SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO CURRENT REPORT ON FORM 8-K
Date of Report (Date of earliest event reported) - January 21, 1994
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
DRESSER INDUSTRIES, INC.
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(Exact Name of Registrant as specified in its Charter)
DELAWARE 1-4003 75-0813641
- ---------------------- ------------------------- -------------------
(State or other juris- (Commission File No.) (I. R. S. Employer
diction of incorporation) Identification No.)
2001 Ross Avenue, Dallas, Texas 75201
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code (214) 740-6000
--------------
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
January 21, 1994, as set forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
Supplemental Consolidated Financial Statements are attached hereto.
The following documents, which have been filed by Baroid Corporation
("Baroid") with the Securities and Exchange Commission are hereby incorporated
herein by reference:
1) Baroid's Annual Report on Form 10-K for its fiscal year ended
December 31, 1992;
2) Baroid's Quarterly Report on Form 10-Q for the period ended
March 31, 1993;
3) Baroid's Quarterly Report on Form 10-Q for the period ended June
30, 1993;
4) Baroid's Quarterly Report on Form 10-Q for the period ended
September 30, 1993;
5) Baroid's Current Reports on Form 8-K dated January 29, 1993,
February 1, 1993, March 29, 1993, April 16, 1993, May 5, 1993, June 7,
1993, July 26, 1993, August 2, 1993, September 7, 1993, October 1,
1993, October 27, 1993, November 9, 1993, December 29, 1993, January
14, 1994 and January 18, 1994; and
6) Baroid's final prospectus dated April 16, 1993, filed pursuant to
Rule 424(b) under the Securities Act of 1933, as amended.
(b) Pro Forma financial information.
Unaudited Pro Forma Combined Condensed Financial Statements are
attached hereto.
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of September 7, 1993.
23.1 Consent of Price Waterhouse.
23.2 Consent of Ernst & Young.
23.3 Consent of Arthur Andersen & Co.
23.4 Consent of Coopers & Lybrand.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
DRESSER INDUSTRIES, INC.
By: /s/ George H. Juetten
George H. Juetten
Vice President- Controller
Dated: March 10, 1994
Form 8-K/A
Amendment No. 1
To Current Report on Form 8-K
Items 7(a) and (b)
Financial Statements and
Pro Forma Financial Information
F-1
Index to Financial Statements
Page
Number
------
Management's Discussion and Analysis
of Financial Condition and Results
of Operations F-3
Report of Management F-10
Report of Independent Accountants -
Price Waterhouse F-11
Supplemental Consolidated Statements
of Earnings (Loss) - Years Ended
October 31, 1993, 1992 and 1991 F-12
Supplemental Consolidated Balance
Sheets - October 31, 1993 and 1992 F-13
Supplemental Consolidated Statements
of Shareholders' Investment -
Years Ended October 31, 1993, 1992
and 1991 F-14
Supplemental Consolidated Statements
of Cash Flows - Years Ended
October 31, 1993, 1992 and 1991 F-15
Notes to Supplemental Consolidated
Financial Statements F-16
Report of Independent Auditors -
Ernst & Young F-44
Report of Independent Accountants -
Coopers & Lybrand F-45
Unaudited Pro Forma Combined Condensed
Financial Statements F-46
F-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the Supplemental
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this report.
On January 21, 1994, a wholly owned subsidiary of Dresser Industries, Inc.
(Dresser) merged with Baroid Corporation (Baroid). Dresser issued 0.40 shares of
its common stock for each share of outstanding Baroid common stock, and Baroid
became a wholly-owned subsidiary of Dresser. The "Company" as used in this
discussion refers to Dresser and its subsidiaries including Baroid. The merger
has been accounted for as a pooling of interests. Financial data, statistical
data, financial statements and discussions of financial information included in
this report have been restated to reflect the financial position and results
of operations as if the merger had occurred on November 1, 1990. See Notes A and
D to Supplemental Consolidated Financial Statements for more information about
the merger.
RESULTS OF OPERATIONS 1993 COMPARED TO 1992
Earnings from continuing operations in 1993 increased $36 million to $128
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 partially offset by expenses related to the merger with Baroid.
Revenues increased from $4.6 billion to $5.0 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 $245 million in 1993 compared to $171 million
in 1992. Both 1993 ($105 million) and 1992 ($70 million) included Special
Charges. The 1993 charges were primarily due to the settlement of the Parker &
Parsley litigation ($65 million) and expenses related to the merger ($31
million). The 1992 charges were mainly attributable to restructuring,
particularly the Ingersoll-Dresser Pump joint venture. Excluding the Special
Charges, Earnings from Operations were $350 million in 1993 and $241 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 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 for a discussion of the results
for each segment.
Net other income increased from $8 million in 1992 to $23 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 36% in 1993 from 43% 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 $92 million in 1992, down from $138
million in 1991. The decrease reflected the after-tax special charge of $50
million for restructuring versus $26 million in 1991, and the increased expense
for retiree medical benefits of $21 million net of tax.
F-3
Revenues declined to $4.55 billion from $4.68 billion in 1991, with slightly
lower revenues in each segment accounting for the reduction.
Earnings from operations before Special Charges in 1992 of $241 million were
$55 million lower than the $296 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 for a discussion of the results
for each segment.
Net other income amounted to $8 million in 1992 versus net other expense of
$14 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 million
gain.
The effective tax rate increased to 43% in 1992 from 40% in 1991. A
reduction in utilization of foreign tax credits and increased foreign losses
with no corresponding tax benefit caused the increase.
In 1992, Dresser spun-off its industrial products operations (INDRESCO) and
made the decision to dispose of its Environmental Products business. In 1991,
Baroid made the decision to sell its Atlas Bradford and Shaffer subsidiaries
which comprised Baroid's oilfield equipment segment. The results of these
operations are reflected as Discontinued Operations in the 1992 and 1991
Supplemental Consolidated 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 $2.29 per share, which
is reflected as the Cumulative Effect of Accounting Changes in the 1992
Supplemental Consolidated 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 to Supplemental Consolidated Financial
Statements, 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
The Company's overall financial position remains strong at October 31, 1993.
During 1993, Dresser redeemed the last of its 11 3/4% debentures and issued
$300 million of 6.25% Notes due 2000. Also during 1993, Baroid issued $150
million of 8% Senior Notes due 2003. The proceeds from the $300 million of 6.25%
Notes and $200 million of commercial paper borrowings were 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). The proceeds from the $150 million of 8% Senior Notes were used to
repay a portion of the outstanding borrowings under Baroid's Bank Credit
Facility.
On January 28, 1994, the Company sold its interest in Western Atlas
International, Inc. for $358 million in cash and $200 million in notes. (See
Note S to Supplemental Consolidated Financial Statements.) Part of the proceeds
were used on January 28, 1994 to repay $180 million of short-term debt and
$31 million borrowings against Baroid's Bank Credit Facility. These payments
helped reduced the ratio of debt to total capitalization to 30% as of
January 31, 1994 giving a ratio that is consistent with the Company's objective
of 35% debt and 65% equity. Management believes that available cash and
short-term credit lines, combined with cash provided by operations, will be
adequate to finance known requirements.
F-4
Capital expenditures increased in 1993 by $59 million to $192 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 $200 million.
INDUSTRY SEGMENT ANALYSIS
See details of financial information by Industry Segment that follow the
discussion paragraphs below.
OILFIELD SERVICES
In 1993, Drilling Fluids revenues and operating profits increased $55
million and $10 million, respectively, from 1992. Both M-I Drilling Fluids and
Baroid Drilling Fluids had increases reflecting the favorable impact of higher
North American drilling activity on volume. In addition, M-I benefited
from restructuring costs accrued in 1992.
In 1992, Drilling Fluids revenues and operating profits were down from 1991
levels by $78 million and $29 million, respectively. The decreases were due to
lower levels of drilling activity both in North American and in international
markets.
In comparing 1993 to 1992, other Oilfield Service Operations showed
increases of $236 million in revenues and $59 million in operating profit. The
increases included revenues of $209 million and operating profit of $42 million
of Bredero Price and TK Valve which were acquired in 1993. Oilfield equipment
and drilling service operations benefited from the improvement in North American
drilling activity and from an increase in Sperry-Sun's international sales
volume.
Other Oilfield Service Operations had an increase of $36 million in
revenues but a decrease of $24 million in operating profit when comparing 1992
to 1991. The increase in revenues was attributable to Sub Sea's offshore
services operations and resulted from a significant contract off the coast of
New Zealand and contracts in the Gulf of Mexico to repair damage done by
Hurricane Andrew. Sub Sea had an increase in operating profit of $4.0 million.
The other operations suffered significantly lower operating profit due to a
world-wide reduction in drilling 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
sold its interest in Western Atlas International to the majority partner on
January, 28 1994 for $558 million. See Note S to Supplemental Consolidated
Financial Statements.
HYDROCARBON PROCESSING INDUSTRY
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
F-5
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.
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
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.
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 Q to Supplemental
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.
