------
Deferred Tax Liabilities.............................................................. 31,162 28,760
------------ ------------
Other Long-term Liabilities........................................................... 32,940 26,157
------------ ------------
Commitments and Contingencies
Shareholders' Investment
Common stock; shares outstanding: 53,692,160 (1996)
and 53,235,488 (1995)............................................................. 53,692 53,235
Preferred stock (25,000,000 shares authorized)
Additional paid-in capital.......................................................... 1,145,306 1,129,417
Retained earnings................................................................... 291,458 165,793
Cumulative currency translation adjustment.......................................... 12,482 8,402
------------ ------------
Total Shareholders' Investment........................................................ 1,502,938 1,356,847
------------ ------------
Total Liabilities and Shareholders' Investment........................................ $ 2,782,876 $ 2,489,212
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WESTERN ATLAS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash and Cash Equivalents at Beginning of Year........................... $ 116,715 $ 42,094 $ 25,611
----------- ----------- -------------
Cash Flows from Operating Activities:
Net earnings........................................................... 125,665 99,839 77,741
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization........................................ 230,658 206,824 190,148
Change in accounts receivable........................................ (190,137) 5,047 (7,559)
Change in inventories................................................ 16,417 (31,164) 22,841
Change in accounts payable........................................... 100,627 (30,391) (54,252)
Change in payrolls and related expenses.............................. 2,684 (303) 36,353
Reimbursement for shutdown of certain acquired operations............ 20,000 48,838
Other operating activities........................................... 41,485 (16,191) 12,107
----------- ----------- -------------
Net cash provided by operating activities............................ 327,399 253,661 326,217
----------- ----------- -------------
Cash Flows from Investing Activities:
Capital expenditures................................................... (303,594) (195,945) (170,107)
Geophysical data, net.................................................. (51,450) (41,624) (23,238)
Proceeds from sale of businesses....................................... 43,151 122,000 37,000
Acquisition of businesses net of cash acquired......................... (890) (26,016) (98,955)
Other investing activities............................................. 14,921 (906) (8,029)
----------- ----------- -------------
Net cash used in investing activities................................ (297,862) (142,491) (263,329)
----------- ----------- -------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock................................. 16,346 9,838 293,360
Repayment of long-term obligations..................................... (3,817) (38,833) (1,250,588)
Proceeds from issuance of long-term obligations........................ 2,148 12,105 960,000
Other financing activities............................................. 4,834 (19,659) (49,177)
----------- ----------- -------------
Net cash provided by (used in) financing activities.................. 19,511 (36,549) (46,405)
----------- ----------- -------------
Resulting in Increase in Cash and Cash Equivalents....................... 49,048 74,621 16,483
----------- ----------- -------------
Cash and Cash Equivalents at End of Year................................. $ 165,763 $ 116,715 $ 42,094
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
GENERAL INFORMATION. Western Atlas Inc. ("WAI" or the "Company") became an
independent public company on March 17, 1994 (the "Distribution Date") when its
common stock was distributed to stockholders of Litton Industries, Inc.
("Litton") in the form of a dividend (the "Distribution"). All of the WAI common
stock was distributed to Litton stockholders on the basis of one share of WAI
common stock for each share of Litton common stock held of record as of March
14, 1994.
NATURE OF OPERATIONS. WAI concentrates primarily on information technology
and is one of the world's leading oilfield information services and industrial
automation companies. The Company's Oilfield Services business segment provides
land and marine seismic, well-logging, and reservoir description and management
services for a worldwide client base. Oilfield Services' principal customers are
private sector and government-owned oil companies, and approximately 70% of its
revenues are generated by activities outside of the United States. The
Industrial Automation Systems segment of the Company provides integrated
manufacturing and automated data collection systems. Customers include the
automotive and off-road vehicle industries, retail and wholesale distribution
companies, manufacturing industries and government agencies.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses for each reporting period. Actual
results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
those of the Company, its subsidiaries and companies in which WAI has a
controlling interest. Investments in companies over which WAI has influence but
not a controlling interest are accounted for using the equity method. All
material intercompany transactions have been eliminated.
EARNINGS PER SHARE. Earnings per share computations are based on the
weighted-average number of common shares outstanding and common stock
equivalents with dilutive effects. The December 31, 1996, 1995 and 1994
computations were based on 54,450,546, 53,893,670 and 48,632,062
weighted-average shares, respectively.
CASH EQUIVALENTS. The Company considers securities purchased within three
months of their date of maturity to be cash equivalents.
INVENTORIES. Inventories are stated at the lower of cost (first-in,
first-out method) or market.
REVENUE RECOGNITION. Revenues are generally recognized when products are
shipped or as services are performed. Revenues and profits on long-term
contracts associated with the Company's Industrial Automation Systems operations
are recorded under the percentage-of-completion method of accounting. Any
anticipated losses on contracts are charged to operations as soon as they are
determinable. General and administrative costs are expensed as incurred.
GEOPHYSICAL DATA. Costs incurred in the creation of Company-owned
geophysical data, included (net of advances from customers) in geophysical data
and other assets, are capitalized and amortized over the anticipated sales which
the Company expects to realize from licensing of such data.
RESEARCH AND DEVELOPMENT. Research and development costs are charged to
expense as incurred. Worldwide expenditures on research and development
activities amounted to $88.3 million, $91.0 million and $94.5 million, in the
years ended December 31, 1996, 1995 and 1994, respectively.
F-6
<PAGE>
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT. Investment in property, plant and equipment
is stated at cost. Depreciation, computed generally by the straight-line method
for financial reporting purposes, is provided over the estimated useful lives of
the related assets.
INCOME TAXES. The Company measures tax assets and liabilities based on a
balance sheet approach. Tax assets and liabilities are stated at the tax rate in
effect when the estimated assets and liabilities will be realized. For further
discussion of accounting policies for taxes see Note G.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and trade receivables. The Company places its cash and cash
equivalents with high credit quality institutions and limits the amount of
credit exposure with any one institution. Concentrations of credit risk with
respect to trade receivables are limited because a large number of
geographically diverse customers make up the Company's customer base, thus
spreading the trade credit risk.
FOREIGN CURRENCIES. The currency effects of translating the financial
statements of those non-U.S. entities of the Company which operate in local
currency environments are included in the "cumulative currency translation
adjustment" component of shareholders' investment. Currency transaction gains
and losses are included in the Consolidated Statements of Income and were not
material for any periods presented herein.
GOODWILL AND OTHER INTANGIBLES. For financial statement purposes, goodwill
is generally amortized using the straight-line method over its estimated useful
life, not exceeding 40 years. The Company assesses the recoverability of
goodwill at the end of each fiscal year or more often as circumstances warrant.
Factors considered in evaluating recoverability include management's plans with
respect to the operations to which the goodwill relates, particularly the
historical earnings and projected undiscounted cash flows of such operations.
ENVIRONMENTAL COSTS. Provisions for environmental costs are recorded when
the Company determines its responsibility for remedial efforts and such amounts
are reasonably estimable.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform to the current year presentation.
NOTE B: BUSINESS ACQUISITIONS, INVESTMENTS AND DISPOSITIONS
ACQUISITIONS AND INVESTMENTS
Subsequent to fiscal year end 1996, the Company entered into an agreement to
acquire Norand Corporation ("Norand") in a transaction that will be accounted
for as a purchase. The preliminary purchase price of approximately $285 million
substantially exceeds the estimated net book value of the net assets to be
acquired. The allocation of the estimated purchase price to the net assets of
Norand has not been finalized. The purchase of Norand will be funded using
short-term uncommitted borrowing lines and excess cash. Norand is involved in
mobile computing, wireless data transmission technology, pen-based systems,
inventory tracking and route accounting activities.
