Filed On 1/29/96 ˇ SEC File 1-04003 ˇ Accession Number 912057-96-951
As Of Filer Filing On/For/As Docs:Pgs Issuer Agent
1/29/96 Dresser Industries Inc/DE 10-K 10/31/95 12:302 912057
Document/Exhibit Description Pages Size
1: 10-K Annual Report 71 328K
2: EX-3.2 Articles of Incorporation/Organization or By-Laws 13 53K
3: EX-10 Exhibit 10.5 2 11K
4: EX-10.7 Material Contract 7 29K
5: EX-10.8 Material Contract 7 30K
6: EX-10.9 Material Contract 17 45K
7: EX-10.15 Material Contract 72 232K
8: EX-10.24 Material Contract 99 276K
9: EX-21 Subsidiaries of the Registrant 9 44K
10: EX-23 Consent of Experts or Counsel 1 7K
11: EX-24 Power of Attorney 2 18K
12: EX-27 Exhibit 27 (FDS) 2 7K
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995.
Commission file number 1-4003
DRESSER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-0813641
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
POST OFFICE BOX 718 75221 (P.O. Box)
2001 ROSS AVENUE, DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (214) 740-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, Par Value 25 CENTS Per Share New York Stock Exchange, Inc.
Pacific Stock Exchange Incorporated
Baroid Corporation 8% Guaranteed Senior New York Stock Exchange, Inc.
Notes due 2003
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
Pacific Stock Exchange Incorporated
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes No X
--- ---
The aggregate market value of the voting stock (based on the closing price on
the New York Stock Exchange as of January 4, 1996) held by non-affiliates of the
registrant was approximately $4,384 million.
As of January 4, 1996, there were 181,595,187 shares of Dresser Industries, Inc.
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Sections of Registrant's Notice of 1996 Annual Meeting of Shareholders and Proxy
Statement (Part III).
PART I
ITEM 1. BUSINESS OF DRESSER.
Dresser Industries, Inc., together with its subsidiaries (hereinafter
"Dresser" or "Registrant" or the "Company") is a supplier of highly engineered
products, technical services and project management for hydrocarbon energy-
related activities that are primarily utilized in oil and gas drilling,
production and transmission; gas distribution; power generation; gas processing;
petroleum refining and marketing; and petrochemical production. Demand for
Dresser's products and services is generally determined by global demand for
energy and oil and gas by-products. Dresser was incorporated under the laws of
Delaware in 1956 as a successor to a Pennsylvania corporation organized in 1938
by the consolidation of S. R. Dresser Manufacturing Company and Clark Bros.
Company. Both were carrying on businesses founded in 1880. Dresser's executive
offices are located at 2001 Ross Avenue, Dallas, Texas 75201 (telephone number
214/740-6000).
For the fiscal year ended October 31, 1995, consolidated revenues of
Registrant amounted to $ 5,628.7 million. A majority of such revenues was
derived from the sale of products and services to energy-oriented industries,
including oil and gas exploration, drilling and production, gas transmission and
distribution; petroleum and chemical processing; production of electricity; and
marketing of petroleum products.
Registrant's operations are divided into three industry segments:
Petroleum Products and Services; Engineering Services and Energy Equipment.
Effective May 31, 1995, Registrant acquired through a wholly owned
subsidiary, Grove S.p.A. and subsidiaries from Banca Commerciale Italiana,
Euroknights 2000, Ltd., Investitori Associati S.A. and Unione Fiduciaria.
Grove manufactures and distributes a wide variety of oilfield valves and
regulators for the worldwide energy and petroleum markets. Grove operations
are included in the Energy Equipment segment.
Effective May 1, 1995, Registrant acquired the assets of Wellstream
Company, L.P. which is engaged in the production of high pressure flexible
pipe and riser systems. On May 2, 1995, Registrant acquired the stock of
North Sea Assets P.L.C., the remotely operated vehicle business of NSA/HMB
Group. On May 5, 1995, Registrant acquired the assets of Energy Coatings
Company which provides pipe coating services. On July 1, 1995, Registrant
acquired the assets of Pipeline Coating, Inc. which also performs pipe
coating services. All of these operations are included in the Petroleum
Products and Services segment.
The Information by Industry Segment is included in Note N to
Consolidated Financial Statements on page 59 and in Management's Discussion
and Analysis on pages 24-28. This information includes sales and service
revenues, operating profit or loss and identifiable assets attributable to
each of Registrant's business segments for each of the past three fiscal
years. This information should be read in conjunction with the consolidated
financial statements, notes and accountant's report appearing in Item 8 of
this report.
PETROLEUM PRODUCTS AND SERVICES SEGMENT (FORMERLY OILFIELD SERVICES)
Dresser's Petroleum Products and Services segment supplies products,
services and project management for oil and gas exploration, drilling,
production and transmission activities both onshore and offshore. Its products
and services include project management and integrated well services, drilling
fluids systems, drill bits, measurement-while-drilling services, directional
drilling services, completion and production tools, production valves and pumps,
meters and measuring equipment, engineering, procurement, installation and
construction contractor services for subsea and onshore projects, remotely
operated vehicles, seabed equipment, flexible flowlines, riser systems and pipe
coating, laying and burying services. Demand for these products and services is
directly affected by energy prices and drilling activity.
DRILLING AND PRODUCTION OPERATIONS
DRILLING FLUIDS
Baroid Drilling Fluids provides oil and gas producers specially
formulated fluids used in the drilling process to lubricate and cool the drill
bit, seal porous well formations, remove rock cuttings and control downhole
pressure. It also provides completion fluids and wellsite services. Total
revenues for Drilling Fluids were $532.0 in 1995, $554.0 in 1994 and $777.8
million in 1993. Revenues include $147.0 million in 1994, and $401.2 million
in 1993 for M-I Drilling Fluids Company which was sold effective February 28,
1994.
2
DRILLING SERVICES AND PRODUCTS
Sperry-Sun Drilling Services supplies oil and gas producers with
directional and measurement-while-drilling (MWD) services and directional
drilling equipment including mud motors, downhole steering and surveying
instruments, and geological and drilling data monitoring.
DRILL BITS
Security DBS produces and markets to oil and gas producers a complete
line of roller cone, polycrystalline diamond cutter (PDC) and natural diamond
drill bits for use in drilling oil and gas wells and provides coring and hole
enlargement services. Security DBS also makes a variety of downhole oilfield
drilling tools and certain types of blasthole and pilot bits for the mining
market.
COMPLETION AND PRODUCTION TOOLS
Dresser Oil Tools consists of Axelson surface safety equipment,
downhole rod pumps and sucker rods as well as a broad range of Guiberson/AVA's
completion and production products, including sub-surface safety valves, gravel
pack, downhole hydraulic pumps, tubing converged perforating equipment,
production packers and swab cups. These products are used in the production of
oil and gas.
Dresser Wheatley Division manufactures and sells a line of oil and gas
production products, including Wheatley valves, Wheatley Gaso plunger and piston
pumps, Omega well-servicing pumps, and Clif Mock meters, measurement and
sampling equipment.
PROJECT MANAGEMENT
Dresser Drilling and Production Services was formed to provide oil and
gas producers with project management capabilities and the integrated services
and products required to drill and complete wells more efficiently. It's
activities include well planning, project management and the procurement of
wellsite drilling, completion and production services and equipment.