F-6
INDUSTRY SEGMENT FINANCIAL INFORMATION -- COVERED BY
REPORT OF INDEPENDENT ACCOUNTANTS (CONTINUED)
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
Consolidated sales and service revenues
Oilfield Services............................................................. $ 1,610.6 $ 1,319.6 $ 1,361.7
--------- --------- ---------
Hydrocarbon Processing Industry
Dresser-Rand (100%)......................................................... 1,118.1 -- --
Pump Operations............................................................. -- 517.5 553.1
Other Operations............................................................ 1,118.7 1,162.3 1,180.3
--------- --------- ---------
2,236.8 1,679.8 1,733.4
--------- --------- ---------
Engineering Services.......................................................... 1,209.3 1,558.8 1,594.2
--------- --------- ---------
Eliminations.................................................................. (12.9) (6.4) (8.2)
--------- --------- ---------
Total consolidated sales and service revenues............................. $ 5,043.8 $ 4,551.8 $ 4,681.1
--------- --------- ---------
--------- --------- ---------
Share of sales and service revenues of major joint ventures
Western Atlas (29.5%)......................................................... $ 320.4 $ 354.5 $ 343.1
Dresser-Rand (50%)............................................................ -- 645.2 595.1
Ingersoll-Dresser Pump (49%).................................................. 372.9 39.7 --
--------- --------- ---------
$ 693.3 $ 1,039.4 $ 938.2
--------- --------- ---------
--------- --------- ---------
Operating profit and earnings before taxes
Oilfield Services
Consolidated Operations..................................................... $ 134.6 $ 65.8 $ 118.0
Western Atlas Operations.................................................... 39.2 35.2 32.7
Special charges............................................................. .6 (17.1) (22.3)
--------- --------- ---------
174.4 83.9 128.4
--------- --------- ---------
Hydrocarbon Processing Industry
Dresser-Rand operations..................................................... 89.5 43.2 47.1
Pump Operations............................................................. 21.2 31.5 35.8
Other Operations............................................................ 127.9 131.1 118.0
Special charges............................................................. (7.5) (49.3) (3.3)
--------- --------- ---------
231.1 156.5 197.6
--------- --------- ---------
Engineering Services.......................................................... 75.8 67.6 53.0
--------- --------- ---------
Total operating profit.................................................... 481.3 308.0 379.0
General corporate expenses.................................................... (68.1) (65.8) (62.6)
Other nonsegment expenses..................................................... (35.1) (33.2) (22.7)
Special charges............................................................... (98.2) (3.6) (.6)
Retiree benefit curtailment gain.............................................. 12.8 -- --
Interest expense, net......................................................... (24.8) (26.7) (36.8)
--------- --------- ---------
Earnings before taxes..................................................... $ 267.9 $ 178.7 $ 256.3
--------- --------- ---------
--------- --------- ---------
F-7
INDUSTRY SEGMENT FINANCIAL INFORMATION -- COVERED BY
REPORT OF INDEPENDENT ACCOUNTANTS (CONTINUED)
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
Identifiable assets
Oilfield Services
Consolidated Operations..................................................... $ 1,558.2 $ 1,049.2 $ 1,051.1
Western Atlas investment.................................................... 278.2 259.0 236.0
--------- --------- ---------
1,836.4 1,308.2 1,287.1
--------- --------- ---------
Hydrocarbon Processing Industry
Dresser-Rand assets/investment.............................................. 756.7 733.7 126.9
Pump investment/assets...................................................... 140.0 147.8 279.7
Other Operations............................................................ 608.2 634.9 707.6
--------- --------- ---------
1,504.9 1,516.4 1,114.2
--------- --------- ---------
Engineering Services.......................................................... 510.7 470.7 395.9
--------- --------- ---------
Eliminations.................................................................. (22.0) (21.5) (21.5)
--------- --------- ---------
Total identifiable assets................................................. 3,830.0 3,273.8 2,775.7
Investment in INDRESCO........................................................ -- -- 399.2
Corporate assets.............................................................. 540.7 559.5 629.0
--------- --------- ---------
Total assets.............................................................. $ 4,370.7 $ 3,833.3 $ 3,803.9
--------- --------- ---------
--------- --------- ---------
Consolidated capital expenditures
Oilfield Services............................................................. $ 80.8 $ 64.6 $ 105.9
--------- --------- ---------
Hydrocarbon Processing Industry
Dresser-Rand (100%)......................................................... 57.5 -- --
Pump Operations............................................................. -- 12.7 11.5
Other Operations............................................................ 33.6 40.3 50.4
--------- --------- ---------
91.1 53.0 61.9
--------- --------- ---------
Engineering Services.......................................................... 2.8 13.1 23.7
--------- --------- ---------
Corporate..................................................................... 17.0 2.4 11.1
--------- --------- ---------
Total consolidated capital expenditures................................... $ 191.7 $ 133.1 $ 202.6
--------- --------- ---------
--------- --------- ---------
Share of capital expenditures of major joint ventures
Western Atlas (29.5%)......................................................... $ 46.7 $ 70.7 $ 58.7
Dresser-Rand (50%)............................................................ -- 65.4 24.0
Ingersoll-Dresser Pump (49%).................................................. 11.3 -- --
--------- --------- ---------
Total..................................................................... $ 58.0 $ 136.1 $ 82.7
--------- --------- ---------
--------- --------- ---------
F-8
INDUSTRY SEGMENT FINANCIAL INFORMATION -- COVERED BY
REPORT OF INDEPENDENT ACCOUNTANTS (CONTINUED)
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
Consolidated depreciation and amortization
Oilfield Services............................................................. $ 75.9 $ 64.8 $ 56.7
--------- --------- ---------
Hydrocarbon Processing Industry
Dresser-Rand (100%)......................................................... 64.4 -- --
Pump Operations............................................................. .3 13.4 13.2
Other Operations............................................................ 33.8 33.0 31.3
--------- --------- ---------
98.5 46.4 44.5
--------- --------- ---------
Engineering Services.......................................................... 20.8 20.9 18.7
--------- --------- ---------
Corporate..................................................................... 13.2 13.9 17.5
--------- --------- ---------
Total consolidated depreciation and amortization.......................... $ 208.4 $ 146.0 $ 137.4
--------- --------- ---------
--------- --------- ---------
Share of depreciation and amortization of major joint ventures
Western Atlas (29.5%)......................................................... $ 39.6 $ 37.0 $ 30.0
Dresser-Rand (50%)............................................................ -- 17.8 19.2
Ingersoll-Dresser Pump (49%).................................................. 10.8 -- --
--------- --------- ---------
$ 50.4 $ 54.8 $ 49.2
--------- --------- ---------
--------- --------- ---------
F-9
REPORT OF MANAGEMENT
The supplemental consolidated financial statements of Dresser Industries,
Inc. and Subsidiaries 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 report. 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 supplemental consolidated 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 supplemental
consolidated 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
supplemental consolidated 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
supplemental consolidated 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.
F-10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Dresser Industries, Inc.
In our opinion, based upon our audits and the reports of other auditors, the
accompanying supplemental consolidated balance sheets and the related
supplemental consolidated statements of earnings (loss), of shareholders'
investment and of cash flows 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 did not audit the
financial statements of certain of the combined companies for 1992 and 1991,
which statements reflect total assets of $645.5 million at December 31, 1992 and
total revenues of $754.8 million and $710.8 million for the years ended December
31, 1992 and 1991, respectively. Those statements were audited by other auditors
whose reports thereon have been furnished to us, and our opinion expressed
herein, insofar as it relates to these 1992 and 1991 amounts, is based solely on
the reports of the other auditors. 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 and the reports of other
auditors provide a reasonable basis for the opinion expressed above.
As described in Notes A and D, on January 21, 1994 Dresser Industries, Inc.
merged with Baroid Corporation and its subsidiaries in a transaction accounted
for as a pooling of interests. The accompanying supplemental consolidated
financial statements give retroactive effect to the merger of Dresser
Industries, Inc. with Baroid Corporation.
As discussed in Notes A, G and M to the supplemental 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
February 9, 1994
F-11
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
YEARS ENDED OCTOBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
Sales........................................................................ $ 3,414.8 $ 2,619.4 $ 2,756.0
Service revenues............................................................. 1,629.0 1,932.4 1,925.1
---------- ---------- ----------
Total sales and service revenues........................................... 5,043.8 4,551.8 4,681.1
---------- ---------- ----------
Cost of sales................................................................ 2,340.9 1,681.0 1,769.8
Cost of services............................................................. 1,452.0 1,799.9 1,790.2
---------- ---------- ----------
Total costs of sales and services.......................................... 3,792.9 3,480.9 3,560.0
---------- ---------- ----------
Gross earnings............................................................. 1,250.9 1,070.9 1,121.1
Earnings from major joint ventures........................................... 60.6 80.6 79.8
Selling, engineering, administrative and general expenses.................... (961.9) (910.9) (904.5)
Special charges.............................................................. (105.1) (70.0) (26.2)
---------- ---------- ----------
Earnings from operations................................................... 244.5 170.6 270.2
---------- ---------- ----------
Other income (deductions)
Interest expense........................................................... (43.9) (47.0) (58.8)
Interest earned............................................................ 19.1 20.3 22.0
Retiree benefit curtailment gain........................................... 12.8 -- --
Other, net................................................................. 35.4 34.8 22.9
---------- ---------- ----------
Total.................................................................... 23.4 8.1 (13.9)
---------- ---------- ----------
Earnings before income taxes and other items below......................... 267.9 178.7 256.3
Income taxes................................................................. (95.5) (76.2) (102.8)
Minority interest............................................................ (44.2) (10.3) (15.9)
---------- ---------- ----------
Earnings from continuing operations........................................ 128.2 92.2 137.6
Discontinued operations...................................................... -- (35.3) (8.0)
---------- ---------- ----------
Earnings before extraordinary items and accounting changes................. 128.2 56.9 129.6
Extraordinary items.......................................................... -- (6.3) 6.1
Cumulative effect of accounting changes...................................... -- (393.8) --
---------- ---------- ----------
Net earnings (loss)...................................................... $ 128.2 $ (343.2) $ 135.7
---------- ---------- ----------
---------- ---------- ----------
Earnings (loss) per common share
Earnings from continuing operations........................................ $ .74 $ .54 $ .80
Discontinued operations.................................................... -- (.20) (.05)
---------- ---------- ----------
Earnings before extraordinary items and accounting changes................. .74 .34 .75
Extraordinary items........................................................ -- (.04) .04
Cumulative effect of accounting changes.................................... -- (2.29) --
---------- ---------- ----------
Net earnings (loss)...................................................... $ .74 $ (1.99) $ .79
---------- ---------- ----------
---------- ---------- ----------
See Accompanying Notes to Supplemental Consolidated Financial Statements.
F-12
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
OCTOBER 31,
--------------------
1993 1992
--------- ---------
ASSETS (IN MILLIONS)
Current Assets
Cash and cash equivalents................................................................ $ 272.8 $ 185.8
Notes and accounts receivable............................................................ 889.8 805.5
Less allowance for doubtful receivables.................................................. 35.0 26.4
--------- ---------
854.8 779.1
Inventories
Finished products and work in process.................................................. 584.8 582.3
Raw materials and supplies............................................................. 143.5 75.8
--------- ---------
728.3 658.1
Deferred income taxes.................................................................... 100.9 71.8
Prepaid expenses......................................................................... 46.5 42.6
--------- ---------
Total Current Assets................................................................... 2,003.3 1,737.4
--------- ---------
Investments and Other Assets
Investments in and receivables from major joint ventures................................. 414.4 406.8
Intangibles less accumulated amortization of $78.4 in 1993 and $61.4 in 1992............. 610.7 414.2
Deferred income taxes.................................................................... 210.9 210.5
Other assets............................................................................. 189.7 175.7
--------- ---------
Total Investments and Other Assets..................................................... 1,425.7 1,207.2
--------- ---------
Property, Plant and Equipment -- at cost
Land and land improvements............................................................. 120.6 101.6
Buildings.............................................................................. 392.3 378.7
Machinery and equipment................................................................ 1,827.4 1,738.0
--------- ---------
2,340.3 2,218.3
Less accumulated depreciation............................................................ 1,398.6 1,329.6
--------- ---------
Total Properties -- Net................................................................ 941.7 888.7
--------- ---------
Total Assets......................................................................... $ 4,370.7 $ 3,833.3
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Short-term debt and current portion of long-term debt.................................... $ 306.8 $ 178.0
Accounts payable......................................................................... 367.8 368.0
Advances from customers on contracts..................................................... 288.3 262.2
Accrued compensation and benefits........................................................ 240.3 239.3
Accrued warranty costs................................................................... 57.9 76.7
Income taxes............................................................................. 102.3 120.7
Other accrued liabilities................................................................ 341.3 256.4
--------- ---------
Total Current Liabilities.............................................................. 1,704.7 1,501.3
--------- ---------
Employee Retirement Benefit Obligations.................................................... 707.6 698.3
Long-Term Debt............................................................................. 486.7 142.5
Deferred Compensation, Insurance Reserves and Other Liabilities............................ 103.0 97.6
Minority Interest.......................................................................... 154.9 153.4
Shareholders' Investment --
Preferred shares, 10 million authorized
Common shares, $0.25 par value
Authorized: 400 million
Issued: 174.8 million................................................................... 43.7 43.7
Capital in excess of par value........................................................... 366.7 369.8
Retained earnings........................................................................ 951.0 924.7
Cumulative translation adjustments....................................................... (130.2) (78.2)
Pension liability adjustment............................................................. (13.8) (4.0)
--------- ---------
1,217.4 1,256.0
Less treasury shares, at cost............................................................ 3.6 15.8
--------- ---------
Total Shareholders' Investment......................................................... 1,213.8 1,240.2
--------- ---------
Commitments and Contingencies
Total Liabilities and Shareholders' Investment....................................... $ 4,370.7 $ 3,833.3
--------- ---------
--------- ---------
See Accompanying Notes to Supplemental Consolidated Financial Statements.