The Company made several acquisitions and investments during 1995, including
50% of PetroAlliance Services, a joint venture offering seismic, well-logging
and integrated project services to local and international oil companies
operating in the former Soviet Union; 49% of Honsberg, a German machine tool
maker; and Cranfield Precision Engineering, a grinding technology company
located in the United Kingdom. These 1995 acquisitions and several smaller 1996
acquisitions are integral to the Company's goals, though not material in the
aggregate to the Company's consolidated financial statements.
F-7
<PAGE>
NOTE B: BUSINESS ACQUISITIONS, INVESTMENTS AND DISPOSITIONS (CONTINUED)
In January 1994, the Company acquired from the Halliburton Company
substantially all of the assets (except real property) of its Geophysical
Services business for $204 million. The acquisition has been accounted for by
the purchase method.
In January 1994, the Company acquired Dresser Industries, Inc.'s 29.5%
minority interest in Oilfield Services for a total purchase price of $558
million. The purchase price includes goodwill of approximately $277 million,
which is being amortized on a straight-line basis over a period of 40 years.
DISPOSITIONS
The Company sold its Material Handling Systems operations in November of
1996 and received cash proceeds of approximately $31 million. The activities of
the division were not considered a core business of the Company.
The assets of the seismic equipment manufacturing operations of the
Company's Oilfield Services segment were sold during the second quarter of 1995
for approximately $122 million cash. As part of the sales agreement, the Company
entered into a commitment with the buyer to purchase $350 million of equipment.
The remaining equipment purchase commitment is approximately $191 million as of
December 31, 1996. The excess of the sales price over the net book value of the
assets sold was deferred and is being amortized as the Company purchases
products from the buyer.
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST
Cash and cash equivalents amounted to $165.8 million and $116.7 million at
December 31, 1996 and December 31, 1995, respectively, and consisted mainly of
time deposits and commercial paper.
Notes payable and long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Notes, interest at 7.875%, due 2004................................... $ 250,000 $ 250,000
Debentures, interest at 8.55%, due 2024............................... 150,000 150,000
Notes, interest at 5.65%, due 1997 and 1998........................... 96,921 96,921
Short-term notes payable with average interest at 6.81% (1996) and
6.89% (1995)........................................................ 30,647 23,786
Postretirement benefit obligations.................................... 21,158 20,613
Other, with average interest at 4.5% (1996) and 4.0% (1995), due
through 2005........................................................ 21,251 17,820
---------- ----------
569,977 559,140
Less short-term notes payable and current portion of
long-term obligations............................................... 80,516 24,106
---------- ----------
$ 489,461 $ 535,034
---------- ----------
---------- ----------
</TABLE>
F-8
<PAGE>
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED)
Notes payable and long-term obligations at December 31, 1996 mature as
follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
Year Ending December 31,
1997.................................................................. $ 80,516
1998.................................................................. 49,687
1999.................................................................. 971
2000.................................................................. 450
2001.................................................................. 382
Thereafter.............................................................. 437,971
--------
$ 569,977
--------
--------
</TABLE>
The Company has a credit agreement which provides for revolving credit of up
to $400 million, all of which was available for the Company's general use as of
December 31, 1996. The purchase of Norand, as described in Note B, will be
funded in part by using a $200 million short-term uncommitted borrowing line
established in February of 1997.
The Company is in compliance with its various debt and credit covenants,
which relate to the Company's incurrence of debt, mergers, consolidations and
sale of assets and require the Company to satisfy certain ratios related to
tangible net worth, debt-to-equity and interest coverage.
Financial instruments on the Company's Consolidated Balance Sheet include
accounts receivable, accounts payable, and payrolls and related expenses, which
approximate their market values due to their short maturity. The $570 million of
notes payable and long-term obligations had an estimated fair market value of
$605 million as of December 31, 1996, based primarily on quoted market prices.
As discussed in Note I, the Company also has off-balance-sheet guarantees and
letter-of-credit agreements with face values totaling $185 million at December
31, 1996 relating principally to the guarantee of future performance on
contracts.
Net interest expense is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Interest expense............................................. $ 43,919 $ 45,713 $ 60,042
Interest income.............................................. (5,899) (4,671) (3,860)
--------- --------- ---------
Net interest expense......................................... $ 38,020 $ 41,042 $ 56,182
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company made interest payments of $43.0 million, $44.3 million and $49.9
million in the years ended December 31, 1996, 1995 and 1994, respectively.
Capitalized interest costs in each of the periods presented were not material.
F-9
<PAGE>
NOTE D: ACCOUNTS RECEIVABLE AND INVENTORIES
Following are the details of accounts receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Trade receivables..................................................... $ 477,181 $ 415,905
Notes receivable (see Note J)......................................... 16,568 55,837
Receivables related to long-term contracts
Amounts billed...................................................... 49,538 65,352
Unbilled recoverable costs and accrued profit on progress completed
and retentions.................................................... 212,220 75,242
---------- ----------
$ 755,507 $ 612,336
---------- ----------
---------- ----------
</TABLE>
The unbilled recoverable costs and retentions at December 31, 1996 are
expected to be entirely billed and collected in fiscal year 1997.
Summarized below are the components of inventory balances:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials and work in process..................................... $ 101,123 $ 112,336
Finished goods........................................................ 25,296 26,398
Inventoried costs related to long-term contracts...................... 35,062 33,549
Less progress billings................................................ (24,323) (21,428)
---------- ----------
Net inventories....................................................... $ 137,158 $ 150,855
---------- ----------
---------- ----------
</TABLE>
NOTE E: PROPERTY, PLANT AND EQUIPMENT
Investment in property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Property, plant and equipment, at cost............................
Land............................................................ $ 58,623 $ 59,023
Buildings....................................................... 236,532 235,672
Machinery and equipment......................................... 1,117,987 1,042,118
Investment in E&P projects...................................... 33,073
Less accumulated depreciation..................................... (621,455) (613,165)
------------ ------------
Net investment in property, plant and equipment................... $ 824,760 $ 723,648
------------ ------------
------------ ------------
</TABLE>
The net book value of assets utilized under capital leases was not material
at December 31, 1996 and 1995.
The range of estimated useful lives for determining depreciation and
amortization of the major classes of assets are:
<TABLE>
<S> <C>
Buildings.............................................. 10 - 45 years
Land improvements and building improvements............ 2 - 20 years
Machinery and equipment................................ 2 - 15 years
</TABLE>
F-10
<PAGE>
NOTE E: PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
As of December 31, 1996, minimum rental commitments under noncancellable
operating leases were:
<TABLE>
<CAPTION>
OPERATING LEASES
-----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
Year Ending December 31,
1997.................................................................. $ 12,887
1998.................................................................. 9,375
1999.................................................................. 7,167
2000.................................................................. 5,948
2001.................................................................. 3,642
Thereafter.............................................................. 7,223
-------
$ 46,242
-------
-------
</TABLE>
Rental expense for operating leases, including amounts for short-term leases
with nominal, if any, future rental commitments, was $83.5 million, $85.2
million and $94.3 million, for the years ended December 31, 1996, 1995 and 1994,
respectively. The minimum future rentals receivable under subleases and the
contingent rental expenses were not significant.