KELLOGG OIL & GAS SERVICES
Kellogg Oil & Gas Services was formed in 1995 to provide subsea field design and
development, underwater engineering, repair and construction services, including
remotely operated vehicles, diving services and pipe laying and pipe coating
services as well as to act as an engineering, procurement, installation and
construction contractor for all aspects of subsea and onshore oil and gas
projects. It offers products and services through the following operations.
PIPE COATING PRODUCTS AND SERVICES
Bredero Price provides a broad range of speciality pipe coating,
insulation and related services to protect pipelines above ground, below ground
and offshore in major oil and gas producing areas of the world.
UNDERWATER EQUIPMENT AND SERVICES
Sub Sea International provides production companies and offshore rig
operators with diving and underwater engineering services. Sub Sea equipment is
used to inspect, construct, maintain and repair offshore
3
drilling rigs and platforms, underwater pipelines and other offshore oil and gas
facilities. Sub Sea designs, manufactures and deploys remotely operated
vehicles (ROVs) which are often used to perform these services. Wellstream
designs, manufactures and markets non-bonded flexible pipe for the oil and gas
industry. Products include flowlines, jumpers, service lines, and static and
dynamic risers for both subsea and topside applications.
ENERGY EQUIPMENT SEGMENT (FORMERLY HYDROCARBON PROCESSING INDUSTRY)
Dresser's Energy Equipment segment designs, manufactures and markets
highly engineered products and systems for oil and gas producers, transporters,
processors, distributors and users throughout the world. Products and systems
of this segment include compressors, turbines, generators, electric motors,
pumps, engines and power systems, valves and controls, instruments, meters and
pipe couplings, blowers and gasoline dispensing systems. Demand for these
products is directly affected by global economic activity, which influences
demand for transportation fuels, petrochemicals, plastics, fertilizers,
chemicals and by-products of oil and gas.
COMPRESSION AND PUMPING
Dresser-Rand Company, a New York partnership in which Dresser has 51%
interest, manufactures turbines, compressors, electric motors, generators and
turbine-generator sets utilized in gas processing, refining and petrochemical
activities. Dresser-Rand also is a producer of gas injection compression systems
that enhance oil production and manufacturer of powerful pipeline boosters for
the transmission of natural gas.
The Consolidated Statements of Earnings for 1995, 1994 and 1993
include $1,138.3 million, $1,234.5 million and $1,118.1 million,
respectively, of Dresser-Rand's revenues.
Ingersoll-Dresser Pump Company, a partnership in which Dresser has 49%
interest, develops, manufactures and markets a broad range of pump products and
services on a global basis through local facilities in more than 40 countries.
The company's pumps are used for critical and non-critical service in a wide
variety of applications associated with power generation, chemical and
petrochemical processing, oil and gas production, water distribution and water
and waste water treatment. The product line includes heavy-duty process,
submersible, vertical turbine, standard end-suction, horizontal split-case,
centrifugal and multi-stage pumps.
Dresser's wholly owned Mono Pump operations produce progressing cavity
pumps for handling viscous fluids. These pumps have hydrocarbon energy-related
applications and are also utilized by the waste water, mining, paper, food and
chemical industries.
MEASUREMENT SYSTEMS
Dresser's Wayne Division manufactures and markets fully integrated
vehicle fueling systems for the global retail petroleum industry. Wayne's
technology systems include gasoline pumps and dispensers, management control
devices and point-of-sale credit and debit card machines.
Dresser's Instrument Division designs and manufactures mechanical and
electronic instruments for pressure and temperature measurement and control.
These products are utilized by the oil, gas and power industries and a variety
of customers in industrial, commercial, automotive and medical markets.
DMD products include gas meters, pipe fittings, couplings and repair
devices utilized by the gas and water utilities and other industrial markets.
4
FLOW CONTROL
Energy Valve Division designs, manufactures and markets valves (ball,
gate, check, butterfly, plug and specialty valves such as rising stem, top
entry, retractable seat ball valves or full port metal seated plug valves),
actuators, chemical injection pumps, regulators and surge relievers of its
Grove, TK, Tom Wheatley, Texsteam, Ledeen and Wheatley Gaso operations. This
comprehensive product range is primarily used in oil and gas exploration and
transmission, onshore and offshore, in power generation, in water desalination
and transmission and in segments of the oil and gas process industry.
The Valve and Controls Division includes Dresser's Masoneilan and
Industrial Valve operations. Masoneilan produces automated process control
valves, instruments, level instruments and regulators. Industrial Valve
manufactures Consolidated, Dewrance and Hancock safety, safety relief and line
valves. Both the Masoneilan and Industrial Valve operations primarily serve
process and power markets.
POWER SYSTEMS
Dresser's Waukesha Engine Division produces spark-ignited, gas and
diesel fueled engines and power systems. The division's products are used
throughout the world in the gathering and storage of natural gas and as drivers
for crude oil pumping and prime movers for electrical power generation and
cogeneration.
Dresser's Roots Division offers a full line of low to medium pressure
air and gas handling blowers along with vacuum pumps. These include rotary lobe
and screw-type positive displacement products and several turbo machinery
(centrifugal) lines. Roots products are used in natural gas processing plants,
refineries, chemical plants, flue gas desulphurization facilities, vacuum swing
absorption applications, waste water treatment plants and many other industrial
applications.
ENGINEERING SERVICES SEGMENT
The M.W. Kellogg Company, provides engineering, construction and
related services primarily to the hydrocarbon process industries. M.W. Kellogg
provides its own proprietary technologies and the advanced technologies of
others to facilitate the environmentally acceptable conversion of raw
hydrocarbon and other chemicals into value-added end products. Kellogg's
services include the development of processes, engineering design, construction
and procurement for energy-related complexes in the U.S. and international
regions. Kellogg participates in projects involving liquefied natural gas (LNG)
plants and receiving terminals, refining and petrochemical activities,
ammonia/fertilizer facilities and the retrofitting of all kinds of energy-
related complexes for environmental purposes. Revenues for The M.W. Kellogg
Company were $1,457.6 million, $1,265.2 million and $1,215.3 million for 1995,
1994 and 1993, respectively.
BACKLOG
The backlog of unfilled orders at October 31, 1995, 1994 and 1993 is
included in Management's Discussion and Analysis on page 23.
SALES AND DISTRIBUTION
Registrant's products and services are marketed through various
channels. In the United States, sales are generally made through a group or
division sales organization or through independent distributors. Sales in
Canada are usually effected through a division of Canadian subsidiaries. Sales
in other countries are made
5
directly by a United States division or subsidiary, through foreign subsidiaries
or affiliates, and through distributor arrangements or with the assistance of
independent sales agents.
COMPETITION AND ECONOMIC CONDITIONS
Dresser's products are sold in highly competitive markets, and its
sales and earnings can be affected by changes in competitive prices,
fluctuations in the level of activity in major markets, or general economic
conditions.
FOREIGN OPERATIONS
Registrant maintains manufacturing, marketing or service facilities
serving more than 80 foreign countries. Global distribution of products and
services is accomplished through more than 449 subsidiary and affiliated
companies engaged in various production, manufacturing, service, and marketing
functions, and through foreign representatives serving the principal market
areas of the world.
The Information by Geographic Area is included in Note N to
Consolidated Financial Statements on page 59 and in Management's Discussion
and Analysis on pages 28-29.
Registrant's foreign operations are subject to the usual risks which
may affect such operations. Such risks include unsettled political conditions
in certain areas, exposure to possible expropriation or other governmental
actions, operating in highly inflationary environments, and exchange control and
currency problems.