F-13
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' INVESTMENT
YEARS ENDED OCTOBER 31,
-----------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
Common Shares, Par Value
Beginning of year............................................................. $ 43.7 $ 43.7 $ 43.7
--------- --------- ---------
End of year................................................................. $ 43.7 $ 43.7 $ 43.7
--------- --------- ---------
--------- --------- ---------
Capital in Excess of Par Value
Beginning of year............................................................. $ 369.6* 349.7 $ 350.3
Shares issued in connection with an acquisition............................... -- 23.3 --
Shares issued under benefit and dividend reinvestment plans................... (2.9) (3.2) (3.4)
Common stock warrants issued.................................................. -- -- 2.8
--------- --------- ---------
End of year................................................................. $ 366.7 $ 369.8 $ 349.7
--------- --------- ---------
--------- --------- ---------
Retained Earnings
Beginning of year............................................................. $ 924.2* $ 1,766.1 $ 1,725.9
Net earnings (loss)........................................................... 128.2 (343.2) 135.7
Distribution of INDRESCO Inc. shares.......................................... -- (402.2) --
Dividends on common shares**.................................................. (100.0) (96.0) (95.5)
Other......................................................................... (1.4) -- --
--------- --------- ---------
End of year................................................................. $ 951.0 $ 924.7 $ 1,766.1
--------- --------- ---------
--------- --------- ---------
Cumulative Translation Adjustments
Beginning of year............................................................. $ (68.2)* $ (41.8) $ (7.0)
Translation rate changes...................................................... (62.0) (24.7) (34.8)
Distribution of INDRESCO Inc. shares.......................................... -- (11.7) --
--------- --------- ---------
End of year................................................................. $ (130.2) $ (78.2) $ (41.8)
--------- --------- ---------
--------- --------- ---------
Pension Liability Adjustment
Beginning of year............................................................. $ (4.0) $ (3.0) $ (1.7)
Additional minimum pension liability.......................................... (9.8) (1.0) (1.3)
--------- --------- ---------
End of year................................................................. $ (13.8) $ (4.0) $ (3.0)
--------- --------- ---------
--------- --------- ---------
Treasury Shares, at Cost
Beginning of year............................................................. $ (15.8) $ (48.0) $ (23.2)
Shares purchased.............................................................. -- -- (36.0)
Shares issued in connection with an acquisition............................... -- 20.0 --
Shares issued under benefit and dividend reinvestment plans................... 12.2 12.2 11.2
--------- --------- ---------
End of year................................................................. $ (3.6) $ (15.8) $ (48.0)
--------- --------- ---------
--------- --------- ---------
Total Shareholders' Investment, End of year............................... $ 1,213.8 $ 1,240.2 $ 2,066.7
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
* Beginning of year balance is not the same as end of prior year due to
duplication of Baroid activity for November and December of 1993.
** Dresser $.60 per share and Baroid $.20 per share in each year.
See Accompanying Notes to Supplemental Consolidated Financial Statements.
F-14
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS)
Cash flows from operating activities:
Net earnings (loss)........................................................... $ 128.2 $ (343.2) $ 135.7
--------- --------- ---------
Adjustments to reconcile net earnings (loss) to cash flow provided by
operating activities:
Cumulative effect of accounting changes..................................... -- 393.8 --
Special charges............................................................. 31.0 49.0 22.9
Discontinued operations losses.............................................. -- 35.3 8.0
Retiree benefit curtailment gain............................................ (12.8) -- --
Depreciation and amortization............................................... 208.4 146.0 137.4
Gain on business disposals.................................................. -- (18.2) (3.5)
Cash received from partnership operations................................... 10.0 3.0 65.0
Earnings from major joint ventures.......................................... (60.6) (80.6) (79.8)
Minority interest in earnings............................................... 44.2 10.3 15.9
Decrease (increase) in accounts receivable.................................. (41.7) (38.2) 26.6
Decrease (increase) in inventories.......................................... (85.4) 12.8 (22.5)
Increase (decrease) in accounts payable and accrued liabilities............. 11.8 29.4 (39.4)
Increase in advances from customers on contracts............................ 55.1 44.6 33.8
Increase (decrease) in income taxes payable................................. (33.5) (37.8) 25.2
Other, net.................................................................. (41.7) 5.9 (32.4)
--------- --------- ---------
Total adjustments......................................................... 84.8 555.3 157.2
--------- --------- ---------
Net cash provided by operating activities..................................... 213.0 212.1 292.9
--------- --------- ---------
Cash flows from investing activities:
Business acquisitions......................................................... (294.4) (1.9) (89.2)
Capital expenditures.......................................................... (191.7) (133.1) (202.6)
Cash contributed to joint venture operations.................................. -- (8.7) --
Advances (to) from discontinued operations.................................... 5.0 (24.4) (35.6)
Proceeds from disposals of assets............................................. 20.9 83.2 25.0
--------- --------- ---------
Net cash used by investing activities....................................... (460.2) (84.9) (302.4)
--------- --------- ---------
Cash flows from financing activities:
Increase in short-term debt................................................... 217.3 7.1 9.9
Proceeds from issuance of long-term debt...................................... 539.6 65.3 333.6
Payments on long-term debt.................................................... (301.3) (235.2) (298.0)
Dividends paid................................................................ (100.0) (96.0) (95.6)
Purchases of common shares, net............................................... -- -- (36.0)
--------- --------- ---------
Net cash provided (used) by financing activities............................ 355.6 (258.8) (86.1)
--------- --------- ---------
Effect of translation adjustments on cash....................................... (12.1) 1.0 (7.5)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................ 96.3 (130.6) (103.1)
Cash and cash equivalents, beginning of year.................................... 176.5* 316.4 419.5
--------- --------- ---------
Cash and cash equivalents, end of year.......................................... $ 272.8 $ 185.8 $ 316.4
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
* Beginning of year balance is not the same as end of prior year due to
duplication of Baroid activity for November and December of 1993.
See Accompanying Notes to Supplemental Consolidated Financial Statements.
F-15
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On January 21, 1994, a wholly owned subsidiary of Dresser Industries, Inc.
(Dresser) merged with Baroid Corporation (Baroid). Dresser issued 0.40 shares of
its common stock for each share of outstanding Baroid common stock, and Baroid
became a wholly-owned subsidiary of Dresser. The "Company" as used in these
supplemental consolidated financial statements refers to Dresser and its
subsidiaries including Baroid.
The merger has been accounted for as a pooling of interests. These
supplemental consolidated financial statements reflect the financial position
and results of operations of the combined companies as if the merger had
occurred on November 1, 1990. The Supplemental Consolidated Statement of
Earnings for 1991 and 1992 include Dresser for the twelve months ended October
31, 1991 and 1992, respectively, and Baroid for the twelve months ended December
31, 1991 and 1992, respectively. The Supplemental Consolidated Statement of
Earnings for 1993 includes twelve months ended October 31, 1993 for both Dresser
and Baroid. Baroid sales of $138.5 million and net earnings of $4.2 million for
the months of November and December of 1992 are included in the Supplemental
Consolidated Statements of Earnings for both 1992 and 1993. The Supplemental
Consolidated 1992 Balance Sheet includes Dresser as of October 31, 1992 and
Baroid as of December 31, 1992, and the Supplemental Consolidated 1993 Balance
Sheet includes both Dresser and Baroid as of October 31, 1993. See Note D for
more information.
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
inventories is determined using either the first-in, first-out (FIFO) method or
the average cost method. The cost of certain U.S. inventories produced by
divisions of Dresser is determined using the last-in, first-out (LIFO) 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.
F-16
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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.
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.
F-17
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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):
1993 1992 1991
--------- --------- ---------
Cash payments for income taxes........................................... $ 112.9 $ 101.8 $ 86.5
--------- --------- ---------
--------- --------- ---------
Cash payments for interest on debt....................................... $ 39.7 $ 47.6 $ 59.8
--------- --------- ---------
--------- --------- ---------
Cash payments for interest on tax settlements............................ $ 14.0 $ -- $ 17.3
--------- --------- ---------
--------- --------- ---------
Acquisition of Businesses................................................
Assets acquired........................................................ $ 54.4 $ 91.6
Liabilities assumed.................................................... (9.2) (33.8)
Warrants issued........................................................ -- (2.8)
Common Shares issued from Treasury..................................... (43.3) --
--------- ---------
Net cash paid........................................................ $ 1.9 $ 55.0
--------- ---------
--------- ---------
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
Supplemental Consolidated 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):
OCTOBER 31,
------------------------
INGERSOLL-DRESSER PUMP COMPANY 1993 1992
----------- -----------
Current assets.................................................. $ 357.7 $ 435.8
Noncurrent assets............................................... 183.2 180.6
----------- -----------
Total assets.................................................. $ 540.9 $ 616.4
----------- -----------
----------- -----------
Current liabilities............................................. $ 218.0 $ 251.8
Noncurrent liabilities.......................................... 46.9 59.8
Owners' equity --
Contributed capital and retained earnings..................... 311.6 309.8
Cumulative translation adjustment............................. (35.6) (5.0)
----------- -----------
276.0 304.8
----------- -----------
Total liabilities and owners' equity.......................... $ 540.9 $ 616.4
----------- -----------
----------- -----------
F-18
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- MAJOR UNCONSOLIDATED JOINT VENTURES (CONTINUED)
YEAR ENDED MONTH OF
OCTOBER 31, OCTOBER
1993 1992
----------- -----------
Net sales....................................................................... $ 761.0 $ 81.0
----------- -----------
----------- -----------
Gross profit.................................................................... $ 159.1 $ 16.3
----------- -----------
----------- -----------
Income from continuing operations and before extraordinary items................ $ 3.3 $ 1.8
----------- -----------
----------- -----------
Net income...................................................................... $ 3.3 $ 1.8
----------- -----------
----------- -----------
The Company's investment........................................................ $ 136.2 $ 147.8
----------- -----------
----------- -----------
The Company's share of pre-tax earnings......................................... $ 21.4 $ 2.2
----------- -----------
----------- -----------
The Company's share of pre-tax earnings for 1993 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.
