Item 1. Business of Dresser. - ------ -------------------
Dresser Industries, Inc., together with its subsidiaries (hereinafter "Dresser" or "Registrant" or the "Company") is a global supplier serving the total hydrocarbon energy stream, both upstream and downstream. Registrant's highly engineered and integrated products and technical services are primarily utilized in oil and gas drilling, production and transmission; gas distribution and power generation; gas processing; petroleum refining and marketing; and petrochemical production. Dresser was incorporated under the laws of Delaware in 1956 as a successor to a Pennsylvania corporation organized in 1938 by the consolidation of S. R. Dresser Manufacturing Company and Clark Bros. Company. Both were carrying on businesses founded in 1880. Dresser's executive offices are located at 2001 Ross Avenue, Dallas, Texas 75201 (telephone number 214/740- 6000).
For the fiscal year ended October 31, 1993, consolidated sales and service revenues of Registrant amounted to $4,216 million. A majority of such revenues was derived from the sale of products and services to energy-oriented industries, including oil and gas exploration, drilling and production, gas transmission and distribution; petroleum and chemical processing; production of electricity; and marketing of petroleum products.
Registrant's operations are divided into three industry segments: Oilfield Services; Hydrocarbon Processing Industry; and Engineering Services.
Effective February 1, 1993, Registrant acquired the stock of Bredero Price Holding B.V. and its subsidiary companies ("Bredero Price"), a Netherlands based company that provides pipe coating for both onshore and offshore markets. These operations are included in the Oilfield Services segment.
Effective April 1, 1993, Registrant acquired TK Valve & Manufacturing, Inc. ("TK Valve"), a Texas corporation that supplies ball valves for the oil and gas production and transmission industry. These operations are also included in the Oilfield Services segment.
On December 8, 1993, Registrant announced an agreement to sell its 29.5% interest in Western Atlas International, Inc. to a wholly owned subsidiary of Litton Industries, Inc. The sale closed on January 28,1994.
On January 19, 1994 shareholders of Registrant voted to approve the merger (the "Merger") of BCD Acquisition Corporation ("BCD"), a wholly owned subsidiary of Registrant, into Baroid Corporation ("Baroid"). The Merger was effective January 21, 1994 (the "Effective Date"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated September 7, 1993, among Registrant, BCD and Baroid. Shareholders of Baroid on the Effective Date will receive 37,286,662 million shares of Registrant's Common Stock in exchange for all of the issued and outstanding shares of Baroid. In addition, approximately 3.6 million shares of Registrant's Common Stock are reserved for issuance upon exercise of outstanding warrants to purchase Baroid common stock and for issuance pursuant to certain benefit plans assumed by Registrant. For financial reporting purposes, the Merger will be treated as a pooling of interests combination. Baroid operations include drilling fluids, drilling services and products and offshore services businesses. Further information concerning Baroid is included under the caption "Baroid" and Note R to the Consolidated Financial Statements.
In connection with the Merger, Registrant and Baroid announced December 23, 1993, that they reached an agreement with the Antitrust Division of the Department of Justice (the "Antitrust Division")
pursuant to which Registrant must dispose of either its 64% interest in M-I Drilling Fluids Company or Baroid Drilling Fluids Inc., a wholly-owned subsidiary of Baroid. In addition, Registrant must also dispose of the United States diamond drill bit business of DB Stratabit, Inc. ("DBS") and grant to the purchaser a non-exclusive license to manufacture steel-bodied diamond drill bits worldwide. Divestiture of the drilling fluids business must occur by June 1, 1994 and the diamond drill bit transaction must occur by July 1, 1994.
On January 27, 1994, Registrant announced that it has agreed in principle to sell its interest in M-I Drilling Fluids Company to Smith International, Inc. The completion of the transaction is subject to the negotiation and execution of a definitive agreement, approval from both the Smith and Dresser Boards of Directors, the consent of minority partner Halliburton Company and certain regulatory approvals.
Baroid operations are conducted principally through subsidiaries as follows:
Drilling Fluids - ---------------
Baroid Drilling Fluids Inc. provides specially formulated fluids used in the drilling process to lubricate and cool the drill bit, seal porous well formations, remove rock cuttings and control downhole pressure. Baroid Drilling Fluids Inc. is a worldwide integrated producer and distributor of drilling fluids.
Drilling Services and Products - ------------------------------
Sperry-Sun Drilling Services Inc. ("Sperry-Sun") rents specialized steering and measurement-while-drilling ("MWD") tools and provides directional drilling services for oil and gas wells throughout the world. DBS provides diamond drill bits and coring products and services to the oil and gas industry worldwide.
Offshore Services - -----------------
Sub Sea International Inc. ("Sub Sea") provides diving and underwater engineering services to the oil and gas industry to inspect, construct, maintain and repair offshore drilling rigs and platforms, underwater pipelines and other offshore oil and gas facilities. Unmanned, remotely operated vehicles ("ROVs") are often used to perform these services. Sub Sea designs, manufactures and deploys ROVs. Sub Sea also owns and operates marine equipment which performs pipeline installation, burial and inspection and maintenance and repair work on platforms in offshore oil and gas fields.
The Information by Industry Segment is included in Note P to Consolidated Financial Statements on pages 50-52 and in Management's Discussion and Analysis on pages 12-20. This information includes sales and service revenues, operating profit or loss and identifiable assets attributable to each of Registrant's business segments for each of the past three fiscal years. This information should be read in conjunction with the consolidated financial statements, notes and accountant's report appearing in Item 8 of this report.
OILFIELD SERVICES
Registrant's oilfield services segment supplies products and services essential to oil and gas exploration, drilling and production. These products and services include drilling fluid systems, rock bits, production tools, pipe coating and resource exploration services.
Drilling Fluid Systems and Related Services. M-I Drilling Fluids Company, a Texas general partnership in which Registrant has a 64% interest, provides a variety of drilling fluid systems and markets such fluids and related services for use in connection with drilling oil and gas wells. M-I markets drilling fluid systems and related services through its sales force to major domestic and international oil companies,
independent drilling operators and contractors and foreign government-owned companies. Through its Swaco Geolograph operations, M-I designs, builds and markets a broad line of detection and control equipment used during drilling, often in conjunction with the above described fluid systems, and shakers, desilters, degassers and centrifuges used to remove solids and gas prior to re- use of the fluids. Total net revenues for M-I were $398.6 million in 1993, $384.1 million in 1992 and $443.5 million in 1991.
Pipe Coating. Bredero Price, acquired in February 1993, provides pipe coating services for use both in on-shore and offshore pipelines, primarily in Europe and Asia.
Rock Bits. Registrant produces a full line of oilfield and mining rock bits which are marketed under the Security trademark and are used in drilling oil and gas wells and in the mining industry.
Production Tools. Registrant's Guiberson AVA Division produces and markets a broad line of tools which are sold to the completion, production and workover segments of the oil production industry.
Drilling and well servicing contractors provide the primary market for bits and tools.
Resource Exploration Services. Western Atlas International, Inc. ("Western Atlas"), an unconsolidated affiliate in which Registrant owns 29.5% of the outstanding shares, performs seismic services; integrated reservoir description services; data reduction and interpretation; core and fluids analysis; wireline logging; and provides specialized oilfield services equipment. Primary customers are the energy industry and governments worldwide. On December 8, 1993, Registrant announced it will sell its interest in Western Atlas to an affiliate of Litton Industries, Inc. for $558 million.
HYDROCARBON PROCESSING INDUSTRY
This segment designs, manufactures and markets highly engineered products and systems for energy producers, transporters, processors, distributors and users throughout the world. Products and systems of this segment include compressors, turbines, electrical generator systems, pumps, power systems, measurement and control devices, and gasoline dispensing systems.
Compressors. Dresser-Rand Company, a New York general partnership in which Registrant has a 51% interest, manufactures industrial and aircraft derivative gas turbines, centrifugal compressors, axial compressors, reciprocating compressors, axial expanders, single and multi-stage steam turbines, and electric motors and generators. Gas turbines, motors, and steam turbines are used to drive compressors, generators and pumps with applications in many markets including: cogeneration, power generation, natural gas gathering, processing, transmission and distribution, natural gas injection, petrochemical plants, and refineries. An extensive line of centrifugal compressors is used in a multitude of services including: gas injection, gas lift, gas processing, transmission and distribution, urea and ammonia production, ethylene and liquified natural gas (LNG) production, coal gasification, refinery services and other petrochemical processes. Axial compressors are used in coal gasification, blast furnace, nitric acid and refinery services. Axial expanders are used in power recovery applications, nitric acid plants and refinery processes.
Dresser-Rand also manufactures and supplies water cooled reciprocating compressors. Separate compressor lines are manufactured and marketed for the process, enhanced oil recovery, natural gas, and industrial air commercial markets and special shipboard air compressors for the Navy.
Dresser-Rand's single and multi-stage mechanical drive steam turbines are used to power pumps, fans, blowers, reciprocating compressors and centrifugal compressors; steam turbine generator sets provide electric power for co- generation and alternate fuel markets; electric motors (synchronous and induction type);
and electric generators are used with reciprocating engine, hydroturbine, steam turbine and gas turbine drivers. Dresser-Rand also manufactures and markets cryogenic expanders, combined with single stage compressors or generators, to recover energy from production of low temperature process gases used in air separation hydrocarbon facilities. The primary markets for such products are petroleum, petrochemical, chemical, paper and sugar industries, and engineering firms which design plants for such industries.
The Consolidated statement of earnings for 1993 includes the $1,118.1 million of Dresser-Rand's sales revenues. Sales revenues for Dresser-Rand were not included in the consolidated statements of earnings for 1992 and 1991 while it was only 50% owned by Registrant.
Pumps. Effective October 1, 1992, Registrant's Pump operations (excepting Mono Pump and Peabody) were combined with the Pump operations of Ingersoll-Rand Company into Ingersoll-Dresser Pump Company, a Delaware general partnership in which Registrant has a 49% interest. Ingersoll-Rand Company holds a 51% interest in Ingersoll-Dresser Pump Company. Ingersoll-Dresser Pump Company designs, develops, manufactures and markets centrifugal pumps which are used for critical applications in energy processing and petrochemical markets as well as in utility and municipal water and waste water markets. Ingersoll-Dresser Pump also manufactures heavy duty process pumps, submersible pumps, vertical turbine pumps, standard end-suction pumps, horizontal split-case and multistage pumps designed for general industrial, pipeline and high pressure services. Such pumps have a wide variety of applications in oil and gas production and refining, chemical and petrochemical processing, marine, sugar, agricultural, mining and mineral processing, utilities and general industry. Registrant's consolidated statements of earnings include net revenues for the Pump businesses transferred to Ingersoll-Dresser Pump Company of $517.5 million for eleven months for 1992 and $553.1 million for 1991.
Registrant's Mono Pump operations produce progressing cavity pumps for handling viscous fluids.
Power Systems. Registrant's Waukesha Engine Division produces heavy-duty reciprocating gas and diesel engines and packaged engine driven generator sets.
Roots, the developer of the rotary lobe blower, offers a full line of low to medium pressure air and gas handling blowers along with vacuum pumps. These include rotary lobe and screw-type positive displacement products and several turbomachinery (centrifugal) lines. The primary markets served by Roots are waste water treatment, pneumatic conveying, paper, chemical and general industrial.
Control Products. Control products encompass an assortment of sensing, indicating, transducing, transmitting and controlling devices. Instruments, valves and meters sold under registered trademarks - ASHCROFT, CONSOLIDATED, DEWRANCE, DURAGAUGE, DURATEMP, DURATRAN, EBRO, HANCOCK, HEISE, MASONEILAN and WILLY - measure and control pressure, temperature, level and flow of liquids and gases. These products are sold primarily to the process, power and gas distribution industries. Specialty products include gas meters, pipe fittings, couplings and repair devices for sale to the gas and water utilities and other industrial markets under the registered DRESSER trademark.
Marketing Systems. Registrant manufactures and sells a variety of gasoline and diesel fuel dispensing systems and automated control systems under the Wayne trade name.