RESEARCH, DEVELOPMENT AND PATENTS
Registrant's divisions, subsidiaries and affiliates conduct research
and development activities in laboratories and test facilities within their
particular fields for the purposes of improving existing products and developing
new ones to meet the needs of their customers. In addition, research and
development programs are directed toward development of new products and
services for diversification or expansion. For the fiscal years ended October
31, 1995, 1994 and 1993, Registrant spent $96.5 million, $102.5 million and
$98.5 million, respectively, for research and development activities.
At December 1, 1995, Registrant and its subsidiaries and affiliates
owned 1,871 patents and had pending 958 patent applications, covering various
products and processes. They also were licensed under patents owned by others.
Registrant does not consider that any patent or group of patents relating to a
particular product or process is of material importance when judged from the
standpoint of Registrant's total business.
EMPLOYEES
As of October 31, 1995, Registrant had approximately 18,800 employees
in the United States (an increase of approximately 7% from October 31, 1994), of
whom approximately 5,900 were members of 12 unions represented by 22 bargaining
units. As of the same date, Registrant had approximately 12,700 employees at
foreign locations of whom approximately 2,700 were members of unions. During
fiscal 1995, Registrant experienced no contract negotiation strikes in the
United States. Relations between Registrant and its employees are generally
considered to be satisfactory.
6
EXECUTIVE OFFICERS OF REGISTRANT
The names and ages of all executive officers of Registrant, all
positions and offices with Registrant presently held by each person named and
their business experience during the last five years are stated below:
PRINCIPAL OCCUPATION DURING
NAME, AGE AND POSITION PAST FIVE YEARS
---------------------- ---------------------------
John J. Murphy (64) Chairman of the Board since August
Chairman of the Board and Director 1983; Chief Executive Officer of
Registrant, August 1983 - November
1995; President of Registrant,
August 1982 - March 1992.
B. D. St. John (64) Vice Chairman of Registrant since
Vice Chairman and Director March 1992; Executive Vice
President - Administration of
Registrant, November 1982 - March
1992.
William E. Bradford (61) President since March 1992; Chief
President, Chief Executive Officer Executive Officer of Registrant
and Director since November, 1995; Chief
Operating Officer of Registrant,
March 1992- November, 1995;
President and Chief Executive
Officer of Dresser-Rand Company,
February 1988 - March 1992; Senior
Vice President - Operations of
Registrant, March 1984 - March
1992.
Donald C. Vaughn (59) Executive Vice President of
Executive Vice President Registrant since November 1995;
Senior Vice President - Operations
of Registrant, January 1992 to
November 1995; Chairman, President
and Chief Executive Officer of M.
W. Kellogg, Inc. since June 1995;
Chairman of the Board, Chief
Executive Officer of The M.W.
Kellogg Company since March 1983;
President of The M. W. Kellogg
Company, March 1983 to June 1995.
James L. Bryan (59) Senior Vice President - Operations
Senior Vice President - Operations since January 1994; Vice
President - Operations of
Registrant, May 1990 - January
1994.
Clint E. Ables (56) Vice President and General Counsel
Vice President and General Counsel of Registrant since October 1993;
Vice President - Corporate
Development of Registrant, November
1992 - October 1993; Senior
Counsel - Corporate Ventures of
Registrant, July 1986 - November
1992.
Paul M. Bryant (49) Vice President - Human Resources of
Vice President - Human Resources Registrant since May 1993; Vice
President - Human Resources of
Dresser-Rand Company, January
1987 - May 1993.
7
PRINCIPAL OCCUPATION DURING
NAME, AGE AND POSITION PAST FIVE YEARS
---------------------- ---------------------------
George A. Helland (58) Vice President of Registrant since
Vice President March 1993; Deputy Assistant
Secretary for Export Assistance,
United States Department of Energy,
September 1990 - January 1993;
Principal, Innova Partners, Inc.,
January 1988 - September 1990.
Ardon B. Judd, Jr. (59) Vice President - Washington Counsel
Vice President - Washington of Registrant since September 1986.
Counsel
George H. Juetten (48) Vice President - Controller of
Vice President - Controller Registrant since May 1993; Audit
Partner, Price Waterhouse LLP,
independent public accountants,
July 1980 - May 1993.
Rebecca R. Morris (50) Vice President - Corporate Counsel
Vice President - Corporate Counsel of Registrant since January 1994;
and Secretary Secretary of Registrant since
November 1990; Corporate Counsel of
Registrant June 1987 - January
1994.
David R. Smith (49) Vice President - Tax of Registrant
Vice President - Tax since January 1994; Director of Tax
of Registrant, October 1987 -
January 1994.
Paul W. Willey (58) Treasurer of Registrant since May
Treasurer 1984.
OFFICER EMPLOYED BY JOINT VENTURE COMPANY
PRINCIPAL OCCUPATION DURING
NAME, AGE AND POSITION PAST FIVE YEARS
---------------------- ---------------------------
Ben R. Stuart (61) President and Chief Executive
Senior Vice President - Operations Officer of Dresser-Rand Company
since March 1992; Senior Vice
President - Operations of
Registrant since March 1992; Vice
President - Operations of
Registrant, August 1988 - March
1992.
All officers are elected annually by the Board of Directors at a
meeting following the Annual Meeting of Shareholders. The officers serve at the
pleasure of the Board of Directors and can be removed at any time by the Board.
ITEM 2. PROPERTIES
Registrant, together with its subsidiaries and affiliates, has more
than 65 manufacturing plants, ranging in size from approximately 3,000 square
feet to in excess of 1,500,000 square feet and totaling more than 16
8
million square feet, located in the United States, Canada, and various other
foreign countries. The majority of the manufacturing sites are owned in fee.
In addition, sales offices, warehouses, service centers and stock points are
maintained, almost all in leased space, in the United States, Canada and certain
other foreign countries. The properties are believed to be generally well
maintained, adequate for the purposes for which they are used, and capable of
supporting a higher level of market demand.
During fiscal 1995 Baroid Drilling Fluids, Inc. had 21 grinding and/or
other facilities for beneficiating mineral ores, containing approximately 3,400
acres in plant site property.
The following are the locations of the principal facilities of
Registrant and its majority owned joint ventures for each industry segment as of
October 31, 1995:
ˇ Enlarge/Download Table
APPROXIMATE
FLOOR AREA
INDUSTRY SEGMENT AND LOCATION PRODUCT AREA (SQUARE FEET)
----------------------------- ------------ -------------
Petroleum Products and Services
Aberdeen, Scotland (Underwater Services) 118,000
Belle Chasse, Louisiana (Underwater Services) 86,000
Dallas, Texas (Drill Bits) 294,000
Dallas, Texas (Completion & Production Tools) 278,500
Houston, Texas (Completion & Production Tools) 45,000 (1)
Longview, Texas (Completion & Production Tools) 235,000
Colorado Springs, Colorado (Completion & Production Tools) 97,000
Tulsa, Oklahoma (Completion & Production Tools) 64,000
Kuantan, Malaysia (Pipe Coatings) 882,669 (1)
Zhanjiang, China (Pipe Coatings) 116,251 (1)
Layyah, Sharjah, U.A.E. (Pipe Coatings) 1,233,070 (1)
Warri, Nigeria (Pipe Coatings) 1,568,173 (1)
Harvoy, Louisiana (Pipe Coatings) 96,750 (1)
Pearland, Texas (Pipe Coatings) 157,262 (1)
Fontane, California (Pipe Coatings) 65,000
Fort Collins, Colorado (Pipe Coatings) 67,173
Morrisville, Pennsylvania (Pipe Coatings) 83,748
Energy Equipment
Manchester, England (Mono Pumps) 242,000
Victoria, Australia (Mono Pumps) 145,000
Connersville, Indiana (Power Systems) 376.790
Huddersfield, England (Power Systems) 159,561
Waukesha, Wisconsin (Power Systems) 764,457
Appingedam, Netherlands (Power Systems) 136,935
Painted Post, New York (Compressors) 982,000
Broken Arrow, Oklahoma (Compressors) 129,000
Wythenshawe, England (Compressors) 306,000
9
Energy Equipment (cont.)