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 Dresser
Atlas and Resources Group operations. On January 28, 1994, the Company sold its
29.5% interest in Western Atlas International, Inc. to a wholly-owned subsidiary
of Litton Industries for $558 million. See Note S for additional information.
Summarized financial information is as follows (in millions):
SEPTEMBER 30,
--------------------
WESTERN ATLAS INTERNATIONAL, INC. 1993 1992
--------- ---------
Current assets.................................................. $ 430.7 $ 459.4
Noncurrent assets............................................... 778.2 770.8
--------- ---------
Total assets.................................................. $ 1,208.9 $ 1,230.2
--------- ---------
--------- ---------
Current liabilities............................................. $ 170.9 $ 214.0
Noncurrent liabilities.......................................... 94.3 151.6
Shareholders' investment........................................ 943.7 864.6
--------- ---------
Total liabilities and shareholders' investment................ $ 1,208.9 $ 1,230.2
--------- ---------
--------- ---------
F-19
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- MAJOR UNCONSOLIDATED JOINT VENTURES (CONTINUED)
YEARS ENDED SEPTEMBER 30,
----------------------------------
1993 1992 1991
---------- ---------- ----------
Net sales.......................................................... $ 1,086.8 $ 1,201.8 $ 1,167.2
---------- ---------- ----------
---------- ---------- ----------
Gross profit....................................................... $ 236.2 $ 243.8 $ 222.6
---------- ---------- ----------
---------- ---------- ----------
Income from continuing operations before extraordinary items....... $ 81.9 $ 74.3 $ 68.9
---------- ---------- ----------
---------- ---------- ----------
Net income......................................................... $ 79.6 $ 74.3 $ 68.9
---------- ---------- ----------
---------- ---------- ----------
The Company's investment and receivable............................ $ 278.2 $ 259.0 $ 236.0
---------- ---------- ----------
---------- ---------- ----------
The Company's share of pre-tax earnings............................ $ 39.2 $ 35.2 $ 32.7
---------- ---------- ----------
---------- ---------- ----------
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):
YEARS ENDED
SEPTEMBER 30,
--------------------
DRESSER-RAND COMPANY 1992 1991
--------- ---------
Net sales....................................................... $ 1,290.3 $ 1,190.2
--------- ---------
--------- ---------
Gross profit.................................................... $ 244.8 $ 242.9
--------- ---------
--------- ---------
Income from continuing operations before extraordinary
items........................................................ $ 74.7 $ 74.7
--------- ---------
--------- ---------
Net income...................................................... $ 77.8 $ 83.6
--------- ---------
--------- ---------
The Company's share of pre-tax earnings......................... $ 43.2 $ 47.1
--------- ---------
--------- ---------
NOTE D -- BUSINESS COMBINATIONS
MERGER OF DRESSER INDUSTRIES, INC. AND BAROID CORPORATION
On January 21, 1994, Dresser acquired Baroid in a merger accounted for as a
pooling of interests. Dresser issued 37.3 million shares of its common stock in
exchange for all of the outstanding Baroid common stock. The exchange was based
on .4 share of Dresser common stock for one share of Baroid common stock. The
Dresser shares issued included 28.8 million of Treasury Shares. After the
merger, Baroid became a wholly-owned subsidiary of Dresser. Separate results of
the operations of the two companies are summarized below (in millions):
1993 1992 1991
---------- ---------- ----------
Net sales
Dresser.......................................................... $ 4,216.0 $ 3,797.0 $ 3,970.3
Baroid........................................................... 827.8 754.8 710.8
---------- ---------- ----------
Combined......................................................... $ 5,043.8 $ 4,551.8 $ 4,681.1
---------- ---------- ----------
---------- ---------- ----------
F-20
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- BUSINESS COMBINATIONS (CONTINUED)
1993 1992 1991
---------- ---------- ----------
Earnings from continuing operations
Dresser.......................................................... $ 126.7 $ 69.9 $ 132.0
Baroid........................................................... 1.5 22.3 5.6
---------- ---------- ----------
Combined......................................................... $ 128.2 $ 92.2 $ 137.6
---------- ---------- ----------
---------- ---------- ----------
Discontinued operations
Dresser.......................................................... $ -- $ (35.3) $ 9.2
Baroid........................................................... -- (17.2)
---------- ---------- ----------
Combined......................................................... $ -- $ (35.3) $ (8.0)
---------- ---------- ----------
---------- ---------- ----------
Earnings before extraordinary items and accounting changes
Dresser.......................................................... $ 126.7 $ 34.6 $ 141.2
Baroid........................................................... 1.5 22.3 (11.6)
---------- ---------- ----------
Combined......................................................... $ 128.2 $ 56.9 $ 129.6
---------- ---------- ----------
---------- ---------- ----------
Extraordinary items
Dresser.......................................................... $ -- $ (6.3) $ 5.6
Baroid........................................................... -- -- .5
---------- ---------- ----------
Combined......................................................... $ -- $ (6.3) $ 6.1
---------- ---------- ----------
---------- ---------- ----------
Cumulative effect of accounting changes
Dresser $ -- $ (393.8) $ --
Baroid........................................................... -- -- --
---------- ---------- ----------
Combined......................................................... $ -- $ (393.8) $ --
---------- ---------- ----------
---------- ---------- ----------
Net earnings (loss)
Dresser.......................................................... $ 126.7 $ (365.5) $ 146.8
Baroid........................................................... 1.5 22.3 (11.1)
---------- ---------- ----------
Combined......................................................... $ 128.2 $ (343.2) $ 135.7
---------- ---------- ----------
---------- ---------- ----------
As discussed in Note N, non-recurring expenses of $31 million attributable
to the merger have been reflected in the combined results of operations for the
year ended October 31, 1993.
OTHER BUSINESS COMBINATIONS
Effective February 1, 1993 Dresser 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, Dresser 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
F-21
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- BUSINESS COMBINATIONS (CONTINUED)
for as purchases. The resulting goodwill is being amortized on a straight-line
basis over 40 years. The Supplemental Consolidated Statement of Earnings
includes the results of operations of Bredero Price from February 1, 1993 and TK
Valve from April 1, 1993.
The following unaudited pro forma summary presents information as if the
Bredero Price and TK Valve 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):
1993 1992
---------- ----------
(UNAUDITED)
Sales and service revenues..................................................... $ 5,133.5 $ 4,810.4
---------- ----------
---------- ----------
Earnings before extraordinary item and accounting changes...................... $ 136.7 $ 86.7
---------- ----------
---------- ----------
Net earnings (loss)............................................................ $ 136.7 $ (313.4)
---------- ----------
---------- ----------
Per share:
Earnings before extraordinary item and accounting changes.................... $ .78 $ .50
---------- ----------
---------- ----------
Net earnings (loss).......................................................... $ .78 $ (1.82)
---------- ----------
---------- ----------
In July 1993, Baroid acquired the bentonite mining operations of Tremont for
approximately $20.4 million, which was accounted for as a purchase. Bentonite is
a clay often used in drilling fluids as well as other industrial applications.
On January 29, 1993 Baroid issued 17.7 million shares of its common stock
(7.1 million of the Company's shares) in exchange for all of the outstanding
common stock of Sub Sea International Inc. (Sub Sea). Sub Sea operates in the
offshore services segment of the oil and gas industry. Sub Sea provides diving
services, engineering and unmanned, remotely operated underwater vehicles to
inspect, construct, maintain and repair offshore drilling rigs and platforms,
underwater pipelines and other offshore oil and gas facilities. Sub Sea also
owns and operates marine equipment which performs pipeline installation, burial
and inspection and maintenance and repair work on platforms.
The acquisition of Sub Sea was accounted for as a pooling of interests, and
the financial statements for periods prior to the Sub Sea merger have
been restated to reflect the financial position and results of operations of
the combined companies as if they had merged on January 1, 1991.
In 1992, Dresser 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.
In April 1991, Baroid acquired all of the outstanding capital stock of
Diamant Boart Stratabit (subsequently renamed DB Stratabit, Inc. and referred to
as "DBS"), a worldwide provider of diamond drill bits and coring products and
services. The cost of acquiring DBS, accounted for as a purchase, consisted of
(i) $53.3 million in cash, (ii) $14.1 million of assumed debt, (iii) five-year
warrants issued to purchase up to 800,000 shares of the Company's common
stock at an exercise price of $19.6875 per share, valued at $2.8 million and
(iv) transaction costs of $1.7 million. The cost of the acquisition exceeded the
fair market value of the assets acquired and liabilities assumed by
approximately $28.9 million, which is being amortized under the straight-line
method over 40 years.
The pro forma effect of all acquisitions other than Bredero Price and TK
Valve is not significant.
F-22
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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
Supplemental Consolidated Statement of Earnings includes a charge of $40.8
million or $.24 per share 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):
1993 1992 1991
--------- --------- ---------
Domestic................................................................. $ 128.7 $ 72.1 $ 122.1
Foreign.................................................................. 139.2 106.6 134.2
--------- --------- ---------
Total earnings before income taxes..................................... $ 267.9 $ 178.7 $ 256.3
--------- --------- ---------
--------- --------- ---------
The components of the provision for income taxes of continuing operations
are as follows (in millions):
1993 1992 1991
--------- --------- ---------
Current
U.S. Federal........................................................... $ 47.0 $ 46.3 $ 52.8
State.................................................................. 3.2 2.0 4.1
Foreign................................................................ 59.2 54.0 60.3
--------- --------- ---------
109.4 102.3 117.2
--------- --------- ---------
Deferred
U.S. Federal........................................................... (19.1) (28.8) (9.1)
Foreign................................................................ 5.2 2.7 (5.3)
--------- --------- ---------
(13.9) (26.1) (14.4)
--------- --------- ---------
Total income tax provision........................................... $ 95.5 $ 76.2 $ 102.8
--------- --------- ---------
--------- --------- ---------
F-23
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- INCOME TAXES (CONTINUED)
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 in the 1992 charge to earnings referred to above.