ENGINEERING SERVICES
Registrant's wholly owned subsidiary, The M. W. Kellogg Company, provides engineering, construction and related services, primarily to the hydrocarbon process industries. Sales and service revenues
for The M.W. Kellogg Company were $1,209.3 million, $1,558.8 million, and $1,594.2 million for 1993, 1992 and 1991 respectively.
BACKLOG
The backlog of unfilled orders at October 31, 1993, 1992 and 1991 is included in Management's Discussion and Analysis on page 18.
SALES AND DISTRIBUTION
Registrant's products and services are marketed through various channels. In the United States, sales are generally made through a group or division sales organization or through independent distributors. Sales in Canada are usually effected through a division of a Canadian subsidiary. Sales in other countries are made directly by a United States division or subsidiary, through foreign subsidiaries or affiliates, and through distributor arrangements or with the assistance of independent sales agents.
COMPETITION AND ECONOMIC CONDITIONS
Dresser's products are sold in highly competitive markets, and its sales and earnings can be affected by changes in competitive prices, fluctuations in the level of activity in major markets, or general economic conditions.
FOREIGN OPERATIONS
Registrant maintains manufacturing, marketing or service facilities serving more than 75 foreign countries. Global distribution of products and services is accomplished through more than 290 subsidiary and affiliated companies engaged in various production, manufacturing, service, and marketing functions, and through foreign representatives serving the principal market areas of the world.
The Information by Geographic Area is included in Note P to Consolidated Financial Statements on pages 50-52.
Registrant's foreign operations are subject to the usual risks which may affect such operations. Such risks include unsettled political conditions in certain areas, exposure to possible expropriation or other governmental actions, operating in highly inflationary environments, and exchange control and currency problems.
RESEARCH, DEVELOPMENT AND PATENTS
Registrant's divisions, subsidiaries and affiliates conduct research and development activities in laboratories and test facilities within their particular fields for the purposes of improving existing products and developing new ones to meet the needs of their customers. In addition, research and development programs are directed toward development of new products and services for diversification or expansion. For the fiscal years ended October 31, 1993, 1992 and 1991, Registrant spent $81.5 million, $11 million and $9.4 million, respectively, for research and development activities.
At December 1, 1993, Registrant and its subsidiaries and affiliates owned 1,536 patents and had pending 503 patent applications, covering various products and processes. They also were licensed under patents owned by others. Registrant does not consider that any patent or group of patents relating to a
particular product or process is of material importance when judged from the standpoint of Registrant's total business.
EMPLOYEES
As of October 31, 1993, Registrant had approximately 15,700 employees in the United States (a decrease of approximately 12% from October 31, 1992), of whom approximately 5,500 were members of 10 unions represented by 21 bargaining units. As of the same date, Registrant had approximately 10,200 employees at foreign locations of whom approximately 4,500 were members of unions. During fiscal 1993, Registrant experienced one strike which lasted for 44 days. Relations between Registrant and its employees are generally considered to be satisfactory.
EXECUTIVE OFFICERS OF REGISTRANT
The names and ages of all executive officers of Registrant, all positions and offices with Registrant presently held by each person named and their business experience during the last five years are stated below:
Principal Occupation During --------------------------- Name, Age and Position Past Five Years ---------------------- ---------------
OFFICER EMPLOYED BY JOINT VENTURE COMPANY
All officers are elected annually by the Board of Directors at a meeting following the Annual Meeting of Shareholders. The officers serve at the pleasure of the Board of Directors and can be removed at any time by the Board.
Item 2.
Item 2. Properties - ------ ----------
Registrant, together with its subsidiaries and affiliates, has more than 65 manufacturing plants, ranging in size from approximately 3,000 square feet to in excess of 980,000 square feet and totaling more than 10.8 million square feet, located in the United States, Canada, and various other foreign countries. The majority of the manufacturing sites are owned in fee. In addition, sales offices, warehouses, service centers and stock points are maintained, almost all in leased space, in the United States, Canada and certain other foreign countries. The properties are believed to be generally well maintained, adequate for the purposes for which they are used, and capable of supporting a higher level of market demand.
During fiscal 1993 M-I Drilling Fluids Company also had 24 grinding and/or other facilities for beneficiating mineral ores, containing approximately 287 acres in plant site property.
The following are the locations of the principal facilities of Registrant and its majority owned joint ventures for each industry segment as of October 31, 1993.
- ----------------
(1) all or a portion of these facilities are leased.
M-I Drilling Fluids Company, a partnership in which Registrant has a 64% interest, has mineral rights to proven and prospective reserves of barite, bentonite and lignite. Such rights included leaseholds and mining claims and property owned in fee. The principal deposit of barite is located in Nevada, with deposits also located in Ireland and Scotland. Reserves of bentonite are located in Wyoming and Greece. Based on the number of tons of each of the above minerals mined in fiscal 1993, M-I Drilling Fluids Company estimates its reserves, which it considers to be proven, to be sufficient for operation for a period of 15 years or more.
Registrant has an undivided one-half interest in lead deposits located in Missouri. The lead ore is mined and concentrated under contract with Cominco American Incorporated, a U. S. subsidiary of Cominco Ltd., a Canadian company, as Operator. Based on recent assessment by the Operator, measured and indicative reserves total approximately 2.75 million tons grading 8.32% lead, 1.21% zinc and 0.27% copper. A reduced
production, remnant mining phase began in 1993. Reduced grade of ore produced in recent months and the depressed price of lead and zinc have combined to limit projected mine life to the second half of 1994.
Item 3.
Item 3. Legal Proceedings. - ------ -----------------
The Company is involved in various legal proceedings. Information called for by this Item is included in Note L to the Consolidated Financial Statements on pages 41-44.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. - ------ ---------------------------------------------------
No matters were submitted to a vote of the Company's security holders during the quarter ended October 31, 1993.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder - ------ ----------------------------------------------------------------- Matters. -------
Registrant is listed on the New York and Pacific Stock Exchanges. The stock symbol is DI. The quarterly market prices for Registrant's Common Stock, traded principally on the New York Stock Exchange, were as follows for the two most recent fiscal years:
Dividends on Registrant's Common Stock are declared by the Board of Directors and normally paid to shareholders as of the record date during the third week of March, June, September and December.
The cash dividends paid per share of common stock for the first quarter of fiscal 1993 and for the 1993 and 1992 fiscal years were:
As of January 25, 1994, there were approximately 25,700 shareholders of the Registrant's Common Stock.
Item 6.
Item 6. Selected Consolidated Financial Data - ------- ------------------------------------
The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto included in this report.
Item 7.
Item 7. Management's Discussion and Analysis of Financial - ------- ------------------------------------------------- Condition and Results of Operations -----------------------------------
Results of Operations 1993 Compared to 1992 - -------------------------------------------
Earnings from continuing operations in 1993 increased $57 million to $127 million. The increase is attributable to the acquisition of Bredero Price, improved earnings in Oilfield Services and Engineering Services operations and changes implemented to reduce costs associated with retiree medical benefit plans.
Revenues increased from $3.8 billion to $4.2 billion. The consolidation of Dresser-Rand's financial statements in 1993 was the primary reason for the increase. In 1992, Dresser-Rand was accounted for using the equity method.
Earnings from operations were $219 million in 1993 compared to $126 million in 1992. Both 1993 ($74.1 million) and 1992 ($70.0 million) included Special Charges. The 1993 charge was primarily due to the settlement of the Parker & Parsley litigation ($65 million) while in 1992 the charges were mainly attributable to restructuring, particularly the Ingersoll-Dresser Pump joint venture. Excluding the Special Charges, Earnings from Operations were $293 million in 1993 and $196 million in 1992. In 1993, Earnings from Operations included 100% of Dresser-Rand's results, which added $46 million compared to 1992. In addition, the Company and its joint ventures amended retiree medical benefit plans, thereby reducing the related 1993 expense by some $26 million compared to 1992. Also during 1993, Ingersoll-Dresser Pump Company
Results of Operations 1993 Compared to 1992 (Continued) - -------------------------------------------------------
sold the inventory the Company contributed to the joint venture, allowing the release of the associated LIFO inventory reserves of $21 million. This gain is reflected as a component of the earnings from the joint venture. See the Industry Segment Analysis beginning on page 15 for a discussion of the results for each segment.
Other income increased from $18 million in 1992 to $32 million in 1993 because of a $13 million gain resulting from a plan change in retiree medical benefits for younger employees. Reduced interest expense resulting from the redemption of sinking fund debentures in 1992 was offset by interest on debt incurred to finance acquisitions.
The effective tax rate declined to 33% in 1993 from 45% in 1992 as a result of reduced losses in foreign countries with no tax benefit, increased utilization of foreign tax credits and a $9 million benefit associated with a change in the tax rate from 34% to 35%.
The consolidation of Dresser-Rand in 1993 resulted in an increase in minority interest representing our partner's 49% share of Dresser-Rand's earnings.
Results of Operations 1992 Compared to 1991 - -------------------------------------------
Earnings from continuing operations were $70 million in 1992, down from $132 million in 1991. The decrease reflected the after-tax special charge of $50 million for restructuring and the increased expense for retiree medical benefits of $21 million net of tax.
Revenues declined to $3.8 billion from $4.0 billion in 1991, with slightly lower revenues in each segment accounting for the reduction.
Earnings from operations before Special Charges in 1992 of $196 million were $51 million lower than the $247 million recorded in 1991. The change in accounting for retiree medical benefits in 1992 accounted for $32 million of the reduction. See the Industry Segment Analysis beginning on page 15 for a discussion of the results for each segment.
Other income amounted to $18 million in 1992 versus net expense of $2.3 million in 1991. The redemption of high rate sinking fund debentures reduced interest expense by $8 million. Also in 1992, the Company sold a partial interest in M. W. Kellogg's United Kingdom subsidiary resulting in a $15.5 million gain.
The effective tax rate increased to 45% in 1992 from 38% in 1991. A reduction in utilization of foreign tax credits and increased foreign losses with no corresponding tax benefit caused the increase.
Results of Operations 1992 Compared to 1991 (Continued) - -------------------------------------------------------
In 1992, the Company spun-off its industrial products operations (INDRESCO) and made the decision to dispose of its Environmental Products business. The results of these operations are reflected as Discontinued Operations in the 1992 and 1991 financial statements.
In 1992, the Company adopted two new accounting standards relating to retiree medical benefits and income taxes. The combined net effect of these changes was a one time non-cash charge of $394 million or $2.91 per share, which is reflected as the Cumulative Effect of Accounting Changes in the 1992 Statement of Earnings.
Legal and Environmental Matters - -------------------------------
During 1993, the Company settled litigation involving Parker & Parsley for a cash payment of $58 million. See Note L - Commitments and Contingencies for further discussion of this settlement and other pending legal matters. Note L also includes disclosure of environmental clean-up situations in which the Company is involved.
Cash Flow and Financial Position - --------------------------------
Dresser's overall financial position remains strong at October 31, 1993. During 1993, the Company redeemed the last of its 11-3/4% debentures and issued $300 million of 6.25% Notes due 2000. The ratio of debt to total capitalization was 36%, which is consistent with the Company's objective of 35% debt and 65% equity. Available cash and short-term credit lines, combined with cash provided by operations, should be adequate to finance known requirements.
Cash provided by operations before payments associated with the Parker & Parsley settlement of $58 million was adequate to cover capital expenditures of $140 million and dividends of $82 million. The proceeds from the $300 million of 6.25% Notes issued during the year, together with $200 million of commercial paper borrowings, was used to finance the acquisition of Bredero Price and TK Valve ($267 million), repay long-term debt ($80 million) and pay the settlement of the Parker & Parsley litigation ($58 million).
Capital expenditures increased in 1993 by $51 million to $140 million. Most of the increase was due to the consolidation of Dresser-Rand in 1993. Dresser- Rand's capital expenditures amounted to $58 million in 1993 compared to the Pump Operations capital expenditures of $13 million in 1992. Capital expenditures planned for 1994 approximate $140 million.