Olean, New York (Compressors) 896,000
LeHavre, France (Compressors) 538,000
Kongsberg, Norway (Compressors) 140,000 (1)
Wellsville, New York (Steam Turbines) 404,000
Minneapolis, Minnesota (Motors and Generators) 350,000
Skelmersdale, England (Control Products) 177,000 (1)
Avon, Massachusetts (Control Products) 121,000
Canton, Massachusetts (Control Products) 40,590
Montebello, California (Control Products) 82,856
Alliance, Ohio (Control Products) 62,000 (1)
Bradford, Pennsylvania (Control Products) 450,000
Jacarei, Brazil (Control Products) 80,699
Conde, France (Control Products) 187,244
Barcelona, Spain (Control Products) 56,400
Burlington, Ontario, Canada (Control Products) 53,000
Naples, Italy (Control Products) 87,791
Alexandria, Louisiana (Control Products) 308,640
Dumfermline, Scotland (Pitreavie) (Control Products) 170,801
Dumfermline, Scotland (Halbeath) (Control Products) 95,806
Houston, Texas (Control Products) 156,000
Stafford, Texas (Control Products) 110,000
Voghera, Italy (Control Products) 1,245,300
Stratford, Connecticut (Measurement Systems) 335,000
Berea, Kentucky (Measurement Systems) 105,000
Salisbury, Maryland (Measurement Systems) 341,166 (1)
Austin, Texas (Measurement Systems) 103,491
Malmo, Sweden (Measurement Systems) 233,533
Einbeck, Germany (Measurement Systems) 80,505
Rio de Janeiro, Brazil (Measurement Systems) 129,166
Bonnyrigg, Scotland (Measurement Systems) 63,000
Markham, Ontario, Canada (Measurement Systems) 55,631 (1)
Engineering Services
Houston, Texas (Engineering & Construction) 390,394 (1)
Wembley, England (Engineering & Construction) 92,524 (1)
----------
(1) all or a portion of these facilities are leased.
10
Baroid Drilling Fluids, Inc. has mineral rights to proven and
prospective reserves of barite and bentonite. Such rights included leaseholds
and mining claims and property owned in fee either directly by Baroid Drilling
Fluids, Inc. or by its wholly owned subsidiary Bentonite Corporation. The
principal deposit of barite is located in Nevada, with deposits also located in
Missouri and Georgia. Reserves of bentonite are located in Wyoming, Montana and
South Dakota. Based on the number of tons of each of the above minerals
consumed in fiscal 1995, Baroid Drilling Fluids, Inc. estimates its reserves,
which it considers to be proven, to be sufficient for operation for a period of
10 years or more.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings. Information
called for by this Item is included in Note J to Consolidated Financial
Statements on pages 50-52.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the quarter ended October 31, 1995.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Registrant is listed on the New York and Pacific Stock Exchanges. The
stock symbol is DI. The quarterly market prices for Registrant's Common Stock,
traded principally on the New York Stock Exchange, were as follows for the two
most recent fiscal years:
ˇ Download Table
FIRST SECOND THIRD FOURTH YEAR
-------------------------------------------
1995 High. . . . . $ 21.875 22.125 24.00 25.125 25.125
1995 Low . . . . . $ 18.50 19.375 21.625 19.125 18.50
1994 High. . . . . $ 22.75 24.875 23.875 22.25 24.875
1994 Low . . . . . $ 18.625 20.50 20.375 19.00 18.625
Dividends on Registrant's Common Stock are declared by the Board of
Directors and normally paid to shareholders as of the record date during the
third week of March, June, September and December.
The cash dividends paid per share of common stock for the 1995 and
1994 fiscal years were:
ˇ Download Table
FIRST SECOND THIRD FOURTH YEAR
-----------------------------------------
1995 . . . . . . . $ .17 .17 .17 .17 .68
1994 . . . . . . . $ .15 .17 .17 .17 .66
As of January 4, 1996, there were approximately 21,240
shareholders of record of the Registrant's Common Stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and notes thereto included in this
report.
1995 1994 1993 1992 1991
-------- -------- -------- --------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Revenues $5,628.7 $5,330.7 $5,202.3 $4,723.3 $4,860.0
Earnings from continuing
operations before
extraordinary items and
accounting changes:
Earnings 213.1 361.8* 133.6 97.7 143.5
Per share 1.17 1.98* .74 .55 .81
Earning per share
before special items 1.17 1.09 1.17 .83 .95
Total assets 4,707.4 4,323.6 4,445.6 3,901.9 3,784.9
Long-term debt 459.3 460.6 492.2 148.5 259.6
Cash dividends
declared 124.3 116.5 100.2 96.3 96.8
Per share** .68 .66 .60 .60 .60
*Includes $146.5 million or $.80 per share from sale of interest in Western
Atlas International, Inc.
**Dresser historical dividends.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MERGERS
On January 21, 1994, Dresser merged with Baroid Corporation (Baroid). On
August 5, 1994, Dresser merged with Wheatley TXT Corp. (Wheatley). The
"Company" as used in this discussion refers to Dresser and its subsidiaries
including Baroid and Wheatley. The mergers have been accounted for as
poolings of interests. Financial data, statistical data, financial statements
and discussion of financial information included in this report have been
restated to reflect the financial position and results of operations as if
the mergers had occurred as of the beginning of the first year presented.
RESULTS OF OPERATIONS
Results of operations for the three years ended October 31, 1995 are
summarized as follows (in millions except per share amounts):
1995 1994 1993
------- -------- -------
Earnings before special items $ 213.1 $ 197.8 $ 211.4
Special items - 17.5 (77.8)
------- -------- -------
Earnings from operations 213.1 215.3 133.6
Gain on sale of interest
in Western Atlas - 146.5 -
------- -------- -------
Earnings before accounting change 213.1 361.8 133.6
Accounting change for
postemployment benefits (16.0) - -
------- -------- -------
Net earnings $ 197.1 $ 361.8 $ 133.6
------- -------- -------
------- -------- -------
Earnings per share
Earnings before special items $ 1.17 $ 1.09 $ 1.17
Special items - .09 (.43)
------- -------- -------
Earnings from operations 1.17 1.18 .74
Gain on sale of interest in
Western Atlas - .80 -
------- -------- -------
Earnings before accounting change 1.17 1.98 .74
Accounting change for postemployment
benefits (.09) - -
------- -------- -------
Net earnings $ 1.08 $ 1.98 $ .74
------- -------- -------
------- -------- -------
ACCOUNTING CHANGE
The Company recorded a charge of $16.0 million (net of tax of $9.0 million)
or $.09 per share in the first quarter of 1995 for the cumulative effect of
changing its accounting for postemployment benefits as required by Statement
of Financial Accounting Standards No. 112, EMPLOYERS' ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS. See Note A to Consolidated Financial Statements for
more information.