The 1991 current taxes of $117.2 contains a charge of $6.1 million
equivalent to income taxes which would have been incurred had net operating loss
carryforwards not been available. The income tax benefit resulting from
utilizing the operating loss carryforwards is 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 $595 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 effective provision
for income taxes for continuing operations reflected in the Supplemental
Consolidated Statements of Earnings (in millions):
1993 1992 1991
--------- --------- ---------
Provision for income taxes at statutory rates............................. $ 93.3 $ 60.8 $ 87.1
Minority interest's share of domestic partnership earnings................ (7.9) (3.1) (4.8)
Enacted tax rate change................................................... (8.7) --
Withholding taxes and foreign income taxes on branch profits.............. 16.2 15.1 11.2
Utilization of foreign tax credits........................................ (25.2) (15.1) (19.7)
Foreign losses not benefitted............................................. 8.8 12.4 7.7
Foreign taxes in excess of U.S. rate on foreign earnings.................. 5.4 2.9 2.8
Additional taxes for repatriation of foreign earnings..................... 4.1 4.9 7.4
Special charges for which no income tax benefits are available............ -- -- 6.9
Tax effect of nondeductible merger expenses............................... 7.9 -- --
Benefit of tax basis of property in excess of book value.................. -- (1.4) (3.4)
State and local income taxes, net of U.S. Federal income tax benefit...... 2.1 1.3 2.3
Other..................................................................... (.5) (1.6) 5.3
--------- --------- ---------
Provision for income taxes.............................................. $ 95.5 $ 76.2 $ 102.8
--------- --------- ---------
--------- --------- ---------
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) relate to the following (in millions):
1993 1992 1991
--------- --------- ---------
Post retirement benefits.................................................. $ 5.8 $ (11.2) $ --
Reserve for litigation settlement......................................... (24.3) -- --
Restructuring costs....................................................... 6.1 (17.3) --
Enacted tax rate change................................................... (8.7) -- --
Other items including warranty, insurance and similar accruals............ 7.2 2.4 (14.4)
--------- --------- ---------
Total deferred taxes.................................................... $ (13.9) $ (26.1) $ (14.4)
--------- --------- ---------
--------- --------- ---------
F-24
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- INCOME TAXES (CONTINUED)
The components of the net deferred tax asset as of October 31, were as
follows (in millions):
1993 1992
--------- ---------
Deferred tax assets:
Post retirement benefits......................................................... $ 195.8 $ 201.6
Warranty reserves................................................................ 15.1 14.1
Inventory........................................................................ 17.9 21.3
Restructuring costs.............................................................. 11.2 17.3
Insurance reserves............................................................... 36.3 34.5
Bad debt......................................................................... 19.8 20.5
Pension.......................................................................... 5.7 9.0
Deferred compensation............................................................ 12.8 12.8
Reserve for litigation settlement................................................ 24.3 --
Net operating loss carryforwards................................................. 20.8 17.6
Other items...................................................................... 49.8 8.5
Valuation allowance.............................................................. (54.3) (42.9)
--------- ---------
Total deferred tax asset....................................................... 355.2 314.3
Deferred tax liability -- Depreciation............................................. (43.4) (32.0)
--------- ---------
Net deferred tax asset............................................................. $ 311.8 $ 282.3
--------- ---------
--------- ---------
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 $11.4 million in the valuation allowance for deferred tax
assets relates to changes in U.S. and foreign loss carryforwards.
NOTE H -- SHORT-TERM DEBT
Short-term debt at October 31, 1993 consists of $216 million of domestic
commercial paper and $74 million of borrowings from U.S. and foreign banks.
The Company has short-term committed bank lines of credit totalling $250
million of which $216 million support commercial paper. Such lines provide for
borrowings at prevailing prime 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 $122.3 million.
F-25
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I -- LONG-TERM DEBT
Long-term debt is summarized as follows (in millions):
1993 1992
------ ------
Notes, 6 1/4%, due 2000..................................... $300.0 $ --
Senior notes, 8%, due 2003.................................. 149.0 --
Sinking fund debentures, 11 3/4%, due 2007.................. -- 62.5
Bank credit facility........................................ 21.0 130.3
Canadian credit facility, 4.6%.............................. 6.9 10.4
Revolving credit facility, 8%............................... 10.2 7.3
Notes payable under institutional loan agreements, 8%, due
in annual installments to June 1997........................ -- 11.3
Other loan agreements, 3 1/2% to 11 7/8%, due in
installments to 2003....................................... 16.4 26.9
------ ------
503.5 248.7
Less portion due within one year............................ 16.8 106.2
------ ------
$486.7 $142.5
------ ------
------ ------
In June 1993, Dresser 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, Dresser redeemed $133.1 million of Sinking Fund Debentures at
redemption prices ranging from 100% to 106% of principal amount. On November 2,
1992, Dresser redeemed the remaining $62.5 million 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 Supplemental Consolidated Statement of Earnings.
In April 1993, Baroid completed a public offering for the sale of $150
million of 8% Senior Notes due 2003 (the "Senior Notes"). The net proceeds of
the offering were approximately $146 million and were used to repay a portion
of the outstanding borrowings under its credit facility. Interest is payable
semiannually in October and April.
In May 1993, Baroid entered into interest rate swap agreements. Under
the terms of these agreements, Baroid will receive a fixed annual rate of 4.9%
and pay six month LIBOR adjusted semiannually for three years. The differential
accrued on the interest swap agreements is recognized as an adjustment to
interest expense.
Baroid's 8% Senior Notes contain certain covenants that restrict certain
types of transactions between Baroid and Dresser and between Baroid and other
parties. On February 17, 1994, Baroid gave notice to the holders of the Notes of
the holder's right to require the Company to purchase all or any portion of the
holder's Notes for a cash purchase price equal to 101% of the principal amount
plus accrued and unpaid interest. In addition, Dresser intends to propose
amendments to the Indenture whereby Dresser will fully and unconditionally
guarantee payment of principal of and interest on the Notes in return for
modifications to conform the covenants to those applicable to Dresser's 6.25%
Notes referred to above.
Baroid had a Bank Credit Facility that provided for, among other things, a
three-year aggregate $150.0 million revolving credit/letter of credit facility,
with a sublimit of $50.0 million for letters of credit, which was scheduled
to terminate in 1996.
F-26
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I -- LONG-TERM DEBT (CONTINUED)
At October 31, 1993, $21 million was borrowed under this facility at an average
interest rate of 6.2%. The $21 million plus an additional $10 million borrowed
after October 31, 1993 was repaid on January 28, 1994 and the facility was
canceled.
Maturities of long-term debt in the fiscal years after October 31, 1993 are
as follows (in millions):
1994.................................... $ 16.8
1995.................................... 6.6
1996.................................... 23.6
1997.................................... 2.0
1998.................................... .3
After 1998.............................. 454.2
------
$503.5
------
------
NOTE J -- EMPLOYEE INCENTIVE PLANS
STOCK COMPENSATION PLAN
Dresser's 1992 Stock Compensation Plan 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.
Baroid had a performance incentive plan that provided for granting options
to purchase Baroid common stock. In connection with the merger, Dresser assumed
the outstanding options to purchase Baroid stock on the same terms and
conditions as were applicable under the Baroid plan. The Baroid options were
converted to Dresser options at the ratio of .4 Dresser option for each Baroid
option and an option price equal to the Baroid price divided by .4.
F-27
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- EMPLOYEE INCENTIVE PLANS (CONTINUED)
Changes in outstanding options during the three years ended October 31, 1993
and options exercisable at October 31, 1993, reflecting assumed Baroid options,
are as follows:
Outstanding at November 1, 1990............................. 1,410,006
Granted at $15.775 to $20.3125............................ 447,200
Exercised at $4.475 to $21.250............................ (162,356)
Canceled or expired....................................... (28,300)
----------
Outstanding at October 31, 1991............................. 1,666,550
Granted at $12.650 to $20.000............................. 496,449
Exercised at $4.475 to $21.250............................ (198,505)
Canceled or expired....................................... (217,845)
----------
Outstanding at October 31, 1992............................. 1,746,649
Adjustment for year-end change............................ 56,000
Granted at $14.375 to $21.000............................. 1,564,400
Exercised at $4.475 to $21.250............................ (323,759)
Canceled or expired....................................... (102,543)
----------
Outstanding at October 31, 1993............................. 2,940,747
----------
----------
Exercisable at $4.475 to $26.475............................ 1,044,027
----------
----------
A total of 9.8 million Dresser common shares were reserved for granting of
future options under Dresser's 1992 plan and the Baroid plan.
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 (in thousands):
Shares at November 1, 1990.................................. 174,553
Issued under employee benefit and dividend reinvestment
plans.................................................... 79
-------
Shares at October 31, 1991.................................. 174,632
Issued under employee benefit and dividend reinvestment
plans.................................................... 64
-------
Shares at October 31, 1992.................................. 174,696
Issued under employee benefit and dividend reinvestment
plans.................................................... 126
-------
Shares at October 31, 1993.................................. 174,822
-------
-------
F-28
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K -- CAPITAL SHARES (CONTINUED)
Changes in common shares held in treasury during the three years ended
October 31, 1993 are as follows (in thousands):
Treasury shares at November 1, 1990......................... 2,217
Purchased................................................. 1,912
Issued under dividend reinvestment plans.................. (631)
-------
Treasury shares at October 31, 1991......................... 3,498
Issued in connection with the purchase of a business...... (1,925)
Issued under benefit and dividend reinvestment plans...... (697)
-------
Treasury shares at October 31, 1992......................... 876
Issued under benefit and dividend reinvestment plans...... (686)
-------
Treasury shares at October 31, 1993......................... 190
-------
-------
At October 31, 1993, all treasury shares were available to satisfy
obligations under the Deferred Compensation Plan and employee incentive plans
(see Note J).
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.
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
F-29
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
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
& Parlsey 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 carriers' 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.
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 a 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
F-30
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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.
ENVIRONMENTAL MATTERS
The Company has been identified as a potentially responsible party ("PRP")
in 75 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 five of the 75 sites, Fisher-Calo, Bio-Ecology, Operating Industries,
Gulf Coast Vacuum and PAB Oil, 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, Gulf Coast Vacuum
and PAB Oil, management believes that the other situations will be resolved at
nominal cost to the Company.
DRESSER AND BAROID MERGER
A purported class action was commenced in the Court of Chancery of Delaware,
New Castle County by a stockholder of Baroid against Baroid, Dresser and certain
directors of Baroid (SEINFELD V. BAROID CORPORATION, ET AL.; No. 13303).
Plaintiff seeks, among other forms of relief, an unspecified amount of
compensatory damages in connection with the merger between Baroid and Dresser.
This suit alleges that defendants breached their fiduciary duties by, among
other things, arranging a merger with allegedly inadequate consideration to
Baroid stockholders. The Company believes that the suit is without merit and
intends, and understands that each of the other defendants intend, to defend
vigorously such action.