NOTE F: SHAREHOLDERS' INVESTMENT
Changes in shareholders' investment are summarized below:
<TABLE>
<CAPTION>
CUMULATIVE
ADDITIONAL CURRENCY NET TOTAL
COMMON PAID-IN RETAINED TRANSLATION INVESTMENT SHAREHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT BY LITTON INVESTMENT
----------- ----------- ----------- ----------- ----------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993.............. $ 957,853 $ 957,853
Net earnings to distribution date..... 11,787 11,787
Net transactions with Litton.......... (71,742) (71,742)
Issuance of common stock to Western
Atlas shareholders.................. $ 45,816 $ 843,102 $ 8,980 (897,898)
Net earnings from distribution date to
December 31, 1994................... $ 65,954 65,954
Stock options exercised............... 209 6,861 7,070
Issuance of common stock.............. 6,900 279,390 286,290
Other capital transactions............ (9,464) (9,464)
Currency translation adjustment....... 577 577
----------- ----------- ----------- ----------- ----------- -------------
BALANCE, DECEMBER 31, 1994.............. 52,925 1,119,889 65,954 9,557 -- 1,248,325
Net earnings.......................... 99,839 99,839
Stock options exercised............... 310 9,528 9,838
Currency translation adjustment....... (1,155) (1,155)
----------- ----------- ----------- ----------- ----------- -------------
BALANCE, DECEMBER 31, 1995.............. 53,235 1,129,417 165,793 8,402 -- 1,356,847
Net earnings.......................... 125,665 125,665
Stock options exercised............... 434 14,771 15,205
Other capital transactions............ 23 1,118 1,141
Currency translation adjustment....... 4,080 4,080
----------- ----------- ----------- ----------- ----------- -------------
BALANCE, DECEMBER 31, 1996.............. $ 53,692 $1,145,306 $ 291,458 $ 12,482 -- $ 1,502,938
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
</TABLE>
At December 31, 1996, there were authorized 150 million shares of common
stock, par value $1.00, and 25 million shares of preferred stock, par value
$1.00. No cash dividends were paid on the common stock in the fiscal year ended
December 31, 1996.
F-11
<PAGE>
NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED)
STOCK OPTION INFORMATION
The Company has a stock option plan which provides for the grant of
incentive awards to officers and other key employees. Incentive awards are
granted in the form of stock options at a price equal to the fair market value
of the Company's common stock on the date of grant, at terms not exceeding 12
years. The Company also has a Director Stock Option Plan which provides for the
grant of stock options to the Company's non-employee directors. Under this plan,
stock options are granted annually at the fair market value of the Company's
common stock on the date of grant. The number of options so granted annually is
fixed by the plan. Such options become fully exercisable on the first
anniversary of their grant. Under these plans, there were 1,098,528 and
1,072,216 options exercisable as of December 31, 1996 and 1995, respectively,
and 1,461,066 available for grant as of December 31, 1996.
The following table summarizes the shares of the Company's stock option
plans:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
---------- -----------------
<S> <C> <C>
Options granted pursuant to the Distribution, March 17, 1994... 2,323,491 $ 20.31
Granted...................................................... 680,000 43.49
Exercised.................................................... (212,518) 19.70
Canceled..................................................... (38,980) 21.79
----------
Outstanding at December 31, 1994............................... 2,751,993 25.87
----------
1995
Granted...................................................... 580,500 42.89
Exercised.................................................... (310,839) 18.74
Canceled..................................................... (154,270) 36.13
----------
Outstanding at December 31, 1995............................... 2,867,384 29.54
----------
1996
Granted...................................................... 614,600 58.03
Exercised.................................................... (441,327) 17.64
Canceled..................................................... (74,005) 39.47
----------
Outstanding at December 31, 1996............................... 2,966,652 36.96
----------
----------
</TABLE>
Outstanding stock option data as of December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
REMAINING WEIGHTED-AVERAGE EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- --------------------------------- ----------- ------------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$10.17 to $19.19................. 491,250 3.96 $ 13.54 369,980 $ 13.11
20.25 to 25.89.................. 259,940 4.41 23.24 225,000 23.05
27.58 to 34.88.................. 463,132 5.34 28.35 338,998 28.23
37.09 to 42.43.................. 602,800 7.96 41.78 77,000 39.52
42.94 to 49.94.................. 553,430 8.33 43.42 87,550 43.66
57.75 to 67.81.................. 596,100 9.62 58.04
</TABLE>
The weighted-average fair value of stock options granted during 1996 and
1995 were $12.8 million and $8.6 million, respectively. The fair value of each
stock option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in
F-12
<PAGE>
NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED)
1996 and 1995, respectively: risk-free interest rates of 6.4% and 6.6%, expected
life of five years for both years; and expected volatility of 26% and 23%,
determined from historical stock price fluctuations. There is no assurance that
the assumptions used in determining the fair values of stock options will prove
true in the future. The actual value of the options depends on several factors,
including the actual market price of the common stock on the date of exercise.
Changes in any of these factors as well as fluctuations in the market price of
the Company's common stock will cause the actual value of these options to vary
from the theoretical value indicated above.
EMPLOYEE STOCK PURCHASE PLAN
Under the 1996 Employee Stock Purchase Plan, the Company is authorized to
sell up to 2.5 million shares of common stock to its eligible full-time
employees. Under the terms of the Plan, employees can choose each biannual
offering period to have up to 8% of their annual earnings withheld to purchase
the Company's common stock up to a maximum amount of $21,250 per calendar year.
The purchase price of the stock is 85% of the lower of its beginning-of-period
or end-of-period market price. The Company sold 36,975 shares under the Plan in
1996, with approximately 20% of eligible employees participating. The
weighted-average fair value of purchase rights granted in 1996 was $471,800. The
fair value of the stock purchase rights was determined using the same method and
parameters for stock option grants described above, except for the use of an
expected life equal to the purchase window period. As previously noted, the
actual value of purchase rights may vary from the theoretical value determined
using the Black-Scholes option pricing model.
PRO FORMA COMPENSATION COST DISCLOSURE
The Company accounts for its stock-based compensation plans in accordance
with Accounting Principles Board Opinion No. 25, under which no compensation
cost has been recognized for stock option awards or grants of stock purchase
rights. Had compensation cost for these plans been determined consistent with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), the Company's pro forma net income and earnings per
share for 1996 and 1995 would have been $122.8 million and $98.8 million,
respectively, and $2.26 and $1.83, respectively. The actual pro forma impact on
net income and earnings per share may differ from the theoretical valuation
determined using the Black-Scholes option pricing model, due to factors
previously noted. Further, the SFAS 123 method of accounting has not been
applied to options granted prior to January 1, 1995. Therefore, the resulting
pro forma compensation cost may not be representative of that to be expected in
future years.
SHAREHOLDER RIGHTS PLAN
On August 17, 1994, the Company's Board of Directors adopted a Share
Purchase Rights Plan and, in accordance with such Plan, declared a dividend of
one preferred share purchase right for each outstanding share of Company common
stock, payable August 31, 1994 to shareholders of record on that date. The Plan
will cause substantial dilution to a party that attempts to acquire the Company
in a manner or on terms not approved by the Board of Directors, except pursuant
to an offer conditioned on a substantial number of rights being acquired.
The rights, which do not have voting rights and are not entitled to
dividends until such time as they become exercisable, expire in August 2004.
F-13
<PAGE>
NOTE G: TAXES ON INCOME
See Note K for earnings by geographic area.
The components of taxes on income consist of the following provisions
(benefits):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Currently Payable:
U.S. taxes................................................. $ 8,830 $ 29,807 $ 3,974
International taxes........................................ 52,041 46,611 44,740
--------- --------- ---------
60,871 76,418 48,714
--------- --------- ---------
Deferred:
U.S. taxes................................................. 23,272 (7,759) 3,619
International taxes........................................ (366) (701) 3,210
--------- --------- ---------
22,906 (8,460) 6,829
--------- --------- ---------
$ 83,777 $ 67,958 $ 55,543
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred taxes result from the effect of transactions which are recognized
in different periods for financial and tax reporting purposes and relate
primarily to employee benefits, depreciation and other valuation allowances.
The primary components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
--------- --------- ---------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Accrued liabilities.............................. $ 67,831 $ 50,136
Foreign tax credit carryover..................... 30,176
Receivables and inventory........................ 18,016 16,335
Retiree medical benefits......................... 7,944 8,869
Pensions......................................... $ 12,445 $ 4,594
Accelerated depreciation......................... 13,571 15,050
Other items...................................... 2,894 5,146 11,673 9,116
--------- --------- ---------- ---------
$ 96,685 $ 31,162 $ 117,189 $ 28,760
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
The following is a reconciliation of income taxes at the U.S. statutory rate
to the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Tax at U.S. statutory rate................................... $ 73,305 $ 58,729 $ 46,769
State income taxes net of Federal benefit.................... 2,438 2,321 1,869
Amortization of nondeductible goodwill....................... 4,747 4,442 3,151
Foreign earnings taxed at other than U.S. statutory rate..... 60 100 3,794
Other items.................................................. 3,227 2,366 (40)
--------- --------- ---------
$ 83,777 $ 67,958 $ 55,543
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
NOTE G: TAXES ON INCOME (CONTINUED)
The Company made tax payments of $56.0 million, $70.5 million and $48.0
million, in fiscal years ended December 31, 1996, 1995 and 1994, respectively.