Industry Segment Analysis - -------------------------
See details of financial information by Industry Segment on pages 18 to 20.
Oilfield Services Segment - -------------------------
Consolidated revenues in 1993 included $209 million from the operations of Bredero Price and TK Valve, which were acquired in early 1993. Excluding revenues of the acquired operations, segment revenues in 1993 were essentially unchanged from 1992. The favorable impact of higher North American drilling activity on the sales volume of M-I Drilling Fluids (owned 64% by Dresser), Guiberson AVA Division and Security Division was substantially offset by the impact of lower international drilling activity.
Excluding the operating profit of Bredero Price and TK Valve, 1993 operating profit of consolidated operations increased $16 million or 93% over 1992. Higher M-I Drilling Fluids profit reflected higher domestic sales volume and the benefit of operating cost reductions for a full year. Operating profit improved in both the Security and Guiberson AVA divisions.
Oilfield Services results in 1992 were significantly affected by lower U.S. drilling activity compared to 1991. Consolidated revenues were down 13% from 1991, resulting in operating profit $45 million under 1991. Operating expense reductions made during 1992 only partly offset the impact of lower sales volume in M-I Drilling Fluids, Security Division and Guiberson AVA Division. In 1992, special charges of $17 million were recorded for restructuring to reduce consolidated oilfield services operations to a size appropriate to the lower level of domestic exploration, drilling and production activity.
Western Atlas International, owned 29.5% by Dresser, benefited from better North American activity and continuing expanded international markets in 1993. On 10% lower revenues, the Company's share of operating profit increased to $39 million or 11% from 1992, which showed a similar increase over 1991. The Company has agreed to sell its interest in Western Atlas International to the majority partner in early 1994 for $558 million.
The merger of Dresser with Baroid, a worldwide supplier of oilfield services and equipment with sales of $850 million, will significantly expand the Company's range of products and services to Oilfield customers. See Note R to Consolidated Financial Statements for information which gives effect to the merger.
Industry Segment Analysis (Continued) - -------------------------------------
Hydrocarbon Processing Industry Segment - ---------------------------------------
Changes in ownership and the formation of a major joint venture have significantly affected the comparison of revenues and operating profit in the Hydrocarbon Processing Segment. Dresser increased its ownership in Dresser-Rand Company from 50% to 51% as of October 1, 1992. As a result, Dresser-Rand is included as a consolidated subsidiary in 1993 and as a major joint venture in 1992 and 1991. Ingersoll-Dresser Pump Company was formed as of October 1, 1992 with Dresser owning 49%. Ingersoll-Dresser Pump is included as a major joint venture in 1993. Dresser's Pump business, which was transferred to Ingersoll- Dresser Pump, is included as consolidated Pump Operations in 1992 and 1991.
Revenues for 1993 of consolidated operations other than Dresser-Rand and Pump Operations decreased 4% from 1992. A 12% decrease in sales in the Valve and Controls Division was primarily due to depressed market conditions in key international markets and to the strength of the dollar compared to other currencies.
Operating profit of the consolidated operations other than Dresser-Rand and Pump Operations of $128 million was 2% under 1992. A strong performance in 1993 by the Wayne Division with earnings up $15 million from 1992 offset a 23% decline for Valve and Controls. Earnings in international markets, principally Europe, were down in 1993 compared to the prior year. Also, inventory reductions in 1992, which resulted in a favorable LIFO impact of $9 million, did not recur in 1993.
In 1992, consolidated sales excluding Dresser-Rand and Pump Operations were down slightly from 1991 with no significant changes in any one division. Earnings in 1992 increased $13 million compared to 1991. Strong earnings for the Wayne Division, improvements in the Instrument and Valve and Controls divisions and the LIFO benefit referred to above were the primary reasons for the increase.
Dresser-Rand, reported as a consolidated operation in 1993, had sales of $1.1 billion, which were 13% lower than in 1992. In 1992, sales which were not included in Dresser's consolidated revenues increased from $1.2 billion in 1991 to $1.3 billion. Operating profit for each of the last three years was $90 million in 1993, $86 million in 1992 and $94 million in 1991. Expenses associated with the change in accounting for retiree medical costs reduced earnings by $14 million and $20 million in 1993 and 1992, respectively, compared to 1991.
Industry Segment Analysis (Continued) - -------------------------------------
Hydrocarbon Processing Industry Segment (Continued) - ---------------------------------------------------
Ingersoll-Dresser Pump Company operated at break-even in 1993, as the joint venture with Ingersoll-Rand rationalized the operations of the two former separate businesses. Also a significant portion of the joint venture's market is the European Community, which was in the midst of a recession in 1993. Operating profit for 1993 consists primarily of a $21 million release of LIFO inventory reserves related to inventory contributed to the joint venture by the Company, which was sold to third parties during the year. The Company's separate Pump Operations contributed earnings of $32 million and $36 million in 1992 and 1991, respectively.
Special charges of $7 million were recorded in 1993 related to plant closing and other restructuring in the Wayne and Valve and Control operations, primarily in Europe, and similar actions at Dresser-Rand. In 1992, special charges related to the restructuring of Pump Operations ($35 million) and restructuring and special warranty claims in other Hydrocarbon Processing operations ($14 million).
Engineering Services Segment - ----------------------------
Revenues in 1993 of $1.2 billion decreased 22% from 1992. In 1992, revenues were 2% under 1991. The decline in revenues reflected reduced hydrocarbon processing activity in certain international areas and slow growth and project delays in the U.S. In 1991, revenues included a $22 million payment received by The M. W. Kellogg Company for its retained interest in a foreign project.
Engineering Services operating profit in 1993 increased $8 million from 1992; in 1992 operating profit was $15 million over 1991. In 1992, M. W. Kellogg realized a $15 million gain from the sale of a partial interest in its U.K. subsidiary. Operating profit in 1991 included the $22 million in revenue for the retained interest in a foreign project. Increased operating profit on lower revenues is due to enhanced gross margins on large international projects involving technologies in which M. W. Kellogg possesses expertise.
Backlog of Unfilled Orders - --------------------------
INDUSTRY SEGMENT FINANCIAL INFORMATION - COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS
The following financial information by Industry Segment for the years ended October 31, 1993, 1992 and 1991 is an integral part of Note P to Consolidated Financial Statements.
The Company increased its ownership in Dresser-Rand Company from 50% to 51% as of October 1, 1992. As a result, Dresser-Rand is included as a consolidated subsidiary in 1993 and as a major joint venture operation in 1992 and 1991. Ingersoll-Dresser Pump Company was formed as of October 1, 1992 with the Company owning 49%. Ingersoll-Dresser is included as a major joint venture investment in 1993. The Company's Pump business that was transferred to Ingersoll-Dresser is included as Pump Operations in 1992 and 1991.
INDUSTRY SEGMENT FINANCIAL INFORMATION - COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS (CONTINUED)
INDUSTRY SEGMENT FINANCIAL INFORMATION - COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS (CONTINUED)
Item 8.
Item 8. Financial Statements and Supplementary Data - ------- -------------------------------------------
Report of Management
The consolidated financial statements of Dresser Industries, Inc. have been prepared by management and have been audited by independent accountants. The management of the Company is responsible for the financial information and representations contained in the financial statements and other sections of this Annual Report on Form 10-K. Management believes that the financial statements have been prepared in conformity with generally accepted accounting principles appropriate under the circumstances to reflect, in all material respects, the substance of events and transactions that should be included. In preparing the financial statements, it is necessary that management make informed estimates and judgments based on currently available information of the effects of certain events and transactions.
In meeting its responsibility for the reliability of the financial statements, management depends on the Company's internal control structure. This internal control structure is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and are properly recorded. In designing control procedures, management recognizes that errors or irregularities may occur. Also, estimates and judgments are required to assess and balance the relative cost and expected benefits of the controls. Management believes that the Company's internal control structure provides reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned functions.
The Board of Directors pursues its oversight role for the accompanying financial statements through its Audit and Finance Committee, which is composed solely of directors who are not officers or employees of the Company. The Committee meets with management and the internal auditors to review the work of each and to monitor the discharge by each of its responsibilities. The Committee also meets with the independent accountants and internal auditors, without management present, to discuss internal control structure, auditing and financial reporting matters.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Dresser Industries, Inc.
In our opinion, the consolidated financial statements listed in the index appearing under Item 14(A)(1) and (2) and 14(D) on page present fairly, in all material respects, the financial position of Dresser Industries, Inc. and its subsidiaries at October 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes A, G and M to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions, and Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, both effective as of November 1, 1991.
/s/ Price Waterhouse
PRICE WATERHOUSE
Dallas, Texas December 9, 1993
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
See Accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
See Accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
See Accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
See Accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
See Accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Significant Accounting Policies - -------------------------------------------------------------------------------
Consolidation - -------------
All majority-owned subsidiaries are consolidated and all material intercompany accounts and transactions are eliminated. Investments in 20% to 50% owned partnerships and affiliates are reported at cost adjusted for the Company's equity in undistributed earnings.
Revenue Recognition - -------------------
Revenues and earnings from long-term construction contracts are recognized on the percentage-of-completion method, measured generally on a cost incurred basis. Estimated contract costs include allowances for completion risks, process and schedule guarantees and warranties that generally are not finally determinable until the latter stages of a contract. Estimated contract earnings are reviewed and revised periodically as the work progresses. The cumulative effect of any estimated loss is charged against earnings in the period in which such losses are identified. Revenues from sale of products other than from long-term construction contracts are recorded when the products are shipped.
Inventories - -----------
Inventories are valued at the lower of cost or market. The cost of most U.S. inventories produced by divisions of the Parent Company and wholly-owned subsidiaries is determined using the last-in, first-out (LIFO) method. The valuation of inventories not on LIFO, principally foreign inventories and inventories of consolidated joint venture companies, is determined using either the first-in, first-out (FIFO) or average cost method.
Property, Plant and Equipment - -----------------------------
Fixed assets are depreciated over the estimated service life. Most assets are depreciated on a straight-line basis. Certain assets with service lives of more than 10 years are depreciated on accelerated methods. Accelerated depreciation methods are also used for tax purposes, wherever permitted. Due to the large number of asset classes, it is not practicable to state the rates used in computing the provisions for depreciation. Maintenance and repairs are expensed as incurred. Betterments are capitalized.
Intangibles - -----------
The difference between purchase price and fair values at date of acquisition of net assets of businesses acquired is amortized on a straight-line basis over the estimated periods benefited, not exceeding 40 years.
Note A - Summary of Significant Accounting Policies (Continued) - --------------------------------------------------- ---------------------------
Postretirement Benefits - -----------------------
Effective November 1, 1991, postretirement benefits other than pensions are accounted for in accordance with Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions (SFAS 106). Under SFAS 106, the Company accrues the estimated cost of these benefits during the employees' active service period. The Company previously expensed the cost of these benefits as claims and premiums were paid. See Note M for additional information.
Income Taxes - ------------
Effective November 1, 1991, income taxes are accounted for in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS 109, the Company accounts for income taxes by the asset and liability method. Previously the Company deferred the tax effects of timing differences between financial reporting and taxable income. The asset and liability method requires the recognition of deferred tax assets and liabilities for the future tax consequences of temporary differences between the financial statement basis and the tax basis of assets and liabilities.
Taxes on the minority interest's share of domestic partnership earnings of consolidated entities are provided at the Company's effective domestic tax rate. See Note G for additional information.
Translation of Foreign Currencies - ---------------------------------
For subsidiaries in countries which do not have highly inflationary economies, asset and liability accounts are translated at rates in effect at the balance sheet date, and revenue and expense accounts are translated at rates approximating the actual rates on the dates of the transactions. Translation adjustments are included as a separate component of shareholders' investment.
For subsidiaries in countries with highly inflationary economies, inventories, cost of sales, property, plant and equipment and related depreciation are translated at historical rates. Other asset and liability accounts are translated at rates in effect at the balance sheet date, and revenues and expenses excluding cost of sales and depreciation are translated at rates approximating the actual rates on the dates of the transactions. Translation adjustments are reflected in the statement of earnings.