14
RESULTS OF OPERATIONS (CONTINUED)
SPECIAL ITEMS
During 1994 and 1993, the Company entered into a number of unusual or
nonrecurring transactions, including mergers, divestitures and restructuring
of existing operations. The impact of these transactions is described below.
The discussions of results of operations will focus on earnings excluding
these transactions.
NET OF TAX (IN MILLIONS) 1994 1993
------- -------
Parker & Parsley litigation - insurance
recovery/settlement $ 11.6 $ (41.6)
Merger expenses - Wheatley/Baroid (7.9) (30.6)
Restructuring and other special charges (10.0) (5.6)
Earnings of M-I Drilling Fluids 6.3 -
Tax benefits from sale of affiliate 17.5 -
------- -------
Total $ 17.5 $ (77.8)
------- -------
------- -------
PER SHARE 1994 1993
------- -------
Parker & Parsley litigation - insurance
recovery/settlement $ .06 $ (.23)
Merger expenses - Wheatley/Baroid (.04) (.17)
Restructuring and other special charges (.05) (.03)
Earnings of M-I Drilling Fluids .03 -
Tax benefits from sale of affiliate .09 -
------- -------
Total $ .09 $ (.43)
------- -------
------- -------
The Company sold its 29.5% interest in Western Atlas International in January
1994 and recognized a pre-tax gain of $275.7 million. (See Note B to
Consolidated Financial Statements.)
The Company recorded pre-tax charges of $65.0 million in 1993 for settlement
of the Parker & Parsley litigation. In April 1994, the Company recognized an
$18.4 million pre-tax gain from the settlement of a coverage dispute with
certain insurance carriers regarding the Parker & Parsley litigation. (See
Note L to Consolidated Financial Statements.)
The Company recorded pre-tax expenses of $10.7 million in August 1994 related
to the Wheatley merger and $31.0 million in October 1993 related to the
Baroid merger. (See Notes A and L to Consolidated Financial Statements.)
The Company recorded pre-tax expenses of $15.7 million in 1994 and $9.1
million in 1993 for restructuring costs and other special items. (See Note L
to Consolidated Financial Statements.)
The Company sold its investment in M-I Drilling Fluids Company effective
February 28, 1994. (See Note B to Consolidated Financial Statements.)
The Company sold its interest in IRI International, Inc., an unconsolidated
affiliate, in September 1994 and was able to recognize $17.5 million of tax
benefits applicable to previously unrecognized losses. (See Note B to
Consolidated Financial Statements.)
15
RESULTS OF OPERATIONS (CONTINUED)
GENERAL OPERATING ENVIRONMENT
Dresser is a fully integrated manufacturer and supplier of products and
services to customers in the oil and gas industry. The Company produces a
broad range of highly engineered products for hydrocarbon exploration,
drilling, production, transmission and processing activities. Dresser also
provides engineering, procurement and project management services for all
aspects of the energy business. Operations are organized into three
segments: Petroleum Products and Services, Engineering Services and Energy
Equipment. Descriptions of the segments are contained in Note N to
Consolidated Financial Statements.
The business environment for Petroleum Products and Services is directly
effected by prices for oil and natural gas, drilling activity and exploration
and production spending by oil and natural gas producers. In 1995, the
average posted price of West Texas Intermediate crude oil rose approximately
6 percent to $17.50 per barrel while the average spot price of natural gas
declined 15 percent to $1.50 per million BTUs.
Overall, the rig count declined 2.7 percent in fiscal 1995. The rig count in
North America was down 5.7 percent reflecting a decline in wells drilled for
natural gas, while the rig count in international markets increased 1.5
percent reflecting higher activity levels in major producing regions like
South America, Africa and the North Sea.
The business environment for Engineering Services and Energy Equipment is
affected by numerous factors, including global and regional economic growth
rates, the prices of oil and natural gas, the supply and demand for products
created from hydrocarbons including gasoline, jet fuel, ethylene,
petrochemicals, chemicals, fertilizers and power. These factors determine
the capital spending budgets, both upstream and downstream, of integrated oil
and gas companies around the world.
According to published sources, economic growth is expected to continue at an
average of 6 percent or better for developing countries and 2 percent or
better for developed countries. Developing country growth expectations are
due largely to steadily increasing population and greater industrialization
that also will generate sharply rising per capita energy demand.
Increasingly, consumption of oil and natural gas is expected to be driven by
rising demand for refined products, petrochemicals, fertilizers and power.
Capital and maintenance spending for downstream hydrocarbon processing
projects is expected to increase to $67.0 billion in 1996, up from a
projected $62.6 billion in 1995. Recent project award activity has increased
for ethylene and fertilizer projects. Global project activity in 1995 hit
its highest level (2,942 projects) since 1991. Internationally, project
activity is currently at its highest level since 1982.
CONSOLIDATED RESULTS
1995 COMPARED TO 1994
Net earnings in 1995 before the accounting change were $213.1 million ($1.17
per share) compared to $197.8 million ($1.09 per share) in 1994 excluding the
effect of the special items discussed above. This represents a 7% earnings
per share increase.
16
RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
1995 COMPARED TO 1994 (continued)
Revenues of $5.6 billion were up $298.0 million or 6% over 1994. The
Petroleum Products and Services Segment revenues increased $85.1 million or
5%. The Engineering Services Segment revenues increased $192.4 million or
15%. The Energy Equipment Segment revenues increased $50.2 million or 2%.
Segment operating profit of $473.1 million increased $12.9 million or 3% from
1994. The Petroleum Products and Services Segment and the Energy Equipment
Segment were up while the Engineering Services Segment was down versus 1994.
See the Industry Segment Analysis for discussion of changes in revenues and
operating profit.
General corporate expenses of $75.2 million were $6.1 million higher than in
1994. The increase was primarily due to 1994 gains on sales of interests in
M-I Drilling Fluids Company and IRI International, Inc. Net interest expense
increased $7.6 million to $25.8 million primarily because of lower interest
income due to a lower level of short-term investments.
The effective income tax rate for 1995 was 32% compared to an overall rate of
36% in 1994. In 1994, a lower tax basis on the investment in Western Atlas
International, Inc., compared to the book basis, resulted in a tax charge of
$129.3 million or 47% on the book gain on sale. The additional taxes on the
gain on sale of Western Atlas were somewhat offset by the $17.5 million of
special tax benefits recognized upon sale of investment in IRI International,
Inc. Excluding these two transactions, the effective rate for 1994 was 33%.
Minority interest provision was $19.8 million, down $13.1 million from 1994.
The decrease was primarily attributable to the 49% share in lower earnings of
Dresser-Rand.
1994 COMPARED TO 1993
Revenues were $5.3 billion in 1994 compared to $5.2 billion in 1993.
Petroleum Products and Services revenues were lower primarily due to the
inclusion of both M-I Drilling Fluids and Baroid Drilling Fluids in 1993,
while 1994 included M-I Drilling Fluids for only four months. That decrease
was more than offset by higher revenues by the other two segments. Revenues
include the Company's share of earnings of unconsolidated affiliates, which
was down $53 million in 1994 mostly attributable to $39 million in 1993 for
Western Atlas.
Excluding the special items described earlier, net earnings decreased $14
million to $198 million. Segment operating profit for 1994 was $40 million
lower compared to 1993. However, 1993 included the results of Western Atlas
($39 million), the impact of a full year of M-I Drilling Fluids earnings ($16
million) and the favorable impact of a LIFO inventory adjustment ($21
million) at Ingersoll-Dresser Pump (IDP). Accordingly, comparable 1994
segment operating profit increased $36 million, reflecting high levels of
drilling activity in North America and strong levels of demand for certain of
the Company's Energy Equipment products. See the Industry Segment Analysis
for a discussion of the results of each segment.