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
PENSION BENEFITS
The Company has retirement and pension plans which cover most of its
employees. Most of the Company's U.S. employees are covered by either a defined
contribution plan or by a contributory defined benefit plan.
The Company contributes an amount based on the net earnings of Oilfield
Services in accordance with a defined contribution plan generally available to
employees of Oilfield Services. Under a contributory defined benefit plan
generally available to U.S. employees of Industrial Automation Systems and the
corporate office, the Company makes annual contributions to the extent such
contributions are actuarially determined.
The Company also has defined contribution voluntary savings programs
generally available for U.S. employees, which are intended to qualify under
Section 401(k) of the Internal Revenue Code. These plans are designed to enhance
the retirement programs of participating employees. Under these plans, the
Company matches up to 50% of a certain portion of participants' contributions.
The Company's non-U.S. subsidiaries also have retirement and savings plans
for long-term employees. The pension liabilities and their related costs are
computed in accordance with the laws of the individual nations and appropriate
actuarial practices.
U.S. PENSION PLANS
A summary of the components of net periodic pension cost for the U.S.
defined benefit plans and defined contribution plans for the years ended
December 31, 1996, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Defined benefit plans
Service cost -- benefits earned during the period....... $ 6,507 $ 4,565 $ 3,903
Interest cost on projected benefit obligation........... 10,444 9,890 8,100
Actual return on plan assets............................ (41,727) (58,985) (3,562)
Net amortization and deferral........................... 19,409 37,264 (16,116)
---------- ---------- ----------
Net periodic pension income............................. (5,367) (7,266) (7,675)
Defined contribution plans................................ 35,775 32,835 27,820
---------- ---------- ----------
Net periodic pension cost............................... $ 30,408 $ 25,569 $ 20,145
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Actuarial assumptions for the Company's U.S. defined benefit plans included
an expected long-term rate of return on plan assets of 9 1/4% for fiscal years
1996 and 1995. The weighted-average discount rate used in determining the
actuarial present value of the projected benefit obligation was 7 1/2% at
December 31, 1996 and 1995. The rate of increase in future compensation levels
was 5% at December 31, 1996 and 1995.
F-15
<PAGE>
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the Company's U.S. plans
and amounts recognized in the Company's balance sheet at December 31, 1996 and
1995.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation......................................... $ (130,049) $ (127,451)
----------- -----------
----------- -----------
Accumulated benefit obligation.................................... $ (131,020) $ (128,166)
----------- -----------
----------- -----------
Projected benefit obligation...................................... $ (146,108) $ (141,186)
Fair value of plan assets........................................... 267,956 234,874
Unrecognized net transition asset................................... (16,360) (18,678)
Unrecognized net gain............................................... (91,947) (63,496)
----------- -----------
Prepaid pension cost................................................ $ 13,541 $ 11,514
----------- -----------
----------- -----------
</TABLE>
The above table includes prepaid pension cost presented net of pension
liabilities for plans in which accumulated benefits exceed plan assets. As of
December 31, 1996 and 1995, these liabilities amounted to $18.4 million and
$10.9 million, respectively.
Plan assets consist primarily of equity securities and U.S. Government
securities. The excess of plan assets over the projected benefit obligation at
August 1, 1986 (when the Company adopted SFAS No. 87) and subsequent
unrecognized gains and losses are fully amortized over the average remaining
service period of active employees expected to receive benefits under the plans,
generally 15 years.
NON-U.S. PENSION PLANS
For the principal non-U.S. pension plans located in the United Kingdom, the
weighted-average discount rate used was approximately 8% at December 31, 1996.
The rate of increase in future compensation used was approximately 5%, and the
rate of return on assets was 8 1/2% at December 31, 1996.
Pension costs for non-U.S. plans were not material for any of the periods
presented herein. The actuarial present value of projected benefits at December
31, 1996 was $77.3 million compared with net assets available for benefits of
$95.2 million.
OTHER POSTRETIREMENT BENEFITS
In addition to pension benefits, certain of the Company's U.S. employees are
covered by postretirement health care and life insurance benefit plans. These
benefit plans are unfunded.
The net periodic postretirement benefit costs were not material for any of
the periods presented herein. The accumulated benefit obligation at December 31,
1996 was $21.2 million, of which $15.3 million was attributable to retirees and
$5.9 million to other active plan participants. The accumulated benefit
obligation at December 31, 1995 was $20.6 million, of which $15.8 million was
attributable to retirees and $4.8 million was attributable to active plan
participants.
Actuarial assumptions used to measure the accumulated benefit obligation
include a discount rate of 7 1/2% at December 31, 1996 and 1995. The assumed
health care cost trend rate for fiscal year 1996 was 12.7% and is projected to
decrease over 20 years to 6%, where it is expected to remain thereafter. The
effect of a one-percentage-point increase in the assumed health care cost trend
rate on the service cost and interest cost components of the net periodic
postretirement benefit cost is not material. A one-percentage-
F-16
<PAGE>
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
point increase in the assumed health care cost trend rate on the accumulated
benefit obligation results in an increase of approximately $1.5 million.
NOTE I: LITIGATION, COMMITMENTS AND CONTINGENCIES
The Company is currently, and is from time to time, subject to claims and
suits arising in the ordinary course of its business. In the opinion of the
Company's General Counsel, the ultimate resolution of currently pending
proceedings will not have a material adverse effect on the Company's financial
statements.
The Company has issued or is a party to various guarantees and
letter-of-credit reimbursement agreements totaling $185 million at December 31,
1996, which relate principally to the guarantee of performance on contracts.
NOTE J: RELATED PARTY TRANSACTIONS
Included in accounts receivable are notes due from Company joint ventures of
$15.9 million and $45.1 million at December 31, 1996 and 1995, respectively.
Such amounts are partially collateralized by certain fixed assets of the joint
ventures and bear interest at 10% to 18%. Accounts payable includes $1.6 million
due to joint ventures at December 31, 1996.
Included in geophysical data and other assets are amounts due from related
parties of $1.6 million and $2.1 million at December 31, 1996 and 1995,
respectively.
During 1994, the Company was charged interest expense of $6.3 million on
advances from Litton.
NOTE K: BUSINESS SEGMENT REPORTING
The Company reports its operations in two business segments: the Oilfield
Services segment and the Industrial Automation Systems segment.
The Oilfield Services segment performs seismic surveys, well-logging and
other services to the oil and gas industry. Such other services are primarily
for exploration and development of oilfields. A substantial amount of Oilfield
Services' business is service revenue generating. The Industrial Automation
Systems segment develops and installs integrated manufacturing systems and
automated data collection systems. Industrial Automation Systems' activities are
primarily product sales oriented. Export sales are not material.
Corporate and other amounts include corporate operating costs, net interest
expense and currency transaction gains and losses (see Notes A and J). Assets
classified as corporate and other amounts consist primarily of cash and cash
equivalents and deferred taxes.