Financial Instruments - Fair Value and Off-Balance-Sheet Risk - -------------------------------------------------------------
The carrying amounts of cash and cash equivalents, short-term investments and accounts and notes payable approximate fair value because of the short maturity of those instruments. The carrying amount of long-term debt is approximately equal to fair value based on market information.
Note A - Summary of Significant Accounting Policies (Continued) - --------------------------------------------------- ---------------------------
Financial Instruments - Fair Value and Off-Balance-Sheet Risk (Continued) - -------------------------------------------------------------------------
The Company has cash and cash equivalents held in currencies other than local currencies, and receivables and payables to be settled in currencies other than local currencies. These financial assets and liabilities create exposure to potential foreign exchange gains and losses arising on future changes in currency exchange rates. The Company protects against such risks by entering into forward exchange contracts. The Company does not engage in speculation, nor does the Company typically hedge nontransaction-related balance sheet exposure. At October 31, 1993, the Company had $237 million of forward exchange contracts outstanding, 98% of which were in European currencies. The fair value of foreign exchange contracts is based on year-end quoted rates for contracts with similar terms and maturity dates. However, such fair values are offset by gains and losses on the assets and liabilities hedged by such contracts, so that there is no significant difference between the recorded value and fair value of the Company's net foreign exchange position.
Reclassification of Prior Years - -------------------------------
Prior years' financial statements have been reclassified to conform to 1993 presentations.
Note B - Cash Flow Statement - -------------------------------------------------------------------------------
Cash and cash equivalents include cash on hand and investments with maturities of three months or less at time of original purchase. Supplemental information about cash payments and significant noncash investing and financing activities is as follows (in millions):
Note C - Major Unconsolidated Joint Ventures - -------------------------------------------------------------------------------
Ingersoll-Dresser Pump Company
Effective October 1, 1992, the Company and Ingersoll-Rand Company formed a joint venture comprised of the pump businesses of the two companies including all standard and engineered pump operations except the Company's Mono Pump subsidiaries. The new company, Ingersoll-Dresser Pump Company, is a general partnership owned 49% by the Company and 51% by Ingersoll-Rand Company. The Company contributed approximately $151 million of net assets, including reserves for restructuring and retiree benefits other than pensions, in exchange for its ownership interest. The operating results of the contributed Dresser Pump business prior to October 1, 1992 are fully consolidated in the Company's statement of earnings. The Company's share of operating results for the month of October, 1992 and all of 1993 are included in earnings from major joint ventures.
Summarized financial information is as follows (in millions):
The Company's share of pre-tax earnings includes $21.3 million from the release of LIFO inventory valuation reserves related to inventory contributed to the joint venture by the Company and sold by Ingersoll-Dresser Pump Company to third parties.
Note C - Major Unconsolidated Joint Ventures (Continued) - -------------------------------------------------------------------------------
In connection with the Ingersoll-Dresser Pump Company joint venture agreement, the Company granted to Ingersoll-Rand Company an option to purchase 51% of the stock of Mono Group Limited for a price equal to 51% of its book value, including the unamortized goodwill, at the exercise date. The option period begins October 1, 1994, and expires April 30, 1995. If the option to purchase is exercised by Ingersoll-Rand Company, both Ingersoll-Rand and the Company have agreed to contribute their respective Mono Group Limited shares to the Ingersoll-Dresser Pump Company as a contribution of capital to the partnership.
Western Atlas International, Inc. - ---------------------------------
Western Atlas International, Inc. is a joint venture that was formed May 1, 1987 when the Company and Litton Industries combined their respective Atlas Wireline division and Western Geophysical division. On December 8, 1993, the Company announced an agreement to sell its 29.5% interest in Western Atlas International, Inc. to a wholly-owned subsidiary of Litton Industries. See Note R for additional information.
Summarized financial information is as follows (in millions):
Note C - Major Unconsolidated Joint Ventures (Continued) - -------------------------------------------------------------------------------
Dresser-Rand Company - --------------------
The Company owned 50% of Dresser-Rand from its inception on January 1, 1987 through September 30, 1992. Effective October 1, 1992, the Company acquired an additional 1% ownership interest. Since the Company now owns 51% of Dresser- Rand, it is included as a fully consolidated subsidiary with a 49% minority interest for 1993.
Summarized financial information for the periods when equity accounting was applied is as follows (in millions):
Note D - Business Combinations - -------------------------------------------------------------------------------
Effective February 1, 1993 the Company acquired all the outstanding stock of Bredero Price Holding B.V., a Netherlands corporation, from Koninklijke Begemann Groep N.V. for approximately $161.5 million in cash. Bredero Price is a multinational company that provides pipe coating for both onshore and offshore markets.
Effective April 1, 1993, the Company acquired TK Valve & Manufacturing, Inc. from Sooner Pipe & Supply Corporation, Tulsa, Oklahoma for approximately $143.5 million in cash. TK Valve supplies ball valves for the oil and gas production and transmission industry.
The purchase price exceeded the fair value of the net assets acquired by approximately $122 million for Bredero Price and approximately $92 million for TK Valve. Both acquisitions were accounted for as purchases. The resulting goodwill is being amortized on a straight-line basis over 40 years. The Consolidated Statement of Earnings includes the results of operations of Bredero Price from February 1, 1993 and TK Valve from April 1, 1993.
Note D - Business Combinations (Continued) - -------------------------------------------------------------------------------
The following unaudited pro forma summary presents information as if the acquisitions had occurred at the beginning of each fiscal year. The pro forma information is provided for information purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined enterprises (in millions except per share amounts):
In 1992, the Company acquired all of the shares of AVA International Corp. (AVA) in exchange for 1.9 million shares of the Company's common stock with a value of $43.3 million and $1.9 million cash. AVA produces well completion products that are sold primarily in foreign markets. The transaction, which was accounted for as a purchase, resulted in goodwill of $39.3 million which is being amortized on a straight-line basis over 40 years. The pro forma effect of the AVA acquisition was not significant.
Note E - Long-Term Contracts - -------------------------------------------------------------------------------
Consistent with industry practice, service revenues and cost of services include the value of materials, equipment and labor contracts furnished by customers and for which the Company is responsible for the ultimate acceptability of performance of the project based on such material, equipment or labor. The value of such items was $112.4 million, $114.0 million and $471.7 million for the years ended October 31, 1993, 1992 and 1991, respectively.
Amounts billed in excess of revenues recognized to date are included in current liabilities under advances from customers on contracts.
Note F - Inventories - -------------------------------------------------------------------------
Inventories on the LIFO method were $77.9 million and $73.9 million at October 31, 1993 and 1992, respectively. Under the average cost method, inventories would have increased by $92.2 million and $98.8 million at October 31, 1993 and 1992, respectively.
Note F - Inventories (Continued) - ---------------------------------------------------------------------
During 1992, the Company experienced significant quantity reductions in LIFO inventories which were carried at lower costs that prevailed in prior years. Quantity reductions reduced the cost of sales by $14.6 million and increased earnings, net of tax, by $9.5 million or $.06 per share in 1992.
Inventories are stated net of progress payments received on contracts of $175.7 million and $118.9 million at October 31, 1993 and 1992, respectively.
Note G - Income Taxes - -------------------------------------------------------------------------------
The Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes, as of November 1, 1991. The 1992 Statement of Earnings includes a charge of $40.8 million for the cumulative effect of the change. Prior year financial statements were not restated when SFAS 109 was adopted.
The domestic and foreign components of earnings before income taxes of continuing operations consist of the following (in millions):
The components of the provision for income taxes of continuing operations are as follows (in millions):
Under the provisions of SFAS 109, the tax benefits of loss and credit carryforwards can be recognized in the period they arise if certain realization criteria are met. As a result of these provisions, the tax benefits attributable to approximately $40 million domestic carryforwards and $28 million of foreign carryforwards were reflected as a reduction in the 1992 cumulative effect charge referred to above.
Note G - Income Taxes (Continued) - ---------------------------------------------------------------------
The 1991 current taxes of $103.2 contain a charge of $5.6 million equivalent to income taxes which would have been incurred had net operating loss carryforwards not been available. The income tax benefits resulting from utilizing the operating loss carryforwards are presented as an extraordinary item in 1991.
Since the Company plans to continue to finance foreign operations and expansion through reinvestment of undistributed earnings of its foreign subsidiaries (approximately $537 million at October 31, 1993), no provisions are generally made for U.S. or additional foreign taxes on such earnings. When the Company identifies exceptions to the general reinvestment policy, additional taxes are provided.
The following is a reconciliation of income taxes at the U.S. Federal income tax rate (34.8% for 1993 and 34% for 1992 and 1991) to the provision for income taxes for continuing operations reflected in the Consolidated Statements of Earnings (in millions):
Note G - Income Taxes (Continued) - -------------------------------------------------------------------
Deferred income tax benefits result from the recognition of temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in differences between income for tax purposes and income for financial statement purposes in future years. The deferred income tax provisions (credits) related to the following (in millions):
The components of the net deferred tax asset as of October 31, 1993, were as follows (in millions):
At October 31, 1993, the Company had foreign operating loss carryforwards of approximately $54 million that had not been benefited. The tax benefit of these losses is recorded as a deferred tax asset and offset with a corresponding valuation allowance. These losses are available to reduce the future tax liabilities of their respective foreign entity. Approximately $42 million of these losses will carryforward indefinitely while the remaining amounts expire at various dates from 1994 to 2002.
The net change of $4.2 million in the valuation allowance for deferred tax assets related all to changes in foreign loss carryforwards.
Note H - Short-Term Debt - ------------------------------------------------------------------
Short-term debt at October 31, 1993 consisted of $216 million of domestic commercial paper maturing on December 31, 1993 and $13.5 million of primarily foreign bank loans.
The Company has short-term committed bank lines of credit totalling $250 million of which $216.0 million support commercial paper. Such lines provide for borrowings at the prevailing interest rates. The lines of credit may be used by the Company and certain foreign subsidiaries, and include Eurodollars and foreign currencies. The lines of credit may be terminated at the option of the banks or the Company.
Loan arrangements have been established with banks outside the United States, under which the Company's foreign subsidiaries may borrow on an overdraft and short-term note basis. At October 31, 1993, the amount available and unused under these arrangements aggregated $114.2 million.
Note I - Long-Term Debt - ------------------------------------------------------------------
Long-term debt is summarized as follows (in millions):
In June 1993, the Company made a public offering of debt securities in the form of $300.0 million of 6.25% Notes due 2000 from which the Company received $298.2 million in proceeds. The proceeds were used to retire short-term debt that was issued to acquire Bredero Price Holding B.V. and TK Valve & Manufacturing, Inc. (See Note D). The interest is payable semi-annually on May 15 and November 15.
During 1992 the Company redeemed $133.1 million of Sinking Fund Debentures at redemption prices ranging from 100% to 106% of principal amount. On November 2, 1992, the Company redeemed the remaining $62.5 million in principal amounts of its 11 3/4% Sinking Fund Debentures due 2007 at a redemption price of 105.68%. The resulting loss was accrued as of October 31, 1992. The $9.8 million total losses on the debenture redemptions above are reported net of taxes of $3.5 million as an extraordinary loss in the 1992 Statement of Earnings.
Note J - Employee Incentive Plans - -------------------------------------------------------------------------------
Stock Compensation Plan - -----------------------
The Company's shareholders have approved the 1992 Stock Compensation Plan which includes a Stock Option Program, a Restricted Incentive Stock Program and a Performance Stock Unit Program.
The Stock Option Program provides for the granting of options to officers and key employees for purchase of the Company's common shares. The Plan is administered by the Executive Compensation Committee of the Board of Directors, whose members are not eligible for grants under the Plan. No option can be for a term of more than ten years from date of grant. The option price is recommended by the committee, but cannot be less than 100% of the average of the high and low prices of the shares on the New York Stock Exchange on the day the options are granted. The exercise price for options granted during 1993 increases on the annual anniversary dates of grant.