OTHER LITIGATION
The Company is involved in certain other legal actions and claims arising in
the ordinary course of business. Management recognizes the uncertainties of
litigation and the possibility that one or more adverse rulings could materially
impact operating results. However, based upon the nature of and management's
understanding of the facts and circumstances which gave rise to such actions and
claims, management believes that such litigation and claims will be resolved
without material effect on the Company's financial position or results of
operations.
F-31
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER
The Company and certain subsidiaries are contingently liable as guarantors
of obligations aggregating approximately $200 million at October 31, 1993, of
which $170 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.
Total rental and lease expense charged to earnings was $100 million in 1993,
$89 million in 1992 and $94 million in 1991. At October 31, 1993, the aggregate
minimum annual obligations under noncancelable leases were: $40.6 million for
1994; $30.5 million for 1995; $22.0 million for 1996; $12.5 million for 1997;
$9.9 million for 1998; and $55.5 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 Supplemental
Consolidated 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):
Accrued postretirement benefit..................................... $ 644.0
Amount applicable to minority interests............................ (101.0)
---------
543.0
Income tax benefit................................................. (190.0)
---------
Decrease in net earnings........................................... $ 353.0
---------
---------
Decrease in earnings per common share.............................. $ 2.05
---------
---------
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 periods ranging from 12 years to
18 years.
F-32
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
The liability of the U.S. plans at October 31, 1993 and 1992 was as follows
(in millions):
1993 1992
--------- ---------
Actuarial present value of accumulated postretirement benefit obligation:
Retirees......................................................................... $ 306.6 $ 411.1
Fully eligible active plan participants.......................................... 72.0 102.7
Other active plan participants................................................... 121.1 163.7
--------- ---------
Total accumulated postretirement benefit obligation............................ 499.7 677.5
Unamortized gains from plan amendments........................................... 198.5 --
Unrecognized net loss............................................................ (28.2) --
--------- ---------
Accrued postretirement benefit liability........................................... $ 670.0 $ 677.5
--------- ---------
--------- ---------
Accrued compensation and benefits on the Supplemental Consolidated 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):
1993 1992
--------- ---------
Service cost for benefits earned...................................................... $ 7.6 $ 11.8
Interest cost on accumulated postretirement benefit obligation........................ 40.4 53.0
Net amortization of unrecognized gain................................................. (9.8) --
--------- ---------
Net periodic postretirement benefit cost.............................................. $ 38.2* $ 64.8*
--------- ---------
--------- ---------
Actual benefits paid.................................................................. $ 22.1 $ 22.7
--------- ---------
--------- ---------
<FN>
- ------------------------
*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:
Discount rate --
October 31, 1993................................................... 7.0%
October 31, 1992................................................... 8.5%
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 that reduced the
Accumulated Postretirement Benefit Obligation.
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.
F-33
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
DEFINED BENEFIT PENSION PLANS
The Company has numerous defined benefit pension plans covering certain
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):
1993 1992 1991
--------- --------- ---------
Service cost for benefits earned.......................................... $ 19.4 $ 18.2 $ 15.9
Interest cost on projected benefit obligation........................... 36.9 32.7 27.1
Actual return on plan assets............................................ (36.0) (35.0) (26.8)
Net amortization and deferral........................................... .7 (1.6) (4.2)
--------- --------- ---------
Net pension expense................................................... $ 21.0 $ 14.3 $ 12.0
--------- --------- ---------
--------- --------- ---------
Cash contributions to the plans in 1993 were $38.7 million.
F-34
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
The funded status of the plans on the August 1 measurement dates was as
follows (in millions):
PLANS (PRIMARILY FOREIGN) WITH ASSETS
EXCEEDING ACCUMULATED BENEFITS 1993 1992
--------- ---------
Actuarial present value of benefit obligations:
Vested benefit obligation........................................ $ 116.6 $ 117.3
--------- ---------
--------- ---------
Accumulated benefit obligation................................... $ 119.5 $ 120.1
--------- ---------
--------- ---------
Projected benefit obligation....................................... $ 134.5 $ 134.3
Plan assets at fair value.......................................... 212.6 201.4
--------- ---------
Projected benefit obligation under plan assets..................... 78.1 67.1
Unrecognized net gain.............................................. (16.7) (5.0)
Prior service cost not yet recognized in net periodic pension
cost.............................................................. 2.0 3.7
Unrecognized transition net asset.................................. (21.1) (26.6)
--------- ---------
Prepaid pension costs recognized as of August 1.................... $ 42.3 $ 39.2
--------- ---------
--------- ---------
PLANS (PRIMARILY DOMESTIC) WITH
ACCUMULATED BENEFITS EXCEEDING ASSETS 1993 1992
--------- ---------
Actuarial present value of benefit obligations:
Vested benefit obligation...................................... $ 268.0 $ 191.4
--------- ---------
--------- ---------
Accumulated benefit obligation................................. $ 291.8 $ 209.0
--------- ---------
--------- ---------
Projected benefit obligation..................................... $ 364.6 $ 298.8
Plan assets at fair value........................................ 212.8 160.4
--------- ---------
Projected benefit obligation over plan assets.................... $ (151.8) (138.4)
Unrecognized net loss............................................ 56.5 26.5
Prior service cost not yet recognized in net periodic pension
expense......................................................... 24.1 23.5
Unrecognized transition net obligation........................... 5.3 6.0
Adjustment required to recognize minimum liability............... (39.9) (19.5)
--------- ---------
Pension liability recognized as of August 1...................... $ (105.8) $ (101.9)
--------- ---------
--------- ---------
On the Supplemental Consolidated Balance Sheet, "Other assets" include
prepaid pension costs and "Accrued compensation and benefits" include the
current portion of the pension liabilities.
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:
U.S. PLANS 1993 1992
-------------- --------------
Discount rate........................................ 7.0% 8.75%
Expected long-term rate of return on assets.......... 8.5% to 9.0% 8.5% to 9.0%
Rate of increase in compensation levels.............. 3.5% to 4.0% 5.0% to 5.5%
FOREIGN PLANS 1993 1992
-------------- --------------
Discount rate........................................ 5.0% to 10.5% 5.0% to 12.5%
Expected long-term rate of return on assets.......... 7.5% to 12.0% 7.5% to 13.5%
Rate of increase in compensation levels.............. 3.0% to 7.5% 3.0% to 11.0%
F-35
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
BENEFITS OTHER THAN PENSIONS (continued)
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 $17.5
million, $11.3 million and $10.4 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 174.3
million in 1993, 172.3 million in 1992 and 171.0 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 $186.2 million in 1993, $129.9 million in 1992 and $120.5 million in 1991.
The increase in 1993 is primarily due to the consolidation of Dresser-Rand.
Amortization of intangibles was $22.2 million in 1993, $16.1 million in 1992
and $16.9 million in 1991 and is included in selling, engineering,
administrative and general expenses.
Engineering, research and development costs were $167.9 million in 1993, and
$112.0 million in 1992 and $108.0 million in 1991. Research and development
costs, as defined by Statement of Financial Accounting Standards No. 2, charged
to earnings were $96.5 million in 1993, $29.0 million in 1992 and $23.4 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 Supplemental
Consolidated Statements of Earnings are as follows (in millions):
1993 1992 1991
------ ------- -------
Gain on business disposal............... $ -- $ 18.2 $ 3.5
Equity earnings......................... 20.2 15.2 12.8
Other income............................ 13.4 14.8 20.1
Foreign exchange........................ 1.8 (13.4) (13.5)
------ ------- -------
$ 35.4 $ 34.8 $ 22.9
------ ------- -------
------ ------- -------
F-36
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N -- SUPPLEMENTARY EARNINGS STATEMENT INFORMATION AND SPECIAL
CHARGES (CONTINUED)
SPECIAL CHARGES
The Company recorded special charges totaling $105.1 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. These special charges
reduced segment operating profit by $6.9 million and the remaining $67.2 million
was reflected as nonsegment expenses.
The 1993 Special Charges also included expenses associated with the
Baroid merger totaling $31 million and consisting of the following (in
millions):
Employee severance costs.............................. $ 11.3
Foreign taxes associated with change of ownership..... 8.0
Professional fees..................................... 5.0
Write-off of debt issuance cost....................... 3.7
Advisory fees paid to Baroid officers................. 3.0
------
$ 31.0
------
------
Baroid's Board of Directors concluded that the Advisory fee of $3 million
was warranted in view of the time and service required of certain officers to
negotiate and bring about the Merger and the fact that, as a result of their
time and service, no investment banker was needed or hired by Baroid to
represent Baroid in negotiating the Merger. Such amounts were determined to be
reasonable in relation to avoided costs of investment banking fees.
In 1992 the Company recorded special charges totaling $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.
In 1991, special charges of $26.2 included $14.9 for the write-off of
capitalized intangible assets related to a non-compete agreement and $11.3 for
termination costs and plant closings.
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.
In March 1992, the Company completed the sale of its Atlas Bradford
subsidiary for approximately $15 million in total consideration consisting of
$10.2 million in cash plus retained accounts receivable. In July 1992, the
Company completed the sale of its Shaffer subsidiary for approximately $36
million in cash. Estimated future losses of Atlas Bradford and Shaffer were
accrued in the estimated loss on disposition of $16.0 million that was provided
for in 1991.
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), Atlas Bradford, Shaffer and for the
INDRESCO businesses are reported as discontinued operations.
Summarized information on Discontinued Operations is as follows (in
millions):
1992 1991
------- -------
Net sales revenues.......................................... $ 499.5 $ 800.6
------- -------
------- -------
Loss before income taxes.................................... $ (39.2) $ (3.4)
Income tax expense (benefit)................................ (3.9) 6.0
------- -------
Net loss before extraordinary item........................ (35.3) (9.4)
Tax benefits from loss carryforwards........................ -- 1.4
------- -------
Net loss................................................ $ (35.3) $ (8.0)
------- -------
------- -------
NOTE P -- FINANCIAL INSTRUMENTS -- FAIR VALUE AND OFF-BALANCE-SHEET RISKS
The carrying amounts of cash and cash equivalents, short-term investments
and accounts and notes payable approximates fair value because of the short
maturity of those instruments. The carrying amount of long-term debt is
approximately $25 million less than the fair value of the long-term debt.
F-37
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE P -- FINANCIAL INSTRUMENTS -- FAIR VALUE AND OFF-BALANCE-SHEET
RISKS (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.
The fair value of foreign exchange contracts is based on year-end quoted rates
for contracts with similar terms and maturity dates. At October 31, 1993, the
Company had $237 million of forward exchange contracts outstanding, 98% of which
were in European currencies. 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.
NOTE Q -- INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The Company's industry segments are outlined below. See Notes A, C and O for
information about the merger of Dresser and Baroid, 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, drill bits,
measurement-while-drilling services, directional drilling services, downhole
production tools, pipe coating, ball valves and underwater pre-drilling and
production services. The Western Atlas unconsolidated joint venture which the
Company has sold as discussed in Note S provided integrated reservoir
description services, seismic services, core analysis and wireline logging
services. The Bredero Price and TK Valve & Manufacturing acquired operations,
and the merged Baroid operations are included in this segment (See Note D).