F-17
<PAGE>
NOTE K: BUSINESS SEGMENT REPORTING (CONTINUED)
OPERATIONS BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
INDUSTRIAL CORPORATE
YEAR ENDED OILFIELD AUTOMATION AND OTHER
DECEMBER 31, SERVICES SYSTEMS AMOUNTS TOTAL
------------ ------------ ------------ ------------ ------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Sales 1996 $ 1,403 $ 1,180 $ 2,583
1995 1,268 958 2,226
1994 1,182 984 2,166
Operating profit (loss) 1996 173 101 $ (65) 209
1995 158 76 (66) 168
1994 141 81 (89) 133
Capital expenditures 1996 281 23 304
1995 171 25 196
1994 147 21 2 170
Depreciation and amortization
expense 1996 203 27 1 231
1995 180 26 1 207
1994 161 29 190
Identifiable assets at year end 1996 1,642 916 225 2,783
1995 1,469 822 198 2,489
1994 1,458 849 97 2,404
</TABLE>
OPERATIONS BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
CORPORATE
AND
YEAR ENDED UNITED LATIN OTHER OTHER
DECEMBER 31, STATES EUROPE AMERICA NATIONS AMOUNTS TOTAL
------------ ------ ------ ------- ------- ------- ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales 1996 $1,382 $479 $209 $513 $2,583
1995 1,185 402 204 435 2,226
1994 1,202 391 208 365 2,166
Operating profit (loss) 1996 168 33 29 44 $(65) 209
1995 144 14 28 48 (66) 168
1994 152 43 22 5 (89) 133
Identifiable assets at year end 1996 1,630 375 153 400 225 2,783
1995 1,652 257 86 296 198 2,489
1994 1,600 255 90 362 97 2,404
</TABLE>
F-18
<PAGE>
WESTERN ATLAS INC.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
COMMON
PRIMARY FULLY STOCK SALES
GROSS NET EARNINGS DILUTED PRICE
SALES PROFIT EARNINGS PER SHARE PER SHARE HIGH/LOW
---------- ---------- --------- --------- --------- --------------------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER
31, 1996
First Quarter....... $549.5 $124.2 $22.7 $0.42 $0.42 $ 62 $ 49 7/8
Second Quarter...... 626.5 144.1 29.9 0.55 0.55 65 1/2 55 5/8
Third Quarter....... 672.6 160.8 36.5 0.67 0.67 63 3/4 54
Fourth Quarter...... 734.2 165.2 36.6 0.67 0.67 73 1/8 62
YEAR ENDED DECEMBER
31, 1995
First Quarter....... $505.9 $122.1 $19.2 $0.36 $0.36 $ 43 1/4 $ 35 5/8
Second Quarter...... 566.0 131.3 24.3 0.45 0.45 47 5/8 42 1/4
Third Quarter....... 569.4 137.2 29.1 0.54 0.54 52 1/8 42 3/8
Fourth Quarter...... 584.5 132.5 27.2 0.50 0.50 52 1/8 42 1/2
</TABLE>
As of February 28, 1997, there were approximately 22,900 holders of record
of the Company's common stock.
F-19
<PAGE>
WESTERN ATLAS INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Stock Purchase Agreement dated December 7, 1993, among Western Atlas Inc., Western Atlas
International, Inc., Western Research Holdings, Inc., Litton Industries, Inc. and Dresser
Industries, Inc. (Filed as Exhibit 10M to Amendment No. 1, filed with the Commission on December
13, 1993 ("Amendment No. 1") to the Company's Registration Statement on Form 10 No. 1-12430 filed
with the Commission on October 12, 1993 and incorporated herein by reference.)
2.2 Agreement dated as of January 13, 1994, between Western Atlas International, Inc. and Halliburton
Company (Filed as Exhibit 10S to Amendment No. 2, filed with the Commission on January 19, 1994
("Amendment No. 2"), to the Company's Registration Statement on Form 10 No. 1-12430 filed with the
Commission on October 12, 1993 and incorporated herein by reference.)
4.1 Indenture dated as of May 15, 1994 between the Company and The Bank of New York, Trustee, providing
for the issuance of securities in series, filed as exhibit 4.4 to the Company's June 30, 1994
Quarterly Report on Form 10-Q, and incorporated herein by reference.
4.2 Form of 8.55% Debentures due 2024 issued by the Company under such indenture, filed as exhibit 4.5 to
the Company's June 30, 1994 Quarterly Report on Form 10-Q, and incorporated herein by reference.
4.3 Form of 7 7/8% Notes due 2004 issued by the Company under such indenture, filed as exhibit 4.6 to the
Company's June 30, 1994 Quarterly Report on Form 10-Q, and incorporated herein by reference.
4.4 Other instruments defining the rights of holders of other long-term debt of the Company are not filed
as exhibits because the amount of debt authorized under any such instrument does not exceed 10% of
the total assets of the Company and its consolidated subsidiaries. The Company hereby undertakes to
furnish a copy of any such instrument to the Commission upon request.
4.5 Rights Agreement, dated as of August 17, 1994 between Western Atlas Inc. and Chemical Trust Company
of California, as Rights Agent, which includes the form of Certificate of Designations setting
forth the terms of the Series A Junior Participating Preferred Stock, par value $1.00 per share, of
Western Atlas Inc., as Exhibit A; the form of Right Certificate, as Exhibit B; and the Summary of
Rights to Purchase Preferred Shares, as Exhibit C, filed as Exhibit 4 to the Company's August 17,
1994 current report on Form 8-K, and incorporated herein by reference. Pursuant to the Rights
Agreement, printed Right Certificates will not be mailed until as soon as practicable after the
earlier of the tenth day after the public announcement that a person or group has acquired
beneficial ownership of 15% or more of the Common Shares or the tenth business day (or such later
date as may be determined by action of the Board of Directors) after a person commences, or
announces its intention to commence, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 15% of the Common Shares.
</TABLE>
E-1
<PAGE>
WESTERN ATLAS INC.
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.6 $400,000,000 Amended and Restated Credit Agreement dated as of December 22, 1994, among Western Atlas
Inc., the Banks listed therein, and Morgan Guaranty Trust Company of New York as Agent, and Bank of
America National Trust and Savings Association, The Bank of New York, Chemical Bank, CIBC Inc.,
Continental Bank, N.A., NationsBank of Texas, N.A., Union Bank of Switzerland, Los Angeles Branch,
and Wells Fargo Bank, N.A. as Co-Agents, filed as exhibit 4.9 to the Company's 1994 Annual Report
on Form 10-K and incorporated herein by reference.
4.7 Amendment No. 1 to the $400,000,000 Amended and Restated Credit Agreement, dated as of March 20,
1996, filed as Exhibit 4.7 to the Company's June 30, 1996 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.1 Distribution and Indemnity Agreement dated March 17, 1994, between Litton Industries, Inc. and
Western Atlas Inc., filed as Exhibit 10.1 to the Company's March 31, 1994 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.2 Tax Sharing Agreement entered into March 17, 1994, between Litton Industries, Inc., and Western Atlas
Inc., filed as Exhibit 10.2 to the Company's March 31, 1994 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.3 Employee Benefits Agreement dated as of March 17, 1994, between Litton Industries, Inc., and Western
Atlas Inc., filed as Exhibit 10.4 to the Company's March 31, 1994 Quarterly Report on Form 10-Q,
and incorporated herein by reference.
10.4 Intellectual Property Agreement dated March 17, 1994, between Litton Industries, Inc., and Western
Atlas Inc., filed as Exhibit 10.5 to the Company's March 31, 1994 Quarterly Report on Form 10-Q,
and incorporated herein by reference.
10.5 Western Atlas International Agreement made as of March 17, 1994, among Litton Industries, Inc.,
Western Research Holdings, Inc., and Western Atlas Inc., filed as Exhibit 10.8 to the Company's
March 31, 1994 Quarterly Report on Form 10-Q, and incorporated herein by reference.
10.6 Western Tax Agreement made as of March 17, 1994, between Litton Industries, Inc., and Western
Research Holdings, Inc., filed as Exhibit 10.9 to the Company's March 31, 1994 Quarterly Report on
Form 10-Q, and incorporated herein by reference.