Changes in outstanding options during the three years ended October 31, 1993 and options exercisable at October 31, 1993 are as follows:
Shares reserved for granting of future options under the 1992 plan were 8,814,762 shares at October 31, 1993.
Deferred Compensation Plan - --------------------------
Under the Deferred Compensation Plan, a portion of the incentive compensation for officers and key employees can be deferred in the form of common stock units or in cash for payment after retirement or termination of employment. Payments are made either in common shares of the Company or in cash at the equivalent market value of the common stock units at the option of the employee. Deferred compensation was $38.9 million at October 31, 1993 and $39.8 million at October 31, 1992.
Note K - Capital Shares - -------------------------------------------------------------------------------
Changes in issued common shares during the three years ended October 31, 1993 are as follows:
Changes in common shares held in treasury during the three years ended October 31, 1993 are as follows:
Preferred Stock Purchase Rights - -------------------------------
In 1990, the Company issued one new Preferred Stock Purchase Right for each outstanding share of the Company's Common Stock. The Rights will expire in 2000 unless they are redeemed earlier.
The Rights will generally not be exercisable until after 10 days (or such later time as the Board of Directors may determine) from the earlier of a public announcement that a person or group has, without Board approval, acquired beneficial ownership of 15% or more of the Company's Common Stock or the commencement of, or public announcement of an intent to commence, a tender or exchange offer which, if successful, would result in the offeror acquiring 30% or more of the Company's Common Stock. Once exercisable, each Right would entitle its holder to purchase 1/100 of a share of the Company's Series A Junior Preferred Stock at an exercise price of $90, subject to adjustment in certain circumstances.
If the Company is acquired in a merger or other business combination not previously approved by the Company's Continuing Directors, each Right then exercisable would entitle its holder to purchase at the exercise price that number of shares of the surviving company's common stock which has a market value equal to twice the Right's exercise price. In addition, if any person or group (with certain exceptions) were to acquire beneficial ownership of 15% or more of the Company's Common Stock (unless pursuant to a transaction approved by the Company's Continuing Directors), each Right would entitle all rightholders, other than the 15% stockholder or group, to purchase that number of Series A Junior Preferred Stock having a market value equal to twice the Right's price.
Note K - Capital Shares (Continued) - -------------------------------------------------------------------------------
Preferred Stock Purchase Rights (Continued) - -------------------------------------------
The Rights may be redeemed by the Company for $.01 per Right until the tenth day after a person or group has obtained beneficial ownership of 15% or more of the Company's Common Stock (or such later date as the Continuing Directors may determine).
The Rights are not considered to be common stock equivalents because there is no indication that any event will occur which would cause them to become exercisable.
Note L - Commitments and Contingencies - -------------------------------------------------------------------------------
Parker & Parsley Litigation - ---------------------------
The Company was involved in litigation brought by Parker & Parsley Petroleum Company and related plaintiffs in 1989. On April 19, 1993, the Company entered into an agreement in principle to settle with the plaintiffs in the Parker & Parsley litigation, whereby the Company, without admitting any wrong doing, agreed to pay $57.5 million to settle all current and future claims brought forth by the plaintiffs. The settlement was paid on May 26, 1993. Legal actions arising from the same facts filed by Glyn Snell, et. al., and working interest owners who did not participate in the Parker & Parsley case (Texas Ten vs. Dresser et. al.) remain outstanding.
The Company recorded a Special Charge of $65.0 million in 1993 to cover the Parker & Parsley settlement, legal fees and other expenses related to the Parker & Parsley litigation, the Glyn Snell, et. al. litigation, and the working interest owners litigation.
The Company believes that it has insurance coverage for the amounts that it has paid or will pay pursuant to the above-described settlement of the litigation, and in fact $13.5 million has been received from certain insurance carriers. However, other insurance carriers have denied coverage, and the Company is engaged in litigation with these carriers seeking recovery of the costs and expenses incurred by the Company in the defense and settlement of the litigation. The Company's claim includes the $57.5 million settlement, as well as all unreimbursed costs and expenses incurred by the Company in defending the action. The insurance carriers had previously sued seeking a declaration that the claims asserted by the Company are not covered by the relevant insurance policies. The carrier's action has been abated in favor of the action brought by the Company. Discovery in the action is proceeding. Trial is currently scheduled for April, 1994. The Company also believes it has insurance coverage with respect to claims made in the suits brought by royalty owners and working interest owners. The amount and timing of any recoveries from the insurance carriers cannot be determined with certainty. Any recoveries will be recognized when amounts can be determined with certainty.
Note L - Commitments and Contingencies (Continued) - -------------------------------------------------------------------------------
Asbestosis Litigation - ---------------------
The Company has approximately 42,800 pending claims (approximately 12,000 filed in 1993) in which it is alleged that third parties sustained injuries and damages resulting from inhalation of asbestos fibers used in products manufactured by the Company and its predecessor companies. The Company has never been a miner or processor of asbestos but did produce a few refractory products that contained some asbestos. Approximately 50% of the pending claims allege injury as a result of exposure to such products, while the other 50% of the claimants allege injury as a result of exposure to asbestos gaskets and packings used in other products manufactured by the Company.
Since 1976, the Company has tried, settled or summarily disposed of approximately 13,000 such claims for a total cost of $29 million including legal fees. The Company has entered into agreements with insurance carriers with respect to such claims. Management has no reason to believe the carriers will not be able to meet their obligations pursuant to the agreements. Under the agreements, insurance covers 60%-67% of legal fees and any settlements or awards. The net cost to the Company after recoveries from the carriers has been approximately $10 million. Of the 13,000 claims settled, approximately 80% relate to cases involving refractory products. Any future refractory product claims filed are the responsibility of INDRESCO Inc. pursuant to an agreement entered into at the time of the spin-off. The Company has provided for the estimated exposure, based on past experience, for the remaining open cases involving refractory products. The Company has also provided for estimated exposure relating to non-refractory product claims. However, the Company has less experience in settling such claims. Generally when settlements have been made, the amounts involved are substantially lower than the claims involving refractory products.
In 1993, the Company did sustain an adverse judgment in cases filed by employees of Ingalls Shipyard in Pascagoula, Mississippi. The Company's share of damages awarded in six cases amounted to $3.8 million plus 10% add on for punitive damages. The judgment does not conform to the Company's past experience and was not in accord with the evidence. The court has entered judgment in the case and the Company has filed the appropriate post trial motions. The court has not ruled on the motions. If relief is denied, the Company will appeal the decision. Any ultimate loss would be covered by the agreement with the insurance carriers and would not result in a net loss exceeding approximately $1 million. Management recognizes the uncertainties of litigation and the possibility that a series of adverse rulings could materially impact operating results. However, based upon the Company's historical experience with similar claims, the time elapsed since the Company discontinued sale of products containing asbestos, and management's understanding of the facts and circumstances which gave rise to such claims, management believes that the pending asbestos claims will be resolved without material effect on the Company's financial position or results of operations.
Note L - Commitments and Contingencies (Continued) - -------------------------------------------------------------------------------
Quantum Chemical Litigation - ---------------------------
In October 1992, Quantum Chemical Corporation ("Quantum") brought suit against the Company's wholly owned subsidiary, The M. W. Kellogg Company ("Kellogg"), alleging that Kellogg negligently failed to provide an adequate design for an ethylene facility which Kellogg designed and constructed for Quantum and fraudulently misrepresented the state of development of its Millisecond Furnace technology to be used in the facility. Quantum is seeking $200 million in actual damages and punitive damages equal to twice the actual damages claimed. Kellogg has answered denying the claim and has filed a counterclaim against Quantum alleging libel, slander, breach of contract and fraud. Discovery in the action is proceeding, and trial is set for April 11, 1994. Management believes the Quantum lawsuit is totally without merit and will be resolved without material adverse effect on the Company's financial position or results of operations.
Other Litigation - ----------------
The Company and its subsidiaries are involved in certain other legal actions and claims arising in the ordinary course of business. Management recognizes the uncertainties of litigation and the possibility that one or more adverse rulings could materially impact operating results. However, based upon the nature of and management's understanding of the facts and circumstances which gave rise to such actions and claims, management believes that such litigation and claims will be resolved without material effect on the Company's financial position or results of operations.
Environmental Matters - ---------------------
The Company is identified as a potentially responsible party in 67 Superfund sites. Primary responsibility for eight of these sites was assumed by INDRESCO Inc. at the time of the INDRESCO spin-off in 1992 (See Note O). At three of the 67 sites, Fisher-Calo, Bio-Ecology, and Operating Industries, the Company may be responsible for remediation costs ranging between $200,000 and $1 million. The Company previously has entered into de minimis settlements in respect of several other Superfund sites. Based upon the Company's historical experience with similar claims and management's understanding of the facts and circumstances relating to the sites other than Fisher-Calo, Bio-Ecology, and Operating Industries, management believes that the other situations will be resolved at nominal cost to the Company.
Other - -----
The Company and certain subsidiaries are contingently liable as guarantors of obligations aggregating approximately $200 million at October 31, 1993, of which $170.0 million were guarantees of loans to Komatsu Dresser Company, a partnership in which INDRESCO Inc. (See Note O) has an ownership interest. Obligations to guarantee loans to Komatsu Dresser Company expired November 1, 1993. The Company has no further obligations regarding Komatsu Dresser Company.
Note L - Commitments and Contingencies (Continued) - -------------------------------------------------------------------------------
Other (Continued) - -----------------
Total rental and lease expense charged to earnings was $74.7 million in 1993, $66.4 million in 1992 and $73.7 million in 1991. At October 31, 1993, the aggregate minimum annual obligations under noncancelable leases were: $36.4 million for 1994; $28.4 million for 1995; $20.7 million for 1996; $11.6 million for 1997; $9.1 million for 1998; and $49.8 million for all subsequent years. The lease obligations related primarily to general and sales office space and warehouses.
Note M - Postretirement and Postemployment Benefits - -------------------------------------------------------------------------------
Benefits Other than Pensions - ----------------------------
The Company sponsors a number of plans providing health and life insurance benefits for retired U.S. bargaining and non-bargaining employees meeting eligibility requirements. Although certain plans are contributory, the Company has generally absorbed the majority of the costs. The Company funds the benefit plans as claims and premiums are paid.
The Company adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefit Plans Other than Pensions (SFAS 106), for its U.S. benefit plans as of November 1, 1991. The Company elected to recognize this change in accounting on the immediate recognition basis. The cumulative effect as of November 1, 1991, reflected in the Statement of Earnings for the year ended October 31, 1992 as cumulative effect of an accounting change, was as follows (in millions, except per share amount):
The effects of postretirement benefits for non-U.S. employees, which supplement foreign government plans, are not significant under SFAS 106.
During fiscal 1993, the Company, Dresser-Rand and Ingersoll-Dresser Pump Company adopted amendments to certain postretirement medical benefit plans, primarily the non-union plans. The major amendments included the elimination of benefits for younger employees and the introduction of limits on the amount of future cost increases which will be absorbed by the companies. These amendments resulted in a curtailment gain of $12.8 million which was recognized in 1993 and unrecognized gains of $208.3 million which will be recognized as a reduction in benefit expense on a straight line basis over the periods ranging from 12 years to 18 years.
Note M - Postretirement and Postemployment Benefits (Continued) - -------------------------------------------------------------------------------
Benefits Other than Pensions (Continued) - ----------------------------------------
The liability of the U.S. plans at October 31, 1993 and 1992 was as follows (in millions):
Accrued compensation and benefits on the Balance Sheet include the current portion of the benefit liability.
The net periodic postretirement benefit expense for the years ended October 31, 1993 and 1992 included the following components (in millions):
*Includes $14.3 million in 1993 and $20 million in 1992 for Dresser-Rand Company which was not consolidated in 1992.
Assumptions used to calculate the Accumulated Postretirement Benefit Obligation were as follows:
Health care trend rate (weighted based on participant count) - October 31, 1993 - 13% for 1993 declining to 5.5% in 2003 and level thereafter. October 31, 1992 - 15% for 1992 declining to 6.0% in 2006 and level thereafter.