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 compressor, 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
F-38
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE Q -- INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)
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 Management's Discussion and Analysis
included elsewhere in this report, and is an integral part of this Note to
Supplemental Consolidated Financial Statements.
GEOGRAPHIC AREA FINANCIAL INFORMATION
The financial information by Geographic Area is as follows (in millions):
1993 1992 1991
--------- --------- ---------
Sales and service revenues:
United States............................................. $ 2,570.3 $ 2,418.5 $ 2,442.6
Canada.................................................... 164.0 108.6 134.1
Latin America............................................. 251.9 167.7 193.7
Europe.................................................... 1,215.9 1,161.5 1,170.0
Mid East, Far East and Africa............................. 841.7 695.5 740.7
Intergeographic area sales and service revenues:
United States............................................. 252.8 146.1 149.4
Canada.................................................... 3.4 2.8 1.6
Latin America............................................. .7 2.1 1.8
Europe.................................................... 78.6 40.0 43.0
Mid East, Far East and Africa 24.3 31.2 24.9
Eliminations................................................ (359.8) (222.2) (220.7)
--------- --------- ---------
Total sales and service revenues........................ $ 5,043.8 $ 4,551.8 $ 4,681.1
--------- --------- ---------
--------- --------- ---------
Operating profit:
United States............................................. $ 187.0 $ 54.0 $ 155.8
Canada.................................................... 27.4 11.5 20.3
Latin America............................................. 16.8 18.0 13.0
Europe.................................................... 89.7 72.1 71.8
Mid East, Far East and Africa............................. 99.6 72.5 50.1
Adjustments and Eliminations.............................. .2 (.7) (11.8)
--------- --------- ---------
Subtotal................................................ 420.7 227.4 299.2
--------- --------- ---------
Major Joint Ventures:
United States............................................. 24.8 19.7 35.1
Canada.................................................... .8 2.9 1.5
Latin America............................................. .7 5.7 11.7
Europe.................................................... 17.8 34.6 24.0
Mid East, Far East and Africa............................. 16.5 17.7 7.5
--------- --------- ---------
Subtotal................................................ 60.6 80.6 79.8
--------- --------- ---------
Total operating profit................................ $ 481.3 $ 308.0 $ 379.0
--------- --------- ---------
--------- --------- ---------
F-39
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE Q -- INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)
1993 1992 1991
--------- --------- ---------
Identifiable assets:
United States............................................. $ 2,184.8 $ 2,004.5 $ 1,617.9
Canada.................................................... 93.9 96.5 77.4
Latin America............................................. 196.2 234.6 133.7
Europe.................................................... 1,083.2 791.7 824.3
Mid East, Far East and Africa............................. 427.4 277.9 261.1
Adjustments and eliminations.............................. (155.5) (131.4) (138.7)
--------- --------- ---------
Total identifiable assets............................... $ 3,830.0 $ 3,273.8 $ 2,775.7
--------- --------- ---------
--------- --------- ---------
United States export sales:
Canada.................................................... $ 41.4 $ 26.8 $ 39.0
Latin America............................................. 180.3 126.7 101.6
Europe.................................................... 49.6 34.7 24.7
Mid East, Far East and Africa............................. 379.3 246.1 188.5
--------- --------- ---------
Total United States export sales........................ $ 650.6 $ 434.3 $ 353.8
--------- --------- ---------
--------- --------- ---------
NOTE R -- QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERS ENDED
---------------------------------------------------
JANUARY
31 APRIL 30 JULY 31 OCTOBER 31
-------- ------------ -------- ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
1993:
Net sales and service revenues............................ $1,118.3 $1,252.2 $1,276.9 $1,396.4
Gross earnings............................................ 251.7 303.9 320.7 367.6
Net earnings............................................ $ 23.8 $ 8.4(1) $ 43.9 $ 52.1(2)
-------- ------------ -------- ------------
-------- ------------ -------- ------------
Earnings per common share................................. $ .14 $ .05 $ .25 $ .30
-------- ------------ -------- ------------
-------- ------------ -------- ------------
1992:
Net sales and service revenues............................ $1,060.9 $1,127.8 $1,150.5 $1,212.6
Gross earnings............................................ 239.3 254.2 277.9 293.2
Net earnings (loss)
Continuing operations................................... 13.8 19.7 35.7 23.0(3)
Discontinued operations................................. (6.0) 1.3 (12.0) (18.6)(4)
-------- ------------ -------- ------------
Subtotal before extraordinary items and accounting
changes................................................ 7.8 21.0 23.7 4.4
Extraordinary items..................................... -- (3.7) -- (2.6)
Cumulative effect of accounting changes................. (393.8) -- -- --
-------- ------------ -------- ------------
Total net earnings(loss)................................ $ (386.0) $ 17.3 $ 23.7 $ 1.8
-------- ------------ -------- ------------
-------- ------------ -------- ------------
F-40
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE R -- QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
QUARTERS ENDED
---------------------------------------------------
JANUARY
31 APRIL 30 JULY 31 OCTOBER 31
-------- ------------ -------- ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Earnings(loss) per common share
Continuing operations................................... $ .08 $ .11 $ .21 $ .14
Discontinued operations................................. (.04 ) .01 (.07) (.10)
-------- ------------ -------- ------------
Subtotal before extraordinary items and accounting
changes.............................................. .04 .12 .14 .04
Extraordinary items..................................... -- (.02) -- (.02)
Cumulative effect of accounting changes................. (2.29 ) -- -- --
-------- ------------ -------- ------------
Total net earnings (loss)............................. $ (2.25 ) $ .10 $ .14 $ .02
-------- ------------ -------- ------------
-------- ------------ -------- ------------
<FN>
- ------------------------
(1) Includes after-tax special charges for settlement of Parker & Parsley
litigation of $41 million.
(2) Includes $31 million after tax special charge for merger expenses.
(3) Includes after-tax special charges for restructuring costs, termination
costs and special warranty claims of $36 million.
(4) Includes $12 million for the estimated costs of disposal and future
operating losses.
NOTE S -- SUBSEQUENT EVENTS (UNAUDITED)
On January 28, 1994, the Company sold its 29.5% interest in Western Atlas
International, Inc. (WAII) to a wholly-owned subsidiary of Litton Industries,
Inc. for $358 million in cash and $200 million in 7 1/2% notes due over seven
years. The Company will recognize an after-tax gain of approximately $147
million in the first quarter of fiscal year 1994.
As indicated in Note A, Dresser and Baroid merged as of January 21, 1994.
Following the merger, the Company is required by the Antitrust Division of
United States Department of Justice to dispose of either its 64% general
partnership interest in M-I Drilling Fluids Company (M-I) or its 100% interest
in Baroid Drilling Fluids Inc. by June 1, 1994. On March 2, 1994, the Company
completed the sale of its 64% interest in M-I to Smith International, Inc. for
$80 million in cash and $80 million in short-term notes. The impact of the sale
on the statement of earnings cannot be determined until the final February
balance sheet of M-I is available.
The following Unaudited Pro Forma Condensed Statement of Earnings assumes
that the sale of interests in WAII and M-I had occurred on November 1, 1992. The
following Unaudited Pro Forma Condensed Balance Sheet assumes that the same
sales had occurred on October 31, 1993. The pro forma financial statements are
provided for comparative purposes only. They are based on the Supplemental
Consolidated Financial Statements of which this Note is a part. The pro forma
information does not necessarily reflect actual results that would have occurred
nor is it necessarily indicative of future results of operations.
F-41
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE S -- SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
UNAUDITED PRO FORMA CONDENSED STATEMENT OF EARNINGS
YEAR ENDED OCTOBER 31, 1993
ELIMINATE
ELIMINATE M-I
SUPPLE- WESTERN DRILLING ADJUST- PRO
MENTAL ATLAS FLUIDS MENTS FORMA
---------- -------- -------- --------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Sales and service revenues.............. $ 5,043.8 $ -- $(398.6) $-- $ 4,645.2
Cost of sales and services.............. (3,792.9) -- 234.8 -- (3,558.1)
---------- -------- -------- --------- ----------
Gross earnings........................ 1,250.9 -- (163.8) -- 1,087.1
---------- -------- -------- --------- ----------
Earnings from major unconsolidated joint
ventures............................... 60.6 (39.2) -- -- 21.4
Selling, engineering, administrative and
general expenses....................... (961.9) -- 145.3 13.0(a) (803.6)
Special charges......................... (105.1) -- -- -- (105.1)
---------- -------- -------- --------- ----------
Earnings from operations.............. 244.5 (39.2) (18.5) 13.0 199.8
---------- -------- -------- --------- ----------
Other income (deductions)
Interest expense, net................. (24.8) -- (.3) 26.4(b) 1.3
Retiree benefit curtailment........... 12.8 -- -- -- 12.8
Other, net............................ 35.4 -- (6.6) -- 28.8
---------- -------- -------- --------- ----------
Total............................... 23.4 -- (6.9) 26.4 42.9
---------- -------- -------- --------- ----------
Earnings before income taxes and
minority interest.................... 267.9 (39.2) (25.4) 39.4 242.7
Income taxes............................ (95.5) 15.7 9.9 (13.8)(c) (83.7)
Minority interest....................... (44.2) -- 7.6 -- (36.6)
---------- -------- -------- --------- ----------
Earnings from continuing operations... $ 128.2 $ (23.5) $ (7.9) $25.6 $ 122.4
---------- -------- -------- --------- ----------
---------- -------- -------- --------- ----------
Per share............................. $ .74 $ .70
---------- ----------
---------- ----------
Average common shares outstanding....... 174.3 174.3
---------- ----------
---------- ----------
Adjustments:
(a) Anticipated reduction in Baroid
corporate expenses................ $ 13.0
----------
----------
(b) Interest on $200 million note
received as part of proceeds from
sale of Western Atlas............. $ 15.0
Reduction in interest expense due