17
RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
1994 COMPARED TO 1993 (continued)
General Corporate Expenses declined $19 million to $69 million, reflecting
lower self-insurance costs and lower ongoing expenses associated with
previously divested businesses. Net interest expense declined $10 million
primarily due to the investment of the proceeds from the sale of Western
Atlas and M-I Drilling Fluids. Other items impacting comparability of 1994
to 1993 include a non-recurring gain of $12.8 million in 1993 resulting from
a change in the Company's Retiree Medical Benefit Plan and an increase in
goodwill amortization of $5.6 million in 1994 associated with the Bredero
Price, TK Valve and Axelson acquisitions.
The overall effective income tax rate was 36% in both 1994 and 1993.
Excluding the impact of the Western Atlas and IRI International, Inc.
transactions described earlier and the impact of the other special items in
both years, the effective rate was 33% for 1994 and 1993.
Minority interest expense was $11 million lower in 1994 primarily due to the
sale of M-I Drilling Fluids Company, which had a 36% minority owner.
INDUSTRY SEGMENT ANALYSIS
See details of financial information by Industry Segment and Geographic Area
on pages 24 through 29.
PETROLEUM PRODUCTS AND SERVICES
DRILLING AND PRODUCTION OPERATIONS
Revenues of $1.28 billion in 1995 were $99.6 million or 8 percent higher than
1994 levels. Excluding the revenues of M-I Drilling Fluids, which was sold
in February 1994, revenues increased $246.6 million or 24%. Operating profit
of $143.9 million was $46.8 million higher than 1994. Excluding the impact
of M-I Drilling Fluids, operating profit increased $56.7 million or 65% over
1994. The operating margin improved to 11.3 percent of sales from 8.2
percent in 1994, or 8.4 percent excluding M-I. All geographic sectors
improved in 1995, in particular Latin America and the North Sea where
drilling activity was greater than in the prior fiscal year.
Although each operating division improved, the majority of the gains in sales
and operating profit were attributable to Baroid Drilling Fluids and
Sperry-Sun Drilling Services. Baroid revenues increased 31 percent due to
higher activity in major producing regions including the North Sea, Latin
America and the Gulf of Mexico. In addition, new market penetration of
products developed within the last five years, including PETROFREE and DRIL-N
drilling systems, contributed to the performance. Sperry-Sun's revenues
improved 29 percent reflecting increasing demand, coupled with higher system
capacity and utilization rates, for measurement-while-drilling and
directional drilling services in most major markets. In addition, new
products including Slim Phase 4, Lateral Tie Back System (LTBS) and
Underbalanced Drilling contributed to the improvement.
18
RESULTS OF OPERATIONS (CONTINUED)
INDUSTRY SEGMENT ANALYSIS (CONTINUED)
PETROLEUM PRODUCTS AND SERVICES (CONTINUED)
DRILLING AND PRODUCTION OPERATIONS (CONTINUED)
Revenues for Security DBS rose 4 percent, reflecting an increase in
international sales of roller-cone drill bits. Operating profit improved
significantly reflecting successful restructuring and manufacturing
cycle-time reductions. Dresser Oil Tools benefited from strong sales in
Canada and international markets as well as cost savings from the
consolidation of manufacturing and sales and distribution operations. New
product introductions also contributed to the improvement. Despite a weak
Canadian market, the Dresser Wheatley Division benefited from the marketing
of additional Dresser products.
Revenues of $1.18 billion in 1994 were down $122.5 million compared to 1993.
Excluding the revenues of M-I Drilling Fluids, revenues increased $131.7
million or 15%. The increase in 1994 revenues was due to the acquisition of
Axelson in December 1993 and an 11% increase in North American drilling
activity in 1994 versus 1993. Revenues from North American markets increased
27% in 1994, reflecting strength in the Gulf of Mexico and Canada.
Operating profit of $97.1 million in 1994 was $6.9 million higher than 1993.
Excluding the impact of M-I Drilling Fluids, 1994 operating profit was up
$22.2 million or 34% over 1993. The strong performance in North American
drilling markets led to substantial increases in operating profit for
Sperry-Sun and Baroid Drilling Fluids. The acquisition of Axelson as well as
a $9 million reduction in overhead costs resulting from the Baroid merger
also contributed to the increase. These improvements more than offset the
decline in operating profit from international markets and lower earnings
attributable to costs associated with the combination of Guiberson AVA with
Axelson and Security with DBS.
KELLOGG OIL AND GAS SERVICES
Revenues and operating profit declined $14.5 million and $36.2 million,
respectively, in 1995 compared to 1994. A cyclical downturn in the Bredero
Price pipecoating business in the North Sea and the Far East resulted in
significantly lower revenues and operating profit in 1995. However, Bredero
Price's backlog of $403.1 million at October 31, 1995 is up substantially
from the $77.9 million level at October 31, 1994 primarily due to a $300
million project in the North Sea which will be performed over the next four
years. Bredero Price has also entered key markets in the Western Hemisphere,
particularly the United States and Latin America. Prior to 1995, Bredero
Price had no activity in these markets. The combination of higher backlogs
plus new positions in previously unserved markets are expected to result in
significantly improved performance for Bredero Price over the next three to
five years.
The Sub Sea underwater engineering operations had higher revenues and
operating profits in 1995 as the result of improvements in both the North Sea
and Gulf of Mexico, combined with the impact of three business acquisitions
made during 1995. These acquisitions, which include North Sea Assets, Subtec
International and Wellstream (a manufacturer of flexible pipe and riser
systems), are expected to generate revenues of approximately $100 million
during 1996.
19
RESULTS OF OPERATIONS (CONTINUED)
INDUSTRY SEGMENT ANALYSIS (CONTINUED)
PETROLEUM PRODUCTS AND SERVICES (CONTINUED)
KELLOGG OIL AND GAS SERVICES (CONTINUED)
Revenues of $371.1 million in 1994 were 19% higher than 1993 levels, with
1994 operating profit up 6% over 1993. The increase in revenues resulted
from the inclusion of Bredero Price for a full year in 1994 versus nine
months in 1993 and higher Sub Sea project activity in the Pacific region.
The increase in operating profit was negatively impacted by (i) a Bredero
Price high margin equipment sale in 1993 that did not recur in 1994 and (ii)
Sub Sea's increased engineering and operational staff expenses in both the
United States and the North Sea combined with higher than anticipated job
costs on a project in Australia.
ENGINEERING SERVICES
M. W. Kellogg revenues of $1.46 billion in 1995 rose 15 percent from $1.27
billion in 1994. Major improvement in activity occurred in North America,
Latin America and Europe. These gains were partially offset by lower
activity in the Far East reflecting the wind-down of projects in Malaysia,
Africa and the Middle East. Petrochemicals and gas processing activity
accounted for much of the pick up in activity in the United States and Europe.
M. W. Kellogg operating profit in 1995 declined 7 percent due principally to
lower equity income of $9.7 million from M.W. Kellogg's investment in Bufete
Industriale, S.A. de C.V., a major Mexican engineering and construction firm.
Operating profit for 1995 also included a gain of $7.5 million from the sale
of one-third of its investment in Bufete, and the 1994 results included a
gain of $11.0 million associated with an initial public offering of Bufete.
Excluding the impact of Bufete, operating profit in 1995 increased 10 percent.