The above changes in assumptions and changes in circumstances and experience resulted in an unrecognized net loss of $(28.2) million.
Note M - Postretirement and Postemployment Benefits (Continued) - -------------------------------------------------------------------------------
Benefits Other than Pensions (Continued) - ----------------------------------------
A one percentage-point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation as of October 31, 1993 by approximately $44 million and would increase the net postretirement benefit cost for 1993 by approximately $5 million.
Defined Benefit Pension Plans - -----------------------------
The Company has numerous defined benefit pension plans covering substantially all employees in the United States. The benefits for the U.S. plans covering the salaried employees are based primarily on years of service and employees' qualifying compensation during the final years of employment. The benefits for the U.S. plans covering the hourly employees are based primarily on years of service. The U.S. plans are funded in accordance with the requirements of applicable laws and regulations. The U.S. plan assets are invested in cash, short-term investments, equities, fixed-income instruments and real estate at October 31, 1993.
The Company has additional defined benefit pension plans for employees outside the United States. The benefits under these plans are based primarily on years of service and compensation levels. The Company funds these plans in amounts sufficient to meet the minimum funding requirements under governmental regulations, plus such additional amounts as the Company may deem appropriate.
The Company recognized a minimum pension liability for underfunded plans. The minimum liability is equal to the excess of the accumulated benefit obligation over plan assets. A corresponding amount is recognized as either an intangible asset or a reduction of shareholders' investment. The Company had recorded additional liabilities of $39.9 million and $19.5 million, intangible assets of $15.9 million and $12.6 million, and adjustments to shareholders' investment, net of income taxes, of $13.8 million and $4.0 million, as of October 31, 1993 and 1992, respectively.
Pension expense includes the following (in millions):
Cash contributions to the plans in 1993 were $38.7 million.
Note M - Postretirement and Postemployment Benefits (Continued) - -------------------------------------------------------------------------------
Defined Benefit Pension Plans (Continued) - -----------------------------------------
The funded status of the plans on the August 1 measurement dates was as follows (in millions):
On the Balance Sheet, other assets include prepaid pension costs and accrued compensation and benefits include the current portion of the pension liabilities.
Note M - Postretirement and Postemployment Benefits (Continued) - -------------------------------------------------------------------------------
Defined Benefit Pension Plans (Continued) - -----------------------------------------
Contributions made in August and October 1993 to the trust for the pension plans decreased the liability for plans with accumulated benefits exceeding assets by $7.2 million.
The actuarial assumptions used in determining funded status of the plans were as follows:
The changes in assumptions in 1993 increased the projected benefit obligation by approximately $40 million.
Defined Contribution Plans - --------------------------
The Company has defined contribution plans for most of its U.S. salaried employees. Under these plans, eligible employees may contribute amounts through payroll deductions supplemented by employer contributions for investment in various funds established by the plans. The cost of these plans was $12.5 million, $8.8 million and $7.1 million in 1993, 1992 and 1991, respectively.
Postemployment Benefits - -----------------------
In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits (SFAS 112), which requires that accrual accounting be used for the cost of benefits provided to former or inactive employees who have not yet retired. Such benefits include salary continuation, disability, severance and health care. Under SFAS 112, the cost of benefits must be accrued either over the employee's service period or at the date of an event that gives rise to the benefits. SFAS 112 must be adopted by the Company no later than fiscal year 1995.
The Company currently accrues the cost of some benefits covered by SFAS 112 but not all. SFAS 112 requires a cumulative catch-up charge to earnings upon adoption. The Company has not determined the amount of the cumulative adjustment. The Company expects to adopt SFAS 112 in the first quarter of fiscal 1995.
Note N - Supplementary Earnings Statement Information and Special Charges - -------------------------------------------------------------------------------
Earnings per common share are based on the average number of common shares outstanding during each period. The average common shares outstanding were 137.3 million in 1993, 135.5 million in 1992 and 134.2 million in 1991. Common stock equivalents do not have a material effect on earnings per share.
Depreciation of property, plant and equipment charged to earnings amounted to $141.5 million in 1993, $87.5 million in 1992 and $78.9 million in 1991. The increase in 1993 is primarily due to the consolidation of Dresser-Rand.
Amortization of intangibles was $17.2 million in 1993, $11.1 million in 1992 and $10.6 million in 1991 and is included in selling, engineering, administrative and general expenses.
Engineering, research and development costs were $152.9 million in 1993, and $94.0 million in 1992 and 1991. Research and development costs, as defined by Statement of Financial Accounting Standards No. 2, charged to earnings were $81.5 million in 1993, $11.0 million in 1992 and $9.4 million in 1991. The increases in 1993 costs are primarily due to the consolidation of Dresser-Rand.
The components of other income (deductions), net on the Consolidated Statements of Earnings are as follows (in millions):
Special Charges - ---------------
The Company recorded special charges totalling $74.1 million in 1993. The charges included $65.0 million to cover settlement, legal fees and expenses of the Parker & Parsley and related litigation (See Note L) and $13.2 million for restructuring and termination costs partially offset by a $4.1 million gain from curtailment of retiree medical benefits. The curtailments resulted from employee terminations associated with plant closings. The special charges reduced segment operating profit by $6.9 million and the remaining $67.2 million was reflected as nonsegment expenses.
In 1992, the Company recorded special charges totalling $70.0 million. The charges provided $35.0 million for the restructuring of the pump joint venture, $25.0 million for restructuring and termination costs in other operations, and $10.0 million primarily for the settlement of special warranty claims. The special charges reduced segment earnings of Oilfield Services by $17.1 million and Hydrocarbon Processing Industry by $49.3 million. The remaining $3.6 million was reflected as nonsegment expenses.
Note O - Discontinued Operations - -------------------------------------------------------------------------------
In 1992, the Company decided to dispose of its Environmental Products business and recorded a $12.0 million charge for the estimated costs of disposal and future operating losses.
Effective August 1, 1992, the Company divested its industrial products and equipment businesses including its 50% interest in Komatsu Dresser Company. The divestiture/spin-off was accomplished by a distribution of one INDRESCO share for every five shares of the Company's common stock.
The results of operations net of income taxes for Environmental Products (including the $12 million charge in 1992) and for the INDRESCO businesses are reported as discontinued operations.
Summarized information on the Discontinued Operations is as follows (in millions):
Note P - Information by Industry Segment and Geographic Area - -------------------------------------------------------------------------------
The Company's industry segments are outlined below. See Notes C and O for information about changes in joint venture operations and discontinued operations.
Oilfield Services -----------------
The Segment provides products and technical services utilized in the worldwide search for and development of crude oil and natural gas through exploration, drilling and production activities. Principal products and services of consolidated operations include drilling fluid systems, rock bits, downhole production tools, pipe coating and ball valves. The Western Atlas unconsolidated joint venture, which the Company has agreed to sell as discussed in Note R, provides integrated reservoir description services, seismic services, core analysis and wireline logging services. The Bredero Price and TK Valve & Manufacturing acquired operations are included in this segment (See Note D).
Note P - Information by Industry Segment and Geographic Area (Continued) - -------------------------------------------------------------------------------
Hydrocarbon Processing Industry -------------------------------
The Segment provides highly engineered products, which are essential to the transportation and processing of various hydrocarbon raw materials, the conversion of the hydrocarbon raw materials into higher value-added energy forms and the marketing of refined products. Principal products, services and systems of consolidated operations include compressors, turbines, diesel engines, measurement and control devices, gas meters, piping specialties and gasoline dispensing systems along with related repair services. The Ingersoll-Dresser Pump unconsolidated joint venture provides pumps along with related repair services.
Engineering Services --------------------
The Segment, which consists of the M. W. Kellogg Company, is involved in the design, engineering and construction of energy-related complexes throughout the world.
Total revenues include sales and services to unaffiliated customers and either intersegment sales and services or intergeographic area sales and services. The intersegment and intergeographic area sales and services are accounted for at prices which approximate arm's length market prices.
Operating profit consists of total revenues less total operating expenses and includes equity earnings or losses from unconsolidated affiliates. General corporate expenses, foreign exchange gains or losses, interest income and expense, and other income and expenses (including administrative and general expenses applicable to divested operations) not identifiable with a segment have been excluded in determining operating profit. Identifiable assets are those assets that are identified with particular segments. Corporate assets are principally cash and cash equivalents and deferred income tax benefits.
Industry Segment Financial Information - --------------------------------------
The financial information by industry segment for the years ended October 31, 1993, 1992 and 1991 is included in Item 7., Management's Discussion and Analysis on pages 18 to 20 of this report, and is an integral part of this Note to Consolidated Financial Statements.
Note P - Information by Industry Segment and Geographic Area (Continued) - -------------------------------------------------------------------------------
Geographic Area Financial Information - -------------------------------------
The financial information by Geographic Area for the years ended October 31, 1993, 1992 and 1991 is as follows (in millions):
Note Q - Quarterly Financial Data (Unaudited) - -------------------------------------------------------------------------------
* Includes after-tax special charges for restructuring costs, termination costs and special warranty claims of $36.0 million. ** Includes $12.0 million for the estimated costs of disposal and future operating losses.
Note R - Subsequent Events (Unaudited) - -------------------------------------------------------------------------------
Merger with Baroid Corporation - ------------------------------
On September 7, 1993, the Company and Baroid Corporation (Baroid) announced an agreement to merge the two companies. The agreement provides that, upon consummation of the merger, stockholders of Baroid will receive 0.40 shares of Dresser common stock for each share of issued and outstanding Baroid common stock and Baroid will become a wholly-owned subsidiary of Dresser.
The merger will be accounted for as a pooling of interests. Supplemental unaudited earnings statement information assuming the merger had occurred on November 1, 1990, is as follows (in millions except earnings per share):
Expenses associated with the merger of approximately $30.0 million less a tax benefit of $2.9 million, for a net special charge of $27.1 million or $0.16 per share, have been reflected in the combined results of operations for the year ended October 31, 1993 shown above.
The above supplemental unaudited earnings statement information includes Baroid information for the twelve months ended October 31, 1993, December 31, 1992 and December 31, 1991.
Following the merger, the Company is required by the United States Department of Justice to dispose of either its 64% general partnership interest in M-I Drilling Fluids Company or its 100% interest in Baroid Drilling Fluids Inc. prior to June 1, 1994. Dresser has not yet determined which drilling fluids company will be divested but is at present negotiating with interested parties. M-I Drilling Fluids Company revenues were $398 million and earnings before taxes were $25 million for the year ended October 31, 1993 and Baroid Drilling Fluids Inc. revenues were $372 million and earnings before taxes were $39 million for the same period.
Note R - Subsequent Events (Unaudited) (Continued) - -------------------------------------------------------------------------------
Sale of Interest in Western Atlas International, Inc. - -----------------------------------------------------
On December 8, 1993, Dresser and Litton Industries, Inc. announced an agreement for the sale of Dresser's 29.5% interest in Western Atlas International, Inc. to a wholly-owned subsidiary of Litton for $358 million in cash and $200 million in 7 1/2% notes due over seven years. The sale is expected to close in January, 1994 and will result in an after-tax gain of approximately $150 million that Dresser will recognize in the first quarter of fiscal year 1994.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and - ------ --------------------------------------------------------------- Financial Disclosure. --------------------
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of Registrant. - ------- ----------------------------------------------
Certain information required by this Item is incorporated by reference to Dresser's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report (the "Dresser Proxy Statement").
Item 11.
Item 11. Executive Compensation. - ------- ----------------------
The information required by this Item is incorporated by reference to the Dresser Proxy Statement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------- --------------------------------------------------------------
The information required by this Item is incorporated by reference to the Dresser Proxy Statement.
Item 13.
Item 13. Certain Relationships and Related Transactions. - ------- ----------------------------------------------
The information required by this Item is incorporated by reference to the Dresser Proxy Statement.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. - ------- ---------------------------------------------------------------
(a) List of Financial Statements, Financial Statement Schedules and Exhibits.