to use of proceeds to reduce
debt.............................. 11.4
----------
$ 26.4
----------
----------
(c) Adjustment to income taxes, as
follows:
Adjustment to earnings before
taxes and minority interest...... $ 39.4
----------
Tax thereon at 35%................ $ (13.8)
----------
----------
F-42
DRESSER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE S -- SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
OCTOBER 31, 1993
RECLASSIFY
M-I SALE OF
DRILLING SALE OF M-I
SUPPLE- FLUIDS WESTERN DRILLING USE OF
MENTAL FOR SALE ATLAS FLUIDS PROCEEDS PRO FORMA
--------- -------- -------- -------- -------- ---------
(IN MILLIONS)
ASSETS
Current Assets:
Cash and cash equivalents............. $ 272.8 $ .5 $ 358.0 $ 80.0 $(406.2) $ 305.1
Notes and accounts receivable, net.... 854.8 (103.9) -- 80.0 -- 830.9
Inventories........................... 728.3 (92.1) -- -- -- 636.2
Deferred income taxes................. 100.9 -- -- -- -- 100.9
Business held for sale................ -- 123.5 -- (123.5) -- --
Other current assets.................. 46.5 (2.6) -- -- -- 43.9
--------- -------- -------- -------- -------- ---------
Total............................... 2,003.3 (74.6) 358.0 36.5 (406.2) 1,917.0
Investments in and receivables from
major unconsolidated joint ventures.... 414.4 -- (279.2) -- -- 135.2
Intangibles............................. 610.7 (2.9) -- -- -- 607.8
Deferred income taxes................... 210.9 (.3) -- -- -- 210.6
Long-term receivables................... 5.0 -- 200.0 -- -- 205.0
Other assets............................ 184.7 (15.3) -- -- -- 169.4
Property, Plant and Equipment -- at
cost................................... 2,340.3 (270.9) -- -- -- 2,069.4
Accumulated depreciation................ 1,398.6 (217.0) -- -- -- 1,181.6
--------- -------- -------- -------- -------- ---------
Properties, net....................... 941.7 (53.9) -- -- -- 887.8
--------- -------- -------- -------- -------- ---------
Total Assets........................ $ 4,370.7 $(147.0) $ 278.8 $ 36.5 $(406.2) $4,132.8
--------- -------- -------- -------- -------- ---------
--------- -------- -------- -------- -------- ---------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Short-term debt....................... $ 306.8 $ (1.0) $ -- $ -- $(276.5) $ 29.3
Accounts payable...................... 367.8 (27.3) -- -- -- 340.5
Advances from customers on
contracts............................ 288.3 (.6) -- -- -- 287.7
Accrued compensation and benefits..... 240.3 (7.3) -- -- -- 233.0
Income taxes.......................... 102.3 (.9) 129.7 -- (129.7) 101.4
Other current liabilities............. 399.2 (17.5) -- 22.3 -- 404.0
--------- -------- -------- -------- -------- ---------
Total............................... 1,704.7 (54.6) 129.7 22.3 (406.2) 1,395.9
Employee retirement benefit
obligations............................ 707.6 (20.4) -- -- -- 687.2
Long-term debt.......................... 486.7 (.1) -- -- -- 486.6
Other liabilities....................... 103.0 -- -- -- -- 103.0
Minority interest....................... 154.9 (71.9) -- -- -- 83.0
Shareholders' Investment --
Common shares......................... 43.7 -- -- -- -- 43.7
Capital in excess of par.............. 366.7 -- -- -- -- 366.7
Retained earnings..................... 951.0 -- 147.0 -- -- 1,098.0
Cumulative translation adjustment..... (130.2) -- 2.1 14.2 -- (113.9)
Pension liability adjustment.......... (13.8) -- -- -- -- (13.8)
--------- -------- -------- -------- -------- ---------
1,217.4 -- 149.1 14.2 -- 1,380.7
Treasury shares, at cost.............. 3.6 -- -- -- -- 3.6
--------- -------- -------- -------- -------- ---------
Total Shareholders' Investment...... 1,213.8 -- 149.1 14.2 -- 1,377.1
--------- -------- -------- -------- -------- ---------
Total Liabilities and Shareholders'
Investment............................. $ 4,370.7 $(147.0) $ 278.8 $ 36.5 $(406.2) $4,132.8
--------- -------- -------- -------- -------- ---------
--------- -------- -------- -------- -------- ---------
F-43
[ERNST & YOUNG LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
To the Stockholder and Board of Directors of Baroid Corporation:
We have audited the consolidated balance sheet of Baroid Corporation and
Subsidiaries as of December 31, 1992, and the related consolidated
statements of income, cash flows and stockholders' equity for the year then
ended. Our audit also included the financial statement shedules listed in the
Index at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Baroid
Corporation and Subsidiaries at December 31, 1992, and the consolidated results
of their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material repects
the information set forth therein.
/s/ERNST & YOUNG
-------------------
Ernst & Young
Houston, Texas
February 4, 1993
F-44
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Baroid Corporation:
We have audited the consolidated statements of income, cash flows and
stockholders' equity of Baroid Corporation and Subsidiaries for the year ended
December 31, 1991 (not included herein). 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidencing supporting the amounts and disclosures in financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statments referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows
for Baroid Corporation and Subsidiaries for the year ended December 31, 1991,
in conformity with generally accepted accounting principles.
/s/COOPERS & LYBRAND
---------------------
Coopers & Lybrand
Houston Texas
March 3, 1994
F-45
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
FOR THE MERGER OF DRESSER INDUSTRIES, INC. AND BAROID CORPORATION
The following pro forma unaudited combined condensed balance sheet and
statement of earnings reflect the merger of Dresser Industries, Inc. (Dresser)
with Baroid Corporation (Baroid). The merger of Dresser and Baroid has been
accounted for as a pooling of interests. The following pro forma unaudited
combined condensed balance sheet as of October 31, 1993 assumes that the merger
had occurred on October 31, 1993. The following pro forma unaudited combined
condensed statement of earnings for the year ended October 31, 1993 assumes that
the merger had occurred on November 1, 1992.
The pro forma financial data are provided for comparative purposes only and
do not purport to be indicative of the results which would have been obtained if
the merger had been effected on the dates indicated or of those results which
may be obtained in the future. The pro forma adjustments are described in
footnotes to the unaudited pro forma combined condensed balance sheet and
statement of earnings.
F-46
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF OCTOBER 31, 1993
(In millions)
Adjust-
Dresser Baroid ments Pro Forma
--------- -------- ------- ----------
ASSETS
Current Assets
Cash and cash equivalents... $ 239.1 $ 33.7 $ .- $ 272.8
Notes and accounts
receivable............... 646.3 208.5 .- 854.8
Inventories................. 592.4 135.9 .- 728.3
Deferred income taxes....... 100.9 .- .- 100.9
Other current assets........ 36.2 10.3 .- 46.5
-------- -------- ------- --------
Total Current Assets..... 1,614.9 388.4 .- 2,003.3
Investments in and
receivables from major
unconsolidated joint
ventures................. 414.4 .- .- 414.4
Intangibles................. 561.9 48.8 .- 610.7
Deferred income taxes....... 229.2 (18.3) .- 210.9
Other assets................ 135.1 54.6 .- 189.7
Property, plant and
equipment - at cost...... 1,736.6 603.7 .- 2,340.3
Accumulated deprecation..... 1,050.2 348.4 .- 1,398.6
-------- -------- ------- --------
Total Properties - Net... 686.4 255.3 .- 941.7
-------- -------- ------- --------
Total Assets......... $3,641.9 $ 728.8 $ .- $4,370.7
-------- -------- ------- --------
-------- -------- ------- --------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Short-term debt............. $ 230.8 $ 76.0 $ .- $ 306.8
Accounts payable............ 269.8 98.0 .- 367.8
Advances from customers on
contracts................ 288.3 .- .- 288.3
Accrued compensation and
benefits................. 197.8 42.5 .- 240.3
Income taxes................ 100.9 1.4 .- 102.3
Other current liabilities... 345.0 54.2 .- 399.2
-------- -------- ------- --------
Total Current
Liabilities............ 1,432.6 272.1 .- 1,704.7
Employee retirement benefit
obligation.................. 707.6 .- .- 707.6
Long-term debt................ 308.3 178.4 .- 486.7
Deferred compensation,
insurance reserves, and
other liabilities........... 98.5 4.5 .- 103.0
Minority interest............. 151.3 3.6 .- 154.9
Shareholders' Investment
Common shares............... 41.6 9.2 (7.1) 43.7
Capital in excess of par
value.................... 434.7 306.9 (374.9) 366.7
Retained earnings........... 954.6 (3.6) .- 951.0
Cumulative translation
adjustments.............. (87.9) (42.3) .- (130.2)
Pension liability
adjustment............... (13.8) .- .- (13.8)
-------- -------- ------- --------
1,329.2 270.2 (382.0) 1,217.4
Treasury shares, at cost.... 385.6 .- (382.0) 3.6
-------- -------- ------- --------
Total Shareholders'
Investment............. 943.6 270.2 .- 1,213.8
-------- -------- ------- --------
Total Liabilities and
Shareholders'
Investment........... $3,641.9 $ 728.8 $ .- $4,370.7
-------- -------- ------- --------
-------- -------- ------- --------
Note: Adjustments reflect the exchange of Dresser common stock, including
Treasury shares, for Baroid common stock.
F-47
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
YEAR ENDED OCTOBER 31, 1993
(In millions, except per share data)
Adjust-
Dresser Baroid ments Pro Forma
---------- -------- --------- -----------
Sales and service revenues. $ 4,216.0 $ 827.8 $ .- $ 5,043.8
Cost of sales and services. (3,170.3) (622.6) .- (3,792.9)
-------- -------- ------- ---------
Gross earnings........... 1,045.7 205.2 .- 1,250.9
Earnings from major
unconsolidated joint
ventures................. 60.6 .- .- 60.6
Selling, engineering,
administrative and
general expenses......... (812.4) (149.5) 13.0(a) (948.9)
Special charges............ (75.1) (30.0) .- (105.1)
-------- -------- ------- ---------
Earnings from operations. 218.8 25.7 13.0 257.5
-------- -------- ------- ---------
Other income (deductions)
Interest earned (expense),
net.................... (11.4) (13.4) .- (24.8)
Retiree benefit
curtailment gain....... 12.8 .- .- 12.8
Other, net............... 30.9 4.5 .- 35.4
-------- -------- ------- ---------
Total.................. 32.3 (8.9) .- 23.4
-------- -------- ------- ---------
Earnings before income
taxes and minority
interest................. 251.1 16.8 13.0 280.9
Income taxes............... (81.7) (13.8) (4.6)(b) (100.1)
Minority interest.......... (42.7) (1.5) .- (44.2)
-------- -------- ------- ---------
Earnings from continuing
operations.............. $ 126.7 $ 1.5 $ 8.4 $ 136.6
-------- -------- ------- ---------
-------- -------- ------- ---------
Per share............... $ .92 $ .02 $ .78
-------- -------- ---------
-------- -------- ---------
Average common shares
outstanding.............. 137.3 92.4 174.3
-------- -------- ---------
<FN>
Adjustments:
(a) Anticipated reduction in Baroid corporate expenses.
(b) Tax at 35 percent on the expense reduction.
F-48
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger dated as of September 7, 1993.
(Incorporated by reference to Exhibit 2.1 to Registrant's
Registration Statement on Form S-4, Registration No. 33-50563).
23.1 Consent of Price Waterhouse.
23.2 Consent of Ernst & Young.
23.3 Consent of Arthur Andersen & Co.
23.4 Consent of Coopers & Lybrand.