Revenues of $1.27 billion in 1994 were 4% higher than in 1993, but operating
profit was down 21% compared to 1993 excluding Bufete. The decrease in
operating profit was primarily the result of achieving significant milestones
on several large contracts in 1993 that were substantially completed that
year.
Although backlog of $1.40 billion at October 31, 1995 was down 14% from the
year-ago level, Kellogg's backlog at December 31, 1995 had increased to
approximately $1.8 billion, reflecting major project bookings that occurred
after fiscal year-end.
ENERGY EQUIPMENT
COMPRESSION AND PUMPING
Revenues and operating profit from Compression and Pumping operations both
fell approximately 6 percent in 1995 compared to 1994. Dresser-Rand revenues
declined $96.2 million or 8% to $1.14 billion as a cyclical downturn in the
compression industry resulted in lower volumes of complete units and repair
parts during the first half of the year and from the impact of a major
multi-year gas compression project in Venezuela that was completed early in
fiscal 1995. In 1995, 60% of Dresser-
20
RESULTS OF OPERATIONS (CONTINUED)
INDUSTRY SEGMENT ANALYSIS (CONTINUED)
ENERGY EQUIPMENT (CONTINUED)
COMPRESSION AND PUMPING (CONTINUED)
Rand's revenues were from markets outside of North America. An increase in
revenues in the United States and the Far East were more than offset by
declines attributable to the factors noted above.
Dresser-Rand operating profit of $62.8 million was down $8.6 million from
1994. All markets were affected by margin pressure on complete-unit sales,
especially the Far East. Cost reduction programs and the benefits associated
with higher levels of production during the year partially offset the decline
in margin.
Dresser-Rand set a record for booking new orders during 1995 at $1.3 billion.
Bookings exceeded the prior year in virtually all product groups. Major
orders for pipeline compressors, oil and gas production, ethylene,
petrochemicals and refining bolstered backlogs of turbo products, compression
service packages and steam turbine units. Overall, backlog of $883.8 million
at October 31, 1995 reflected a 34% increase over 1994.
Dresser-Rand revenues of $1.2 billion in 1994 increased 10% from a year
earlier due primarily to a 20% increase in revenues from markets outside
North America, particularly in the Eastern Hemisphere. This primarily
reflected the shipment of prior-year backlog of centrifugal products and
compression services. Operating profit continued strong at $71.9 million but
was down from $87.6 million in 1993 due to restructuring and early retirement
costs as well as margin pressure on complete-unit sales.
Dresser-Rand revenues from outside of North American markets were 61% in 1994
compared to 56% in 1993. Operating profit from North America was essentially
unchanged, with strong results from the field gas market offsetting a decline
in the centrifugal products market. Internationally, significant
improvements in operating profit in Venezuela and the North Sea only
partially offset declines in continental Europe and the Middle East resulting
from margin pressure on complete-unit sales.
Earnings from the 49% owned Ingersoll-Dresser Pump (IDP) joint venture were
$13.2 million in 1995, $8.8 million in 1994 and $17.1 million in 1993. The
improvement in 1995 compared to 1994 was primarily related to a continuing
decline of costs associated with the formation of the joint venture. The
1993 results included $21.0 million of earnings from the release of LIFO
inventory reserves related to inventory contributed to IDP by the Company and
sold by IDP to third parties.
MEASUREMENT
Measurement operation revenues of $618.7 million in 1995 were $52.2 million
or 9% higher than 1994 levels. However, operating profit was essentially
unchanged at $71.4 million compared to $72.0 million in 1994. Although the
Wayne (fuel dispensing) Division enjoyed improved sales in Europe and South
America, margins were negatively impacted by cost and pricing pressures in the
21
RESULTS OF OPERATIONS (CONTINUED)
INDUSTRY SEGMENT ANALYSIS (CONTINUED)
MEASUREMENT (CONTINUED)
U.S. market, resulting in lower overall operating profit in 1995. The
Instrument Division reported a 13% revenue increase and a slight improvement
in operating profit. Earnings from higher activity in South America and new
product introductions were offset by a decline in Europe and the effect of
increased spending in the marketing and research and development areas.
Sales and operating profit in 1994 improved 12% and 41%, respectively, over
1993. The Wayne Division contributed the majority of the improvement in 1994
with very strong performances in the U.S. and Scandinavia. The Instrument
Division also saw improved results in 1994 from higher sales volumes and the
impact of a small acquisition in Germany in early fiscal 1994.
FLOW CONTROL
Flow Control 1995 revenues of $458.4 million were $53.4 million or 13% higher
than 1994. Operating profit of $41.8 million was $12.5 million or 43% higher
than 1994. The acquisition of Grove S.p.A. in June 1995 was the major reason
for the year-to-year increase in revenues and operating profit. The Valve and
Controls Division performed ahead of 1994 as a result of increased project
related orders in 1995 and the cost savings realized from the 1994
restructuring in Europe.
Revenues and operating profit declined 3% and 39%, respectively, in 1994
compared to 1993. The Valve and Controls Division accounted for the majority
of this decrease, as the lingering impact of an economic recession in Europe
ultimately resulted in a significant downsizing of its European operations.
POWER SYSTEMS
Power Systems operations operating profit improved 5% in 1995 on a 12%
revenue increase. Waukesha Division revenues of $205.3 million increased
$24.4 million or 14%, with a slight improvement in operating profit. The
sales improvement was primarily in the lower margin power generation market,
and higher new product development costs also impacted operating profit in
1995. The Roots Division saw operating profit improve $1.8 million on
essentially flat sales of $82.6 million. The earnings improvement was
primarily the result of a major reengineering effort to improve its
manufacturing cost structure during the year.
Revenues and operating profit improved 5% and 17%, respectively, in 1994 as
compared to 1993. These improvements primarily came from the Waukesha
Division where significant volume increases were realized in the higher
margin gas compression market. North American markets accounted for 69% of
Power Systems revenues in 1995 and 74% in 1994 and 1993.
22
RESULTS OF OPERATIONS (CONTINUED)
BACKLOG OF UNFILLED ORDERS
October 31,
------------------------------
1995 1994 1993
--------- -------- ---------
(IN MILLIONS)
CONSOLIDATED BACKLOG
Petroleum Products and Services
Drilling and Production Operations $ 19.7 $ 15.2 $ 11.6
Kellogg Oil and Gas Services 508.1 142.9 157.8
--------- -------- ---------
527.8 158.1 169.4
--------- -------- ---------
Engineering Services
M. W. Kellogg Operations 1,400.0 1,626.1 2,478.1
--------- -------- ---------
Energy Equipment
Compression and Pumping 889.4 667.8 877.9
Measurement 115.9 103.1 93.8
Flow Control 234.0 114.4 107.5
Power Systems 91.2 81.3 74.1
--------- -------- ---------
1,330.5 966.6 1,153.3
--------- -------- ---------
Eliminations (9.1) (2.1) (3.2)
--------- -------- ---------
Total consolidated $3,249.2 $2,748.7 $3,797.6
--------- -------- ---------
--------- -------- ---------
SHARE OF BACKLOG OF
Ingersoll-Dresser Pump Company (49%) $ 187.0 $ 188.3 $ 178.9
--------- -------- ---------
--------- -------- ---------
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
The Company's liquidity and overall financial condition remained strong at
October 31, 1995. Cash and cash equivalents totaled $248.7 million. As
shown on the Statement of Cash Flows, Operations provided $434.5 million of
cash while Investing Activities and Financing Activities used $569.7 million
and $129.7 million, respectively. The result was a $266.3 million net
decrease in cash and cash equivalents. Cash provided by Operations exceeded
capital expenditures and dividends by $22.0 million. Management does not
expect capital expenditures, which were $288.2 million in 1995, to change
significantly in 1996. Net cash provided by Operations in 1995 was $80.4
million higher than in 1994 primarily because less cash was required to
finance working capital. Cash used by Investing Activities included $325.7
million for business acquisitions which was essentially responsible for the
overall net decrease in cash and cash equivalents.