10.7 Change in Control Employment Agreements dated as of March 17, 1994, between Western Atlas Inc., and
each of Alton J. Brann, John R. Russell and Norman L. Roberts, filed as Exhibit 10.11 to the
Company's March 31, 1994 Quarterly Report on Form 10-Q, and incorporated herein by reference.
10.8 Change in Control Employment Agreements dated as of November 16, 1995, between Western Atlas Inc.,
and each of Orval F. Brannan and Damir S. Skerl, filed as exhibit 10.20 to the Company's 1995
Annual Report on Form 10-K and incorporated herein by reference.
10.9 Western Atlas Inc. Director Stock Option Plan, filed as Exhibit 10.12 to the Company's March 31, 1994
Quarterly Report on Form 10-Q, and incorporated herein by reference.
10.10 Western Atlas International, Inc. Benefit Restoration Plan (Filed as Exhibit 100 to Amendment No. 2
and incorporated herein by reference.)
10.11 Western Atlas International, Inc., Supplemental Retirement Plan (Filed as Exhibit 10P to Amendment
No. 1 and incorporated herein by reference.)
</TABLE>
E-2
<PAGE>
WESTERN ATLAS INC.
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.12 Supplemental Retirement Agreement between Western Atlas Inc. and Alton J. Brann dated March 17, 1994,
filed as Exhibit 10.16 to the Company's March 31, 1994 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.13 Western Atlas Inc. Restoration Plan (Filed as Exhibit 10U to Amendment No. 2 and incorporated herein
by reference.)
10.14 Resolutions adopted by Board of Directors of Western Atlas Inc. on March 17, 1994, with respect to
Incentive Loan Program and form of promissory note to evidence loans made thereunder, filed as
Exhibit 10.20 to the Company's March 31, 1994 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.15 Western Atlas Inc. Deferred Compensation Plan for Directors, filed as exhibit 10.22 to the Company's
1994 Annual Report on Form 10-K and incorporated herein by reference.
10.16 Western Atlas Inc. Individual Performance Award Plan, filed as exhibit 10.23 to the Company's 1994
Annual Report on Form 10-K and incorporated herein by reference.
10.17 Western Atlas Inc. 1995 Incentive Compensation Plan, filed as exhibit 10.24 to the Company's 1994
Annual Report on Form 10-K and incorporated herein by reference.
10.18 Western Atlas Inc. Supplemental Executive Retirement Plan, filed as exhibit 10.21 to the Company's
1995 Annual Report on Form 10-K and incorporated herein by reference.
10.19 Employment Agreement dated as of December 9, 1995, between Western Atlas Inc., and Clayton A.
Williams, filed as exhibit 10.22 to the Company's 1995 Annual Report on Form 10-K and incorporated
herein by reference.
10.20 Western Atlas Inc. 1993 Stock Incentive Plan, as amended on February 13, 1996, filed as exhibit 10.23
to the Company's 1995 Annual Report on Form 10-K and incorporated herein by reference.
10.21 Consulting Agreement dated as of August 1, 1996, between Western Atlas Inc., and Joseph T. Casey,
filed herewith.
11 Statement of Computation of Earnings per share included herein on page E5.
21 Subsidiaries of the Registrant included herein on page E6.
23 Independent Auditors' Consent included herein on Page E7.
27 Financial Data Schedule (filed only electronically with the Securities and Exchange Commission).
</TABLE>
E-3
<PAGE>
CONSULTING AGREEMENT
--------------------
THIS AGREEMENT, entered into this 1st day of August, 1996, by and between
WESTERN ATLAS INC. (hereinafter "Company"), a Delaware corporation, with its
principal office at 360 North Crescent Drive, Beverly Hills, California 90210,
and JOSEPH T. CASEY (hereinafter "Consultant"), currently residing at 16011
Valley Vista Boulevard, Encino, California 91436.
RECITALS
--------
WHEREAS, Consultant is presently employed by Company as a Vice Chairman and
Chief Financial Officer; and
WHEREAS, Consultant will retire from Company's employment on September
30,1996; and
WHEREAS, Company believes that Consultant can contribute materially to
Company's future success in accomplishing certain projects relating to corporate
strategic development and financial issues; and
WHEREAS, Company desires to engage Consultant as an independent contractor
for Company and Consultant desires to be so retained by Company.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. SERVICES.
(a) Company hereby retains Consultant to render advice and assistance to
Company in connection with corporate strategic development and financial issues.
In this capacity, Consultant is responsible to, and shall act only upon
instructions of, Company through its designated Point of Contact identified
below.
(b) Unless otherwise directed in writing by the Chief Executive Officer
of Company, the designated Point of Contact shall be Alton J. Brann, Chief
Executive of the Company.
(c) Consultant shall make himself available for the rendering of
consulting services at times and places mutually agreed upon. Consultant agrees
to use all reasonable efforts to make himself available to Company when so
requested and to devote the necessary time required for fulfillment of a
specific assignment; provided, however, that Consultant shall not be required to
provide more than fifty (50) days of service during a period of one calendar
year.
(d) Consultant shall serve Company at all times as an independent
contractor, not as an agent or employee of Company. Consultant shall be subject
to Company's direction only as to specific areas of Company's interest with
respect to which Company desires the benefit of Consultant's advice and counsel.
(e) Without the prior consent of Company, Consultant shall not incur any
obligations on behalf of Company.
1
<PAGE>
(f) Neither party hereto shall be liable to the other or in breach hereof
for any failure to perform its obligations hereunder if such failure is due to
causes reasonably beyond the defaulting party's control.
2. DUTIES. Consultant shall devote all reasonable effort to perform
those assignments in the areas identified by Company's Point of Contact. In all
instances, the Point of Contact for Company shall specifically advise Consultant
of those areas to be worked on by Consultant.
3. DURATION. This Agreement shall be for an initial term of one (1)
year beginning on October 1, 1996, and may be renewable as mutually agreed upon
by both parties. If Company desires to renew this Agreement, it shall so notify
Consultant within sixty (60) days of the end of the prior term.
4. COMPENSATION AND PAYMENT.
(a)
(i) For services to be rendered, Consultant shall receive a Minimum
Annual Fee of $150,000.00, payable in monthly installments of $12,500.00 per
month at the end of each month or such other times as mutually agreed upon.
This Minimum Annual Fee shall entitle Company to order and receive during
the initial term of this Agreement, and during any renewal period to which a
Minimum Annual Fee is applicable, fifty (50) calendar days of service by
Consultant. Consultant shall be entitled to the Minimum Annual Fee whether
or not the Company orders fifty (50) calendar days of service. In the event
this Agreement is terminated for other than Consultant's death or breach
hereof, before fifty (50) calendar days of service have been ordered or
performed during any period to which an Annual Minimum Fee is applicable,
Consultant shall nevertheless be entitled to the Minimum Annual Fee and may
bill Company for any amount of the Minimum Annual Fee not previously paid.
However, upon the death of Consultant, Company shall only be liable to pay
compensation at the rate of $3,000.00 per day for those days actually worked
by Consultant, plus reimbursement for expenses incurred as specified in
subparagraphs 4(b) and (c) below; provided, however, that Consultant's
estate shall not be obligated to refund to Company any Minimum Annual Fee
monthly installments previously paid to Consultant. For purposes of this
Agreement, Consultant is permitted to count as days of service one day for
each assignment requiring travel in the continental United States, and up
to two days for each assignment requiring travel to a foreign destination,
in addition to any other days of actual service performed by Consultant
under such an assignment.
(ii) For all services ordered by Company and performed by Consultant
hereunder which exceed fifty (50) calendar days as set forth in paragraph
4(a)(i) above for any period of one (1) year commencing on October 1 in
which the Minimum Annual Fee is applicable, Consultant shall receive as
compensation the sum of $3,000.00 per calendar day for
2
<PAGE>
each day or part thereof in which Consultant provides services and advice
to Company as ordered by Company Point of Contact.