(1) and (2) - Response to this portion of Item 14 is submitted as a separate section of this report.
(3) Response to this portion of Item 14 is submitted as a separate section of this report.
(b) Reports on Form 8-K.
None.
(c) Exhibits - Response to this portion of Item 14 is submitted as a separate section to this report. Management contracts or compensatory plans or arrangements in which Directors or executive officers participate are included in Exhibits 10.1 - 10.27.
(d) Financial Statement Schedules - The response to this portion of Item 14 is submitted as a separate section of this report. Separate financial statements for the formerly unconsolidated Dresser-Rand Company are filed because under the Rules of the Securities and Exchange Commission it constituted a significant subsidiary as of October 31, 1991. The financial statements of Dresser-Rand Company, together with the report of Price Waterhouse dated November 12, 1992, appearing on pages 3 through 17 of the accompanying Consolidated Financial Statements of Dresser-Rand Company are incorporated by reference in this report. With the exception of the aforementioned information, the Consolidated Financial Statements of Dresser-Rand Company is not to be deemed filed as a part of this Form 10-K Annual Report.
UNDERTAKINGS
For the purpose of complying with the rules governing registration statements on Form S-8 under the Securities Act of 1933 (as amended effective July 31, 1990), the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's registration statements on Form S-8 Nos. 2-76847 (filed April 5, 1982), 2-81536 (filed January 28, 1983), 33-26099 (filed December 21, 1988), 33-30821 (filed August 28, 1989), and 33-48165 (filed May 27, 1992):
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Registrant pursuant to the provisions of the Company's Restated Certificate of Incorporation, as amended, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on, January 28, 1994.
DRESSER INDUSTRIES, INC.
By: /s/ George H. Juetten --------------------- George H. Juetten, Vice President - Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on January 28, 1994.
FORM 10-K ITEM 14(A)(1) AND (2) AND ITEM 14(D) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES YEAR ENDED OCTOBER 31, 1993 DRESSER INDUSTRIES, INC. DALLAS, TEXAS
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and report of independent accountants are included in Item 8:
The following consolidated financial statement schedules of Dresser Industries, Inc. and report of independent accountants are included herein:
Schedule II-- Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other than Related Parties
Schedule VIII-- Valuation and Qualifying Accounts
Schedule IX-- Short-Term Borrowings
Schedule X-- Supplementary Income Statement Information
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
Separate financial statements for the formerly unconsolidated Dresser-Rand Company are filed because it constituted a significant subsidiary as of October 31, 1991. Effective October 1, 1992, Dresser-Rand Company became a majority- owned consolidated subsidiary. The following consolidated financial statements of Dresser-Rand Company and report of independent accountants are included herein:
Financial Highlights
Operations Review
Report of Independent Accountants
Consolidated Statements of Operations-- Years ended September 30, 1992, 1991 and 1990
Consolidated Balance Sheets-- September 30, 1992 and 1991
Consolidated Statements of Partners' Equity-- Years ended September 30, 1992, 1991 and 1990
Consolidated Statements of Cash Flows-- Years ended September 30, 1992, 1991 and 1990
Notes to Consolidated Financial Statements
Dresser-Rand Company Form 10-K Financial Schedules are included herein as follows:
Report of Independent Accountants on Financial Statement Schedules
Schedule V-- Property, Plant and Equipment
Schedule VI-- Accumulated Depreciation, Depletion, and Amortization of Property, Plant and Equipment
Schedule VIII-- Valuation and Qualifying Accounts
Schedule IX-- Short-Term Borrowings
Schedule X-- Supplementary Income Statement Information
All other Dresser-Rand Company schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
Separate financial statements are not presented for any of the other unconsolidated affiliates because none constitutes a significant subsidiary.
Summarized financial statement information for Ingersoll-Dresser Pump Company (49% owned) and Western Atlas International, Inc. (29.5% owned) is presented in Note C to Consolidated Financial Statements included in Item 8. Other 20% to 50% owned unconsolidated affiliates are not material.
Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties Dresser Industries, Inc. and Subsidiaries
(Millions of Dollars)
Note: Amounts receivable for purchases subject to the usual trade terms and other such items arising in the ordinary course of business are excluded.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
(MILLIONS OF DOLLARS)
Notes: (A) Primarily reclassification from other accrued liabilities, and addition of accounts due to acquisition. (B) Primarily addition of accounts due to acquisition of additional interest, partially offset by removal of companies accounts contributed to Ingersoll-Dresser Pump Company. (C) Primarily reclassification from other noncurrent liabilities, and reclassification to reserve for accounts receivable from unconsolidated affiliate. (D) Receivable write-offs and reclassifications, net of recoveries.
SCHEDULE IX - SHORT-TERM BORROWINGS DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
(MILLIONS OF DOLLARS)
Notes:
(A) The rates do not include the hyperinflationary countries as those rates include factors to offset monetary devaluations which cannot be separated from the true interest rate. (B) The average borrowings are based on the amounts outstanding at each quarter-end. (C) The rates were computed by dividing actual interest expense for the year by the average debt outstanding during the year. Hyperinflationary country debt and interest rates were excluded as in (A). (D) Includes $300 million that was classified as long-term debt in April, 1993, since it was being refinanced.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
(MILLIONS OF DOLLARS)
*Amounts are not presented because such amounts are less than 1% of total net sales and service revenues.
DRESSER-RAND COMPANY (A PARTNERSHIP)
CONSOLIDATED FINANCIAL STATEMENTS
* * * * *
SEPTEMBER 30, 1992 AND 1991
DRESSER-RAND COMPANY
DRESSER-RAND COMPANY
FINANCIAL HIGHLIGHTS - ------------------------------------------------------------ Dollars in millions
DRESSER-RAND ------------ OPERATIONS REVIEW
Dresser-Rand reported revenues of $1.3 billion in 1992, up slightly from 1991. The 1992 earnings before taxes and extraordinary item of $93.5 million were essentially flat to the prior year. Earnings before tax reflect a 7.2% return on sales.
Bookings in 1992 of $1.3 billion were the same as last year. The larger projects were received in Europe and the Middle East. Dresser-Rand also booked a large compression services contract in Venezuela with Maraven to be performed over 1993-94. Backlog at year-end was $1.1 billion.
Turbo products bookings activity, while down from the record year in 1991, included orders for gas processing and transmission applications in Abu Dhabi, the North Sea and Czechoslovakia. Other applications involved the upgrading of refineries for reformulated gasoline requirements. Turbo was also successful on several oil production projects in the Americas. Turbo Division has enhanced its competitive position with Memorandums of Understanding with European Gas Turbines Ltd. for the joint marketing of gas turbine driven compressor packages, and with MAN/GHH for the manufacturing and marketing of axial flow compressors.
The Engine Process Compressor Division benefitted from an overall increase in the worldwide market for motor driven process reciprocating compressors. The European markets were particularly strong, while the North American market softened in the last half of the year. Domestic gas price recovery has shown improvement in the compression services segments. In 1993, we see increased natural gas production as an opportunity for the reciprocating product and continued impact of environmentally driven projects in the North American refining market.
Steam Turbine, Motor and Generator Division capitalized on the expansion of the power generation market in the pulp and paper industry through several major orders for turbine generators. The Electric Machinery operation also benefitted from higher demand by utilities, municipal projects, and offshore turbine activity. The petrochemical and refining markets were the major source of Steam Turbine business in the European markets. The worldwide petrochemical/refining markets require steam turbines to drive pumps and compressors, and provide a solid booking base in the future.
We continue to register our worldwide manufacturing facilities under the ISO 9000 series, including those in the U.S. We received ISO registration at our Wellsville, New York, Steam Turbine facility in late 1992. All of our major units should achieve registration in 1993.
Selective partnering and the practical application of employee quality training remain key parts of Dresser-Rand's focus of providing total customer satisfaction by being the best in product design, manufacture, and customer service.
------------------------------------- Ben R. Stuart President and Chief Executive Officer November, 1992
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners and Management Committee of Dresser-Rand Company
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, partners' equity and cash flows present fairly, in all material respects, the financial position of Dresser-Rand Company (a Dresser Industries, Inc. and Ingersoll-Rand Company partnership) and its subsidiaries at September 30, 1992 and 1991, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1992, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
PRICE WATERHOUSE
Hackensack, New Jersey November 12, 1992
DRESSER-RAND COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to consolidated financial statements.
DRESSER-RAND COMPANY
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements.
DRESSER-RAND COMPANY
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
See accompanying notes to consolidated financial statements.
DRESSER-RAND COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Noncash financing activity: During 1991, amounts due from partners of $40,000,000 were reclassified as a return of Partners' capital.
See accompanying notes to consolidated financial statements.
DRESSER-RAND COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FORMATION, OWNERSHIP AND OPERATIONS
On December 31, 1986, Dresser Industries, Inc. and Ingersoll-Rand Company (the Partners) entered into a partnership agreement for the formation of Dresser-Rand Company (the Company), a New York general partnership (the partnership) owned equally by Dresser Industries, Inc. (Dresser) and Ingersoll-Rand Company (Ingersoll-Rand). The Partners contributed substantially all of the operating assets (excluding domestic cash and accounts receivable) and certain related liabilities which comprised their worldwide reciprocating compressor, steam turbine, and turbo-machinery businesses in exchange for an equal ownership interest. The net assets contributed by the Partners were recorded by the Company at amounts approximating their historical values. The Company commenced operations on January 1, 1987, and principally serves the petroleum, gas, petrochemical, chemical, and electric power industries on a worldwide basis.
Effective October 1, 1992, Dresser contributed $8,035,000 to the Company and ownership interests became 51 percent Dresser and 49 percent Ingersoll-Rand. At the same time, the Company's fiscal year was changed to end on October 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying consolidated financial statements are set forth below.
Basis of Presentation
The consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. Investments in affiliates owned 50% or less are accounted for on the equity method. The Company's equity in the net earnings of these affiliates was not material. All material intercompany items have been eliminated in consolidation.
Cash Equivalents
Cash equivalents are stated at cost which approximates market. For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at cost, which is not in excess of net realizable value, and are valued principally using the first-in, first-out (FIFO) method.
Property and Depreciation
Property, plant and equipment is recorded at cost, and is depreciated over the estimated useful lives of the various classes
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of assets. Depreciation is computed principally using accelerated methods, except for U.S. fixed assets with a service life of ten years or less, which are depreciated on a straight-line basis.
Intangible Assets
Costs in excess of values assigned to the underlying net assets of businesses acquired by the Partners which were contributed to the Company are being amortized on a straight-line basis over periods not exceeding 40 years. Such amortization amounted to $1,744,000 in 1992, 1991 and 1990.
Income Taxes
The Company is a partnership and generally does not provide for U.S. income taxes since all partnership income and losses are allocated to the Partners for inclusion in their respective income tax returns. Income taxes are provided on the taxable earnings of U.S. and foreign subsidiaries, including deferred taxes arising from timing differences between financial and tax reporting of income and expense items.
Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" was issued in February 1992. The statement requires the Company to make changes in accounting for income taxes no later than fiscal year 1994. Based on a preliminary review of the provisions of this statement, the Company does not believe its implementation will have a material effect on income or retained earnings.
Revenue Recognition and Warranties
Revenue from the sale of products and estimated provisions for warranty costs are recorded for financial reporting purposes generally when the products are shipped. Service and equipment rental revenues are accrued as earned.
Research, Engineering and Development Costs
Expenses for research and development activities, including engineering costs, are expensed as incurred and amounted to $67,074,000 in 1992, $63,768,000 in 1991, and $55,583,000 in 1990.
Foreign Currency
Assets and liabilities of foreign entities operating in other than highly inflationary economies are translated at current exchange rates, and income and expenses are translated using average-for-the-year exchange rates. Adjustments resulting from translation are recorded in Partners' equity and will be included in net earnings only upon sale or liquidation of the underlying foreign investment.