Shareholders' equity increased $24.5 million as earnings more than offset
charges for dividends, stock repurchases and translation adjustments. The
Company's ratio of total debt to total debt and shareholders' equity was
26/74 at October 31, 1995 compared to 23/77 at October 31, 1994.
Management believes that the cash on hand of $248.7 million and $231.8
million of existing unused lines of credit, combined with cash that will be
provided by future operations, will be adequate to finance known
requirements. The Company's long-term debt is rated A by Standard and Poors, A1
23
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION (CONTINUED)
by Moody's and A+ by Duff and Phelps. The three agencies give their highest
ratings to the Company's commercial paper. Management believes that the
Company's strong financial condition and favorable credit ratings will allow
the Company to borrow additional funds should the need arise.
LEGAL AND ENVIRONMENTAL MATTERS
The Company is currently involved in a number of lawsuits. See Note J to
Consolidated Financial Statements for information on these lawsuits and
evaluation of the Company's exposure. The Company has been identified as a
potentially responsible party in a number of Superfund sites. Note J to
Consolidated Financial Statements includes a review and evaluation of the
claims.
INDUSTRY SEGMENT AND GEOGRAPHIC AREA FINANCIAL INFORMATION -
COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS
The following financial information by Industry Segment and Geographic Area
for the years ended October 31, 1995, 1994 and 1993 is an integral part of
Note N to Consolidated Financial Statements.
Total revenues include sales and services to unaffiliated customers.
Intersegment and intergeographic area sales and services are accounted for at
prices which approximate arm's length market prices. The intersegment and
intergeographic area revenues are eliminated. Revenues also include
royalties and share of earnings or losses of unconsolidated affiliates.
Operating profit consists of total revenues less total operating expenses and
includes the Company's share of earnings or losses from unconsolidated
affiliates. General corporate expenses, amortization of acquisition
intangibles, interest income and expense, and other income and expenses 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
(IN MILLIONS) 1995 1994 1993
--------- --------- --------
REVENUES
Petroleum Products and Services
Drilling and Production Operations $1,279.0 $1,179.4 $1,301.9
Kellogg Oil and Gas Services 356.6 371.1 312.2
Western Atlas Equity Earnings - - 39.2
--------- --------- --------
1,635.6 1,550.5 1,653.3
--------- --------- --------
Engineering Services
M. W. Kellogg Operations 1,457.6 1,265.2 1,215.3
--------- --------- --------
24
INDUSTRY SEGMENT AND GEOGRAPHIC AREA FINANCIAL INFORMATION -
COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS (CONTINUED)
INDUSTRY SEGMENT FINANCIAL INFORMATION (CONTINUED)
(IN MILLIONS) 1995 1994 1993
--------- --------- --------
Energy Equipment
Compression and Pumping 1,220.4 1,304.5 1,187.3
Measurement 618.7 566.5 505.8
Flow Control 458.4 405.0 417.3
Power Systems 276.9 248.2 236.1
--------- --------- --------
2,574.4 2,524.2 2,346.5
--------- --------- --------
Eliminations (38.9) (9.2) (12.8)
--------- --------- --------
Total revenues $5,628.7 $5,330.7 $5,202.3
--------- --------- --------
--------- --------- --------
Share of revenues of
Ingersoll-Dresser Pump (49%) $ 389.5 $ 368.6 $ 372.9
--------- --------- --------
--------- --------- --------
OPERATING PROFIT AND EARNINGS BEFORE TAXES
Petroleum Products and Services
Drilling and Production Operations $ 143.9 $ 97.1 $ 90.2
Kellogg Oil and Gas Services 18.1 54.3 51.4
Western Atlas Equity Earnings - - 39.2
--------- --------- --------
162.0 151.4 180.8
--------- --------- --------
Engineering Services
M. W. Kellogg Operations 79.3 74.5 85.7
Gain on Mexican affiliate's
public offering - 11.0 -
--------- --------- --------
79.3 85.5 85.7
--------- --------- --------
Energy Equipment
Compression and Pumping 82.7 87.9 105.6
Measurement 71.4 72.0 50.9
Flow Control 41.8 29.3 47.8
Power Systems 35.9 34.1 29.2
--------- --------- --------
231.8 223.3 233.5
--------- --------- --------
Total operating profit 473.1 460.2 500.0
Amortization of acquisition intangibles (29.9) (27.4) (21.8)
General corporate expenses (75.2) (69.1) (88.3)
Special charges - (1.8) (98.2)
Gain on sale of interest in Western Atlas - 275.7 -
Retiree benefit curtailment gain - - 12.8
Interest expense, net (25.8) (18.2) (27.8)
--------- --------- --------
Earnings before taxes $ 342.2 $ 619.4 $ 276.7
--------- --------- --------
--------- --------- --------
25
INDUSTRY SEGMENT AND GEOGRAPHIC AREA FINANCIAL INFORMATION -
COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS (CONTINUED)
INDUSTRY SEGMENT FINANCIAL INFORMATION (CONTINUED)
(IN MILLIONS) 1995 1994 1993
--------- --------- --------
AMORTIZATION OF ACQUISITION
INTANGIBLES BY SEGMENT
Petroleum Products and Services
Drilling and Production Operations $ 8.1 $ 7.1 $ 3.6
Kellogg Oil and Gas Services 4.4 3.2 3.0
--------- --------- --------
12.5 10.3 6.6
--------- --------- --------
Engineering Services
M. W. Kellogg Operations 10.2 10.3 9.7
--------- --------- --------
Energy Equipment
Compression and Pumping 1.9 3.1 3.0
Measurement 1.3 1.3 1.1
Flow Control 3.8 2.2 1.3
Power Systems .2 .2 .1
--------- --------- --------
7.2 6.8 5.5
--------- --------- --------
Total amortization of
acquisition intangibles $ 29.9 $ 27.4 $ 21.8
--------- --------- --------
--------- --------- --------
IDENTIFIABLE ASSETS
Petroleum Products and Services
Drilling and Production Operations $ 923.2 $ 843.0 $ 939.6
Kellogg Oil and Gas Services 441.0 283.3 278.1
Western Atlas investment - - 278.2
--------- --------- --------
1,364.2 1,126.3 1,495.9
--------- --------- --------
Engineering Services
M. W. Kellogg Operations 212.8 204.8 273.8
--------- --------- --------
Energy Equipment
Compression and Pumping 954.7 924.5 939.0
Measurement 248.0 227.0 190.6
Flow Control 409.6 296.1 284.4
Power Systems 160.6 153.6 113.2
--------- --------- --------
1,772.9 1,601.2 1,527.2
--------- --------- --------
Eliminations (37.7) (44.2) (21.9)
--------- --------- --------
Total identifiable assets 3,312.2 2,888.1 3,275.0
Acquisition intangible assets 852.1 668.4 626.7
Corporate assets 543.1 767.1 543.9
--------- --------- --------
Total assets $4,707.4 $4,323.6 $4,445.6
--------- --------- --------
--------- --------- --------
26