(iii) To the extent this Agreement remains effective during any
period in which a Minimum Annual Fee is not applicable, Consultant shall
receive as compensation the sum of $3,000.00 per calendar day for each day
or part thereof in which Consultant provides services and advice to Company
as ordered by Company Point of Contact.
(b) Company shall also reimburse Consultant for actual expenses incurred
in performing consulting services hereunder in accordance with Company's
standard policies and procedures relating to Company Officers. During the term
of this Agreement and any renewal thereof, Company shall continue to provide
Consultant office space and secretarial services at the Company's offices.
During that period Company shall also continue to maintain the direct phone line
to Consultant's residence, maintain Consultant's residential security system and
provide a facsimile machine at Consultant's residence. Expenses shall be
documented and substantiated with receipts, and Consultant shall submit invoices
for such expenses to Company Point of Contact for approval.
(c) Reimbursement of expenses shall be payable to Consultant within
fifteen (15) days following receipt by Company Point of Contact of an invoice
setting out expenses incurred. With respect to each monthly installment of the
Minimum Annual Fee set forth in paragraph 4(a)(i) above, Consultant shall be
paid within seven (7) days of the end of each month. For services performed by
Consultant which exceed fifty (50) days during any period of one (1) year
commencing on October 1 to which a Minimum Annual Fee is applicable, or for
services rendered during a period when no Minimum Annual Fee is applicable,
Consultant shall be paid within fifteen (15) days following receipt by the
Company Point of Contact of an invoice setting out the number of days worked by
calendar date in the previous month. Unless otherwise requested by Consultant,
all payments shall be by check sent to the address of Consultant first set forth
at the beginning of this Agreement.
5. PRECEDENCE OF COMPANY ASSIGNMENTS. Consultant agrees that he will
use his reasonable best efforts to give precedence to any assignment given
Consultant under this Agreement.
6. CONFIDENTIALITY--COVENANT NOT TO COMPETE.
(a) Because the work for which Consultant has been employed by Company
and the work for which he is being engaged, pursuant to this Agreement, has and
will include knowledge and information including, without limitation, customer,
supplier, sales and pricing information, research and development, business
plans, and organizational and personnel information of a private, confidential
or secret nature, belonging to or entrusted to Company, its affiliates and
subsidiaries, Consultant specifically covenants and agrees to hold such
knowledge and information in confidence, and shall not during or subsequent to
either his employment with Company or his retention as a Consultant to Company,
except as required in the conduct of Company's business or as otherwise first
authorized in
3
<PAGE>
writing by Company, publish, disclose or make use of, or authorize anyone else
to publish, disclose or make use of, any such information or knowledge which in
any way relates to the business of Company. All documents and written
information including, but not limited to, notes, sketches, manuals, blueprints,
notebooks, and records embodying Company business or industrial property, and
such documents and written information obtained by Consultant while employed by
Company, shall be the exclusive property of Company and, to the extent not
delivered to Company upon termination of employment with Company, shall be
delivered by Consultant to Company upon termination of this Agreement.
(b) Consultant agrees that during the term of this Agreement, Consultant
shall not engage in any occupation requiring Consultant's services for a
business which is competitive with the business conducted by Company or any of
its affiliates or subsidiaries, except with the prior written consent of
Company.
(c) During the period of this Agreement and for eighteen (18) months
following termination thereof, Consultant further agrees not to solicit,
interfere with, or endeavor to entice away, any employees or customers of
Company, its affiliates or subsidiaries, or to interfere with the business
relationship between Company, its affiliates, subsidiaries, and any customer,
supplier or other person, firm or corporation without the prior written consent
of Company.
(d) Consultant agrees that, in the event of any violation of the
restrictions referred to in this paragraph 6, Company shall be entitled to
preliminary and permanent injunctive relief, which right shall be cumulative and
in addition to any other rights or remedies to which Company may pursue in law
or equity, including the right to terminate Consultant's right to any further
compensation under this Agreement. Consultant further agrees that, in the event
of any such violation by Consultant, Consultant shall forfeit the right to
receive any unpaid Minimum Annual Fee under this Agreement. Company agrees that
Company shall not have the right to set off against any obligations of Company
to Consultant under any retirement benefit provided by Company any claims of
Company under this Agreement.
7. THIRD PARTY RELATIONSHIPS. Consultant agrees that Company shall not
be obligated to third parties with whom Consultant shall contract without
Company's prior written consent.
8. COMPLIANCE WITH LAWS. Consultant agrees in performance of this
Agreement to fully comply with all applicable foreign and U.S. federal, state
and local laws and regulations.
9. RELEASE.
(a) As a material inducement to Company to enter into this Agreement,
except as provided in subparagraph 9(d) below, Consultant hereby irrevocably and
unconditionally releases, acquits and forever discharges Company and all persons
acting by, through, under or in concert with Company (collectively "Releasees"),
or any of them, from any and all charges, complaints, claims, liabilities,
obligations, promises, agreements, controversies, damages, actions, causes of
actions, suits, rights, demands, costs, losses, debts and expenses (including
attorneys' fees and costs actually incurred) of any nature whatsoever, known or
unknown, suspected or
4
<PAGE>
unsuspected, including, but not limited to, any claims for wages, employment
benefits, employment or reinstatement of employment, or damages arising out of
alleged violations of any contracts, express or implied, any covenant of good
faith and fair dealing, express or implied, any tort, any legal restrictions on
Company's right to terminate employees, or any federal, state, or other
governmental statute, regulation or ordinance, including, without limitation,
Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the Older Workers Benefit Protection Act, the Worker Adjustment and
Retraining Notification Act, and the California Fair Employment and Housing Act,
which Consultant claims to have, own or hold, or which Consultant at any time
heretofore had, owned or held, or claimed to have, own or hold, against each or
any of the Releasees.
(b) Consultant expressly waives any and all rights under Section 1542 of
the Civil Code of the State of California, which provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor."
Consultant expressly and completely waives and releases any right or benefit
which he has or may have under the Section 1542 of the Civil Code of the State
of California pertaining to the matters released herein. In connection with
such waiver and relinquishment, Consultant acknowledges that he is aware that he
may hereafter discover claims presently unknown or unsuspected, or facts in
addition to, or different from, those which he now knows or believes to be true.
(c) Consultant hereby represents and acknowledges that he was allowed at
least twenty-one (21) days between his receipt of this Agreement and his
execution thereof, and that he was able to consider the terms thereof to his
full satisfaction and obtain legal advice, with particular attention to
references to the Age Discrimination in Employment Act and the Older Workers
Benefit Protection Act. Consultant understands that, among other claims, he is
giving up all claims of age discrimination against Company which he might have
under the Age Discrimination in Employment Act or the Older Workers Benefit
Protection Act.
(d) This Agreement is not for the benefit of any third party which is not
a party to this Agreement and shall not be deemed to give any right or remedy to
any third party. "Releasees" described above are considered parties to this
Agreement and are not third parties. This Release does not extend to Company's
obligations under this Agreement, any Stock Option Contracts between Consultant
and Company, any rights of Consultant under Company's 1995 Incentive
Compensation Plan or Individual Performance Award with respect to the period
ending on September 30, 1996, any rights of Consultant arising as an employee of
Company or its predecessor through September 30, 1996, to salary or wages
accrued through September 30, 1996, any other employee benefits, e.g., health
insurance benefits accrued through September 30, 1996, and any rights of
Consultant to indemnification under the Delaware General Corporation Law, the
Restated Articles of Incorporation of the Company and indemnification provided
for employees under California law with respect to any acts or omissions of
Consultant as an employee, officer or director of the Company on and prior to
September 30, 1996.
5
<PAGE>
(e) Consultant represents and agrees that he fully understands his right
to discuss all aspects of this Agreement with his private attorney; that, to the
extent, if any, he desires, he has availed himself of this right; that he has
carefully read and fully understands all of the provisions of this Agreement;
and that he is voluntarily entering into this Agreement without duress or
coercion form any source.