For foreign subsidiaries operating in highly inflationary economies, inventory and property balances and related income statement accounts are translated using historical exchange rates and resulting gains and losses are credited or charged to earnings.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company enters into forward foreign exchange contracts as a hedge against movements on the Company's assets and liabilities exposed to foreign exchange rate fluctuations. Gains and losses are recognized currently in income, and the resulting credit or debit offsets foreign exchange gains or losses on those assets and liabilities.
Foreign currency translation and exchange gains (losses) recorded in other income (expense) in the accompanying Consolidated Statements of Operations amounted to $995,000 in 1992, $2,321,000 in 1991, and $(783,000) in 1990.
NOTE 3 - INVENTORIES
The components of inventory are as follows (in thousands):
Finished products and work in process inventories are stated after deducting customer progress payments of $117,022,000 in 1992 and $162,910,000 in 1991.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows (in thousands):
Depreciation expense was $33,886,000 in 1992, $36,607,000 in 1991, and $35,233,000 in 1990.
NOTE 5 - SHORT-TERM BORROWINGS
Short-term borrowings consist primarily of foreign bank loans. At September 30, 1992, the Company had no U.S. bank loans or lines of credit for short-term borrowing facilities. Credit facilities have been arranged with banks outside the United States under which the Company's foreign operating units may borrow in the local currency or other currencies on an overdraft and short-term note basis. The amount of available lines of credit under these arrangements aggregated $55,355,000, of which $55,109,000 were unused at September 30, 1992. At September 30, 1992, the weighted average interest rate on outstanding borrowings was 11.75%.
NOTE 5 - SHORT-TERM BORROWINGS (CONTINUED)
Under the terms of the partnership agreement, the Company must obtain the consent of the Partners for any borrowing if, after giving effect to such borrowing, aggregate indebtedness equals or exceeds 33-1/3% of the sum of the Company's indebtedness and the Partners' capital accounts.
NOTE 6 - TRANSACTIONS WITH AFFILIATES
In the normal course of business, the Company engages in sales and purchases of manufactured products with the Partners and their affiliates. There are also various licensing, subcontracting, and servicing arrangements among the parties pursuant to the partnership and other agreements. Some of the agreements had planned expiration dates while others continue at the option of the Company or the Partners. Costs and charges under these arrangements are generally at normal and competitive market rates. In addition, certain administrative services of nominal value are provided at no cost to the Company.
A summary of transactions with the Partners and their affiliates is as follows (in thousands):
Amounts due from Partners consist of trade accounts and advances. The trade accounts represent the net balance arising from the sale or purchase of equipment and services to and from the Partners and do not accrue interest. Advances, which primarily represent cash in excess of the immediate working capital needs of the partnership, do not bear interest and have no repayment terms. Amounts due from (to) Partners are as follows (in thousands):
One partner continues to operate a foreign manufacturing company on behalf of the Company. Net gains(losses) of $644,000 in 1992, $(383,000) in 1991, and $701,000 in 1990 relating to this operation are included in the accompanying Consolidated Statements of Operations.
NOTE 7 - PENSION PLANS AND OTHER EMPLOYEE BENEFITS
Pension Plans
The Company has noncontributory pension plans covering substantially all U.S. and Canadian employees. In addition, pension or retirement indemnity coverage is provided for the majority of employees in other countries.
The Company's U.S. salaried employees generally receive benefits based on years of service and qualifying compensation on a final average earnings formula. Benefit plans covering hourly employees generally have flat benefit formulas based primarily on years of service. These plans, with some modifications, have been adopted by the Company as a continuation of prior coverage under defined benefit and contribution plans sponsored by the Partners. The Company also maintained a defined contribution plan covering employees at one of its domestic facilities which was terminated in July 1990. Foreign plans provide benefits based on earnings and years of service.
The Company's policy is to fund sufficient amounts to maintain the plans on a sound actuarial basis. Such amounts could be in excess of pension costs expensed, subject to the limitations imposed by current tax regulations.
The components of pension costs are as follows (in thousands):
A merit salary scale with a 5% inflation factor was used to project future compensation levels as a basis for 1992, 1991 and 1990 U.S. pension cost. For the foreign plans, rates of 6.2%, 6.4% and 6.6% were used to project future compensation levels for 1992, 1991 and 1990, respectively.
NOTE 7 - PENSION PLANS AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The Company credited $1,556,000 in 1990 to operations for plan curtailments and termination benefits associated with the termination of employees at plant facilities closed.
Plan assets are invested primarily in fixed income and equity securities. Plans where assets exceed accumulated benefits are immaterial. The funded status of employee pension benefit plans is as follows (in thousands):
In addition to the above accrued pension cost, the Company has accrued $3,676,000 and $3,997,000 ($3,160,000 and $3,481,000 included in noncurrent liabilities) at September 30, 1992 and 1991, respectively, for pension costs relating to a plan maintained by a former employing partner.
Pension expense for foreign operations, computed under Statement of Financial Accounting Standards No. 87 (SFAS 87), amounted to $1,920,000 in 1992, $2,380,000 in 1991 and $1,219,000 in 1990. In addition, the Company incurred a cost of $362,000 in 1992, $147,000 in 1991 and $145,000 in 1990 related to foreign defined contribution plans.
The provisions of SFAS 87 require the recognition of a liability in the amount of the Company's unfunded accumulated benefit obligation with an equal amount recognized as an intangible asset or as a separate component (reduction) of equity; such amounts are adjusted each year based on actuarial valuations. As of September 30, 1992, the Company has recognized a noncurrent liability of $7,709,000, an intangible asset of $4,665,000 (included in other assets) and a charge to equity of $3,044,000. These amounts are $875,000, $5,000 and $870,000, respectively, lower than those reported as of September 30, 1991.
Retiree Benefits
In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees. Most employees who retire are eligible for these benefits. The cost of retiree health care is recognized as an
NOTE 7 - PENSION PLANS AND OTHER EMPLOYEE BENEFITS (CONTINUED) expense as claims are paid, and the cost of retiree life insurance is recognized by expensing the annual insurance premiums. These costs were $2,901,000 in 1992, $2,836,000 in 1991 and $1,840,000 in 1990.
In December 1990 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 106 "Employers Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106). Effective for fiscal years beginning after December 15, 1992, this new statement requires accrual of postretirement benefits (such as health care and life insurance) during the years an employee provides services. The Company expects to adopt SFAS 106 in the first quarter of 1993 and estimates the accumulated liability for postretirement benefits to be $160,000,000 on a pre-tax basis. Upon adoption, the Company will record this amount as a one time charge against earnings. The annual pre-tax postretirement benefit expense for fiscal 1993 is estimated to be $17,000,000.
Savings and Investment Plans The Company also sponsors certain savings and investment plans. The cost for these plans amounted to $2,410,000 in 1992, $2,255,000 in 1991, and $2,039,000 in 1990.
NOTE 8 - INCOME TAXES The components of income before income taxes and extraordinary item are as follows (in thousands):
NOTE 8 - INCOME TAXES (CONTINUED)
An analysis of the difference between the U.S. statutory rate and the effective rate is as follows:
Current taxes of $17,910,000 in 1992, $10,972,000 in 1991, and $8,420,000 in 1990 do not include charges of $3,094,000, $8,907,000, and $4,197,000, respectively, equivalent to income taxes which would have been incurred had operating loss carryforwards not been available. The income tax benefit resulting from realization of the operating loss carryforwards is presented as an extraordinary item in the accompanying Consolidated Statements of Operations.
For tax purposes the Company has net operating loss carryforwards of $22,014,000, of which $4,741,000 carryforward indefinitely, and the remaining amounts expire at various dates through 1998.
NOTE 9 - INFORMATION BY GEOGRAPHIC AREA
The Company operates in one industry segment consisting of the design, manufacture, and marketing of energy processing and conversion equipment. There are no significant concentrations of credit risk in trade receivables at September 30, 1992. Customers are not concentrated in any specific geographic region and no single customer accounted for 10 percent or more of net sales. Identifiable assets are those assets that are identified with particular geographic areas and operations. General corporate assets consist principally of property, plant and equipment.
NOTE 9 - INFORMATION BY GEOGRAPHIC AREA (CONTINUED)
The financial information by geographic area is as follows (in thousands):
Foreign sales of U.S. manufactured products were $475,074,000 in 1992, $351,635,000 in 1991, and $231,621,000 in 1990. These sales represent the customer value of the transfers between geographic areas, primarily to Europe, and domestic exports sold directly to foreign customers of $299,824,000 in 1992, $170,677,000 in 1991, and $102,202,000 in 1990.
NOTE 10 - COMMITMENTS AND CONTINGENCIES - ---------------------------------------
All principal manufacturing facilities are owned by the Company. Certain office, warehouse and light manufacturing facilities, transportation vehicles, and data processing equipment are leased. Future minimum lease payments required under noncancellable operating leases with initial terms in excess of one year are as follows (in thousands):
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED) - --------------------------------------------------- Total rental expense amounted to $16,312,000 in 1992, $13,305,000 in 1991, and $13,934,000 in 1990. Capital lease commitments of the Company are not significant.
In the normal course of business, the Company issues direct and indirect guarantees, primarily contract performance bonds and letters of credit. Management believes these guarantees will not adversely affect the consolidated financial statements.
The Company is involved in various litigation and claims arising in the normal course of business. Based on advice of counsel, management believes that recovery or liability with respect to these matters will not have a material effect on the consolidated financial position or results of operations of the Company.
NOTE 11 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - ----------------------------------------------------------- Cash paid during the year for interest and income taxes was as follows (in thousands):
DRESSER-RAND COMPANY EXECUTIVE OFFICES 1 BARON STEUBEN PLACE CORNING, NY 14830 (607)937-6400
OFFICERS - -----------------------------------------------
BEN R. STUART President and Chief Executive Officer
JOHN A. HELDMAN Vice President and Chief Financial Officer
PAUL M. BRYANT Vice President, Human Resources
EUGENE H. MOORE Vice President, General Counsel
MANAGEMENT COMMITTEE - -----------------------------------------------
THEODORE H. BLACK Chairman of the Board and Chief Executive Officer Ingersoll-Rand Company
WILLIAM E. BRADFORD President and Chief Operating Officer Dresser Industries, Inc.
JOHN J. MURPHY Chairman of the Board and Chief Executive Officer Dresser Industries, Inc.
JAMES E. PERRELLA President Ingersoll-Rand Company
BEN R. STUART President and Chief Executive Officer of the Company
AUDIT COMMITTEE - -----------------------------------------------
Consists of three (3) Directors each from Dresser Industries, Inc. and Ingersoll-Rand Company, for a total of six (6) Audit Committee members.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To The Partners of Dresser-Rand Company
Our audits of the consolidated financial statements referred to in our report dated November 12, 1992, appearing on page 3 of the 1992 consolidated financial statements of Dresser-Rand Company, also included an audit of the financial statement schedules listed in item 14 (d) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ Price Waterhouse
PRICE WATERHOUSE Hackensack, NJ November 12, 1992
DRESSER-RAND COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED SEPTEMBER 30, 1992, 1991 AND 1990 (AMOUNTS IN THOUSANDS)
(*) Other primarily represents reclassifications among categories and the effects of foreign currency translation.
SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE YEARS ENDED SEPTEMBER 30, 1992, 1991 AND 1990 (AMOUNTS IN THOUSANDS)
The average amounts outstanding were determined based on the sum of the month- end amounts outstanding divided by the number of months in the period. The weighted average interest rates were based on the sum of the quarter-end rates divided by the number of quarters in the period.
DRESSER-RAND COMPANY SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED SEPTEMBER 30, 1992, 1991 AND 1990 (AMOUNTS IN THOUSANDS)
CHARGED TO COSTS AND EXPENSES 1992 1991 1990 ------------------------------- Maintenance and repairs....... $22,473 $22,691 $21,481 ======= ======= =======
Amounts for preoperating costs and similar deferrals, royalties, advertising costs, and taxes other than payroll and income taxes are not presented because such amounts are less than one percent of total net sales.
INDEX TO EXHIBITS
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INDEX TO EXHIBITS (CONT.)
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INDEX TO EXHIBITS (CONT.)
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