(f) Company covenants and agrees to indemnify Consultant to the maximum
extent authorized by the Delaware General Corporation Law ("DGCL") and the
Restated Articles of Incorporation of Company with respect to Consultant's
performance of services hereunder, and for acts or omissions occurring as an
officer prior to retirement, and to advance to or on behalf of Consultant
expenses as referred to in Section 145(e) of the DGCL in defending any action,
suit or proceeding described therein or any threat thereof, without the need to
give any undertaking as described therein; provided that Consultant acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interest of Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
10. NOTICES. All formal notices and communications hereunder may be sent
by certified mail, return receipt requested, with a copy by ordinary mail, and
shall be deemed to have been given on the day when deposited in the post office
addressed to the other party, provided that either party may from time to time
change the address to which notices to it are to be sent by giving written
notice of such change to the other party.
Any notice to Company shall be made to:
Alton J. Brann
Chairman of the Board and
Chief Executive Officer
Western Atlas Inc.
360 North Crescent Drive
Beverly Hills, California 90210
Any notice to Consultant shall be made to:
Joseph T. Casey
16011 Valley Vista Boulevard
Encino, CA 91436
Any communication delivered in another manner shall be deemed given only
when actually received by the intended recipient.
11. GOVERNING LAW. This Agreement shall be governed by and interpreted
under the laws of the State of Delaware without regard to its principles as to
conflict of laws.
6
<PAGE>
12. ARBITRATION.
(a). Any controversy or claim arising out of or under this Agreement which
is not resolved by agreement of the parties shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), with such arbitration to be conducted in Los Angeles,
California. The party initiating the arbitration shall contemporaneously advise
the other party of that party's notice to the AAA.
(b). The arbitration proceeding shall be conducted in private, with the
attendance limited to the Arbitrator, any representative, attorney or agent of
Company and Consultant, and any witnesses.
(c). Judgment upon the award rendered by the Arbitrator may be rendered in
any court having jurisdiction thereof.
13. WAIVER. The failure of any party to exercise any right under this
Agreement shall not be deemed to be a waiver of such right as it may apply to a
subsequent occurrence.
14. ASSIGNMENT. This Agreement, and any modification thereto, are not
assignable and any assignment of this Agreement, or any modification thereto,
without Company's prior written consent, shall be void.
15. ENTIRE AGREEMENT. The parties hereto agree that this Agreement shall
constitute the entire agreement between the parties regarding the subject matter
of this Agreement; and any prior or subsequent misunderstanding or
representations of any kind between Consultant and Company shall not be binding
on either party, except to the extent specifically set forth herein or
subsequently agreed upon, in writing, by both parties and made a part hereof.
This Agreement supersedes and controls any course of dealing and usage of trade.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
caused it to become effective as of the date set forth at the beginning hereof.
CONSULTANT WESTERN ATLAS INC.
By: By:
------------------------- ----------------------------
Joseph T. Casey Virginia S. Young
Vice President and Secretary
Date: Date:
------------------------- ----------------------------
7
<PAGE>
EXHIBIT 11
WESTERN ATLAS INC.
EARNINGS PER SHARE AND FULLY DILUTED EARNINGS PER SHARE
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED JULY 31,
---------------------------------- DECEMBER 31, ----------------------
1996 1995 1994 1993 1993 1992
---------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Earnings (loss) before cumulative effect of a change in
accounting principle.................................... $ 125,665 $ 99,839 $ 77,741 $ (183,277) $ 83,191 $ 75,224
Cumulative effect of a change in accounting principle.... (10,390)
---------- ---------- ---------- ------------ ---------- ----------
Net earnings available for common shares and common stock
equivalent shares deemed to have a dilutive effect...... $ 125,665 $ 99,839 $ 77,741 $ (183,277) $ 72,801 $ 75,224
---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ------------ ---------- ----------
Primary earnings (loss) per share before cumulative
effect of a change in accounting principle.............. $ 2.31 $ 1.85 $ 1.60 $ (4.02) $ 1.77 $ 1.60
Cumulative effect of a change in accounting principle.... (0.22)
---------- ---------- ---------- ------------ ---------- ----------
Total.................................................... $ 2.31 $ 1.85 $ 1.60 $ (4.02) $ 1.55 $ 1.60
---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ------------ ---------- ----------
SHARES USED IN COMPUTATION
Weighted-average common shares outstanding (net of
treasury shares)........................................ 53,489,717 53,073,886 47,662,182 45,581,912 46,999,140 46,999,140
Common stock equivalents................................. 960,829 819,784 969,880
---------- ---------- ---------- ------------ ---------- ----------
Total common shares and common stock equivalent shares
deemed to have a dilutive effect........................ 54,450,546 53,893,670 48,632,062 45,581,912 46,999,140 46,999,140
---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ------------ ---------- ----------
FULLY DILUTED EARNINGS PER SHARE
Earnings (loss) before cumulative effect of a change in
accounting principle.................................... $ 125,665 $ 99,839 $ 77,741 $ (183,277) $ 83,191 $ 75,224
Cumulative effect of a change in accounting principle.... (10,390)
---------- ---------- ---------- ------------ ---------- ----------
Net earnings available for common shares and common stock
equivalent shares deemed to have a dilutive effect...... $ 125,665 $ 99,839 $ 77,741 $ (183,277) $ 72,801 $ 75,224
---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ------------ ---------- ----------
Fully diluted earnings per share......................... $2.30 $1.85 $1.60 $(4.02) $1.77 $1.60
Cumulative effect of a change in accounting principle.... (0.22)
---------- ---------- ---------- ------------ ---------- ----------
Total.................................................... $2.30 $1.85 $1.60 $(4.02) $1.55 $1.60
---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ------------ ---------- ----------
SHARES USED IN COMPUTATION
Total common shares and common stock equivalent shares
deemed to have a dilutive effect........................ 54,450,456 53,893,670 48,632,062 45,581,912 46,999,140 46,999,140
Additional potentially dilutive securities (equivalent in
common stock):
Stock options........................................ 179,878 147,739
---------- ---------- ---------- ------------ ---------- ----------
Total.................................................... 54,630,424 54,041,409 48,632,062 45,581,912 46,999,140 46,999,140
---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ------------ ---------- ----------
</TABLE>
E-4
<PAGE>
EXHIBIT 21
WESTERN ATLAS INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION
OF PERCENTAGE OF
NAME OF SUBSIDIARY INCORPORATION OWNERSHIP
- --------------------------------------------------------- ------------- -------------
<S> <C> <C>
Intermec Corporation Washington 100
Western Research Holdings, Inc. Delaware 100
Western Atlas International, Inc. Delaware 100
</TABLE>
The Registrant has additional operating subsidiaries which, considered in
the aggregate as a single subsidiary, do not constitute a significant
subsidiary.
All above-listed subsidiaries have been consolidated in the Registrant's
financial statements.
E-5
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-76506 and No. 33-76508 of Western Atlas Inc. on Form S-8 of our report dated
February 13, 1997, appearing in this Annual Report on Form 10-K of Western Atlas
Inc. for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 24, 1997
E-6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 165,763
<SECURITIES> 0
<RECEIVABLES> 755,507
<ALLOWANCES> 0
<INVENTORY> 137,158
<CURRENT-ASSETS> 1,193,935
<PP&E> 824,760
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,782,876
<CURRENT-LIABILITIES> 726,375
<BONDS> 569,977
0
0
<COMMON> 53,692
<OTHER-SE> 1,449,246
<TOTAL-LIABILITY-AND-EQUITY> 2,782,876
<SALES> 0
<TOTAL-REVENUES> 2,582,790
<CGS> 0
<TOTAL-COSTS> 1,788,729
<OTHER-EXPENSES> 546,599
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,919
<INCOME-PRETAX> 209,442
<INCOME-TAX> 83,777
<INCOME-CONTINUING> 125,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,665
<EPS-PRIMARY> 2.31
<EPS-DILUTED> 2.30
</TABLE>
